The Hindu Business Line : China and its brands

China's recent history has been significant and fascinating. The country had eliminated entrepreneurship for a generation and then let it loose again in the late 1970s. The unleashing of this energy that followed represents one of the important events in recent economic history.

Today China is a critical driver of the global economy. It is the fourth largest economy in the world and GDP has quadrupled in the period between 1978 and 2002.

Before opening the gates to foreign investments, the government took various steps to forewarn domestic industries (most of them being public undertakings) about the incoming international competition. It made them understand the magnitude of the task to compete with these companies. It ran a series of conferences and seminars to educate them on the `branding process.' It invited the manufacturers to pay attention to building their brands and promoted the importance of brand value. They were urged to step back and take a longer-term look at their future development. Chasing short-term gains, the Chinese companies ran the risk of missing the potential of bigger opportunities arising from the dramatic growth in peoples' incomes.

When liberalisation came, the foreign brands' onslaught began in 1992. Four key sectors were identified as global opportunities and the private sector was encouraged to take up the challenge. These sectors were: information technology, telecommunication equipment and services, food and beverage and white goods.

Legend, the Chinese computer company, was in deep trouble with the arrival of IBM. Quick to respond, it signed a partnership with IBM, which was named Lenovo. This was founded in 1984.

UT Starcom, the telecommunication equipment company, was started in 1995. Asia Info, the telecom services company, began its operations in 1994. White goods company Haier opened in 1984 and the beverage company Wahaha in 1994. A foods company that has existed since 1958 is Tsing Hsin, a noodles company. This company has 344 sales offices, 5,000 wholesale dealers and 50,000 outlets throughout China.

Names matter

The retail experts in the US feel that in a maturing market like China, branding counts more than in the US or Europe. In China, the best-known brands in a wide range of consumer products, including clothing, electronics, processed foods, beverages and cosmetics are mostly foreign-owned. Perhaps in white goods and consumer durables, the Chinese can claim some success in the branding game.

Many old Chinese brands are close to bankruptcy. The failure and demise of some old brands was inevitable because of their way of thinking; marketing was stuck in an age when demand outstripped supply and they were sole monopolies. They were reluctant to invest in newer technologies and had a poor sense of how to protect their brands. The brand value proved to be too thin to survive the changing times.

Today, the old Chinese brands have two types of consumers: foreigners seeking all thing cultural and overseas Chinese who seek a connection with their roots. While I was in China recently, the government decided to provide financial and marketing support to these venerable brands. During the Olympic Games, the government is designating some old brands as `Olympic official stores'.

A few old brands have managed to do an admirable job of updating with the times. A famous old restaurant, featuring in guidebooks, Bian Yi Fang, has undergone a facelift by expanding into a youth floor in a new chic shopping mall in Beijing. The cuisine has been created to cater to the changing tastes of the young people. There is a large billboard in the heart of the city which reads, "In this fast-changing world, even the old have to move fast. Perhaps, in the end, their legs will grow stronger than ever!"

The Chinese way

The Chinese often use a phrase, `the fog of the future'. The concept of unpredictability is a big thing with them. They often use these terms in their meetings, `golden opportunity and sudden death threat' and `magnitude opportunity and magnitude threat".

The belief in unpredictability makes the Chinese companies run multiple experiments rather than focus on a single potential opportunity or threat. Top executives are sent on experimental projects rather than those who are expendable. They are careful in selecting the right objective which is a necessary step for surviving and thriving in a hostile environment. The managers then can ensure that they can execute it rapidly and effectively against chosen priorities.

Until the late 1980s, demand outstripped supply and hence the focus was on quantity rather than quality. With the integration with the global economy, the concept of quality was introduced in a firm way. In 1985, a customer visited the Haier factory and complained about a faulty refrigerator. The owner ordered the entire inventory of fridges to be examined. Seventy-six fridges were found to be defective. The owner lined up all the defective products and asked those workers responsible for it to smash each one of them with a sledgehammer. In the past, the defective products were sold at a discount. The workers had tears in their eyes since each fridge was worth a worker's two years' wages!!!

The Chinese define new opportunities using the food metaphor: `New dishes that combine ingredients (resources) using new recipes (novel combination) to meet diner's taste (unmet marketing needs)'!

The Chinese can always spot an opportunity. The first consumer company to come into China was Coca-Cola in 1979. In the mid-90s, after considerable consumer research, beverage company Wahaha sensed that the Chinese consumers would support a local alternative to Coke and Pepsi. It introduced a product called Future Cola — in the Chinese character, it meant `exceptional cola'. It was launched in the rural markets where neither Coke nor Pepsi had ventured. The newspapers labelled the launch `Exceptional cola, exceptional disaster.' The cola was launched with the tag line, `the cola owned by the Chinese'. As luck would have it, in May 1999, the US unintentionally bombed the Chinese embassy in Belgrade and there were angry protests all over China. The company quickly shifted all its advertising expenditure to the urban market and gained a 30 per cent share of the market.

Multinational companies are upset by the Chinese style of branding. For instance, a Chinese sports shoe company has its logo very similar to Nike's and has modified the adidas tag line to read, `Everything is possible'. Even some brand names sound like the international brands with alterations in the spellings. Copyright rules continues to be an issue.

It is interesting to notice the frequency with which the advertising campaigns change. Sometimes a campaign runs only for three weeks. This goes back to the concept of limited visibility of the future. Even the slightest change in the market share could trigger a host of tactical responses. The turnaround time for creative work to meet the challenge is almost an overnight execution. The international agencies are beginning to cope with the Chinese sense of time. They have to, for 9 out 10 top advertisers are Chinese companies. And every new project will necessarily mean a call for a pitch, involving over 10 agencies.

However, it is evident from the way the Chinese policies are evolving with time that the pace of liberisation will accelerate as the impact of economic development benefits the vast majority of its people.

It is certainly a country with a vision and the will to succeed.

(The writer, a long-time ad man, is Chairman of Srimaa Advertising Institute, Puducherry, and former President of Contract and Rediffusion. He was in China recently for research on his coming book on global advertising.)