GM Exam Case Study

8/6/2019 GM Exam Case Study

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(Adaptedrom a presentation adeby AndrewPapadimos,

Austra l ian atholic niversiry t the Internationalusiness

an dEconomy onference,onolulu,awaii, anuary -8,2006)

China's entrance nto the'World Trade Organization in

December2001 meant the opening of China's domestic

market to foreign competition. However, t also opened

the doors of other membercountries o Chinesecompe-

tition.'When Western

and Japanesemultinational cor-

porations enter foreign markets, they also carry with

them their own brands, capital and technology. Can

Chinesecorporations do the same?Chinesecompanies

like TCL and Haier have aken the first successful teps

in the internationahzation of Chinese enterprises, and

have demonstrated hat Chinesecorporations do have

limited successoverseas.Their experienceshave also

become emplates or the increasingnumber of Chinese

enterprises hat are s tepping out into the international

market. However, there are still many problems facingChinese companies on their path to internationahza-

t ion, as the famous Chinese wool manufacturer

Hengyuanxiang discovered when it ventured abroad.

While Hengyuanxiang has great brand recognition at

home, its name is meaninglessnternationally.Also, the

names of other famous Chinese companies such as

Lebaidi and Yangzi die out once managementhas been

handed over to international corporations.

For Chinese brands to survive, therefore, they must

develop, but to develop they need to internationalize.

Brand internation alization for enterprises from devel-

oping nations facesall sortsof challenges, nd this piece

will examine the problems and issues surrounding



Chinese companies in their journey toward brand

internation ahzation.

Chang inghename

Chinesebrand namesoriginate with the Chineseenter-

prise, and all copyrights are owned by that enterprise.

They are registeredas Chinese characters at startup,

and, as in the West, the company tries to make the

namecatchy', ometimeseven ncluding geographic andpersonalnames.Chinese rand namesma y alsobe reg-

istered using Pinyin Romanization, eg. t(fi : Chang-

hong : Rainbow. Chinese brand names have two

maior f laws:

1. Because nternational recogniti on of Chinese brand

names s low, Chinesecompaniesare unable o enter

host markets n the sameway as globally recognized

US brandssuchas IBM, DELL or Coca-Cola.

2. Even if Chinesebrands do have a romanized ver-

sion,'Westerners

will still have difficulty' pronounc-

ing it becauseof linguistic differences. This issue

alone can mean the death of Chineseproducts in

foreign markets.

The basicprinciples of brand name developmentare

that brands should be easy to recognize, easy to

rememberand easy o pronounce. Chinesebrands meet

none of these requirements when they enter interna-

tional markets.

Al l of the internationally successfulChinesebrands

changed heir names ong ago. iEfi has becomeHaier;

iS' fH(Haixin) ha s become Hisense;TCL (simply no

Chinesename); * fi ! (Meide) has becomeMidea, etc.

The first step for internation alizing Chinese compa-

nies therefore, is to make their brand more globally

recognizable.

During the 1970s an d 1980s,Japanese ompanieswere faced with similar problems when they first

entered the international market.'When

Matushita

arrived in the United S tates, t changed its name to

Panasonic; ffHEbecameCanon; and in an attempt to

hide its Japanese race,Bft was renamed o Konica.

Adapting Chinese brand names to the linguistic styles

and customs of the local country is at the core of

Chinesebrand internationalization.

This certainly does not mean, though, that all Chi-

nese brands must change their names when going

abroad. For example, Chinesecompanies which trade

on their products' unique Chinesequalities and charac-

teristics would be foolish to change names. Examplesinclude the company Tongren Temple, which is a

maker of Chinesemedicine or Chinese estaurants. n

these nstances,Chinesecharactersand Pinyin Roman-

ization become a distinct marketing advantage n the

saleof such products to'Western

consumers.

Chapter Product ecisions465

Establ . ish ingnternat ionaIrand ecogni t ion

After many years of competitive low prices, an impres-

slon has been created that Chinesegoods are inferior to

those produced by other countries, especia l ly in

Europe, the United S tatesand Australia. As a conse-

quence,even more barriers to the internationalization

of Chinesebrands are created.Bu t where are the great-

est difficulties? It is in establishing brand recognition,

for without brand recognition and prestige value, a

brand has no value at al l.How can Chinesecompaniesestabl ishbrand pres-

tige overseas?One method is to proceedgraduallS and

first establishmarket prestigeand brand consciousness

in developing nations and regions. For example, if

Konka opens a factory in India and TCL opens one in

Vietnam, and their operations slowly take root, brand

prestigewill establish tself gradually.But there are still

some serious laws in this method: although establish-

ing brand recognition in developing countries'markets

is easierand quicker than in developedmarkets, estab-

lishing brand prestigealways needs o follow a course

of moving from the unfamiliar to the familiar, and

from initial suspicion o trust. Opening up a market inan undeveloped country, then a developing country,

and finally a developedcountry is time consuming and

strenuous.Moreover, the easier he access o a country

or area, he more is its capacity o be imited. \7hile the

company may have establishedprestige n the undeve-

loped country, it cannot translate this experience to

other countries n the region. Fo r example, establishing

brand prestige n Vietnam does not help brand recog-

nit ion in the Malaysian or Thai markets, and the so-

cal led easv markets may actually not be that easy o

enter.Thei ' may possib ly be already crammed full of

other mult inational corporation'sproducts (suchas n

the caseof Vietnam), or be politically or economically

unstable suchas Afghanistan).Therefore, starting with the seeminglyeasymarkets,

and moving on to more difficult ones o establish nter-

national prestige is usually time-consuming and inef-

fective. This is also a major reason why Chinese

enterprises iv e up on exporting their brands in favour

of producing OEMs.

