N E W S L E T T E R July/August 2007 Story of the Month Growing Chinese Branding When SAIC Motor Corp launched its Roewe sedan in March, nobody expected that it would become one of China’s best sellers. In the first three months alone, SAIC received 8,000 orders and some buyers were forced to wait for half a year to get the car. The model is based on the Rover 75 technology brought from failed British carmaker MG Rover. The hot sales reflect SAIC’s success in branding: Though the MG Rover was a declining brand in Europe, its British background makes it popular with Chinese consumers. Few Chinese companies are as brand-savvy as SAIC. But the importance of branding is recognized throughout Chinese business. “The role of branding has become increasing important in China.” said Charlie Wrench, CEO of Landor Associates, a well-known brand design and consultancy firm. Despite higher brand awareness, China companies still lag behind western counterparts like Coca Cola and Nike in terms of strategy sophistication. When Chinese companies woke up to the idea of branding in the early 1980’s, it was simply to have a name for a company or product. It served manufacturing and sales functions, and as a result products were almost identical and packages were similar. Price setting was almost the only weapon against competition. However, with increased choices, consumers usually choose the cheapest, which puts more pressure on costs and erodes profitability. Companies were forced to find ways to add value to their products, and the answer was found in branding. “Products are built in a factory, but brand is built in the mind,” Wrench quoted after Walter Landor, the company founder. Chinese manufacturers have done a good job on the utility side of branding and now they must work on the identity side by building emotional connections with customers. Take Samsung Electronics, as an example which has become on the World’s most valued electronics brand. Samsung’s genius is that it managed to make its brand synonymous with digital age fashion, and as a result the younger generations are drawn toward Samsung mobile phones or MP3 players. (Source: Interbrand) Branding is a combination of relevance and differentiation. A brand should be relevant to customers’ needs and fall into a specific category, but at the same time it should be different from competitors. Many Chinese companies know how to stay within a boundary but they don’t know how to, or dare not, break the category, because they do not have sufficient branding expertise. In China’s PC market, vendors want to be different from others, but going too far from the mainstream requires a good idea of just how far they can go. With poor execution, differentiation may also mean losing customers. Building brands does not only happen between the manufacturer and the consumers; effective branding means using all stakeholders in the supply chain. For some Chinese companies, branding is synonymous with advertisement, so they identify media with access to their customers and place advertisements with them. But in an increasingly connected world, there are many brand stakeholders. They can be retail chains like Wal- Mart, fast food stores like McDonald’s, and online communications like YouTube. In 2006, Coca Cola worked with Shenzhen based Tencent, the largest operator of instant messaging services in
Transcript
N E W S L E T T E R July/August 2007
Story of the Month
Growing Chinese Branding When SAIC Motor Corp launched its Roewe sedan in March, nobody expected that it would become one of China’s best sellers. In the first three months alone, SAIC received 8,000 orders and some buyers were forced to wait for half a year to get the car. The model is based on the Rover 75 technology brought from failed British carmaker MG Rover. The hot sales reflect SAIC’s success in branding: Though the MG Rover was a declining brand in Europe, its British background makes it popular with Chinese consumers. Few Chinese companies are as brand-savvy as SAIC. But the importance of branding is recognized throughout Chinese business. “The role of branding has become increasing important in China.” said Charlie Wrench, CEO of Landor Associates, a well-known brand design and consultancy firm. Despite higher brand awareness, China companies still lag behind western counterparts like Coca Cola and Nike in terms of strategy sophistication. When Chinese companies woke up to the idea of branding in the early 1980’s, it was simply to have a name for a company or product. It served manufacturing and sales functions, and as a result products were almost identical and packages were similar. Price setting was almost the only weapon against competition. However, with increased choices, consumers usually choose the cheapest, which puts more pressure on costs and erodes profitability. Companies were forced to find ways to add value to their products, and the answer was found in branding. “Products are built in a factory, but brand is built in the mind,” Wrench quoted after Walter Landor, the company founder. Chinese manufacturers have done a good job on the utility side of branding and now they must work on the
identity side by building emotional connections with customers.
Take Samsung Electronics, as an example which has become on the World’s most valued electronics brand. Samsung’s genius is that it managed to make its brand synonymous with digital age fashion, and as a result the younger generations are drawn toward Samsung mobile phones or MP3 players.
