On the question of which of the top 100 brands are “doing it right” or “doing it wrong” in China now, here is my own biased list (based on the Business Week top 100 brand list) and comments. (I have lived and worked in China for 17 years and have seen hundreds of different western companies attempt to make a success in China, so I think I have developed a pretty good nose for these things now).In my view, the companies that are doing it right in China now, will reap long term rewards, and those that are doing it wrong will be left behind or have to play catch up later in the game. Maybe the basis of a good long term “China investment” strategy? You decide.(Note, these comments are only based on my opinion about what they are doing in China, not the rest of the world.) 1 COCA-COLA: Doing it right. They are everywhere and doing it right. But they need to straighten out their organization and reduce the internal politics, otherwise this in-fighting can really get out of control and hurt their business. Politics are something the Chinese people are very good at playing. So, better to not let them have this “avenue for self-expression” and rather to focus on the business of selling products.2 2 MICROSOFT: Doing it wrong. Annoying everyone as usual with their pushy style. Note to Bill Gates: Don't annoy Chinese people or the Chinese government. They are experts at keeping score and will make you PAY when the time is right.3 3 IBM: Doing it right. Yeah, surprisingly, their whole consulting approach is working. 4 4 GE: Doing it wrong. Maybe on the industrial side, they will make a fortune selling equipment to China, but as a consumer brand, they are non-existent.5 5 INTEL: Doing it right. Well done to date. High brand recognition and high preference. They are not really known as an American company, so this makes their future more predictable in China.6 8 NOKIA: Doing it right. Good phones and good innovation. 7 6 DISNEY: Doing it wrong. Hong Kong Disney is not doing well, and there have been too many PR mistakes. Also too slow to get something going in Shanghai. Also licensing their poor little Disney characters to death and not monitoring the quality of the licensees at all. Very risky!8 7 McDONALD'S: Doing it right. But they will feel the ups and downs as China attacks them periodically on the health issue. Chinese kids are bound to get chubbier over the next few years and McDonalds is going to unfairly bear a lot of the blame. That said, McDonalds has a nice steady growth strategy and tighter quality control of their restaurants than KFC.9 9 TOYOTA: Doing it wrong. Sleeping at the wheel. The anti-Japanese feeling of China is not much help either.10 10 MARLBORO: Doing it wrong. A real drag. Not doing much and also not realizing that Chinese people like the taste of Chinese cigarettes, not western cigarettes. So why not just change the flavor of Marlboro and keep the nice western brand? 11 11 MERCEDES-BENZ: Doing it wrong. Too slow and too German (I think I just said the same thing twice). Great brand image but they are really missing the boat to sell more cars. They should also realize that the back seat is where the boss sits, so the back seat should be where the stereo/AC controls are placed.12 13 CITI: Doing it wrong. Suppose they are tied up by regulations.13 12 HEWLETT-PACKARD: Doing it wrong. More well known for their CEO troubles than actually selling products. Very political organization on Beijing is near meltdown. 14 14 AMERICAN EXPRESS: Doing it wrong. Where are they? They barely even service their American card holders traveling in China and they are missing the boat entirely on developing a local base. Maybe the regulations don't allow them to launch their card, but they should still be building their brand via other methods like a premium catalog for mail-order.15 15 GILLETTE: Doing it right. Tight organization and just taken over by the monster P&G, the most successful western company in all of China!16 17 BMW: Doing it right. Great brand recognition and ramping up quickly in China production. They will replace Mercedes as the best German brand in China.17 16 CISCO: Doing it ? I know nothing about them.18 44 LOUIS VUITTON: Doing it right. Nice stores and good brand building. They are letting the fakes die a natural death and not letting it bother them so much. Anyways, the fakes also help to build the brand in the short term. Would anyone in China know LV brand if there were no fake products being sold in the market? I doubt it.19 18 HONDA: Doing it wrong. Sleeping and the cars are too small in the back seat where the boss sits. Also they are too southern China focused. 