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8/6/2019 GM Exam Case Study
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(Adaptedrom a presentation adeby AndrewPapadimos,
Austra l ian atholic niversiry t the Internationalusiness
an dEconomy onference,onolulu,awaii, anuary -8,2006)
China's entrance nto the'World Trade Organization in
December2001 meant the opening of China's domestic
market to foreign competition. However, t also opened
the doors of other membercountries o Chinesecompe-
tition.'When Western
and Japanesemultinational cor-
porations enter foreign markets, they also carry with
them their own brands, capital and technology. Can
Chinesecorporations do the same?Chinesecompanies
like TCL and Haier have aken the first successful teps
in the internationahzation of Chinese enterprises, and
have demonstrated hat Chinesecorporations do have
limited successoverseas.Their experienceshave also
become emplates or the increasingnumber of Chinese
enterprises hat are s tepping out into the international
market. However, there are still many problems facingChinese companies on their path to internationahza-
t ion, as the famous Chinese wool manufacturer
Hengyuanxiang discovered when it ventured abroad.
While Hengyuanxiang has great brand recognition at
home, its name is meaninglessnternationally.Also, the
names of other famous Chinese companies such as
Lebaidi and Yangzi die out once managementhas been
handed over to international corporations.
For Chinese brands to survive, therefore, they must
develop, but to develop they need to internationalize.
Brand internation alization for enterprises from devel-
oping nations facesall sortsof challenges, nd this piece
will examine the problems and issues surrounding
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Chinese companies in their journey toward brand
internation ahzation.
Chang inghename
Chinesebrand namesoriginate with the Chineseenter-
prise, and all copyrights are owned by that enterprise.
They are registeredas Chinese characters at startup,
and, as in the West, the company tries to make the
namecatchy', ometimeseven ncluding geographic andpersonalnames.Chinese rand namesma y alsobe reg-
istered using Pinyin Romanization, eg. t(fi : Chang-
hong : Rainbow. Chinese brand names have two
maior f laws:
1. Because nternational recogniti on of Chinese brand
names s low, Chinesecompaniesare unable o enter
host markets n the sameway as globally recognized
US brandssuchas IBM, DELL or Coca-Cola.
2. Even if Chinesebrands do have a romanized ver-
sion,'Westerners
will still have difficulty' pronounc-
ing it becauseof linguistic differences. This issue
alone can mean the death of Chineseproducts in
foreign markets.
The basicprinciples of brand name developmentare
that brands should be easy to recognize, easy to
rememberand easy o pronounce. Chinesebrands meet
none of these requirements when they enter interna-
tional markets.
Al l of the internationally successfulChinesebrands
changed heir names ong ago. iEfi has becomeHaier;
iS' fH(Haixin) ha s become Hisense;TCL (simply no
Chinesename); * fi ! (Meide) has becomeMidea, etc.
The first step for internation alizing Chinese compa-
nies therefore, is to make their brand more globally
recognizable.
During the 1970s an d 1980s,Japanese ompanieswere faced with similar problems when they first
entered the international market.'When
Matushita
arrived in the United S tates, t changed its name to
Panasonic; ffHEbecameCanon; and in an attempt to
hide its Japanese race,Bft was renamed o Konica.
Adapting Chinese brand names to the linguistic styles
and customs of the local country is at the core of
Chinesebrand internationalization.
This certainly does not mean, though, that all Chi-
nese brands must change their names when going
abroad. For example, Chinesecompanies which trade
on their products' unique Chinesequalities and charac-
teristics would be foolish to change names. Examplesinclude the company Tongren Temple, which is a
maker of Chinesemedicine or Chinese estaurants. n
these nstances,Chinesecharactersand Pinyin Roman-
ization become a distinct marketing advantage n the
saleof such products to'Western
consumers.
Chapter Product ecisions465
Establ . ish ingnternat ionaIrand ecogni t ion
After many years of competitive low prices, an impres-
slon has been created that Chinesegoods are inferior to
those produced by other countries, especia l ly in
Europe, the United S tatesand Australia. As a conse-
quence,even more barriers to the internationalization
of Chinesebrands are created.Bu t where are the great-
est difficulties? It is in establishing brand recognition,
for without brand recognition and prestige value, a
brand has no value at al l.How can Chinesecompaniesestabl ishbrand pres-
tige overseas?One method is to proceedgraduallS and
first establishmarket prestigeand brand consciousness
in developing nations and regions. For example, if
Konka opens a factory in India and TCL opens one in
Vietnam, and their operations slowly take root, brand
prestigewill establish tself gradually.But there are still
some serious laws in this method: although establish-
ing brand recognition in developing countries'markets
is easierand quicker than in developedmarkets, estab-
lishing brand prestigealways needs o follow a course
of moving from the unfamiliar to the familiar, and
from initial suspicion o trust. Opening up a market inan undeveloped country, then a developing country,
and finally a developedcountry is time consuming and
strenuous.Moreover, the easier he access o a country
or area, he more is its capacity o be imited. \7hile the
company may have establishedprestige n the undeve-
loped country, it cannot translate this experience to
other countries n the region. Fo r example, establishing
brand prestige n Vietnam does not help brand recog-
nit ion in the Malaysian or Thai markets, and the so-
cal led easv markets may actually not be that easy o
enter.Thei ' may possib ly be already crammed full of
other mult inational corporation'sproducts (suchas n
the caseof Vietnam), or be politically or economically
unstable suchas Afghanistan).Therefore, starting with the seeminglyeasymarkets,
and moving on to more difficult ones o establish nter-
national prestige is usually time-consuming and inef-
fective. This is also a major reason why Chinese
enterprises iv e up on exporting their brands in favour
of producing OEMs.
