Remaking 'Made in China'

August 2012

Image credit: Jessica Vaughn

WHAT WE'LL COVERMethodologyRemaking “Made in China”

• Introduction External Roadblocks to Expansion

• “Made in China” = low quality • Safety is a key concern• Fake products fuel copycat image• Sustainability, labor also key concerns• Little differentiation between “Poorly manufactured in China” and “Branded in China”• Low awareness of Chinese brands• Adversarial political and economic relationship

Internal Roadblocks to Expansion • Corporate structure and management style• Lack of brand-building innovation• Lack of international experience • Failure to conquer home turf

Overcoming the Roadblocks• Take back “Made in China”• Compete at a world-class level• Lean into national identity• Tap into the Millennial worldview• Drive innovation and lead categories • Ride on international brand coattails• Become a leader in CSR

Conclusion

METHODOLOGY

All our trend reports are the result of quantitative, qualitative and desk research conducted by JWTIntelligence throughout the year. Specifically for this report, we conducted on-the-ground research in Shanghai, Beijing and Hong Kong. We also fielded a quantitative study in the U.S. and the U.K. using SONAR™, JWT's proprietary online tool, from May 31-June 4, 2012; we surveyed 503 Americans and 503 Britons aged 18-plus.

This report builds upon “Journey to the West,” a 2011 report researched and written by Pete Heskett, Southeast Asia area director for JWT.

SONAR™

In addition, we interviewed four relevant experts and influencers.

INFLUENCERS AND EXPERTS

METHODOLOGY (cont'd.)

INFLUENCERS AND EXPERTS

Image credit: Jessica Vaughn

REMAKING 'MADE IN CHINA'During much of the 20th century, China served as a manufacturing center for international brands, developing few of its own for export markets. Meanwhile, the moniker “Made in China” became synonymous with cheap, mass-produced, low-quality goods. Now, we're seeing a new focus on developing strong brands that can hold their own both at home and on the world stage.

REMAKING 'MADE IN CHINA' (cont'd.)

It's a tall order, given that Chinese businesses have little experience developing the type of brands that dominate on the global stage. Chinese brands have yet to gain enough status to earn a price premium over global counterparts. Not only that, but they are still tainted by association with shoddy Chinese manufacturing. Consumers in developed markets are skeptical at best of Chinese products.

Still, there is tremendous potential. Japan, Korea and Germany are among the nations whose brands have overcome hostile or skeptical consumer perceptions. It was once seen as down-market to “buy Japanese,” for example, but today few shoppers consider “Made in Japan” a negative.

And in our hyper-connected, globalized, fast-moving world, the journey from negative to positive perceptions can be significantly shorter than it once was. Millennials already have a very different image of China than the outdated associations that may linger among older consumers. And the youngest consumers, Gen Z, have only known China as a rapidly modernizing economic giant.

INTRODUCTION

China’s brands have seen an “explosion of value,” as BrandZ recently noted. While we found very low awareness of Chinese brands among American and British consumers, they may well already be customers of the leading crop of Chinese labels. Among them:

REMAKING 'MADE IN CHINA' (cont'd.)

Haier, which currently holds the largest share of the global appliance market (close to 8% of the sector)

INTRODUCTION (cont'd.)

Lenovo, which is expected to become the world's largest PC manufacturer this year

Huawei, which recently slipped past Ericsson to become the world's largest telecom-equipment vendor and ranked among the world's top three patent applicants in 2011

Image credits: Lenovo; Huawei; Haier

REMAKING 'MADE IN CHINA' (cont'd.)

As China finds its footing as a superpower, some are forecasting that this will be the “Chinese Century,” not only because of political and economic power but also because China's worldview and values will influence consumers worldwide (much as American values and culture have). As perceptions of China align with this new status quo, and as its marketers find ways to knock down the obstacles to global expansion, expect some possibly formidable rivals to today's global consumer brands.