20 21 SAMSUNG: Doing it so so. I suppose they are the best effort at branding that you can expect from a Korean chaebol. But that does not mean they are doing it well.21 25 DELL: Doing it wrong. Would be nice if they actually made their products available in the market via a serious distribution network.22 19 FORD: Doing it wrong. Nearly comatose. Forget it, Ford, The race is nearly over and you have just left the pits. Maybe you should buyout Geely? First go read the famous book called “Beijing Jeep”, then think about it.23 22 PEPSI: Doing it right and wrong at the same time. Beverages are all wrong. Foods are all right.24 23 NESCAFE: Doing it right. Well done, mass image. People really call this stuff “coffee” here in China. Sure, Starbucks may educate the top 50% of the people, but there will still be another 50% that wants powdered dirt as a hot drink mix.25 26 MERRILL LYNCH: Doing it ? Not sure on this one.26 24 BUDWEISER: Doing it so so. Lot's of sales but can they ever make money? Also their brand is well known but what does it stand for in China?27 28 ORACLE: Doing it ? Don't know, but they have a really cool brand name in Chinese. Sort of a translation of their English brand.28 20 SONY: Doing it wrong. Somehow they are just not pulling off the “superior quality” trick here. Maybe it has something to do with the pervasive anti-Japanese feeling in China.29 33 HSBC: Doing it wrong. Pushy bank that charges fees for opening their front door and supplying oxygen in their branch offices for lowly consumers to breathe. Prepare to get stomped by the local Chinese banks that also have bad service attitudes but are much cheaper to deal with than HSBC.30 31 NIKE: Doing it wrong. They seem to have no brand strategy in China other than to be paranoid about fake products. Wake up guys, and start building the brand before it is too late.31 29 PFIZER: Doing it ?32 UPS: Doing it wrong. Too slow to enter and too slow to get moving.33 27 MORGAN STANLEY: Doing it ?34 30 JPMORGAN: Doing it ?35 35 CANON: Doing it right. Focus on products and little mention of their Japanese culture in a strongly anti-Japanese market. Smart.36 34 SAP: Doing it wrong. The SAP scam (bad product, high price, German attitude) will get busted by strong local competition in the ERP field (Yong You, King Dee, etc)37 37 GOLDMAN SACHS: Doing it ? 38 GOOGLE: Doing it wrong. PR problems aside, they don't seem to be doing much while Yahoo and locals run ahead.39 36 KELLOGG'S: Doing it wrong. Doing nothing of interest. As usual in Asia, Kellogg's has convinced themselves that selling cereal in Asia is impossible. I would say they are wrong, but anyways, at least I can say they are doing it wrong now.40 38 GAP: Doing it wrong. The local fake Gaps (Net, Giordanno, Sparkle, etc.) are more well-known than Gap. Too late guys. Game over. Also Zara has jumped in the market as well.41 43 APPLE: Doing it wrong. They can not seem to open and maintain a decent brand shop to sell the products. I-pod is doing well, but that will not be enough. Even Sony has stolen their “cool” position in the PC market.42 40 IKEA: Doing it right. Wow. Very good. Also smart that they lowered the prices a few years ago. Short term sacrifice will reap long term benefits for them.43 NOVARTIS: Doing it wrong. They seem to be drifting and cannot decide what to do in China.44 45 UBS: Doing it ?45 39 SIEMENS: Doing it right. Nice high-end brand image.46 41 HARLEY-DAVIDSON: Doing it wrong. Doing it nothing. They should get their brand licensing business going at least. Look at Ferrari for a good example to follow.47 42 HEINZ: Doing it wrong. Aside from a lousy brand name in Chinese, they just are not moving fast enough or big enough while the field is open to dominate. 