Branded for Life

We innovate. We allow new ideas from lowly places. Creativity and entrepreneurial spirit and good old fashioned American showmanship… good old fashioned British showmanship… Italian, French, German and Japanese. We design new, we make kewl and we call them “brands.” And when you think of Chinese brands, you immediately think of… er… ah… Lenovo leaps to mind… oh, that was IBM’s personal computer business. Or… yeah. That’s a big problem in China, a nation that means to be number one across the board.

“‘We've lost a bucketload of money to foreigners because they have brands and we don’t,’ complained Fan Chunyong, the secretary general of the China Industrial Overseas Development and Planning Association. Our clothes are Italian, French, German, so the profits are all leaving China. . . . We need to create brands, and fast.’… No big marquee brands means China is stuck doing the global grunt work in factory cities while designers and engineers overseas reap the profits. Much of Apple’s iPhone, for example, is made in China. But if a high-end version costs $750, China is lucky to hold on to $25. For a pair of Nikes, it’s four pennies on the dollar.” Washington Post (May 25^th).

For those of us old enough to remember, there was a time when “Made in Japan” signified cheap and probably not very cool. Then came Toyota, Nissan, Sony, JVC, etc. A lot of us remember when “Made in Korea” was a term of derision. Is it relevant that the computer screen I am watching my words form on is a Samsung? China is forcing some companies choosing to manufacture with cheap PRC labor and sell into the local marketplace to hand over trade secrets and patents. Still, the foreign brand is more desirable. The government has conducted massive corporate “how to compete with those foreign devils” classes and seminars, provided tax incentives and subsidies, and still foreign brands are what folks who can afford it want.

Think “Made in China” and noxious dry wall, tainted milk products and toxic pet food still fester in the minds of many Western importers. China has sent out legions of investment bankers and corporate executives to buy Western businesses (and brands) to bring the technology and marketing know-how back to the mainland. Nevertheless, China still has a problem doing business anywhere but China – except when it buys raw materials like oil or agricultural products. “[A] little perspective: Even if China's total foreign direct investment hits $200 billion, it still pales in comparison to smaller economies, such as Singapore's, Russia's and Brazil's. And China has plunked down only about $17 billion in rich countries, equivalent to the overseas assets of a single medium-ranked Fortune 500 company.

“The 34 Chinese companies on the Fortune 500 list basically operate in China only. The world's three biggest banks are Chinese, but none is among the world’s top 50, ranked by the extent of their geographical spread… “‘Moving forward another 10 years,’ said Kenneth J. DeWoskin, chairman of Deloitte's China Research and Insight Center, ‘it’s hard to see how viable Chinese companies will be if they just stay in China.’” The Post.

And as xenophobic as we are about the PRC and inscrutable as the Chinese may appear to us, China is equally wary of the Western world and fearful of being taken advantage of by Western businesspeople – a potential loss of face that is simply politically intolerable to China’s leadership. Bottom line, Chinese corporate executives know more about how to mine local PRC political connections than they do about operating outside of their own borders. And by the time Chinese generate patents that work – such as attempts in developing an indigenous mobile phone market – Western innovators have often moved on with more capable devices and hundreds of thousands of new applications. Guess what Chinese consumers want?

Japanese firms eventually built out international branches with Western businesspeople running the overseas operations. The Japanese sent executives off to these foreign markets, ostensibly to supervise, but often simply to learn how to live and work in their competitors’ backyard. Boy did they learn their lessons well. Today, Made in Japan can actually be a brand enhancement, and even in the world of the trendiest Paris fashion boutiques, top Japanese designers are… well… de rigueur. And someday, expect to see some pretty amazing Chinese designs on some of Paris most prestigious runways. Someday, but definitely not now! Starbucks anyone? Meet me in Xin Tian Di, Shanghai.

I’m Peter Dekom, and folks who think that they can control consumer trends… well…