(Source: Interbrand)
Branding is a combination of relevance and differentiation. A brand should be relevant to customers’ needs and fall into a specific category, but at the same time it should be different from competitors. Many Chinese companies know how to stay within a boundary but they don’t know how to, or dare not, break the category, because they do not have sufficient branding expertise. In China’s PC market, vendors want to be different from others, but going too far from the mainstream requires a good idea of just how far they can go. With poor execution, differentiation may also mean losing customers. Building brands does not only happen between the manufacturer and the consumers; effective branding means using all stakeholders in the supply chain. For some Chinese companies, branding is synonymous with advertisement, so they identify media with access to their customers and place advertisements with them. But in an increasingly connected world, there are many brand stakeholders. They can be retail chains like Wal- Mart, fast food stores like McDonald’s, and online communications like YouTube. In 2006, Coca Cola worked with Shenzhen based Tencent, the largest operator of instant messaging services in
China with 130 million active users, in a deal where users could buy avatars of Coca Cola spokespeople, mainly singers or sports stars. Users could also join an online community and trade for virtual money with codes on Coca Cola tins or bottles. The model became an immediate success, boosting sales of both Coca Cola and Tencent. However, in spite of all these challenges, Chinese companies are moving to build their brands- and they are moving quickly. In the past few years, TV maker TCL acquired the French firm Thomson’s TV business, while Lenovo bought IBM’s PC business and Haier’s bid for Maytag. These moves demonstrated the companies’ intention to obtain international brand credentials.
(Source: China Daily)
NAROS Update NAROS Pays Visits to KONKA USA and Launch Tech (USA) Inc. Recently, NAROS' Chief Representative Andrew Pan, Business Development Specialist Alex Cree and Investment Promotion Trainee Katrina Liu paid visits to KONKA USA, Inc. (KONKA), the U.S. subsidiary of Shenzhen based KONKA Group, and Launch Tech (USA) Inc., the U.S. subsidiary of Shenzhen based Launch Tech Company.
(Photo: NAROS team with Ben Liu, President of KONKA USA)
KONKA, located in Irwindale, California, was set up in 2005 which specializes in distributing LCD TV sets in the North American market. In the year of 2006, KONKA USA has sold over 800,000 sets, totaling a worth of $90 million into the highly competitive market under its own brand name. KONKA USA plans to increase the sales in 2007 by expanding its manufacturing facilities in Mexico.
Located in City of Industry and founded in 2003, Launch Tech (USA) has achieved a successful market entry of diagnostic tools and equipments in the automotive aftermarket industry. By localizing its management and sales team, the company has built up its distribution channel in the U.S. It entered AutoZone and also set up joint ventures with strategic partners. All these efforts help it develop a solid reputation in the market.
(Photo: NAROS team with Jeff Qu, CEO of Launch Tech USA)
NAROS Co-Sponsors APUCC 2007 China Global Conference On July 12 and 13, 2007, NAROS co-sponsored and exhibited on the 2007 China Global Conference. Organized by Asia Pacific-USA Chamber of Commerce (APUCC), this two-day event brought together a large and diverse audience of business professionals from the Los Angeles area for keynote presentations, panel discussions, and networking. NAROS staff in attendance included Andrew Pan, Alex Cree, and Grace Chen. NAROS would like to thank the organizers for a job well done and for their sustained commitment to cooperation as strategic alliance partners.