48 47 MTV: Doing it wrong. Getting rocked by fake-MTV “Channel V” out of Hong Kong.49 59 GUCCI: Doing it right. Good brand recognition and nice classy build up of the sales network.50 46 NINTENDO: Doing it wrong. Sleepy. Japanese-sounding name doesn't help.51 50 ACCENTURE: Doing it ?52 49 L'OREAL: Doing it so so. Great success with Maybelline, but why not push the L'oreal and Garnier brands harder and faster? Why buy local skincare brand Mininurse and then shut down the regional channels that it relied on? Why buy Yue Sai and then tell everyone that this “Chinese brand” is now owned by a French company?53 65 PHILIPS: Doing it wrong. What a big mess of companies! Now they are implementing in China the ultimate in corporate suicide…shared services!54 51 XEROX: Doing it wrong. Fuji-Xerox. The Japanese connection does not help.55 60 EBAY: Doing it so so. Interesting to watch them get outmaneuvered by a local guy (Taobao/Alibaba). But eBay money will go a long way to putting this upstart back in his place.56 48 VOLKSWAGEN: Doing it wrong. The downward slide has started. Should have built up better brand values when the going was easy. Too late now!57 52 WRIGLEY'S: Doing it right. This market is more boring that watching someone chew gum, but Wrigley's is finding a way. Competitor Cadbury is overly centrally controlled by the Europeans, i.e. clueless.58 61 YAHOO! : Doing it right. Something to do with their Chinese heritage I think.59 58 AVON: Doing it wrong. Lots of positive press about the new opening of the market to direct marketing, but Avon is reacting too slowly and inflexibly while Amway runs circles around them.60 56 COLGATE: Doing it right. Pretty good fight with Crest. Smart and flexible approach.61 54 KFC: Doing it right. Growing fast and Chinese-ifying their menu. They make truckloads of money on their bland Chinese soup product with a 95% gross margin. Risk is that they will get a little too wild and lose quality control.62 53 KODAK: Doing it wrong. Stores are a mess. Digital age is here and Kodak refuses to budge. Grudgingly adding digital processing to China stores but in a very haphazard and sloppy way.63 55 PIZZA HUT: Doing it right. When you have to wait in line for 20minutes to get a table at Pizza Hut in China, you know they are doing something right. Chinese-ification of the product has worked well, while at the same time, the Chinese people still consider them as quintessentially western. Nice trick to pull that off.64 57 KLEENEX: Doing it wrong. The local and Hong Kong senior managers that have left this company over the last few years are not very good, so you can imagine what the ones who stayed behind are like.65 64 CHANEL: Doing it right. Classy and smooth build up. Stick with the classics and don't budge in this category. To launch a new Lychee fragrance perfume would be a very bad move. Fortunately, they have resisted this temptation.66 62 NESTLE: Doing it right. Same as Nescafe in a sense. They move fast and launch lots of new products. 67 63 DANONE: Doing it wrong. The Lu cookie success will soon fade and then they will be left to fight against local giants Guangming and Mengniu.68 66 AMAZON.COM: Doing nothing as far as I can see.69 67 KRAFT: Doing it wrong. Come on, there are lots of things this company could be doing to convert people to western food ingredients, but are they doing any of these? No.70 68 CATERPILLAR: Doing it right. Not so difficult to succeed when there are construction projects everywhere…literally everywhere!71 69 ADIDAS: Doing it wrong. Sleeping. 72 70 ROLEX: Doing it wrong. Sleeping.73 76 MOTOROLA: Doing it wrong. They should thanks the gods for the Razor launch. Without it, they would be near dead. 74 71 REUTERS: Doing it ?75 72 BP: Doing it wrong. Bad corporate image despite the fancy logo design by Landison. Much too complicated of a story to tell and bad Chinese brand name.76 74 PORSCHE: Doing it wrong. Doing it nothing while Ferrari drives circles around them with sales outlets, real car sales, Pr events, plus good classy licensing program and stores.77 ZARA: Doing it right. At least from a PR point of view, the Chinese are highly anticipating the opening of the first store in Shanghai. Good location also. But will the consumers be disappointed after all the hype when they find that Zara is just selling Gap/Net/Giordanno clothing?78 77 PANASONIC: Doing it wrong. Billboards do not make a brand image.79 81 AUDI: Doing it wrong. Their brand slogan should be “Gee, I wish I could have bought a BMW”. Back seat of the Audi A6 is like a prison for the boss who pays the bills. Suspension on the A6 might work in Germany on the autobahn, but on Chinese roads it is hell on wheels.80 80 DURACELL: Doing it right. But fakes are a real problem that they need to tackle. In this category, fake products do not help like they do in the luxury category.81 75 TIFFANY & CO: Doing it wrong. Nothing special despite the blue box. Opened first Shanghai store in unwisely selected Jiu Guang mall.82 79 HERMES: Doing it so so. 83 78 HERTZ: Doing it so so. Sloppy cars, confusing forms, must have a signed written approval from Hu Jin Tao to rent a car, etc.84 NEW HYUNDAI: Doing it wrong. Hey, it's another Korean brand. What do you expect? Why can't the Korean companies build off the huge success of their soap operas in China? It seems like a no brainer!85 90 NISSAN: Doing it wrong. See Toyota. 