Branding the Dragon

I've written a few posts about how a lack of cultural competency has affected US firms trying to do business in China, but cultural mis-communication is a two-way street. This morning I had the opportunity to meet with Wayne Cozad, owner of Cube Management. During the course of our discussion the topic of culture as it relates to business came up. Mr. Cozad told me about lectures he conducted in China about branding, and how his Chinese audience audience just couldn't grasp the concept.

An example he used was a Chinese shoe manufacturer who can produce "Nike quality" shoes for $2/pair. She'd been trying to penetrate the US market, confident that Americans would see the value of her product. However, she could not find a US distributor that was interested. Mr. Cozad tried to explain to her the concept of branding and US consumers' perception of value based on price. However, as hard as he tried she just didn't get it.

Made in China
This conversation brought up an interesting point: the "Made in China" brand is a weak one. Both American and Chinese consumers tend to associate Chinese made goods as being cheaply made and of inferior quality. However, consider for a moment the high-quality brands that source from China. Brands like Think Pad (computers), Cummins (diesel engines), and Nike (sport shoes) have stellar reputations for quality, and all source at least part of their product lines in China. These brand identities override the lesser respected "China brand", earning customer respect and brand loyalty. Obviously Chinese made goods can be of superior quality. Perhaps we (Americans) are responsible for the the Chinese brand identity due to our historic focus on price over quality?

Re-branding China
I believe the next step in China's economic development (and the next big industry) in China will be the the re-branding of the "Made in China" brand. I spoke of this in a previous post about China's economic cycle. As the cost of labor continues to rise, Chinese exports will shift from price-based to quality-based. Haier (appliances) is ahead of the curve as they are already penetrating US markets with quality appliances. Japan made this same transition. Immediately after WWII, Japan flooded the US market with cheaply made goods in an effort to generate capital to rebuild its infrastructure, earning it a reputation as a source of low-quality manufacturing. Once the Japanese economy started to pick up, so did the quality. Today Japan is known for sophisticated, high-quality exports. Why would China be any different?

In order to successfully make this shift, China will have to re-brand itself as a source of quality goods. However, unlike post-WWII Japan, China has a severe shortage of managers and less experience in dealing directly with western markets and business models. Entrepreneurs in China poised to educated Chinese manufacturers about branding and western perceptions of quality based on pricing will be instrumental in facilitating this shift, and be rewarded dearly for their efforts.