If we hark back to the experienceof Japanese om-
panies, we can then see that the only way to really
achieve brand internationalization is through the
processof starting with the difficult markets, and then
moving on to the easierones. t took Sony a decadeof
hard work before it first entered he American market
in the 1950s, and then found it easier to expand toother parts of the world. Japan's domestic electrical
appliance and automobile industries soon followed the
samepattern.
Brand internationalization is therefore best achieved
by companies aking the difficult road before the easy.
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466 Internationalarketingndexportmanagement
For example, he reasonHaier entered he international
market was not because t had entered the Southeast
Asian and South American markets first, but becauset
had come to a standstill in the US market. Matushita,
Sony,Toyota also captured the American market first,
and then moved on to the European, Latin American
and African markets. Moreover, Hisense entered the
South African market after it discovereda blank spot,
and rapidly expandedacrossother borders.Why did it
do this? BecauseSouth Africa is the most developed
country on the African continent and is where compe-
tition is at it s most intense.Acceptanceof a brand namein the South African market meant acceptance hrough-
out Africa. But Hisense's uccessn Africa did not help
it s success n developing the European and American
markets. Haieq however, had a different experience.
Successn the American market was akin to global
approval of its quality and good standing, and helped t
establishmarkets in more than 100 countries n a very
short time frame. A market may therefore seem mpen-
etrable at first. but once a niche market has been ound
in a country, further breakthroughs becomeeasierand
market expansion continues.
l s Chinese rand nternat ionat izat io nexportat ion r locat izat ion?
Another issue regarding Chinese brand internation-
alization is whether products should be domestically
produced with a view for sales overseas, or whether
Chinesecompanies should carry out production over-
seas.There are currently two opposing views in regard
to this issue.The first view is firmly opposed to estab-
lishing factories overseas. t seesChina's large popula-
tion and cheap labor as the chief reason for its cheap
manufacturingcosts. t is also why China has become
the world's production processing base fo r electrical
appliances, lothing and electronicproducts. The argu-
ment goes hat while Europe, the US, Japan and other
developedcountries ar e moving their production bases
to China, if China setsup factories n thesecountries,
it will sacrifice ts cost superiority. Therefore, propo-
nents of this view approve the internationaltzation
of Chinese brands, but also place Chinese labels on
Chinese products that are being sold overseas, hus
being a form of localisation.
Another viewpoint suggests that, while Chinese
companies should explo it th e cost superiority of
domestic production, when the time is ripe, and the
Chinese market has reached it s capacity, China must
internationali ze ts production basean d establish ac-
tor ies overseas.What
are the advantages f th is? Onthe one hand overseasmarket information can be bet-
ter understood, and faster market responses made.
On the other hand, it relays a message o the cus-
tomer that Chinese corporations are ready to solve
problems as necessary, nd meet the needsof overseas
customers.
The latter opinion is the more convincing.The inter-
nationalization of Chinese brands is not an urgent
demand, but rather one that is more of a long-term strat-
egy.China possessesost superiority today, but, in ten or
rwenry years, his advantagemay vanish. Brand names
need o live much longer.Therefore, t is inevitable hat
Chinesebrands will internationalize,and this demands
both overseasmanaged factories and internationaliza-tion. Even n the short term, Chinesecorporations must
leaveChina. What can Chinesecorporations earn from'Western
MNCs? All MNCs have their antennas n the
global market, and are extremely aware of market con-
ditions. They possess rand superiority, and their brands
(such as Coca-Cola, Sony etc.) have taken root in con-
sumers' minds. Compared with Chinese corporations,
tl.t' rt." tt""."".t
.'
m.ent, and are able to design products th2t rrr-t-Tl-s'}--.---.--needsof the inlef?Tronal market. China's/only ldvah-
tage is its low production costs. But now thsd-$(6stern
and JapaneseMNCs are using ChineseOEMs (original
equipment manufacturers)on a large scale,and takingawav his costadvantagerom localcompanies, ow can
Chinese nterprisesompete?
Chinese brand internationali zation must do the
opposite of what'Western
an d JapaneseMNCs have
done in the past . Western and JapaneseMNCs
have enteredChina, and so ChineseMNCs must ven-
ture out so that they too can havean equallykeenmar-
ke t antenna and reaction capacity. Hisense has s aid
that nobody can understand local people more than
local people.Just as mportant is the low international
confidence evel n Chinesebrands. In order to express
th e determination and sinceri ty of Chinese corpora-
tions, China must establ ishmanufacturing basesan d
retail networks overseas nd graduallv establ ish ocal
conc,rmers'confidenceand trL6L t.listr,rrrrraryCninesl
brand rnternationalization must continue, and go
along the road to overseas actories sooner or later. If
it doesn't, t will be impossible for Chinesecompanies
to internationalize their brands' images and interna-
tional prestige.