86 83 HENNESSY: Doing it right. Well sculpted image via mix of bars, karaoke, and clubs. Smart.87 88 ING: Doing it ?88 86 SMIRNOFF: Doing it so so. Not as good as Hennessy.89 91 CARTIER: Doing it right.90 84 SHELL: Doing it wrong. Focusing on marketing engine oil to lowly paid drivers who do not own the car they drive or care.91 87 JOHNSON&JOHNSON: Doing it so so. They were doing it right before, but they have seemly gone to sleep recently. To many Taiwanese senior managers posted to China?92 89 MOET & CHANDON: Doing it wrong. Haven't explained champagne to the Chinese people clearly yet.93 95 PRADA: Doing it so so. Not as good as LV.94 NEW BULGARI: Doing it so so. Not as good as LV.95 93 ARMANI: Doing it so so. Not as good as LV.96 85 LEVI'S: Doing nothing of interest.97 NEW LG: Doing so so. Laneige cosmetics is doing surprisingly well, but electronics needs a real brand position.98 97 NIVEA: Doing it right. Slow steady build up of the retail facings and low level of advertising are smart strategies. They are in a very nice position for the future. They miserably failed in their first attempt in China, so you have to give them credit for figuring it out this time.99 98 STARBUCKS: Doing it right. Very right! But they'd better clean up the mess they have created in Beijing with a bad licensee before they expand further. Shanghai model is highly successful.100 99 HEINEKEN: Doing it right. Nice brand name in Chinese. Heavy focus on bars. But will they ever make any money in China? It will take some time for the industry to change.Any questions or comments are welcome!Thomaswww.innovatize.com
Let me be the first to welcome you to the Fool, Thomas. Thanks for a most interesting post. Anecdotal information and personal experience are two sources of investing information that I value very highly because in many cases they tend to present the real story much better than the numbers do (i.e.- TA and FA). I've copied your post and will refer to it in the future if and when I am trying to make a buying decision about one of the companies on your list. I am a firm believer that China will be to the 21st century what the US was to the 20th century in terms of economy. One macro question I have is do you see China in the next 5-10 years suffering any sort of recession/depression or will they just tend to have slower periods of growth- say, 2% or less- rather than the usual 5-10% growth they have had recently? By growth I mean GDP or its Chinese equivalent.It seems to me that so many investment players are trying to call an "inevitable" crash in the Chinese markets when in fact there may not be one for many years to come, if at all. The ramifications for this are the necessity to have to "trade" the Chinese market (much like one should have traded the US market at the turn of the century, after being lulled into a buy-and-hold mentality during the 90s) rather than find a small portfolio of great companies and hold on for the next 10-20 years (similar to finding MSFT, CSCO, ORCL, INTC in the early 90s and riding them come hell or high water for 10 years or so, ignoring those nasty little 30-50% dips along the way.Related to that idea, do you see direct investing in Chinese companies that trade in the US as the preferred way to invest in China, or is it better to buy US companies, like the best of the Business Week Top 100, and not have to worry so much about the alleged acounting and reporting opaqueness that seems to be the norm for business in China. Or is that just mass-media hype like so much else we hear about China these days?Thanks in advance for your response.Cheers,ChiTrader
