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Made in China: Can China build an Apple or Ikea?
Yes, and it's on the verge by James Miller August 19, 2013 06:02
BOSTON — The Middle Kingdom tends to do things on a grand and decisive scale.
The Three Gorges Dam, the world's largest power station, tamed Asia's longest river. The once-reclusive communist state is now the world’s second largest economy. And already, four of the world’s Top 10 companies are Chinese.
Yet China still doesn’t have a truly mammoth, global brand.
No Apple. No Samsung. No Ikea.
And it needs one. In fact, it needs many, experts say, if it’s going to succeed as an economic superpower.
“Their [companies’] previous competitive edge — being the cheapest — is increasingly impossible to sustain,” argues Jan-Benedict Steenkamp, professor of marketing at UNC Kenan-Flagler Business School and co-author of "Brand Breakout: How Emerging Market Brands Will Go Global."
“They need to start to add value to the product,” he adds. “This is impossible without branding the product.”
But how exactly do you build a global brand?
That’s the big question that many big Chinese companies are grappling with. It’s one task to run a textile factory or build an electronics plant — you need to raise money, hire engineers, manage employees and the like.
It’s an entirely different and more nebulous challenge to create something as intangible and valuable as a billion-dollar brand that people relate to.
The bad and the good
Some major hurdles stand in the way of Chinese companies seeking to build global brands. One is the association with inferior quality — after all, brand is all about reputation. "Chinese companies face a worldwide stigma that their products are low quality. To achieve international brand loyalty, they must make high quality products that consumers will buy again and again," said Stuart Strother, professor of economics at Azusa Pacific University.
Worse yet, Chinese firms have made news for covering children's toys in lead paint, soaking rice in toxic chemicals and even allegedly employing prison labor. “Made in China” is not a label that many consumers explicitly seek out.
Another obstacle is that, despite its success, China remains an insular place. It has long been difficult for Chinese to travel abroad, particularly to the West, and so its managers are not exactly cosmopolites who readily grasp what works in the trillion-dollar markets of the West.
In order for Chinese brands to breakout they must “first understand globalization,” says Thomas Chen, managing director for Interbrand Shanghai. They need to ditch what made them successful at home and instead “commit to organizational change,” he adds.
That said, China also has a significant competitive edge: it’s the world's factory. Its sophisticated manufacturing infrastructure "provides a good foundation for Chinese brands to expand to other countries," said Peking Tan, greater China R&D director for Millward Brown, a brand consultancy group. This infrastructure allows firms to innovate and create products that would be difficult to make elsewhere.
That should help them reach global prominence much more quickly. “China's manufacturing infrastructure now goes beyond good machinery,” said Steenkamp “it has built entire manufacturing networks, including specialized suppliers of components and related services. No other emerging market can match this.”
A palette of strategies
China also benefits from the experience of its neighbors, so it doesn’t have to reinvent any wheels. Like China, Japan and Korea traveled the fast road to world class economic status — creating global brands like Sony, Honda, LG and Kia.
“Twenty years ago Korean cars such as Hyundai were considered some of the world’s worst cars. Consumers only bought them because of the low…