(Photo: APUCC China Global Conference)
U.S./China/Shenzhen Business News
China Knows What it Wants to Invest In The Chinese government will look kindly on outbound investment in four sectors: infrastructure, overseas resources, service industries, and research and development (R&D), said Zhang Xiaoqiang, vice minister of the nation’s top economic planning body. “The government will offer preferential diplomatic, foreign exchange, tax, customs, credit and insurance policies to companies investing in these sectors,” said the vice minister of the National Development and Reform Commission (NDRC). He said that investing in the four recommended sectors would help China solve economic bottlenecks, promote exports, train human resources, upgrade industrial structures, and sharpen the country’s competitive edge in international trade. China’s outbound investment topped US$16 billion last year, up 32% on the previous year. It now ranks 13th in the world, up from 17th in 2005. NDRC sources show that Chinese companies are expanding their business scope from general trade, catering and processing industries to logistics, resource tapping, manufacturing and R&D sectors. Their businesses reach out to more than 160 countries and regions in the world. (Source: Asia Times Online)
More Mainland Chinese Companies Reach Global 500 List Results published for 2007 Fortune Global 500 List added three more mainland Chinese companies. Now, a total of 22 mainland Chinese companies are listed on the world's 500 largest companies. Sinopec had the highest ranking and broke the top 20 at 17th. Sinopec reached $131.64 billion in revenue in 2006. China Minmetals and China National Offshore Oil entered the top 500 for their first time. Fortune Global 500 hit total revenue of $21 trillion making it almost half the World's total GDP.
China Automobiles Are to be Made in U.S.A. China's third largest automaker, ChangAn Automobile Group will be making light trucks in Poteau City, Oklahoma. This 112,000 square foot plant will hire 100 employees this year to produce 7,500 vehicles in 2008 and grow to 300 employees by 2009.
The plant will begin production of ChangAn's full size pick up truck, Champ, and a medium size truck, Leopard. 20% of the products are certified by the U.S. Environmental Protection Agency and California Air Resources Board and will be available to the U.S. market. This trend will bring jobs and businesses to the U.S. and also create more job opportunities in the U.S.
First TPM Asia to be Held in Shenzhen In May, Shenzhen and The Journal of Commerce signed the official host sponsorship agreement, confirming that the first Trans-Pacific Maritime (TPM) Asia Conference will take place on September 17-18, 2007 in Shenzhen. The TPM Asia will be held in Shenzhen for five consecutive years beginning this year.
(Photo: Shenzhen and TPM agreement signing ceremony)
U.S. Plans More Flights to China American Airlines and Continental Airlines Inc. plan on operating non-stop flights between U.S. and China starting in March 2009. The Houston based airplane Continental requested flight from Newark, New Jersey, and Shanghai. The largest U.S. carrier American, applied route from Chicago’s O’Hare Airport to Beijing. U.S. airlines gather support from politicians and customers to sell their proposals and plans in competition for the limited Chinese routes.
China Encourages Foreign Investment in Hospital "The Chinese government encourages foreign investment in the setting up of joint ventures hospitals in the country, offering a maximum 70 percent ownership share in such hospitals," the China News Service reported on March 21st. Chinese Health Minister Gao Qiang made the statement at the China Development Forum 2007.
Gao Qiang affirmed that foreign invested hospitals will be strictly supervised by the Chinese government but there will be no intervention in the economic management of these hospitals. Experts predict that the Chinese medical services market will expand gradually at first. China is becoming the world's most attractive medical services market, offering significant potential for foreign investment.
(Source: China Daily)
Wing Hang Bank Headquarters in Shenzhen Wing Hang Bank has announced its mainland corporate bank headquarters in Shenzhen making it the first over-sea invested company to be located in the Southern city.
Cardinal Health Inc. Looks to International Markets, Eyes China Cardinal Health Inc. is poised to enter international markets, now that it has substantially completed its restructuring this year. The $80 billion Dublin, Ohio company has historically generated about 98 percent of its sales and 94 percent of its profits in the U.S. Cardinal distributes about one-third of all prescription drugs in the U.S., and it makes and distributes products used in about half of all surgeries. Chief Financial Officer Jeff Henderson said that he is also looking into Asia and China in particular for opportunities, and also said that Cardinal would inevitably start out with a Chinese partner that already has relationships and infrastructure established. “We have a team in China talking to potential partners, but there’s nothing definitive” Henderson said.
(Source: Yahoo Singapore)
Chicago Debuts New China Initiative Earlier this year, a cross-section of representatives from Chicago business joined in Mayor Daley’s announcement of the City’s new China initiative. “To keep Chicago moving forward, we have to take advantage of the opportunities provided by the global economy,” he said at a City Hall news conference joined
by business leaders. “And that means strengthening our relationship with China, which is becoming a dominant force in international business.” Daley also announced the appointment of John C. Thomson as Executive Director of Chicago’s China office in Shanghai. He also noted that he, himself, would be chairing the Chicago China Development Corporation, which would have start-up funding from the City of Chicago and private contributions from World Business Chicago. “Our new Shanghai office will encourage Chinese investment in Chicago and seek new markets in China for the products and services produced by Chicago companies. Investments by Chinese companies will create jobs for the people of Chicago and will strengthen Chicago’s reputation as a global city.