Thanks for the welcome!China in the next 5-10 years? A tough question...like asking to predict something about the USA in the next 20-40 years! :-) My gut feeling is that there will a gradual decrease in the annual growth rate, but there will not be any major crash or sudden drop in the next 5-10 years. There is still so much untouched ground in the country, so there still is a huge amount of room to invest and grow other areas of the country. Shanghai will of course remain one of the central "headquarters" for economic growth, and it is already shifting towards a more service industry focus. But growth in service industries will also keep the overall growth rate up there.Re Chinese companies listed on the US markets...maybe I should choose my words carefully on this one...they still have a very long way to go to improve internal management and control. Dressing them up and listing them, for example, on the NASDAQ does not have any real effect on the non-transparent ways these companies are run on a day to day basis. In another recent thread, another poster commented on the Chinese banks that have received (and will receive more) investment from western banks. His perception was that the western banks would put western managers in place and change the culture of these Chinese banks. I would say I am much less optimistic about this happening. It will take a long time for this culture to change. Sending over a few westerners to try to effect this change is a pipe-dream. In my view, the real driving force for change inside these banks will be exactly what the Chinese government is already doing...extremely tough punishments for internal fraud. But even this will still require some time to sink in. So you can imagine that if the death penalty will take a while to have an effect, then a couple of western bankers will probably amount to zero effect!Another option is to invest in local Chinese companies like several venture capital firms are doing recently. I even heard that one of them recently acquired a chain of Chinese motels called Motel 168 and Motel 268 (though I have never seen this officially reported anywhere). In my view, these venture capitalists are going to have an exciting "adventure" in their future if they think this is going to be a smooth and easy investment. A recent book called “Mr. China” covers this topic pretty well and after reading it you can create a laundry list of the things that will go wrong with these types of venture investments. So, my recommendation would be to start a business here in China and run it yourself, or to invest in American companies that are doing well in China (or at least positioning themselves well for the future). Maybe my brand list is a good place to start. If I personally had to choose a couple of near-sure winners, it would be P&G, Starbucks, IKEA, and BMW. (P&G was not on the 100 brands list, but they are doing very well in China and are set for long term benefits).Thomaswww.innovatize.com
Thomas:Excellent post! But, while I certainly understand some of the risks in investing in young Chinese companies, do you believe that culture is such that most Chinese companies are inherently poor investments? SBUX is a terrific company, but I hardly see it as a 'China' investment. If one gathers a basket of companies, isn't there a reasonable chance that there will be a multi-bagger in the bunch? I'm currently in Bodisen Biotechnical (BBC -- organic fertilizer), China Expert Technologies (CXTI -- government software integration) and the popular play, SunTech Power Holdings (STP -- photo voltaic etc.)BBC and CXTI are serving Chinese markets, STP is poised to take advantage in the push for alternative energy (solar) in both China and California (nuts to the rest of the US!). Any thoughts on these companies?Best Regards,Don -
Hi Don,Are they inherently poor investments? I guess I should say no, otherwise that means ALL of them are poor. But, for sure, the risk is quite high, and it is very difficult for someone sitting in the USA to really learn about a company in far away China. That said, your question got me thinking about why they are risky or what do they that is so risky. Here's a short "Chinese Corporate Quicksand" list:1. The first quicksand pit is internal fraud2. The second quicksand pit is expanding too fast3. The third quicksand pit is expanding into fields of business outside their core competency, especially the Chinese-fantasy field of real estateSo, the best idea would be to find Chinese companies not stepping too close to these pits of quicksand. The chance of internal fraud could be lowered by only selecting companies that have annual audits done by a multinational accounting firm (Dear readers, please fill in your own Enron jokes here!). Filtering out the companies that are growing TOO fast could also reduce risk...I know this hurts and maybe is counterproductive, but it is the best I could come up with on short notice. :-)Filtering