The trouble with China's brands
The Brutal Truth About Asian Branding: And How to Break the Vicious Cycle by Joseph Baladi
See Interview with Joseph Baladi
Reviewed by Benjamin A Shobert
There are a lot of reasons many in the West are critical of China's economic future. The more philosophical political critics point toward what they believe are incompatibilities between China's economic model and its political system; but these tensions have always existed in China and, frankly, as even its critics have to acknowledge, these have had little negative impact on the country's growth over the past several decades. Perhaps the most salient critics, however, point towards the lack of captivating brands that originate in China and radiate throughout the world.
To this group of critics, this suggests China's economic growth owes more to its ability to produce at low costs versus a national ability to innovate and build products that create consumer
attachment and delight. And, in their mind, at some point Chinese businesses will no longer be able to chase cost, and when that happens China's economic growth will come to a grinding halt. For these pundits, China runs the risk of always making someone else's products, under someone else's brand. This might be profitable for a bit, but the fickle winds of trade policy, currency exchange rates, and political fear-mongering can easily empty a nation of its accumulated wealth, as China well knows.
Joe Baladi is not the first business marketing expert to ponder the question of why more Asian companies - and Chinese ones especially - do not own compelling consumer brands, but in his new book The Brutal Truth about Asian Branding ... And How to Break the Vicious Cycle, he lays out one of the most comprehensive and compelling explanations about why this is so. And, as Baladi knows, developing brands consumers are attached to remains a critical next step for large Asian companies, in particular those based in China, if they are to make the transition from good to great businesses.
It may even prove necessary for a currently embattled form of globalization to continue and mature; to prove to the overly-sensitive American public that doing business with China can ultimately deliver more than cheap products, but new and innovative ideas that better the lives of everyone.
China's manufacturing sector is deeply wedded to America's consumer products sector, and because of this many China watchers have long assumed that the country would develop brands capable of launching themselves into developed markets by Chinese companies that would make the transition from captive production to custom creation. But, for all the Harvard Business Review, Fortune Magazine, and Economist articles about the possibility of this happening, and the same seemingly five companies repeatedly profiled in these pieces, it just has not yet materialized.
As he writes, "Most of these brands boast strong levels of local awareness, as well as big consumer franchises in their own countries. But with very few exceptions, they have failed to generate sufficient escape velocity to replicate their success in substantive measures outside of their home markets." (pg 21) While the shelves of American retailers may be filled by products made in China, none of them are recognized by American consumers, and those that are most valued are American and European owned brands.
Baladi agrees with this, but instead of throwing up his hands in resignation, his analysis wrestles to the ground what impediments seem to exist for Asian companies and Asian leaders to make this transition. Possibly most important, he proposes solutions where others only see dead-ends or impossibility. Much of this is because Baladi's work walks a fine line between acknowledging how certain cultural values - in particular those inherent within the Confucian leadership model - have the potential to benefit or limit strategic business thinking and innovation.
For Asian executives who read Baladi's book, his criticism of the Confucian leadership model, in particular the dynamic of "the CEO who knows best", may hit close to home. Early into his book, Baladi writes that:
The traditional hierarchical management structure that still characterizes most Asian companies has impeded, in some measure, the creation and sustainability of competitive advantage. Where the CEO rules absolutely, creativity and innovation falter. Where the CEO considers himself an oracle of knowledge, very few dare to question, contradict, or even offer an opinion. Where the CEO seeks validation, most will rush to agree with him and offer reassurance. Where brand is the catalyst and branding the process that determines the very flavor of a company, most Asian CEOs are settling for vanilla. (pgs 2-3)
Yet on balance, Baladi's analysis always manages to critique while at the same time ending on a positive note, typically about how these long-held values can be used constructively, and also how they can be most effectively changed. Where critical, his analysis is never without a framework presented later on that addresses the weaknesses he sees. In the case of his criticism of the Confucian leadership model, he is also quick to acknowledge that its emphasis on education has done much good for Asian countries, and may well seed the path forward for the next generation of leaders.
Baladi believes that Asian business executives have downplayed the central lesson that "The single, most profound thing American businessmen figured out a long time ago was the brands fundamentally define people." (pg
. Why is this? Well, if Baladi is right, this is because Asian businessmen have been in such a rush to build wealth they have the connection between brands and profit turned around. In his opinion, "making money is, rather, the result of a coherent strategy". (pg. 27) It may be, although Baladi's analysis does not make this point, that this over-emphasis on profit is largely the result of entrepreneurial passions long suppressed in communist China that are now finding their outlet. The fixation on profit first makes sense within the context of a national economy where doing so for many years was illegal. But, if China's ability to teach itself that making a profit is indeed "glorious", then it would seem a poorly informed bet to think they will not also learn to make compelling global brands.
It is almost impossible to not read Baladi's book with the question of what his analysis has to offer regarding China's national brand. From the perspective of Western consumers, being "Made in China" stands for many things, not least of which is a certain cynicism about quality. The government in Beijing knows this, which is partially why it invested in promotional TV and Times Square billboard ads. These halting efforts on the part of China's government reflect not only a need to push back on some of the fears about China that are growing politically dangerous, but also to redefine the Chinese brand away from cheap manufactured goods. On this point, Baladi writes that:
The "low cost = high consumer demand" formula has created a momentum that has lasted some 20 years. Many Asian CEOs consider business during that time as having been good, and they see no reason to change their business "philosophy". But the times are changing. That early-model engine, while still powering much of the region, is beginning to feel stretched and tired, and seems visibly out of place on the superhighways that are increasingly replacing the old roads. (pg 264)
Yes, as of today strong Chinese brands do not really exist. And, if author Joseph Baladi is right that "The general consensus is that a robust and genuine Asian/Chinese century is pretty much a done deal ... This can only mean that great Asian brands will also need to be developed ... The longer it takes for Asia to create great brands, the longer it will take for the region to achieve its potential - or, some say, its destiny." (pg 23), then his work suggests this brand building just another obstacle a highly motivated country will prove capable of putting in its rear-view mirror.
And, if Western companies disliked competing with China's manufacturing power, they are going to dislike competing with the country's brand building capabilities even less.
The Brutal Truth About Asian Branding: And How to Break the Vicious Cycle by Joseph Baladi. Wiley (March 15, 2011). ISBN-10: 0470826479. Price US$29.95, 288 pages.
Benjamin A Shobert is the managing director of Teleos Inc (http://www.teleos-inc.com), a consulting firm dedicated to helping Asian businesses bring innovative technologies into the North American market.