Within the next 10 years, we are going to transition to a Chinese century…relative to an American benchmark. That means we are going to have Great Chinese brands, both commercial business Chinese brands as well as cultural brands, because that's what defined the U.S.”

—JOSEPH BALADI, CEO of BrandAsian, author of The Brutal Truth About Asian Branding

INTRODUCTION (cont'd.)

Image credit: Jessica Vaughn

EXTERNAL ROADBLOCKS TO EXPANSION

EXTERNAL ROADBLOCKS

Though China is no longer the top spot for cheap manufacturing—its rising labor costs have pushed many companies to shift their outsourcing to countries such as Vietnam and Cambodia—decades of poorly manufactured products from China have left a scar on consumer perceptions. Comparing perceptions of “Made in China” with “Made in Japan” or “Made in the USA” points to a wide gap to be crossed by Chinese brands.

“MADE IN CHINA” = LOW QUALITY

I am disappointed with items made in China and sold in the U.S.”

—Female, U.S., JWT SONAR™Chinese are cunning at marketing products of very low quality but mass produced even when they know the products are faulty.”

—Male, U.K., JWT SONAR™ It's not really important to me where products I buy are made. Probably I own a lot of things that are made in China without realising it, but my impression, right or wrong, is it's not good quality.”

—Female, U.K., JWT SONAR™

EXTERNAL ROADBLOCKS (cont'd.)

“MADE IN CHINA” = LOW QUALITY (cont'd.)

While perceptions of Chinese-made goods as poor quality have persisted for decades, questions about their safety have only built in recent years, both domestically and internationally.

Large-scale recalls have made headlines worldwide. Mattel recalled 9 million toys, including Barbie and Polly Pocket dolls, in 2007 due to lead paint and magnets that posed choking hazards; countries around the world banned Chinese milk products after recalls by several Chinese dairy companies in 2008; 54 high-speed trains, meant to symbolize China's sweeping modernization push, were recalled last year.

SAFETY IS A KEY CONCERN

EXTERNAL ROADBLOCKS (cont'd.)

I know not all Chinese products are bad, but in general I think China has very poor quality regulatory standards for

products. I'm not keen to try Chinese products until this improves.”

—Male, U.K., JWT SONAR™

Image credit: Mattel

Around 4 in 10 consumers (and more than half of Americans) said they have low opinions of Chinese brands because of recalls. And half of respondents agreed with the statement “Chinese brands aren’t portrayed very well in the news/media,” citing this as a key reason for their low opinion of Chinese brands.

EXTERNAL ROADBLOCKS (cont'd.)

SAFETY IS A KEY CONCERN (cont'd.)

Distrust is also driven by news about an abundance of fakes: not simply counterfeit handbags and watches but everything from plastic rice and chemically made eggs to forged university acceptance letters, imitation medicines and even a chain of faux Apple stores so authentic that even employees believed they worked for the California company.

EXTERNAL ROADBLOCKS (cont'd.)

FAKE PRODUCTS FUEL COPYCAT IMAGE

Image credit: Jessica Vaughn

EXTERNAL ROADBLOCKS (cont'd.)

FAKE PRODUCTS FUEL COPYCAT IMAGE (cont'd.)

EXTERNAL ROADBLOCKS (cont'd.)

SUSTAINABILITY, LABOR ALSO KEY CONCERNS

Consumers, most of whom haven't personally had negative experiences with Chinese brands, are simply carrying over their negative perceptions of Chinese-made onto Chinese-branded. When respondents were asked to choose which phrases they associate with Chinese brands, the top three responses were “mass produced,” “cheap” and “poor safety standards”—echoing consumer sentiment around “Made in China.”

EXTERNAL ROADBLOCKS (cont'd.)

LITTLE DIFFERENTIATION BETWEEN 'POORLY MANUFACTURED IN CHINA' AND 'BRANDED IN CHINA'

When respondents with poor perceptions of Chinese brands were asked why they had such low opinions, just over half agreed with the statement, “I am not impressed with products that are 'Made in China' and feel Chinese brands would be a similar quality.”