out the cross-industry-expanders would be the final cut. Not sure how many companies that would leave you with, but maybe it is a start.One other potential filter: When looking at your list of companies (I do not know any of them), it suddenly struck me that companies that rely heavily on exporting out of China seem to have a lower chance of running into these three pits of quicksand. Not sure exactly why, but this is the impression I have. One last filter idea…that is maybe too qualitative but here goes…is based on the fact that most of the well-performing Chinese companies will have a famous and charismatic "big boss" leader...this can be a strong positive and maybe in Chinese is a near requirement. But when comparing “big bosses”, the ones who focus on management skills seem to be the best. For example, the Haier boss has been giving interviews for years in the local media where all he talks about are his management methods (including the "told to death" story about assigning responsibility for each piece of glass in the factory to individual workers). Whereas, the other types of "big bosses" tend to focus on their amazing "rags to riches" life stories and then talk mostly about their huge company that will soon rule the world via expansion in all directions of the universe. One way to describe this phenomenon would be to say that you should tend to favor Chinese companies lead by Chinese versions of Jack Welch or Warren Buffet rather than a Chinese Donald Trump.Thomaswww.innovatize.com
Thanks Thomas!I hope that all TMF and China Connection lurkers appreciate your insight into investment in Chinese companies! I sure do!I've checked out your website and your credentials speak volumes to support your careful and thoughtful comments! Best Regards,Don
Thanks for the encouragement! I hope we can get some of the "silent majority" of this forum's readers to post something also. Come on people! The cost to join is not THAT high is it? At least send me an email and give some feedback. :-) thomas at innovatize dot com.Latest rumor heard in China: Morgan Stanley is in negotiations to purchase a stake in a local motel chain called Motel 168. If they actually buy a majority interest, this will be a real comedy show to watch in the next few years. Total and complete clash of cultures and style and everything else you can name.Let me also take the chance to give a quick brand review of Motel 168:-The name Motel 168 comes from the price that they charge per night... RMB 168 per night...get it?!? It's so catchy...Real genius in selecting this brand name! (sarcasm intended)But I wonder what they will do in a year or two when costs go up (this is China, and costs will definitely go up)? Maybe they will continuously change the brand name and signage and stationary each month or week or maybe even once per day? OK, I know what you will say: Motel 6 got away with this in the USA so why can't Motel 168 succeed in China? My "wise" answer: Motel 6 was very lucky, and the competition was not tough enough at the time they were sneaking away from their US$6 per night pricing.Guess what the brand name for their premium motels is? Motel 268! No, I am not kidding! Sometimes they build them side by side so a weary traveler can make his own choice at the last minute. Here's another hot rumor: I know some pretty smart local guys who have made a fortune in the consumer products field, and they are now planning to open a chain of motels…you can bet that these guys will be a tad smarter in terms of branding than Motel 168. I'd put my money (if I had any) on the consumer product guys, but then again, I am biased. :-)Thomaswww.innovatize.com
One macro question I have is do you see China in the next 5-10 years suffering any sort of recession/depression ChiTrader,This is my wild ass speculation (and most likely wrong)... China is a slow motion train wreck in progress. China is not a capitalist country. Expect massive missallocation of capital to trigger world wide deflation. Power corrupts and absolute power corrupts absolutely; expect institutionalized corruption at all levels in the Chinese government. And never forget, China is not a democracy, China is not capitalist. Their experiment dabbling in the free market economy is doomed to fail and when it does, we will all feel the pain. Bill
Apparently 168 sounds like "get rich quick all the way" in cantonese/mandarin. So maybe they can get away with it. Great post on foriegn companies in China!