If we hark back to the experienceof Japanese om-

panies, we can then see that the only way to really

achieve brand internationalization is through the

processof starting with the difficult markets, and then

moving on to the easierones. t took Sony a decadeof

hard work before it first entered he American market

in the 1950s, and then found it easier to expand toother parts of the world. Japan's domestic electrical

appliance and automobile industries soon followed the

samepattern.

Brand internationalization is therefore best achieved

by companies aking the difficult road before the easy.



466 Internationalarketingndexportmanagement

For example, he reasonHaier entered he international

market was not because t had entered the Southeast

Asian and South American markets first, but becauset

had come to a standstill in the US market. Matushita,

Sony,Toyota also captured the American market first,

and then moved on to the European, Latin American

and African markets. Moreover, Hisense entered the

South African market after it discovereda blank spot,

and rapidly expandedacrossother borders.Why did it

do this? BecauseSouth Africa is the most developed

country on the African continent and is where compe-

tition is at it s most intense.Acceptanceof a brand namein the South African market meant acceptance hrough-

out Africa. But Hisense's uccessn Africa did not help

it s success n developing the European and American

markets. Haieq however, had a different experience.

Successn the American market was akin to global

approval of its quality and good standing, and helped t

establishmarkets in more than 100 countries n a very

short time frame. A market may therefore seem mpen-

etrable at first. but once a niche market has been ound

in a country, further breakthroughs becomeeasierand

market expansion continues.

l s Chinese rand nternat ionat izat io nexportat ion r locat izat ion?

Another issue regarding Chinese brand internation-

alization is whether products should be domestically

produced with a view for sales overseas, or whether

Chinesecompanies should carry out production over-

seas.There are currently two opposing views in regard

to this issue.The first view is firmly opposed to estab-

lishing factories overseas. t seesChina's large popula-

tion and cheap labor as the chief reason for its cheap

manufacturingcosts. t is also why China has become

the world's production processing base fo r electrical

appliances, lothing and electronicproducts. The argu-

ment goes hat while Europe, the US, Japan and other

developedcountries ar e moving their production bases

to China, if China setsup factories n thesecountries,

it will sacrifice ts cost superiority. Therefore, propo-

nents of this view approve the internationaltzation

of Chinese brands, but also place Chinese labels on

Chinese products that are being sold overseas, hus

being a form of localisation.

Another viewpoint suggests that, while Chinese

companies should explo it th e cost superiority of

domestic production, when the time is ripe, and the

Chinese market has reached it s capacity, China must

internationali ze ts production basean d establish ac-

tor ies overseas.What

are the advantages f th is? Onthe one hand overseasmarket information can be bet-

ter understood, and faster market responses made.

On the other hand, it relays a message o the cus-

tomer that Chinese corporations are ready to solve

problems as necessary, nd meet the needsof overseas

customers.

The latter opinion is the more convincing.The inter-

nationalization of Chinese brands is not an urgent

demand, but rather one that is more of a long-term strat-

egy.China possessesost superiority today, but, in ten or

rwenry years, his advantagemay vanish. Brand names

need o live much longer.Therefore, t is inevitable hat

Chinesebrands will internationalize,and this demands

both overseasmanaged factories and internationaliza-tion. Even n the short term, Chinesecorporations must

leaveChina. What can Chinesecorporations earn from'Western

MNCs? All MNCs have their antennas n the

global market, and are extremely aware of market con-

ditions. They possess rand superiority, and their brands

(such as Coca-Cola, Sony etc.) have taken root in con-

sumers' minds. Compared with Chinese corporations,

tl.t' rt." tt""."".t

.'

m.ent, and are able to design products th2t rrr-t-Tl-s'}--.---.--needsof the inlef?Tronal market. China's/only ldvah-

tage is its low production costs. But now thsd-$(6stern

and JapaneseMNCs are using ChineseOEMs (original

equipment manufacturers)on a large scale,and takingawav his costadvantagerom localcompanies, ow can

Chinese nterprisesompete?

Chinese brand internationali zation must do the

opposite of what'Western

an d JapaneseMNCs have

done in the past . Western and JapaneseMNCs

have enteredChina, and so ChineseMNCs must ven-

ture out so that they too can havean equallykeenmar-

ke t antenna and reaction capacity. Hisense has s aid

that nobody can understand local people more than

local people.Just as mportant is the low international

confidence evel n Chinesebrands. In order to express

th e determination and sinceri ty of Chinese corpora-

tions, China must establ ishmanufacturing basesan d

retail networks overseas nd graduallv establ ish ocal

conc,rmers'confidenceand trL6L t.listr,rrrrraryCninesl

brand rnternationalization must continue, and go

along the road to overseas actories sooner or later. If

it doesn't, t will be impossible for Chinesecompanies

to internationalize their brands' images and interna-

tional prestige.

