Lessons for Chinese Companies as They Go Global

With the right marketing and human resource strategies, Chinese companies like Haier are taking advantage of the world's slowing economy to emerge as global brands

By Shaun Rein

Flush with cash, credit, and the ambition to become global players, leading Chinese firms are taking advantage of the fear and tumbling stock markets in America and Europe to increase their international presence. While the is certainly slowing, the country has not been wracked by the credit squeeze that has hit the rest of the world, as there is the tacit feeling that the government will bail out any of the big banks in distress.

Chinese firms are in the hunt to use their cash to make acquisitions, as Industrial & Commercial Bank of China did with Standard Bank in South Africa last year. With plummeting valuations and weakened American firms slashing payrolls and marketing budgets, look for the trend to continue.

In the last few months my firm, the China Market Research Group, has conducted more than 500 interviews with senior executives from 100 leading Chinese companies in 10 industries, from consumer products to clothing to food and beverage. We found that more than 70% of large industry leaders have already made meaningful steps toward global expansion, as have more than a third of smaller industry leaders. Most companies said they expected to increase their plans for international expansion in light of the global turndown.

Accordingly, direct investment by Chinese companies abroad is growing at breakneck speed, up 353%, to $19.34 billion, in the first quarter of 2008 compared with the first quarter of 2007. Many companies such as home appliance maker Haier have had considerable success becoming international players as they carve out niches and compete on brand value. While most Chinese firms have focused on expanding first into emerging markets in the Middle East and Africa, they are now also looking to North America and Europe and new opportunities in those regions.

In our experience in helping companies go global, we have noticed many Chinese companies making the same mistakes when going abroad that foreign firms make when moving into China. Having analyzed these successes and struggles, CMR has determined the following key strategy points that Chinese companies looking to go global must incorporate into their expansion plans. The Chinese firms that get it right will become the next Sony (SNE) or LG Electronics in the U.S. The ones that do not will fall the way of the Yugo.

Define Your Brand

Most Chinese companies have focused on selling at the cheapest possible price rather than by creating a long-term brand image. In China, where many consumers lack the brand savvy and disposable incomes of American consumers, this strategy has often paid off. However, in the U.S. brand loyalty is higher and consumers buy for emotional reasons, so it is critical that Chinese companies find their niche and develop a sustainable brand strategy. If they do not, they will essentially commoditize themselves and lose when a lower-cost brand from a Vietnam or India emerges.

A case of a company doing a weak job when expanding internationally is sports apparel maker Li Ning. Although it competes head-to-head with Adidas and Nike (NKE) in China, and gained worldwide fame for having Li Ning himself run around the Bird's Nest to light the Olympic flame, the company has not made great inroads into the U.S. because of subpar marketing. In China, Li Ning positions itself as the best Chinese brand rather than a good-value brand or the most innovative brand, but that is not a strategy transferable to the U.S., where Li Ning himself has low name recognition.