Good point about the lucky numbers. I totally forgot to mention it. Recently I have been using a lot of real estate websites in China to find a new office, and I suddenly remembered your post when I read all the website names...a large majority of them play the lucky or meaningful numbers game like Motel 168. So there is:51office.com ("I want" office)91office.com (I guess this means "Just want" office)5Uoffice.com (not so sure on this one either, but I assume he is trying to copy the 51office guy)lg168.cn (the "get rich all the way" thing again)133office.com (again, this one is over my head...)51room.net ("I want room")021fang.com (huh?.."02 want house"?)8008206116.com (I thought this was his toll free number but it seems like it is missing a digit)I am still hoping to find one like this:51officeforfreesoIcan168.com:-)Thomas(By the way, I updated the "100 Top Western Brands in China" article a little bit and stored it on my website...just click on the Hot Topic button in the bottom left hand corner of the home page) --www.innovatize.com
Great to see some good participation here indeed. Great sharing of the ground here. (I live across from one of the Motel 168)--slick model for China. Let's take a look at some Chinese brands, especially many of those traded on HK Exchange or Nasdaq. First, a story.In 2001-2002, Telecom was as hot as ban be in China. I was building handphones for the likes of Motorola, Sony-Ericsson, Alcatel, Siemens. During those two years, there was so much churn in the market as the hype around Chinese branded handsets (and Ministry of Information Industry) had restrictions in place to give advantage to Chinese companies who could build a brand of cell phone to compete with the global leaders. Chinese handsets were taking more share from the leaders. Names like TCL, Bird, Panda, Eastcom, Capitel, Soutec, Amoisonic. Everyone wanted in and everyone (39 brands) was going to ship 10M handphones in china during those years. None of the chinese brands was paying IPR royalties to the GSM essential patent holders and the patent holders wouldn't dare sue of the Chinese brands (otherwise they might find their government quotas dramatically reduced).2003-2004. It all pretty much imploded. Inventories of low end handsets skyrocketed, prices fell through the floor. And today, market share for the global leaders is back where it was. TCL itself had some 40M handsets it couldn't sell. Today, Panda, Eastcom, Capitel, Soutec all the companies whose managements I knew well--they are almost non-existent and several went bankrupt or being forced to merge with others. Only TCL, ZTE and Bird seem somehow positioned to compete--but they all are hurting, burdened with state-run politics, and are struggling with figuring out how to expand overseas. So, where are the Chinese brands? Where are the companies that will give glory to China with a global brand name powerhouse (and given access to funds for overseas expansion)? China desperately wants to have a global "face."
So then came 2005. The government body that runs (or engineers) the state-run companies decided to choose who was going to be their go-to companies to support in each industry. More than telecom which had slowed considerably before the 3G explosion will make it hot again...1. Industrial white goods (Qingdao's Haier) got the nod. I personally like the management of their cross-town smaller rival, Hisense, better though. All the hype. But Haier has struggled last year. They don't seem to know how to take their business to the next level. Of all brands in China, they've done the best overseas for sure. Gotta love those front-loading washers and wine refigerators! And there mfg facilities are awesome. But too much " big face" and too little execution and accountability for me.2. Telecom: State-run ZTE and privately-owned Huawei(no one REALLY knows who owns these shares). Huawei is cleaning up in the world market and kicking the tail of Nortel, Motorola, Lucent, Alcatel in telecom infrastructure, broadband access, optical solutions. They come into bids from carriers with prices 30% below the competition. But are they REALLY making money? Why don't they list? Will their 3G solution be as good and cheap (both WCDMA and TD-SCDMA)? Huawei is the one company I'd invest in. Their CEO is highly secretive and the company is clearly taught not to look to big boss worship. Some great talent there, but I don't like their second-level management--just old cronies with no international talent. The third level (VP) and below is very good though. HK-listed ZTE is a state-run mess. (I'd include UT Starcom in this group, and they imploded big time last year, and carry some $500M in inventory and are under SEC investigation).3. Computing: Lenovo (Legend). though they still have 30% market share in China, their international efforts have failed for the most part. And they started much earlier than the others. Buying IBM's great laptop business and global distribution and managment network was supposed to be a catalyst from which Lenovo could learn. We'll see. So far, I haven't been impressed by Lenovo (except their HK-based CFO, Mary Ma). 4. Consumer: Haier, Hisense, TCL, Changhong. Of the bunch, I'd go for Hisense and their flat panel TV business. Great quality anfd mfg discipline, good management, and they are humble and friendly. If they can access international distribution better or build it themselves. I'd pick Hisense. Second would be Changhong, the world's largest maker of OEM TVs. But TVs? How do expand that model? The rest I am much less impressed with for the next few years. 5. Oil: CNOOC, PetroChina, SinoPec. what's not to like? If Beijing will lift its restrictions on domestic oil price increases, they will do well of course. Unfortunately, oil shortages in china last year were the result as these companies just could make more money selling oil at market rates overseas! Mostly, like Innovator, I like the smaller companies coming on-line with private equity like Motel 168 (mentioned) and some of the Beijing smaller net companies (not Shanda or NetEase). CTRP is great right now in terms of shareholder value, but can they continue?So, bottom line. Investing in the large companies trying to build global brand dominance...I have many reservations. But there are gems everywhere, literally everywhere, but not a whole lot of management expertise and that worries me a little. what do you think?
