As the inevitable rise of a significant Asian consumer base begins to take effect, Chinese ownership of reputable brand names is being pushed as a major driver towards Chinese domination of the world’s top marks. According to China’s Vice-Minister of Industry and Information Technology Yang Xueshan, China is determined to have 100 globally influential industrial brands and 1,000 domestically renowned brands by 2015.
China has to contend with several key issues concerning its desire to either build or acquire such a cache.
Growing Asian Competition
Rocketing sales not just in China, but also in other dynamic emerging markets, are making the Asian region the new consumer dream for many MNCs. Some countries, in terms of acquiring global brands, have even stolen a march on China.
Consider, for example, India’s Tata Motors and the company’s purchase of Jaguar and Land Rover from Ford in 2008. Tata’s brilliant strategy was to alter the onus of Ford’s selling of the prestigious brands from the traditional North American and European markets towards a more Asia-focused model. Further to that point, Tata has introduced Asian management styles and systems into the JLR factories in the UK, and has focused on increasing its sales in India and China. Last year, JLR’s sales of the Range Rover Evoque and Jaguar XJ increased by 157 percent in India, while the company has also seen total sales to China increase by 91 percent over the past three months. That has lifted JLG to profits of US$1.3 billion in the past 12 months. What this indicates is that China faces regional competition for the acquisition of global brands, and this competition will only pickup in pace as emerging Asia continues to prosper.
Furthermore, the success of Tata’s JLR brand in China can be directly compared to that of Volvo. Although it may yet prove a blip, Volvo, which was acquired by China’s Geely in 2010, has just seen their China sales plummet by 28.4 percent last month compared to the same period in 2011. Tata seems to have bettered its JLR brand in China with rather more success than Geely, a Chinese company, has been able to do with Volvo. That may be to do with Tata’s far larger and more global business experience – something to consider when assessing Chinese capability to deliver success when dealing with international brands.
China’s Asian Political Dynamics
Having established that emerging Asia is the place to be selling to – India alone has 250 million middle class consumers and the average individual in ASEAN is becoming increasingly wealthy – China’s politics start to come into play. Managing and developing a global brand means just that, yet China’s recent political problems throughout Asia may yet get in the way of commerce. It does not bode well for China that it is currently involved with some fairly loudly voiced and increasingly consistent border and sea disputes with most of its neighbors, including Japan, the Philippines, Vietnam and India, and has recently been accused of interfering with affairs in ASEAN – a trade bloc of 600 million people right on its border. Increased tensions could result in the boycotting of brands under Chinese ownership if this situation continues – meaning disruption of sales for political reasons. China needs to clean up its border disputes and fast if it wants to have any hope of securing a long-term viable future for Asian market penetration for any brands it acquires.
Asian Management and Global Exposure
While the Chinese have been the darlings of the investment world for the past two decades, the onus of all of that growth has been through the Chinese State. Still today, many of the Chinese companies that have gone global are the state-owned behemoths, and most of these have been involved in commodities. The Chinese politicize business, and in the world of global business dynamics, China will need to offer real expertise and increase its numbers of globally proven entrepreneurs. Taking on and properly managing a reputable brand that needs to constantly match up to global (and not Chinese) expectations may prove a challenge in China’s current business environment.
Where Asian entrepreneurs do exist, and have been proven to be globally savvy, is in India, which turns out entrepreneurs on a regular basis. Until China itself can get rid of the glass ceiling that continues to get in the way of its entrepreneurs by subjecting them to political views ahead of commercial perspectives, Chinese executives will not be able to compete with their Indian counterparts. Which neatly brings us back to Tata, and why they have been able to take global brands such as Jaguar and Land Rover into China and sell cars while Geely, with its Volvo brand, struggle in their own backyard.
Opportunities and Share Prices
The sheer demographics dictate that Asia is becoming the consumer market to be for the next two decades. We discussed this in our article on the Lewisian Turning Point, which any business executive should take note of if they are wondering why China and India’s consumer markets are booming. The United States exported US$100 billion worth of goods to China last year, a record, and these trends will continue throughout China and Asia. If there is a time to consider Asia, it is now. Yet once doing so, those brands will continue to develop in sales volumes and profitability and will become more valuable, once the right management is in place to focus on the Asian markets.
For China to acquire, as Mr. Yang suggests, 100 global brands by 2015 is going to require a great deal of money – and a sudden influx of Chinese, globally savvy entrepreneurs to run them. In summary, it’s the responsibility of the global brand owners themselves to reinvest, re-strategize, and take their products to Asia.