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Updated: 2007-06-07 11:07

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 bourght 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, Chinese companies still lag behind western counterparts like Coca Cola and Nike in terms of strategy sophistication.

Utility vs identity

When Chinese companies woke up to the idea of branding in the early 1980s, 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 finds 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 said, quoting Walter Landor, his company's founder.

He said 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 one of the world's most valued electronics brands.

Samsung's genius is that it managed to make its brand synonymous with digital age fashion, and as a result the younger generation are drawn toward Samsung mobile phones or MP3 players.

Relevance, differentiation

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.

Layers of sophistication

Building brands does not only happen between the manufacturer and the consumer; 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 WalMart, fast food stores like McDonalds, and online communities 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.