Great posts Fedora! Good to see that someone else is paying attention to these things besides me. ;-)You have some really interesting insights into the mobile phone market. I was wondering what happened to all those local brands that were planning on taking over the entire market...Now I know.For the local consumer businesses you listed, my view is that the problem is almost always a combined brand and management problem. In terms of management, I discussed this briefly in a previous post. Plus I like your comment about "big boss worship"!In terms of branding, the main problem is that they simply do not understand how to do it. They have a clear understanding of the surface level of branding, but do not go any deeper than that. Also it is linked back to the "big boss" syndrome in that often in these companies, the marketing decisions are made by the big boss, who in most cases is not a good marketing guy. That's a recipe for trouble. A short side story: I did a speech last week at a New Product Development conference in Shanghai, and during a roundtable discussion at the end of the first day, I asked one of the other speakers a question. He was a senior marketing guy from a big local food/beverage company in southern China. The question I asked him was, "As a senior marketing guy in a local company, what do you do when the big boss has a marketing idea but in your heart you know it is totally stupid." Can you guess what his answer was? (I'll bet you can, since you live in China too).His answer was that he would go ahead and execute the idea because "that is what he is paid for" and also because "you never know whether an idea might be good or bad without first trying it".Take that as a mini-glimpse inside the workings of a Chinese company's marketing department...not very encouraging, if you ask me. On a more optimistic note, they are getting better and better over time. But it will still take some more time. So the western companies (should) have a lead in marketing skills that they should quickly take advantage of. Unfortunately, as I noted in my Top 100 Western Brands article, many of these western brands are just not doing it right in China now.Thomas --www.innovatize.com
Hilarious, Thomas, I am not surprised. I've been trying to develop talent for many years here (since the early days of tech in Shenzhen when job descriptions read (in Chinese): Age below 25 only.I am only tangentially aware of my customers branding efforts, but I know plenty of the marketing folks. And your words ring so true I laugh. Heck, my employees pretty much are like that. As Westerners, we are wont to give instruction to our managers in the form of goals: the goal is D, make it happen. Once they complete A, they come back and ask direction to get to B, and then C. I'm in manufacturing (the outsourcing enemy of the American public?). One large chinese company I work with had instruction from their management to find a system mfg center in one of the highest cost countries in Europe to serve the EU market. I showed to them a clear analysis of the cheaper, faster and more responsive supply chain from another, lower cost region in Netherlands--clearly the same experiences and successes/failures from their global competitors would be beneficial. In the country they wanted to be in, engineers with expertise were harder to find, and the cost and flexibility of the labor force is one of the worst in the region. The Chief EU marketing guy wasn't impressed: "This is a really good solution," he says, "but I don't want to bring this to the CEO--he said it had to be in the Country X." Hello?But as you mentioned, one cannot and should not underestimate how fast things are improving. The motivation is unbelievable. And the West doesn't seem to get this point all the time. Good general management, technology and marketing/supply chain talent will require another 10 years in my business.Cheers,
MSN Jubak's on the upcoming China train wreck...http://articles.moneycentral.msn.com/Investing/JubaksJournal/China'sEconomyIsOutOfControl.aspxBill
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