Special Feature by Patrick Avenell

Since the thawing of international relations and the introduction of limited capitalism to China in the 1990s, we have seen several distinct paths to market for Chinese operators. Some have been more successful than others though none have been entirely convincing.

White Label Transition

The first is to act as an Original Equipment Manufacturer (OEM) for an existing brand, with a view to enter the market at a later date. Both ZTE and Huawei have been OEMing smartphones, wireless dongles and tablets for various brands, most noticeably the Australian telcos, for many years. Having arrived in Australia in 2004, Huawei began leveraging that history to launch its own brand of products in 2010.

Former journalist and PR agent Luke Coleman was recruited to run Huawei’s communications department as it transitioned from white label manufacturer to its own brand. Having spent the previous six years “targeting the lower end of the market with sub-$100 phones”, as Coleman put it, Huawei’s transition was not a simple one.

“You’ve got to have products that match the brand image you are trying to create. For Huawei, we didn’t just want to be a basic, low-end player that was producing white label products,” he said. “We wanted to launch a brand that made high-tech products at an affordable price.”

The smartphones at that first launch were not exceptional — some even used bespoke in-house operating systems instead of the more fashionable Android OS — but advancements have been made.

“If you look at the smartphones Huawei was making two years ago, compared to what we are making today, it is a quantum leap in turns of design and efficiency and product quality,” Coleman said, citing the newly launch, “world’s slimmest” Ascend P6.

It hasn’t been easy or cheap for Huawei to launch its own brand. Soon after debuting in Australia, the Federal Government publicly banned Huawei from the NBN rollout, a major blow for a telecommunications company, because of supposed, though vehemently denied, links to Chinese espionage services.

One week later, the company announced a long-term sponsorship of the Canberra Raiders NRL team. It is this mixture of hostility to Chinese-ness and expensive marketing activities that make it so hard for Chinese brands to establish themselves.

“There are plenty of other [companies] coming out of China but brand recognition is not something you can just create overnight,” Coleman said. “It is a huge investment and Huawei has had to put a lot of investment into that — whether it is branding or the quality of devices — you’ve got to lift your brand in all of those areas.”

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Asian Tortoise

Other Chinese companies have arrived in Western markets by establishing a beachhead, normally a small office and with agency distribution. This allows the brand to penetrate retail, often as an exclusive provider of low cost products (which is great for cataloguing), before bringing on more dealers and raising prices as brand awareness grows.

This has been the path of Chinese brands such as Changhong and Hisense. As these companies attempt to dispel the ‘cheap and nasty’ pejorative, they must battle with quality and reliability perception (like the Koreans in the 1990s and the Japanese before them) while slowly reducing the fast-follower gap and increasing ASPs.

Nirmalya Kumar, a marketing expert from the London Business School, calls this the ‘Asian Tortoise’.

“Many [Chinese brands] are taking the traditional route to building brands out of Asia that was pioneered by the Japanese (for example: Honda, Toyota) and subsequently followed by the Koreans (for example: Hyundai, Samsung),” wrote Kumar in a recent essay entitled Can You Name A Chinese Brand?.

“This ‘Asian Tortoise’ route starts by entering niche markets at a low price, and then slowly increasing quality and price over time.”

Although there are three Chinese companies in the Fortune Global 500 Top Ten (30 per cent) and 73 in the 500 overall (14 per cent), there are zero in Interbrand’s Top 100 Brands Lists, despite companies such as Lenovo being the world’s biggest in its field.

Gaining brand recognition is very difficult if it sounds too Chinese — that’s the brutally honest assessment from branding expert Gary Broadbent, founder of Propella Branding.

“Generally speaking, some of the Chinese brand names are actually quite hard to voice,” he said. “You don’t want people to get it wrong and be corrected later, to make a fool of them.”

Broadbent likes to use the ‘beer call’ to assess brand names. Imagine going up to the bar and asking for a VB or a Carlton or a New — all very easy to say. Now imagine asking for a Huawei or a Changhong or a Baidu…

“If you ask a barman for a particular beer, it has to sound good coming from your mouth: you have to able to say it easily, comfortably and confidently.”

It may be too late for some, but for companies still to launch in Australia, Broadbent recommends ‘Westernising’ the brand, much like the Japanese companies did after World War II. For example, what started as Matsushita (very Japanese) became National (very Western) before settling on Panasonic (combining Japanese heritage with positive Western attributes of ‘sonic’).

Purchasing Power

Having tried and faltered several times to launch in Australia, Haier took the plunge by acquiring a 20 per cent, cornerstone stake in Fisher & Paykel in late 2009. This association with a much-loved brand finally proved sticky enough to cement its position.

At the time of Haier’s original courtship with Fisher & Paykel, in transit between levels of a concept store shopping centre in Hangzhou, then Haier president Philip S Carmichael regaled an elevator full of Australian and New Zealand journalists with claims that Haier would “beat them all” because of this partnership-cum-takeover.

Now that Haier fully owns F&P, it has as secure a foundation as any Chinese brand in Australia.

Suppliers talk of creating ‘a powerhouse of super brands’, such as De’Longhi (with Kenwood and Braun) and Electrolux (with AEG, Simpson, Kelvinator and others), which can create intra-stable branding ideals while maximising marketing efficiencies, like having one stand at a tradeshow instead of many.

“De’Longhi has three premium brands, but how are these superbrands relevant to each other?” asked De’Longhi Group Australia general manager Tom Mitchell at a recent presentation. “They all stand for the best, they are all premium, they all have unique DNA, they all provide difference, they have their own style they appeal to different customers.”

Just as De’Longhi’s own brand is strengthened by association with Kenwood and Braun, Haier’s is strengthened with Fisher & Paykel.

Tough Choices

The acquisition route has placed Haier in a very strong position. Long term investment and product development has allowed Huawei to transition out of white label obscurity and into its own skin.

For the Asian Tortoise route to be successful for Chinese brands a significant investment not just by each individual company but by the abstract collective that is ‘Brand China’.

“It is very hard to differentiate the culture of Chinese brands, other than that they are Chinese,” said branding expert Gary Broadbent. “You don’t know what they stand for — you don’t know their brand values.”

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