How to Beat 'Made-in-China' Fear

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A leading maker of air conditioners, Midea plans to back the Chinese swimming and diving teams to improve awareness of its products and its slogan—"Creating a Better Life for Humans"—around the world. Although the Shunde (Guangdong) company sells to 13 countries, including the U.S., Germany, and Japan, 80% of its exported air conditioners carry other companies' names. Now, Midea aims to use the Olympics to boost its sales of Midea-branded product in Eastern Europe and Southeast Asia. The company's "old model can no longer meet the need of development. Branding becomes increasingly important instead," says Dong Xiaohua, branding director at Midea.

Other companies have decided to channel their investment into research and development to improve the image of their products. Last year, ZTE spent just 1% of its $3 billion in revenues on branding, but 12% on R&D. The company's 20,000-strong research team is working on wireless technology and handsets in research centers spread across China, as well as in the U.S., Sweden, France, and India. "The most common opinion of China products today is that they are low cost and also of low quality. A change needs to be made." says Hou Weigui, chairman of ZTE.

Meanwhile, Huawei devotes 10% of its revenues and almost half of its 70,000 employees to research and development. By the end of last year, their work had generated almost 20,000 patents, more than any other company in China and No. 13 in the world. "Huawei has gotten rid of the low-cost, low-quality image of many Chinese companies," says Johnson Hu, Huawei's vice-president of corporate branding and communications.

Haier's Portable Wine Coolers Are Hot

ZTE and Huawei are also bolstering their images by developing more sophisticated products and seeking to expand in the U.S. ZTE recently signed a deal with Sprint (S) to provide the carrier with wireless equipment, and in late September, Huawei announced that it was teaming up with Bain Capital to acquire U.S.-based networking equipment maker 3Com (COMS).

Haier Group, for its part, has honed a particularly local strategy for both its products and marketing. The appliance maker, which was recognized by nearly a third of respondents to the BusinessWeek/Interbrand survey, designs its products and shapes its marketing based on local preferences. The company has eight overseas design centers stretching from Tokyo to the French city of Lyon to Sydney, where it develops products geared for special niches. In Pakistan, Haier builds extra-large laundry machines, popular because of the custom of washing large quantities of robe-like clothing in one load. As a result, Haier boasts that it controls more than 20% of the Pakistan market. In the U.S., Haier's small refrigerators are a hit on college campuses, and its portable wine coolers have grabbed 30% of the market.

The company also tailors its marketing. Haier spends on advertising in major business districts: Tokyo, Hong Kong, Paris, and Dubai all feature huge Haier billboards. The company sponsors events such as the MTV Asia Awards. Its high-definition television serves as the official National Basketball Assn. TV, and its sponsorship of Russian tennis player Anastasia Myskina (ranked No. 3 in the world in 2004) has heightened its popularity in Russia. The formula seems to be working: Haier says its total overseas sales were $3.3 billion last year.

Geely Retools Its Mainland Reputation

Even as the likes of Lenovo, ZTE, Huawei, and Haier push their brands overseas, others are working to overhaul their reputations on the mainland first. Take automaker Geely, long known for cheap cars such as its $4,300 Merrie Star subcompact, about $1,000 less than General Motors' (GM) cheapest mainland offering, the Chevrolet Spark. "In the past we always have had to sell our product at a big discount to foreign brands," explains Lawrence Ang, Geely's executive director. "We could live with that when we knew our design, our quality, and our reliability were not as good."

In the past few years, though, Geely has tried to close that gap. The automaker has turned to foreign companies such as German engine technology house FEV to develop improved engines. And now it's trying a new marketing ploy to change customer attitudes: contests. The company is holding a series of competitions in cities across China to pit its models against foreign rivals in tests of everything from engine noise to comfort. The Geely King Kong sedan, which runs on a newly designed, fuel-efficient 1.8-liter engine, is touring 26 cities and squaring off against competitors such as Audi and the Buick Excelle. "We realized that without a brand to differentiate our products from others, it would be very difficult for Geely to survive," says Ang. Unit sales in August, 2007, were up 33% over the same month last year, and up 22% over July.

Increasingly, Chinese companies will go up against better-known global players—and low-cost rivals from neighboring countries. Although shoddy product quality represents the most immediate crisis, the long-term challenge for companies is to invest to develop goods of greater value that can sell for higher prices both at home and abroad. Just as South Korea and Japan overcame their reputation for low quality, Interbrand's Chajet predicts that so eventually will China: "We know that someday China will be known for more than just low cost," he says.

For more on emerging Chinese brands, visit BusinessWeek's slide show.

Roberts is BusinessWeek's Asia News Editor and China bureau chief.