Only 28% of consumers with low opinions of Chinese brands had personally had bad experiences with a Chinese label.

EXTERNAL ROADBLOCKS (cont'd.)

LITTLE DIFFERENTIATION BETWEEN 'POORLY MANUFACTUREDIN CHINA' AND 'BRANDED IN CHINA' (cont'd.)

EXTERNAL ROADBLOCKS (cont'd.)

LOW AWARENESS OF CHINESE BRANDS

Our research found relatively low awareness of Chinese brands in both the U.S. and the U.K.

• When presented with a list of 40 heavyweight Chinese brands, a plurality of respondents (36%) had never heard of any of them.

• Only a quarter were familiar with Lenovo, currently the world's second largest computer manufacturer after HP.

• The most recognized brand, Air China, didn't fare much better, with 28% of respondents recognizing the name.

Image credit: twicepix

EXTERNAL ROADBLOCKS (cont'd.)

ADVERSARIAL POLITICAL AND ECONOMIC RELATIONSHIP

With so much China-bashing going on, it seems hard for Chinese brands to deliver the message that they are not

threatening, and come in profit-orientated goodwill.”

—JENNY CHAN, “China's brands head West,”Campaign, April 2012

Image credit: Jessica Vaughn

Image credit: Jessica Vaughn

INTERNAL ROADBLOCKS TO EXPANSION

INTERNAL ROADBLOCKS (cont'd.)

CORPORATE STRUCTURE AND MANAGEMENT STYLE

Chief among the internal roadblocks to expansion is the hierarchical structure of China's companies, even among midsize, relatively new and innovative companies. The CEO reigns supreme, his or her authority and judgment never challenged or questioned in China's corporate culture.

Yang Yuanqing, CEO of Lenovo

Ren Zhengfei, CEO of Huawei

Image credits: Lenovo; Huawei

INTERNAL ROADBLOCKS (cont'd.)

Whether it's a family company or a multinational, the CEO is the predominant voice in the company. Nobody questions the CEO. He is omnipresent, omni-seeing; he's omni-

powerful. So that creates an issue in terms of internal communication… Right now in meetings you have a silent group of Asians who aren't willing to ask questions, aren't willing to express themselves, because they're not willing to expose themselves or take a risk in being wrong. So nobody talks.”

—JOSEPH BALADI, CEO of BrandAsian, author of The Brutal Truth About Asian Branding

This leads to a stifling of ideas and communication, especially from the most junior employees—who may be the ones with experience working or studying in the West, where they pick up soft skills such as decision-making and working in team environments.

CORPORATE STRUCTURE AND MANAGEMENT STYLE (cont'd.)

INTERNAL ROADBLOCKS (cont'd.)

A rigid corporate structure also means that projects face many layers of navigation before they can be executed. Jenny Chan explained in Campaign, “The culture of red tape and bureaucracy associated with the Middle Kingdom is permeating through to how Chinese brands behave.”

By contrast, today's fast-moving, hyper-competitive world requires companies to operate as lean and nimble machines.

Image credit: Jessica Vaughn

CORPORATE STRUCTURE AND MANAGEMENT STYLE (cont'd.)

INTERNAL ROADBLOCKS (cont'd.)

LACK OF BRAND-BUILDING INNOVATION

Though China has seen a sharp increase in research and development spending, as well as an uptick in patent filings—two indicators typically used to measure innovation efforts—most Chinese companies have yet to foster a culture of innovation that helps to build brand equity.

One way of defining [innovation] would be as fresh thinking that creates value people will pay for. By that measure,

China is no world-beater. Though its sweat produces many of the world's goods, it is designers in Scandinavia and marketers in California who create and capture most of the value from those products.”

—“From Brawn to Brain,” The Economist, March 10, 2012

Image credit: James Bowe

INTERNAL ROADBLOCKS (cont'd.)

