Chinese companies are extending their reach around the globe to purchase foreign technology, managerial talent and, increasingly, international brands.
Why have Chinese companies not been able to successfully
build their own brands overseas instead of operating under the guise of
acquired global players?
According to China's Ministry of Commerce, in January of
this year alone, China's overseas investment totalled nearly $4.4bn (£2.7bn),
up 60 per cent year-over-year.
Yet, despite this tremendous amount of overseas
investment, surprisingly not one mainland Chinese company appeared on
consultancy Interbrand's annual list of the world's top 100 brands last year.
As early as the 1990s, Chinese companies like sports
drink maker Jianlibao attempted to enter international markets and become a
global beverage brand like Coca Cola or Pepsi.
Li Ning, known by many as "China's Nike", also
failed in its first attempt to expand overseas, but now has a second chance
through a new business model.
Then there are the outliers, the few companies who have
built globally recognised brands such as Chinese personal computer and
electronics company Lenovo.
Whether we examine the successes or failures, the stories
of these three Chinese firms help to illuminate potential strategies for other
Chinese companies seeking global brand recognition.
Jianlibao
Jianlibao used to be the number one beverage in China.
Given its success back home, during the 1990s the sports drink maker expanded
into over a dozen international markets.
In 1994 it recruited Jack Shea, a beverage industry
veteran, to serve as its vice-president of marketing and sales for North
America.
According to him, "Jianlibao's fatal flaw was that
while it produced a good-tasting beverage, its brand name prevented it from
being able to connect with the average American consumer".
In contrast, Coca Cola's Chinese name kekou kele is an
example of effective adaptation to the local market to connect with Chinese
consumers; it sounds similar to the original and translates as Delicious
Happiness.
"On top of that, our North America operations did
not have a sufficient marketing budget to make the necessary investments to
promote Jianlibao within the United States," Mr Shea says.
By expanding overseas prematurely, the company lost focus
back home and began losing market share to competitors like Coca Cola.
Rather than returning to concentrate on the Chinese
domestic market, where it traditionally dominated, Jianlibao began competing
with Coca Cola on price.
Given that Jianlibao's sports drink was more expensive to
produce since it was originally developed as a performance drink for Chinese
Olympic teams, the firm faced a losing proposition whether competing with Coke
in China or overseas.
It had a quality product that tasted good to both Chinese
and foreign consumers. What the firm lacked was international experience, a
brand name to connect to, and sufficient marketing investments to establish
itself overseas.
Li Ning
Li Ning, a Chinese athletic apparel company, also
experienced challenges in its first attempt to expand internationally.
While many people have likely never heard of him, Li
Ning, the company's founder, is one of the most famous athletes in China.
Few in that country can forget the impressive sight of Li
Ning, himself in a track suit of his own design, being hoisted up at the Bird
Nest stadium to light the torch during the opening ceremony of the 2008 Beijing
Olympic Games.
Li Ning was undoubtedly one of the top Chinese brands
domestically, and it too had global aspirations. Shortly after the Olympics, it
opened its first overseas office close to Nike's headquarters in Portland,
Oregon.
After just a few years, the subsidiary had to shut down.
When asked why this initial investment in the US failed,
Craig Heisner, vice-president of digital operations, explains: "I don't
think the original plan adequately presented the heritage of Li Ning as a major
Chinese brand founded by a famous Olympian who rose to the top".
Heisner went on to explain that "Li Ning did not
promote this fact, and then went right into a fiercely competitive overseas
market going directly against the likes of Nike and Adidas".
The athletic apparel industry already has several major
lifestyle brands. People have a strong affinity to purchase familiar brands
they identify with, and Li Ning was not one of them.
Unlike Jianlibao, Li Ning has had a second chance to
build a business overseas - it recently went digital in a joint-venture with
Chicago-based Acquity Group.
Unlike its first foray into the US market, Digital Li
Ning is solely an e-commerce store without any physical retail outlets.
According to Heisner, "we are choosing a business
model that gives us more control over how our products are positioned".
E-commerce will enable Digital Li Ning to shape American
consumers' perception of the brand throughout the entire buying process.
Lenovo
"We are a global company with roots in China.
Because of our acquisitions over the years, we are actually 'from' many
different places", says David Roman, chief marketing officer of Lenovo.
It is a huge PC company, and until now, has been best
known for its acquisition of IBM's PC division and Thinkpad brand in 2005.
It also acquired German PC-maker Medion in 2011 and
recently formed a joint-venture with Japan's NEC.
Three main factors have contributed to its success in
building its brand overseas.
"Our organisational structure is undoubtedly one of
our key strengths," Mr Roman explains, "it allows us to effectively
create a global framework to market the Lenovo brand within the local context
of the markets we operate in."
It has headquarter functions distributed across Beijing,
Paris and Raleigh, North Carolina.
Beyond its organisational structure, Lenovo focuses
globally on the youth consumer segment which it defines as ages 18-34.
"We find that consumers in this demographic share
many similarities across cultures given their level of connectivity and
openness to new experience."
The final factor is its leadership team comprised of
technology executives from over six countries.
While many Chinese companies seek to emulate Lenovo's
global brand success, the examples of Jianlibao and Li Ning demonstrate that
such aspirations are impossible to achieve without sufficient attention to
marketing.
The fact remains that for many Chinese companies, their
high-speed business growth outpaces the growth of their brands.
**Joel Backaler, Frontier Strategy Group