Global Observer

Why you'll soon see more Chinese multinationals

Why you'll soon see more Chinese multinationals

Posting in Finance | From Issue 12 March 3, 2014

With a huge domestic market, it's easy for Chinese companies to settle. But some are daring to branch abroad. What's the secret to their success?

China seems like a dream market for any enterprise. After all, it's the world's most populous country, it has the world's second-largest economy and urban household income there is expected to double in the next decade. So why would any Chinese company bother to expand overseas?

While China offers plenty of opportunity, there is also stiff competition. China’s domestic markets are often highly unconsolidated – for example, more than 100 Chinese car brands battle it out not only with each other but also with the big international automakers.

"If they want to beat the multinationals in China, they need to learn the strategies of these brands. Where better to learn that than abroad?" says Deepender Rana, Managing Director of Millward Brown Greater China, which recently published a study on the Top 100 Most Valuable Chinese Brands

When Millward Brown began international brand rankings five years ago, only one Chinese company made it into the world’s top 100; today there are 13. Although Chinese expansion abroad is still in the early stages, some notable success stories are already drawing admiration.

Now number one in PC sales worldwide, Lenovo has been a poster child for going global, with 57 percent of the company’s revenue derived from international business.

While the acquisition of IBM’s personal computer division in 2005 undoubtedly helped catapult Lenovo onto the world stage, the key to the company’s ongoing success has been its attitude: it hasn’t just gone global, it is also thinking global. 

As well as changing its English name from Legend to Lenovo, so that the brand could be easily recognised across multiple countries, and hiring Ashton Kutcher (pictured above) as a product engineer and celebrity pitchman, the company has taken significant steps to make its operations truly multinational. "They have their international marketing center based out of Bangalore and their global CMO was based out of Singapore for some time. They attract global talent and are respectful of the fact that what made them successful in China and what will make them successful abroad could be different," Rana explains.

Ditching a "one size fits all" mentality and adapting to local conditions is key. Home appliances company Haier has seen rapid growth abroad thanks to its individualized approach in different markets. In the developed, slow-growth market of North America, it found its niche selling mini fridges.

Meanwhile in developing markets, Haier uses what managing director Li Pan calls a "three-in-one" strategy: establishing localized factories, sales channels and sales offices in each country so that the company is closer to the end user and can better tailor its products. Li gives the example of Nigeria, where Haier enjoys 45 percent of the market share for refrigerators and freezers. "We noticed that in Nigeria, users often experience power-cuts of up to ten hours. Based on that problem, we developed a special freezer that can last 100 hours without a power supply. With that unique selling point, we can beat other brands in the market."

Chinese companies like Haier have triumphed in developing markets in Africa and the Middle East because, Rana says, they are used to the demands of emerging consumers. His view is echoed by Kaiser Kuo, Director of International Communications at Baidu, a market leader in China, which, after an aborted attempt to launch a search engine in Japan, is now developing search and mobile products for markets in Southeast Asia, the Middle East and Latin America. He says, "[In China] we’re serving two wildly different markets in one nation. The first-tier cities and richer coastal belt are like a developed market, at the same time we are serving this hinterland market that is like the developing world. As we straddle these two, it’s a real advantage."

In lesser-developed areas of China, some users only have internet access through cell phones and many find it challenging to operate keyboards using the Roman alphabet, a script that is foreign to them. Drawing on its experience with these domestic users, Baidu has developed products that are also highly attractive to users in emerging markets who face similar problems. "It’s not a question of dumbing down existing products,” says Kuo, “Actually they’ve got to be smarter because people expect technology to deliver more the less sophisticated they themselves are."

By using their experience in China, but at the same time carefully adapting to the specific needs of foreign markets, an increasing number of Chinese companies are seeing success abroad. But buyers don’t necessarily realize these companies are Chinese. A Millward Brown study revealed that 83 percent of consumers outside of China couldn’t name a single Chinese brand. "Brand China still has some way to go from being seen as the world’s factory. The government has tried to change this image – for example, advertising in Times Square. But the best ambassadors will be individual brands," says Rana. But, he adds, "This takes time – people forget but think how long it took for Japan or Korea to arrive." 

Photo: Lenovo

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Gabrielle Jaffe

Correspondent (Beijing)

Gabrielle Jaffe has been published in The Atlantic, The Los Angeles Times, The Guardian, The Telegraph and The Times, and is currently a contributor at Time Out Beijing. She holds degrees from the University of Oxford and City University London's Department of Journalism. Disclosure