Marketers put their innovation efforts toward product and package design, and tend to excel at development: creating incremental improvements to existing products and services and driving scale.

Competition in developed international markets requires a price premium, rooted in both value-added—not parity—products or services and strong brand equity. The last can be acquired only gradually over

time. In these respects, Chinese brands are still disadvantaged, in many cases grievously so, and not just by a generic fear of anything 'Made in China.'”

—TOM DOCTOROFF, JWT North Asia area director and Greater China CEO, author of

What Chinese Want

LACK OF BRAND-BUILDING INNOVATION (cont'd.)

Image credit: dcmaster

INTERNAL ROADBLOCKS (cont'd.)

As with big firms, the research community is characterized by respect for the command chain and senior-level positions; this tends to squelch those with nonconformist ideas, and there's not much funding for merit-based research.

LACK OF BRAND-BUILDING INNOVATION (cont'd.)

Image credit: DeclanTM

INTERNAL ROADBLOCKS (cont'd.)

It is a catch-22: Companies big enough to go global are the most encumbered by commoditized products and services. Companies that grasp advantages inherent in value-added

products and services—that is, the ability to charge a premium—lack the critical mass to become global power brands.”

Privately funded research may not face some of these issues, but companies that aren't state-run still have to battle poorly enforced IP and antitrust legislation. Plus, state-run banks favor “national champions” over lesser-known companies. Still, small to midsize private businesses have done a better job of fostering a culture of innovation, according to Doctoroff, but they lack the capabilities to manage global expansion.

—TOM DOCTOROFF, JWT North Asia area director and Greater China CEO, author of What Chinese Want

LACK OF BRAND-BUILDING INNOVATION (cont'd.)

INTERNAL ROADBLOCKS (cont'd.)

LACK OF INTERNATIONAL EXPERIENCE

As with most novices, another issue is simply lack of experience—doing business in China is typically very different from doing business in most other markets.

Chinese companies, when they first go abroad, expect it to be a lot like expanding in China—they go talk to the party secretary or mayor first, make sure

they are happy, and that paves the way for everything else. Americans and [others] typically don't roll out the official red carpet, and Chinese are not prepared for that.”

—SCOTT KENNEDY, director of the Research Center for Chinese Politics & Business at Indiana University Bloomington, “A club in

China to help entrepreneurs go overseas,” Reuters, June 29, 2012

INTERNAL ROADBLOCKS (cont'd.)

FAILURE TO CONQUER HOME TURF

Middle-class Chinese consumers distrust many local labels, and international brands still carry aspirational attributes, as well as quality reassurance and reliable service.

Image credit: Jessica Vaughn

INTERNAL ROADBLOCKS (cont'd.)

When Western media report that China's middle class is snapping up Western goods, what they mean is

that the Chinese consumers who can afford to are spending extra to avoid counterfeits. That is not consumers acting as brand advocates, or out of affinity—it's fear purchasing. It says less about Western brands than about China's landscape.” —ABE SAUER, “Chinese Are Fear-Buying, Not in Love With

Western Brands,” Brandchannel, June 8, 2012

If [international brands] can charge a 20% price premium here—where Chinese people should know the quality of

Chinese brands—simply because they're not Chinese, the battle abroad is pretty serious.”

—TOM DOCTOROFF, JWT North Asia area director and Greater China CEO, author of What Chinese Want

FAILURE TO CONQUER HOME TURF (cont'd.)

INTERNAL ROADBLOCKS (cont'd.)

Hong Kong people have often looked to Western culture for inspiration, we emulate their lifestyle yet we can never convincingly pull it off as

true Westerners. If there were more locally inspired alternatives that appeal to our young generations, they may adopt these choices without denying their true identity. Ownership of our culture endows us with a sense of authenticity. It is only in being confident of who we are that we can hold our heads up high on an international level.” —DOUGLAS YOUNG, co-founder of Hong Kong-based lifestyle

brand Goods of Desire

FAILURE TO CONQUER HOME TURF (cont'd.)

