Made in China,
the fear factor

Chinese textile workers take a short break from work. How can China move towards quality brands and rein in errant factories?

THE CLAMOUR surrounding the iPhone 4S is deafening. People camped for days outside Apple stores to get their hands on one. Living in Hong Kong I was lucky enough to get the device without even having to go to an Apple store, thanks to a convenient package offered by my mobile service operator.

The iPhone makes no bones about its less-than-posh origins. The case clearly states, “Designed in Cupertino, California. Made in China”. We’ve all become accustomed to more and more things being made in China. Having used many an Apple product, I’ve never experienced any quality issues. I am unfazed by their “made in China” label.

That China can produce exceptionally high quality products is, I believe, beyond dispute as the iPhone illustrates. However, the same confidence in quality does not carry over to Chinese brands in general. I would hesitate to buy a Chinese TV or a Chinese car. My wife has a Lenovo laptop, which I chose for her, but one might say that Lenovo is only half-Chinese. This has benefitted Lenovo to some extent.

Thomas Isaac

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The consensus was that Chinese brands are not yet on par with most major international brands. Less than one in ten consider Chinese brands to be on par with or better than their international competitors

A study conducted by TNS, a global research agency, with the HK4As (Association of Accredited Advertising Agencies) in 2010 found that this negative perception of Chinese brands was a fairly uniformly held view. The study covered 490 senior account directors and planners from the 4As’ networks in 29 countries.

Here are a few key findings on what these brand experts think about Chinese brands.

1. The consensus was that Chinese brands are not yet on par with most major international brands. This finding is not particularly surprising, but the degree of that sentiment is. Less than one in ten consider Chinese brands to be on par with or better than their international competitors.

2. Half of the respondents indicated that the only strength of Chinese brands is good value or an attractively low price. However, on some other fundamental values such as quality, credibility, safety, trustworthiness and ethics, Chinese brands didn’t perform. Only six percent said that they consider Chinese brands to be of high quality and percentages were even lower on the other aspects.

3. The “low quality” perception is a huge obstacle facing Chinese brands if they wish to succeed at going global. Over nine in ten brand experts believe this is a major barrier to purchasing Chinese brands and over half say that low quality is the single biggest barrier. Safety comes next in the list of hurdles to overcome.

This can be summed up in the words of one brand expert from Thailand – “Quality that lives up to its promise is the key weakness of Chinese brands. Chinese brands are perceived as better value in terms of pricing, but the quality equation doesn't match. They need to elevate quality over price.”

With the slew of safety and quality scandals – from milk powders and train crashes to cooking oil being recycled from gutters – this is not entirely surprising. With China having dominated the world economic stage for the past decade or more, every bit of bad news hurriedly travels to the farthest corners of the globe. While many of the quality-related scandals are to do with domestic products, it does not help the export cause.

Changing the perception of poor safety will not be an easy task. As many as 38 percent of these brand experts believed Chinese brands would not overcome consumer safety fears in the next five years. The silver lining is that while only 21 percent believed that these concerns would be overcome in the next five years, as many as two in five reserved judgment and remained open to the possibility of a positive outcome.

The news is not all bad, though. We asked the brand experts to give their perception of Chinese brands versus major international brands across a range of industries in which they were aware of at least one Chinese brand. The results were revealing. Respondents who were aware of any Chinese brand in a given industry were much more likely to rate Chinese brands in that industry better than if they were rating Chinese brands in general. For example, 43 percent viewed Chinese brands on par or above their international peers.

This indicates that there are some brands that are doing a good job already, but an overall negative perception is probably hampering growth. So, should they market themselves as Chinese at all, or fly under different colours? The aforementioned Lenovo is a good example. While some 75 percent of the survey group was aware of Lenovo, only 61 percent said they were aware it is a Chinese computer company. Whether that was a conscious strategy or not, it has worked for the time being.

The future outlook could be positive. Potential certainly exists. Many brands have made strides over past years. The most notable industries are those dealing with computer hardware, mobile phones/telecoms and consumer electronics.

These three industries also led the field in terms of expectation for improvement – 85 percent of the respondents said they expected to see positive changes in these areas within the next five years.

The big question is, will this potential be actualised?

There are strong precedents for mass manufacturing to move up the value scale into the rarefied realm of high quality innovation. Korea, Taiwan and much earlier, Japan, started out manufacturing products for Western brands. Over the years, each of these countries has completely transformed its role and is now known for world-class products.

Sony, Toyota, Honda, Mitsubishi, Panasonic, Samsung, LG, Hyundai, HTC, Acer – the list is long – are all evidence of what is possible.

When I was a student in the US almost twenty years ago, the two cheapest cars you could buy were a Hyundai or a Yugo. The Yugo, made by a joint venture between Fiat and the Serbian government had the dubious distinction of being named the worst car of the millennium by Car Talk, a radio talk show. You are known by the company you keep, and the Hyundai was certainly not the sort of car to score points with. From those humble beginnings, Hyundai has matured into a very respectable and even desirable brand with high-end luxury features.

If history does indeed repeat itself, then it seems likely Chinese brands are slated to join the distinguished list above. However, any company that thinks this is inevitable, a natural evolution, is unlikely to make it onto the world stage as a respected player. For each of the turnaround companies mentioned earlier, there were probably 10 others that didn’t make the grade. They simply disappeared.

So what does it take to make that transformation? Fundamentally, it requires a new mindset. And that is perhaps the most difficult thing to change. A habit of listening to what customers want and not giving them “any colour they want, as long as it is black.”

To be able to deliver on that thinking, companies will need to do a few things differently.

First, it will require a focus on improving standards and conveying that quality to consumers. The standards Chinese brands apply are nowhere near as rigorous as that of international brands. This will change if a company is committed to excellence and consumer needs.

Delivering what consumers want also means that companies will have to start innovating and not simply offering “me too” products. As a brand expert from Mexico says, “When Chinese brands start to surprise the world with great design and innovation, then leading brands will start designing in China. Today, China only copies stuff and produces it cheaply.”

Another key element would be to develop an after-sales culture. The realisation will need to set in that a sale is not the end of the journey with consumers, but the beginning of a relationship and that you are accountable for your product well beyond the sales transaction.

To make all of this a reality will involve some drastic changes in company structures to accommodate a marketing rather than a manufacturing or sales orientation. Many Chinese companies do not have a true marketing function and even if they do, often that constituency does not have a seat at the boardroom table.

If Chinese brands do indeed make that mindset change and start delivering true quality, international brands will have to watch out. A brand expert from India sums it up nicely – “Chinese brands at present are mostly about low cost and poor quality. If they can gear up to offer high quality and lower costs, they will start posing a serious threat to international brands.”

Thomas Isaac is head of the Research Department for the TNS International Research Centre based in Hong Kong. His market research career spans 18 years, with experience handling custom research projects across a range of industries and regions. Thomas has worked in research in India, Vietnam, Hong Kong and Singapore. He gained a bachelor’s in Economics and Accounting and holds an MBA from Ohio University.

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