Lessons for Chinese Companies as They Go Global

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Li Ning's first celebrity endorser in the U.S. was fourth-tier National Basketball Assn. player Damon Jones, not the kind of player kids on playgrounds want to emulate when compared to Nike campaigns involving LeBron James, Tiger Woods, or Michael Phelps. Li Ning has failed to determine its core market or brand niche; sputtering North American sales are a result.

On the opposite end of the spectrum, Haier may be the best example to date of successful branding abroad by a Chinese company. Instead of trying to compete in the market for large, high-end refrigerators as it does in China, Haier reinvented itself for the American market. It introduced a multipurpose mini-refrigerator designed for use in college dormitories and as a small wine cellar. Haier's niche products rapidly gained in popularity.

Combined with its legendary commitment to quality control—Chairman Zhang Ruimin smashed faulty refrigerators with a sledgehammer early on in the company's history to emphasize the importance of quality to his employees—Haier leveraged its niche to move into different product lines and grab market share in the U.S. This growth has helped fuel the company's 40% annual growth rate since 2000.

By focusing on building its brand first and introducing niche but high-quality products, Haier delivered a clear and unique value proposition to American consumers. It is critical that Chinese firms that go abroad understand what their value proposition is to consumers.

Balance HQ and Local Leadership

Another problem that companies run into when they move abroad is figuring out how to balance control between home country headquarters and local management and maintain corporate culture in distant offices. Chinese companies can look to the experiences and mistakes many Western companies have committed when entering China.

eBay (EBAY) serves as a good example of what not to do. After acquiring local auction house EachNet, eBay started to centralize its decision-making from headquarters. Having earned the dominant position in the U.S. market, eBay executives had very strong opinions about how the company should be run in China. However, when applied to China, many of its winning strategies no longer delivered and did not fit the wants and needs of Chinese consumers.

Although eBay initially had the dominant share in the auction space, the American company bungled its lead and lost its position to Alibaba.com's Taobao e-commerce service, primarily because of eBay's inability to bridge the divide between the local office and headquarters.

Chinese companies should learn from this example and resist relying entirely on headquarters in China to make decisions. Local management teams need enough autonomy to make decisions and give the company flexibility on the ground. Home-office decisions will often not be fast enough or on point enough to allow a company to thrive. Additionally, foreign managers need to be recruited and know that there is no glass ceiling for them within the organizations.

Make Acquisitions—The Smart Way

Many of the respondent companies we interviewed that were most successful in their overseas expansion were those which had used M&A as a means of going abroad, and used it right. For many Chinese companies, mergers and acquisitions can be not only a quick way to gain market share abroad, but a means of access to expertise and cutting-edge technologies. With the financial crisis today creating a lot of buying opportunities in undervalued companies with good talent, M&A can also be used to overcome the difficulty of finding the right mix of talent to lead the company in its push to grow overseas, which was considered a top challenge in overseas expansion by a full 75% of executives we interviewed.

Beijing Hualian Group used M&A to gain its foothold abroad.