(Source: Royal Roots Global Inc.)
Doing Business in China China Adjusts Export VAT Refund Rates China’s Value Added-Tax (VAT) government entitles exporters to obtain a VAT refund when their goods are exported. The amount of VAT refunds that exporters are entitled to depends on the Export VAT Refund Rates (EVRRs) on which their exported products apply. EVRRS range from 0% (non-refundable) to 17% (refundable). The applicable EVRRs many be determined by the PRC Tariff Numbers (PRCTNs) of exported goods. On June 19, 2007, the Ministry of Finance and the State Administration of Taxation jointly issued the Notice of the Ministry of Finance and the State Administration of Taxation on Reduction of the Rate of Export-Related Tax Refunds for Some Goods. The Notice sets out the latest in a series of adjustments to the EVRRs for goods exports from China. The adjustments are fairly extensive and affect more than 2,800 items and have come to force on July 1, 2007. For more information, please contact Baker & McKenzie at [email protected] or NAROS at 213-628 9888, [email protected].
China Employment Contract Law is Passed
The Standing of Committee of the National People’s Congress passed the Employment Contract Law (ECL) on June 29. The ECL will be effective on January 1, 2008. Numerous changes have been made to the original draft based on comments from the All-China Federation of Trade Unions, Chinese workers, and local
and foreign business groups. The ECL will expand protection of individual employees in some areas and strengthens collective rights through unions, employee representative congresses, and collective contracts. The ECL generally applies to existing employment contracts and employee handbooks. Certain provision of these documents may become unenforceable or outdated after the ECL becomes effective. As a result, the ECL will likely require employers to change employment contracts, handbooks, and practices.
China to Develop 10 Outsourcing Service Base Cities According to a senior official of the Ministry of Commerce, the Chinese government is to develop 10 outsourcing base cities by 2010. The scheme would encourage 100 multinationals to shift offshore outsourcing services to China and foster 1,000 large and medium-sized service outsourcing enterprises. The first base cities would be Shanghai, Dalian, Xi’an, Shenzhen and Chengdu.
China's Cell Phone Penetration Ratio Hits 35.3% According to the latest statistics from the Ministry of Information Industry, up to the end of April, 2007, the country's cell phone penetration ratio has hit 35.3%. The number of China's cell phone users amounted to 480.43 million by the end of April, increasing 26.35 million from the end of last year. About 182.6 billion short messages were sent in April with a 38.1 percent growth year-on-year.
(Source: China Daily)
Shenzhen Facts
� By the end of 2006, Shenzhen topped the China’s minimum wage list with a monthly rate of 810 yuan (105 U.S. dollars), while JiangXi Province was bottom with 270 yuan per month. Most Chinese provinces and cities increased their minimum wage standards in 2006. Shanghai, one of the country's most expensive places to live in, raised its minimum wage by 60 yuan a month to 750 yuan last year.
� Shenzhen is improving English signs for foreigners. Shenzhen is the third city in China to set up standardized English signs in public places by the government. Signs will have same translation for the same Chinese words. This will further help foreigners with their way around in Shenzhen.
� Shenzhen Metro plans to stretch 422.4km for
2020. The government is looking at public opinions on this 107 billion yuan (US$13.89 billion) investment of building 177 km of Metro by the end of June 2011 and stretching to 422.4km by 2020. Shenzhen has only 22km of Metro lines at present.
� At www.chilema.com, you can search for good
restaurants and fun karaoke venues in Shenzhen. Chilema has become Shenzhen’s largest online food and entertainment information provider with more than 150,000 visitors everyday.
� Shekou: “Lan Kwai Fong” of Shenzhen.
Situated in the west coast of Shenzhen, Shekou is a place leisurely, tasteful, and with a touch of exotica. Once you step in, your life would seem to slow down to a peaceful and restful pace to be enjoyed with fresh air, an easy mind and a glass of bubby or heady wine for the perfect evening.
