'Made in China': China's Leading Brands 2001

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1 Introduction

1.1 Definitions & Report Coverage

This report examines the background and strategies of Chinas leading domestic brands. The brands are ranked by their values in the marketplace and represent some of the major household names in China many of which have the potential to become global brands. This report includes only wholly domestic brands and not successful foreign brands in China such as Coca-Cola, VW or Kodak, etc.

1. Executive Summary

The concept of brand value, or brand equity, is still relatively new in China. Indeed the government has only been measuring company worth in terms of brand value for seven years.

As local brands have increasingly had to both compete with each other for consumers attention and face competition from foreign brands so the growing importance of advertising has come to be realised. At first Chinese brands appeared only to understand the concept of saturation advertising. However, advertising is now becoming increasingly sophisticated and targeted.

The need to better target the consumer has been a hallmark of many successful brands whether it be Legends range of affordable computers with bundled software, Hongqis better designed vehicles or Erdos closer attention to garment design. All the major brands have successfully made the shift from the state command economy to a more market-oriented economy.

Typical of this process within the leading brands is Ni Runfeng, the CEO of Changhong Electronics (the third biggest brand in China). Ni is still constantly examining the Chinese consumer market closely and is a keen observer of social trends, now targeting the companys products at those families with an annual income exceeding RMB 0,000 per annum with living rooms of approximately 0 square metres. Ni believes that this analysis gives Changhong a potential market of ten million Chinese families with the number increasing annually. He is keen to improve the companys competitiveness and brand recognition against his two major domestic competitors ? TCL and Haier (number two and five brands in China respectively).

The need to expand overseas is also recognised by the senior managements of Chinas leading brands. For instance second placed Haiers CEO, Zhang Ruimin, has stated that in his view, the key to the Groups rapid growth will continue to rely on an internationalisation strategy, especially with the development of the Internet economy and Chinas pending entry into the WTO. Much of the companys success has been attributed to the companys CEO, Zhang Ruimin, who has been applauded both at home and abroad for his creative leadership and corporate management practices. The Group has employed the OEC management model to its market chains, and has progressed from being a borrower of ideas into becoming a successful innovator in business development.

While a brand like Haier has started to earn a reputation abroad in its own right, other leading Chinese brands have become suppliers overseas, though these brands may not be instantly recognised. An example of this is Erdos, the cashmere company from Inner Mongolia. Erdos has been superb at developing reasonably priced cashmere garments for the domestic and international market. Globally, department stores now carry reasonably priced cashmere sweaters as do the large US mail-order catalogues, such as Lands End and LL Bean. These sweaters are mostly Chinese made and mostly by Erdos.

New product innovation is also a hallmark of many of the leading brands. This is true for the electronic appliance manufacturers as well as the pharmaceutical companies and automobile makers. Though this is more difficult for a long-standing brand with little scope for innovation such as Hongtashan cigarettes, other brands that have been around a long time have found ways to innovate. For instance Erdos, Chinas largest cashmere garment manufacturer is working on a range of new products to suit the changing global market. These include un-dyed ecologically sound products, products that can be hand washed, cashmere and silk blends, stretchable cashmere, beans cashmere (which is blended with fibres produced from beans) and new superior quality cashmere range under the Super Erdos brand.

There is also an element of succeeding in the market through longevity. Hongtashan cigarettes, the single most valuable brand in China, is an example of this. There is little scope for product innovation (though some rivals such as Double Happiness have introduced esoft packs in recent years). However, longevity and beating the foreign competition are crucial elements to brand success in China.

1. Overview of Chinas Leading Brands

Hongtashan, the Chinese leading cigarette brand, is the most valuable brand in China in terms of revenues. The cigarette brand is found throughout the country and smoked at all levels of society. Unlike some sectors the foreign brands have found problems in China on two fronts. Firstly, access to the market has been severely limited by the national tobacco monopoly, and secondly, despite low prices and extensive marketing and advertising campaigns, the vast majority of Chinese smokers have remained loyal to local brands.

Hongtashan has managed to maintain widespread sales despite being priced at approximately RMB 14. They are popular gift items in carton form still. The company has matched western standards of production and packaging and has widespread distribution as well as a well-known pack design.

However, apart from some sales to overseas Chinese communities, Chinese tobacco brands including Hongtashan, have not managed to win overseas markets. This is not so true of the second largest brand in China, Haier, an electrical appliances manufacturer, that has expanded into markets as diverse as Egypt, the USA and Pakistan. Haier is a massive advertiser in China and its etwo boys logo is universally known. Haier is also seen as a quality brand and one of the few electrical appliance manufacturers in China able to compete with Japanese brands on quality. The company has also diversified out from refrigerator manufacturer into a wide range of appliances including air conditioners, mobile phones, PCs and TV sets etc, allowing the company to tap into the growing taste of Chinese consumers for ebig ticket items.

Like Haier, TCL has diversified from its origins as a phone manufacturer to produce all manner of brown and white goods.

Two beer brands are prominent in the league table. Primary among them is Tsingtao, which remains Chinas best selling beer despite competition from a range of imported foreign beers. The company has acquired a host of smaller regional beers to expand nationwide and has found strong overseas sales, including in Europe and America, through Chinese restaurants. Beijing Yanjing is also a major beer brand, though still overshadowed by Tsingtao.

Changhong Electronics enterprise (a former state-run military-radar factory) located in Sichuan Province. Changhong is based in Mianyang -known as Chinas Television City. The company produces some . million television sets annually and claims a 40% share of the domestic market. In the Chinese press Changhong is often referred to as Chinas Matsushita. Changhong has expanded overseas and established R&D centres in China, Europe and the USA. The company is known for its highly specific marketing plans focusing on the interior and northeastern regions of the country where the potential market was deemed largest and competition weakest. Ni won consumer confidence with a strategy of low return rates, good quality control and heightened after-sales service as well as introducing TVs with remote controls and other additional features. Now the company is concentrating on the Yangzi River Basin area and in Southern China where foreign competition was significantly stronger. In this region Changhong was the first to introduce -inch TV sets.

Legend is at the top of its annual list of Chinas top 100 electronics companies and finds itself in the fast growing PC market in Asia. Legend has the production capability to manufacture three million motherboards and 1.5 million PCs annually. Legend has also started producing palm top computers that provide cost-free access to a news service. At present the company maintains a market share of approximately 0% of Chinas PC market and 1-14% of the total Asia-Pacific market (excluding Japan).

It should be noted that Chinas major brands, despite access to a massive population and growing incomes, are still small by global standards. All 500 brands listed on the most recent Fortune Magazine list of global brand values had turnovers in excess of US$ 10. billion. Contrastingly, the five leading brands in China combined have a turnover of under US$ 5 billion.

It is estimated that it will take at least twenty to thirty years for Chinas leading brands to catch up with the Fortune 500 brands ? Even at a growth rate of 0% per annum. It is also noted that product innovation is largely lacking among the major brands. Patents for new inventions are few and far between reflecting a lack of innovation and technological backwardness.

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