To0EMor not o 0EM?
At presentChina'smanufactured goods, especially on-
sumables, are mostly exported as rebadged products.
This is the casewith Changhong, Midea, Gree Aircon-
ditioning, Shinco, and Galanz, who rebadge or com-panies such as Sanyo, Mitsubishi, Carrier, etc. In an
article entitled'The
two sidesof Galanz'in the March
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2002 edition of Sino-Foreign Management, Galanz's
Vice PresidentYu Yao Chang statedWhat
are brands?
Brands are gold stacks.' He then asked himself,'How
many stacks of gold do we have?' His meaning was
that China does not have the monilaFill-ces. - - - , .
to Internatronalrzets brands, and rs only capable ot
is in mind, Gaianz has
positioned itself to be one of the world's largest pro-
duction workshops, and allows multinational corpora-
tions to manage the marketing networks. Galanz,
therefore.makes brands to order.-- -
urer, Shinco, s also
doing the same. Midea's President, He Xiangjian,clearly said in an interview for the same article,
Ihave
yet to see one Chinese actorv that has been set up
overseas ecomesuccessfuln sel l ing ts own pr oducts
under ts orvn brand. ncluding Haier. Whilei t may be
true thar TCt ls operations n Vi etnam posted a profit
i r t the end of 2002. this one instance o date is hardly
sui i ic ient o give Chinese nterprises uff ic ientcourage
to enter rh e internationalmarket.
Certir inlv here s another viervpointwhich believes
that producingOEMs is a way of betterunderstanding
th e needsof the international market, and is a way of
preparingChinese rganizations or the eventual nter-
nartionalizationof their own brands. There is a lot of
validity to this argument. Manufacturing OEMs can
enableChinesecompanies o grasp he product's pro-
duction technology, enhance the enterprise'smanage-
ment level, and allow it to understand what n'pes of
product foreign markets are seeking.But, after all, the
manufacturing processand marketing nerworks are in
rhe hands of the foreign corporation, and consumers
purchaseno t onlv the product, but the brand. Ult i -
matelS it is the owner of the brand that is responsible
for the consumer.Most consumers recogrlizea brand
more than a product.
Also, once a multinational corporation finds a better
production base, . vvrrrTroVehere.Even houghlebadg-
ing rarscs hdruanagementevers rrd echnicalabilitiesofChinesecorporations, they rvill always be behind with
those of the multinational corporation. The Secretary-
General o[ China's Electrical Appliances Association,
N'Ir.Jiang Feng, has frankly stated hat OEM products
are popularist and mainly used for mid- to low-grade
products.The Vice President f Siemens China) respon-
sible for salesof electricalappliances,Dong Quanxin,also indicated that, because t will be very difficult for
Chinese producers of electrical appliances to reach
Siemens'technical tandardswithin the next 3-5 years,
Chineseproducerswill no t be manufacturing high-end
prodr-rctsor Siemens.Obviously, therefore, t is highly
unlikelythat
producingOEMs will
greatlyenhance hetechnical ability of Chinese enterprises, and is also
unlikely to bridge he gap n technicaldispariries erween
them and foreign multinational corporations.
It is impossible fo r Chinese enterprises to truly
understand the international market by producing
OEMs. International markets are constantly changing,
and, by only producing OEMs, Chinese corporations
are closing themselves off by staying in their work-
shops and passively esponding o orders from outside.
An understanding of global markets and economic
fluctuations is vital to the success f international cor-
porations. Chinesecompanies herefore have o try and
break the cultural and linguistic constraints and ven-
ture forth into the open world.Therefore, by producing only OEMs, it will be
impossible for China to anain the technical support
abi l i t ies, he HR ski l ls and the'combat
readiness' ha t
is needed for the internationalization of Chinese
brands. Only the products made in China will be fo r
sale n internationalmarkets.But brand international-
ization and product internationalization ar e two com-
pletely different concepts.
Product internationalization occurs when your
products are available fo r sale n many countries, bu t
consumersdon't care where they are made. They only
care about the prestigeand quality guarantees hat are
manifested hrough th e brand name. OEMs cannot
influence the intern ationalization of Chinese brands,
and so Chinese companies must persi st in exporting
their own local brand names.
Conc[us ion
In conclusion, there are huge hurdles facing the inter-
nationalization of Chinesebrands.The time line is long
and the costs will be enormous. But in order to create
truly international brands on the scaleof Coca-Cola,
McDonald's, Toyota, Sony',Phillips, or the like, China's
entrepreneurscannot base heir decisionson the poor
short-term results. or one specific time period at one
locat ion,suchas he casewith Haier to date.Establ ish-ing a brand name and brand prestige needs patience
and a lo t of money.Bu t the payback for China in terms
of economicprofits, an d indeed ts national d ignity, s
potentially enormous.