Image credit: Jessica Vaughn

Image credit: Jessica Vaughn

OVERCOMING THE ROADBLOCKS

OVERCOMING THE ROADBLOCKS (cont'd.)

Rather than be constrained by “Made in China,” some brands are working to take back the label.

These companies are tackling the negative stereotypes head-on rather than skating around the fact that consumers may assume the Chinese-made products are unoriginal or poorly constructed.

Prominent sportswear brand Li-Ning welcomes visitors to its English-language website with the greeting, “Straight Out of New China. Be Unexpected. Do Different. Make the Change.”

TAKE BACK “MADE IN CHINA”

TAKE BACK “MADE IN CHINA” (cont'd.)

Image credit: Li-Ning

OVERCOMING THE ROADBLOCKS (cont'd.)

OVERCOMING THE ROADBLOCKS (cont'd.)

People are working hard, education levels are rising, people are traveling more and enjoying more leisure time. Why shouldn't China's development story be the foundation of a fashion brand?”

—BEN WALTERS, founder of OSPOP, “OSPOP: The shoe inspired by China's laborers comes home,” CNNGo.com, Feb. 24, 2011

“Proudly Made in China” is the slogan for One Small Point of Pride, or OSPOP, a budding footwear line dreamed up by an American entrepreneur living in Shanghai.

TAKE BACK “MADE IN CHINA” (cont'd.)

Image credits: Jessica Vaughn; Ospop

OVERCOMING THE ROADBLOCKS (cont'd.)

In 2009, the Ministry of Commerce kicked off an ad campaign that aimed to illustrate that Chinese-made products represent global collaborations, with various partners co-creating something of value for consumers everywhere.

TAKE BACK “MADE IN CHINA” (cont'd.)

Image credit: adamimg

OVERCOMING THE ROADBLOCKS (cont'd.)

It's true that unscrupulous people have tainted China's image. But as Chinese ourselves, we cannot deny who we are by pretending to be somebody else. We must bravely face the challenges. I'm a believer in making a feature of our disadvantages instead of hiding our roots (which a lot of local brands do). We emphasize the fact that we are Chinese.”

—DOUGLAS YOUNG, co-founder of Hong Kong-based lifestyle brand Goods of Desire

TAKE BACK “MADE IN CHINA” (cont'd.)

OVERCOMING THE ROADBLOCKS (cont'd.)

Until the “Made in China” burden is shed, brands emerging out of China will need to offer superior products that more than hold their own against global benchmarks of quality and design. The standards will be those of old Chinese culture, when only the best would do.

COMPETE AT A WORLD-CLASS LEVEL

Image credit: IvanWalsh.com

OVERCOMING THE ROADBLOCKS (cont'd.)

Chinese retailer Bosideng, is debuting near London's central Oxford Street shopping area as a luxury label.

Since 1993, upscale clothing label Marisfrolg has been designing its goods domestically and sourcing most of its fabrics from markets such as Italy, Japan and France.

JNBY, founded by a collective of art and design students in 1994, has also made international inroads—the company boasts 600 stores globally—by focusing on design and innovation.

[JNBY is] an example of how good Chinese fabrication can be. The design is quite simple, yet avant

garde. They've made an excellent transition from manufacturer to brand builder.”

—LIN LIN, co-founder of design group Jellymon, “‘Made in China’ is finally cool,”

CNNGo.com, Feb. 8, 2011

COMPETE AT A WORLD-CLASS LEVEL (cont'd.)

Image credits: Bosideng; JNBY; Marisfrolg

—PIERRE BARTHE, French sommelier, “Changyu holdswine tasting to mark 120th anniversary,”

China Daily, June 29, 2012

Glad to see that ChangYu can produce great white wines, red wines, sweet wines and brandies—all

different products but all at a very high level. They compete very well with the French wines.”

OVERCOMING THE ROADBLOCKS (cont'd.)