To0EMor not o 0EM?

At presentChina'smanufactured goods, especially on-

sumables, are mostly exported as rebadged products.

This is the casewith Changhong, Midea, Gree Aircon-

ditioning, Shinco, and Galanz, who rebadge or com-panies such as Sanyo, Mitsubishi, Carrier, etc. In an

article entitled'The

two sidesof Galanz'in the March



2002 edition of Sino-Foreign Management, Galanz's

Vice PresidentYu Yao Chang statedWhat

are brands?

Brands are gold stacks.' He then asked himself,'How

many stacks of gold do we have?' His meaning was

that China does not have the monilaFill-ces. - - - , .

to Internatronalrzets brands, and rs only capable ot

is in mind, Gaianz has

positioned itself to be one of the world's largest pro-

duction workshops, and allows multinational corpora-

tions to manage the marketing networks. Galanz,

therefore.makes brands to order.-- -

urer, Shinco, s also

doing the same. Midea's President, He Xiangjian,clearly said in an interview for the same article,

Ihave

yet to see one Chinese actorv that has been set up

overseas ecomesuccessfuln sel l ing ts own pr oducts

under ts orvn brand. ncluding Haier. Whilei t may be

true thar TCt ls operations n Vi etnam posted a profit

i r t the end of 2002. this one instance o date is hardly

sui i ic ient o give Chinese nterprises uff ic ientcourage

to enter rh e internationalmarket.

Certir inlv here s another viervpointwhich believes

that producingOEMs is a way of betterunderstanding

th e needsof the international market, and is a way of

preparingChinese rganizations or the eventual nter-

nartionalizationof their own brands. There is a lot of

validity to this argument. Manufacturing OEMs can

enableChinesecompanies o grasp he product's pro-

duction technology, enhance the enterprise'smanage-

ment level, and allow it to understand what n'pes of

product foreign markets are seeking.But, after all, the

manufacturing processand marketing nerworks are in

rhe hands of the foreign corporation, and consumers

purchaseno t onlv the product, but the brand. Ult i -

matelS it is the owner of the brand that is responsible

for the consumer.Most consumers recogrlizea brand

more than a product.

Also, once a multinational corporation finds a better

production base, . vvrrrTroVehere.Even houghlebadg-

ing rarscs hdruanagementevers rrd echnicalabilitiesofChinesecorporations, they rvill always be behind with

those of the multinational corporation. The Secretary-

General o[ China's Electrical Appliances Association,

N'Ir.Jiang Feng, has frankly stated hat OEM products

are popularist and mainly used for mid- to low-grade

products.The Vice President f Siemens China) respon-

sible for salesof electricalappliances,Dong Quanxin,also indicated that, because t will be very difficult for

Chinese producers of electrical appliances to reach

Siemens'technical tandardswithin the next 3-5 years,

Chineseproducerswill no t be manufacturing high-end

prodr-rctsor Siemens.Obviously, therefore, t is highly

unlikelythat

producingOEMs will

greatlyenhance hetechnical ability of Chinese enterprises, and is also

unlikely to bridge he gap n technicaldispariries erween

them and foreign multinational corporations.

It is impossible fo r Chinese enterprises to truly

understand the international market by producing

OEMs. International markets are constantly changing,

and, by only producing OEMs, Chinese corporations

are closing themselves off by staying in their work-

shops and passively esponding o orders from outside.

An understanding of global markets and economic

fluctuations is vital to the success f international cor-

porations. Chinesecompanies herefore have o try and

break the cultural and linguistic constraints and ven-

ture forth into the open world.Therefore, by producing only OEMs, it will be

impossible for China to anain the technical support

abi l i t ies, he HR ski l ls and the'combat

readiness' ha t

is needed for the internationalization of Chinese

brands. Only the products made in China will be fo r

sale n internationalmarkets.But brand international-

ization and product internationalization ar e two com-

pletely different concepts.

Product internationalization occurs when your

products are available fo r sale n many countries, bu t

consumersdon't care where they are made. They only

care about the prestigeand quality guarantees hat are

manifested hrough th e brand name. OEMs cannot

influence the intern ationalization of Chinese brands,

and so Chinese companies must persi st in exporting

their own local brand names.

Conc[us ion

In conclusion, there are huge hurdles facing the inter-

nationalization of Chinesebrands.The time line is long

and the costs will be enormous. But in order to create

truly international brands on the scaleof Coca-Cola,

McDonald's, Toyota, Sony',Phillips, or the like, China's

entrepreneurscannot base heir decisionson the poor

short-term results. or one specific time period at one

locat ion,suchas he casewith Haier to date.Establ ish-ing a brand name and brand prestige needs patience

and a lo t of money.Bu t the payback for China in terms

of economicprofits, an d indeed ts national d ignity, s

potentially enormous.

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