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Will the “China dream” lift Chinese brands?

Chinese Brands Day, to be held on 10 May each year starting this year, approved by China’s state council, is a commercial rallying cry inspired by President Xi Jinping’s “China Dream.” It may presage a new era of powerful local brands upon the global stage.

For domestic companies to fulfill their potential, hard work is required.

Compared to 10 years ago, indigenous players have made progress at home. Mobile phones such as Vivo, Huawei and Oppo have gobbled up market share from international competitors.

And local brands are increasingly sensitive to what resonates with mainland consumers. Leading internet insurance brand Da Te Bao’s use of everyday language to simplify buying decisions and Ping’an’s “good doctor” app both signal respect for ordinary people.

Domestically, Chinese companies are crawling up the value chain – they are savvy incrementalists.

Brand and marketing consulting firm Prophet’s Brand Relevance Index (BRI), measures the affinity consumers have with brands – that is, loyalty born of relevance.

The number one and two ranked players in Prophet’s China BRI are Alipay and WeChat, neither of which existed 15 years ago. Both hail from the mainland’s dynamic (albeit protected) tech sector.

But, even at home, international brands still have the edge.

Among the top 50 brands in Brand Relevance Index, 32 were foreign and only 18 were local. Furthermore, when Alipay and WeChat are removed from the mix domestic brands lag behind on the “value added” dimensions of customer obsession (“caring about how consumers live and work”), pervasive innovation (“motivated by a clear purpose”), and fall further behind on distinctive innovation (“pushing the status quo with novel solutions”). However, they do maintain superiority on “basic” pragmatism (“making things simple and reliable”).

Despite impressive scale, few – if any – local companies charge sustained premiums. They do not command loyalty, even among a nationalistic “post-90s” generation.

Abroad, the road to Rome is even longer.

Some brands—TCL televisions, Haier appliances, China Mobile, Xiaomi phones–are penetrating emerging markets such as India, Africa, and South America, but they are not in a position to go head to head with Western counterparts on the latter’s home turf.

Due to fundamental structural and cultural hurdles, Chinese brands are disadvantaged, in many cases grievously so, and not just by a generic fear of anything stamped “Made in China.”

First, large state-own companies focus on scale without a commitment to innovation. This leads to commoditisation, not an unreasonable domestic strategy in a market as large, geographically dispersed, and untamed as China.

Second, investment in R&D and customer insights is paltry, exacerbating short-termism.

Third, the self-protective management style of Chinese enterprises – big and small — encourages neither value-added products and services nor natural connection to non-Chinese operating environments. They are sales-driven – marketing is relegated to producing low-end communications — and managed by emperor-kings who rule in a defensive manner. Instructions are promulgated ambiguously, creating an undercurrent of permanent anxiety at lower levels.

Many managers create rival power centers underneath them so competition is horizontal rather than vertical. Ultimately, this is a failing of corporate governance. There is no local management team that reports to an independent board of directors charged with ensuring long-term shareholder growth. As a result, organisational structure is too centralised and planning too short-term.

Chinese companies will expand foreign presence in one of three ways: further exploiting narrow markets in which “Chineseness” is seen as an advantage rather than a weakness (for example, alternative medicine, niche fashion brands in which Oriental style carries cachet); forging production alliances with multinationals to provide components or products that compete at lower price tiers but under non-Chinese brand names; and acquiring international brands while retaining the existing Western management.

It will be another decade or more before companies reform their strategies and structure in a manner consistent with global brand management. But, given the advances already made, one should never underestimate the momentum Chinese companies can achieve when aspirations are set even higher.

Written by Tom Doctoroff, senior partner at Prophet.

For more information, see “Read More”

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