ChangYu wine—China's first winery, established 120 years ago—has emerged as one of the top 10 wine producers in the world. ChangYu's Jiebaina dry red ranked as one of the world's top 30 wine brands during the 2008 Salon International de l'Alimentation, a food and drink expo in France.

Image credit: ChangYu

COMPETE AT A WORLD CLASS LEVEL (cont'd.)

OVERCOMING THE ROADBLOCKS (cont'd.)

While “Made in China” is a negative, “Chineseness” itself is in many ways a positive in the eyes of international consumers.

LEAN INTO NATIONAL IDENTITY

Image credit: Dainis Matisons

OVERCOMING THE ROADBLOCKS (cont'd.)

LEAN INTO NATIONAL IDENTITY (cont'd.)

OVERCOMING THE ROADBLOCKS (cont'd.)

When asked about Chinese history and heritage, 72% of respondents said they would be interested in learning more about China's cultural history; three-quarters of respondents said they admire the way Chinese people have been able to maintain their sense of tradition in the modern world.

And 6 in 10 felt that their culture could learn a lot from the Chinese way of life.

LEAN INTO NATIONAL IDENTITY (cont'd.)

OVERCOMING THE ROADBLOCKS (cont'd.)

These spheres of positive perception have been largely overshadowed in recent decades by the legacy of “Made in China” and the nation's rocky relationship with the West. For Chinese brands, then, there's an opportunity to trade on national identity and drive a new conversation about “brand China,” focusing on culture, history and widespread perceptions of “Chineseness.”

LEAN INTO NATIONAL IDENTITY (cont'd.)

Image credit: Scazon

OVERCOMING THE ROADBLOCKS (cont'd.)

At the same time, there's a nascent preservationist spirit in China—a desire to protect its heritage and culture, which a growing number of people see as being sacrificed in the drive toward modernization and development.

This recalibration of values after a period of relentless, rapid change comes as no surprise, given that Chinese society fears uncertainty and instability above all. Bursts of growth are often followed by periods of stabilization.

LEAN INTO NATIONAL IDENTITY (cont'd.)

Image credit: ShamirFlinkazoid

OVERCOMING THE ROADBLOCKS (cont'd.)

The mission of Hong Kong-based Goods of Desire, which sells everything from furniture to apparel and accessories, is to be “quintessentially Hong Kong” and promote “a new Asian lifestyle brand by revitalizing local heritage.”

I believe that global identity, national identity and individual identity can

all coexist. Due to the big trend of globalization nowadays, there is a lot less focus in Asia on building regional

identity. I hope G.O.D. can re-emphasize the importance of identity to our consumers. I think it is our unique identity that makes interaction on the global level a lot more interesting.”

—DOUGLAS YOUNG, co-founder of Hong Kong-based lifestyle brand Goods of Desire

Image credit: Goods of Desire

LEAN INTO NATIONAL IDENTITY (cont'd.)

OVERCOMING THE ROADBLOCKS (cont'd.)

Chinese-born labels Huili (or Warrior) sneakers, established in the 1930s, has undergone design updates—albeit by European companies—and found favor among hip international audiences, who buy into the brand's heritage.

In 2009, a limited-run redesign of heritage brand Shanghai Watch Co. sold out not only domestically but in trendy boutiques such as Colette in Paris and Kidrobot in New York.

LEAN INTO NATIONAL IDENTITY (cont'd.)

Image credits: Huili; Shanghai Watch Co.

OVERCOMING THE ROADBLOCKS (cont'd.)

Blending the old with the new in a way that's relevant for a modern consumer is one potential route to success for Chinese brands. And as Chinese companies become more savvy marketers, they will be able to better tell the story of Chinese culture and heritage through their products. Li-Ning tapped into this mindset with the U.S. release of its “Year of the Dragon Collection” earlier this year.

Earlier this year Li-Ning produced four limited edition sneakers, dubbed the “Year of the Dragon Collection,” to coincide with the Chinese zodiac year by the same name.

LEAN INTO NATIONAL IDENTITY (cont'd.)

