Building brands not always best – the WTO column

(later also at Chinabiz)
Brussels - Building brands and expanding business have always gone hand in hand. Now Chinese companies are going global, they try to introduce the lessons learned at famous business schools in their practice. Companies like Haier or Tsingtao desperately try to build up a brand name outside China, after it became successful in China. Others like Lenovo buy existing foreign brands, hoping they can take this as a shortcut into a larger market.

It was not unlike what foreign companies did when they entered China. They dumped their foreign commercials on Chinese TV-stations. They bought existing Chinese brands in desperate efforts to quickly get a large market share. In both cases large mistakes have and are being made.

Gordon Orr of the Shanghai office of consultancy firm McKinsey wrote in the Financial Times on 29 August a daring piece for somebody who makes a decent living by advising companies on how to build brands. “While aspirations are high, many Chinese chief marketing officers (CMOs) – when they exist at all - and their senior colleagues are very uncertain as to how to proceed,” he writes. “In a mirror image of multinationals’ arrival in China a decade ago, they lack cultural anchor points to steer their choices away from brand building investments that could be unwise in terms of near-term economic return and long-term brand-building.”

In the end Orr ends up telling his potential customers how to build up a brand name anyway, because he cannot afford to ask the real question: is building up a brand worthwhile? Building up brands mean you need to have a lot of time, a lot of money and you should be able to afford to fail. That happened to the foreign companies who entered China: they often wrote off failed marketing efforts.

Running around in Europe and talking to some of the consultancy firms here, I find that the larger firms are moving away from the classic brand building because their customers do no longer see that as key to their business. Some, like Unilever, are in the middle of phasing out major brands they have cherished for decades. Consultancy firms who make a living in finding out how to position a brand name in a market now find themselves in a new business. They are trying to find out what their potential customers actually want, what trends are developing, in stead of trying to sell existing brands to new markets.

Maybe that is a lesson Chinese companies should also learn that lesson, before they lose too much investments on branding their products nobody wants. In fact, Chinese products are doing already very well. In terms of quality and pricing, they are able to conquer many markets, even though they are often sold under Western brand names. Even in mature markets the combination of price and quality is more powerful than branding, as the Wal-Martization of many markets indicates. Not the brand, but having logistical chains and distribution means power.

The question for Chinese producers is how to survive in this global game, where it is harder to define who or what is calling the shots. The quota-makers in Washington and Brussels are most certainly not. Focusing on brands creates an illusion that suggests companies can define a market by adding value. Quality and pricing dictate increasingly the market, more than brands, I learned from my shopping experiences in China and the rest of the world. The art is then not to look for the smallest denominator like Wal-Mart is doing. The success of for example the green labels shows that environmental and social concerns can become a winner in marketing strategies. But that needs marketing managers who can get rid of their branding illusion when it is appropriate.

Fons Tuinstra