International expansion

To achieve sustainable competitive advantage outside China, especially in the more mature European and United States markets, both price premium and value added are necessary, where value added takes time. At present even the most successful international Chinese brands, such as Lenovo, Haier, ZTE and Huawei, are behind. Strong international competition represents a major challenge for Chinese brands, but so does the lack of any clear brand-oriented culture within many Chinese firms. Strategy within Chinese companies remains focused on short-term sales and production and distribution efficiency and often lacks the sustained investment levels required to establish a dominant brand. Hierarchical organizational structures and centralization of decision-making also inhibit any transition toward a more dynamic, market-oriented organizational culture within many Chinese firms.

In order to instigate any change toward a brand-oriented culture, Chinese firms could consider the creation of a new, senior strategic brand manager role. Such a position will not only facilitate a more brand-oriented approach, but will also allow for professional brand management throughout the organization. This position will of course be filled by an internationally experienced brand manager and will also sit outside any marketing department so that marketing communications does not dominate any brand-building activity. Brand building rests on product quality, not creative advertising or other catchy forms of communication.

Currently, Chinese firms also lack entrepreneurial thinking and innovation, which are both at the heart of modern day business and brand building. Younger Chinese generations, such as balinghou (those born after 1980) and jiulinghou (those born after 1990), may contribute to change, and perhaps within only a few years. Such an anachronistic business culture does not exist in smaller, younger Chinese companies, such as clothing brands VANCL and MetersBonWe, where an exciting, adventurous attitude appears in place. However, right now these Chinese companies lack the size and resources to launch any global expansion.

Perhaps many Chinese brands, those dominant across China such as Li-Ning, Haier and Lenovo, are in fact victims of their own success. The Chinese market requires large-scale production and efficient distribution which often lead to commoditization and little differentiation. This business model works in China. In contrast, the US and European brands have been forced to seek international markets far sooner than their Chinese counterparts due to much smaller home country opportunities. While Chinese companies have invested in order to achieve success across China, it is not investment channeled into research and new product development but investment into production and distribution efficiency only.

International activity

At first many Chinese companies sought to penetrate markets in Southeast Asia, the Middle East and increasingly Africa. Markets where price competitiveness remains most important. This should not be seen as an acceptance among Chinese companies that they cannot compete in the more lucrative but fiercely competitive markets of North America and Europe. Instead it is often due to good political relationships enjoyed over many years between China and countries in these areas. Chinese companies should use this success as a springboard into the US and European markets.

The Chinese companies which have penetrated the US and Europe most are easily Haier and Lenovo. These companies, however, are still not that well-known with relatively low-brand awareness levels. Both have an excellent platform but need to step forward very carefully. Lenovo's recent acquisition of German PC maker Medion marks another step forward in their international expansion and growth by acquisition appears to be a key part of their strategy. The benefits of this approach are clear but so are the potential pitfalls. Lenovo, and Geely with last year's acquisition of the Volvo car brand, need to manage post-acquisition integration very carefully and ensure that technology transfer in particular takes place seamlessly. Haier, on the other hand, appear to favor organic growth with no major cross-border acquisitions so far. This does not carry the risks of growth by acquisition but lacks speed and the ability to move opportunistically.