Image credit: facebook.com/liningusa

OVERCOMING THE ROADBLOCKS (cont'd.)

Just as nations such as Japan, Korea and even Germany have done, Chinese brands looking to compete in international markets will need to turn “Chineseness” into a conceptual advantage rather than a perceptional weakness—a turnaround that will rely on clever branding campaigns that play on consumers' more positive ideas about China.

LEAN INTO NATIONAL IDENTITY (cont'd.)

Image credits: Gill_Penney; ToGa Wanderings

OVERCOMING THE ROADBLOCKS (cont'd.)

TAP INTO THE MILLENNIAL WORLDVIEW

Chinese brands will likely find Millennials to be more receptive than older generations. Compared with their predecessors, these consumers have grown up in a much smaller, more connected world and been exposed to a wider array of worldviews at a younger age. And they know China as a modernizing, rapidly emerging market—a very different country from the one that older consumers remember.

Image credit: Wesley Fryer

OVERCOMING THE ROADBLOCKS (cont'd.)

Millennials are slightly less biased against the “Made in China” label. Compared with older generations, Millennials were the least likely to identify Chinese brands as mass-produced, cheap and constructed using poor safety standards.

TAP INTO THE MILLENNIAL WORLDVIEW (cont'd.)

OVERCOMING THE ROADBLOCKS (cont'd.)

TAP INTO THE MILLENNIAL WORLDVIEW (cont'd.)

OVERCOMING THE ROADBLOCKS (cont'd.)

Chinese students outnumber any other international cohort in American universities. And some 90,000 Chinese students were attending British universities in October 2011. The cultural exchange goes both ways. Some estimates forecast that the number of international students in China, currently at a quarter-million, will double by 2020.

Faced with a tough job market at home, some recent American and European college grads are relocating to Asia.

Some say there are 50 million people of all ages studying Mandarin. The U.K. and Indian governments, among others, are working to boost the Mandarin curriculum in schools

TAP INTO THE MILLENNIAL WORLDVIEW (cont'd.)

Image credits: Eric Nishio; Sewanee: The University of the South; London Permaculture

Lenovo's “For those who do” campaign positions the products as tools for this go-getter generation to get things done.

OVERCOMING THE ROADBLOCKS (cont'd.)

In one ad, reminiscent of the final scenes of Fight Club, a team of urban hackers passes along a Lenovo laptop they're using to orchestrate a dazzling urban light show.

In select emerging markets Lenovo set up “The Do Network,” an online forum where young people could submit community improvement ideas for a chance to win an opportunity to make their ideas reality.

TAP INTO THE MILLENNIAL WORLDVIEW (cont'd.)

Image credit: Lenovo [1]; [2]

OVERCOMING THE ROADBLOCKS (cont'd.)

DRIVE INNOVATION AND LEAD CATEGORIES

Developing a culture of innovation remains a major challenge for many Chinese companies, but China is starting to address this.

Image credits: Seth1492; Wisegie

OVERCOMING THE ROADBLOCKS (cont'd.)

DRIVE INNOVATION AND LEAD CATEGORIES

We invest more than most others on R&D just to be able to go out there and consistently demonstrate the innovations and the quality and the product … to go the

extra mile. We think it's necessary, because this will give the customers the peace of mind that we are committed to what we say we're going to do.”

—HOWIE LAU, VP of marketing and communications for Asia Pacific and Latin

America at Lenovo

of executives believe China will become the next major innovation

center.

45%

DRIVE INNOVATION AND LEAD CATEGORIES (cont'd.)

OVERCOMING THE ROADBLOCKS (cont'd.)

Lenovo is set to release the IdeaPad Yoga, an ultra-thin device that's part tablet, part laptop: It features a keyboard that can be tucked behind the display, emulating an iPad.

On a mission to become one of the world's top three smartphone providers by 2015, Huawei is pushing its Ascend D Quad (which it claims is “the world's fastest smartphone”) in Western markets.

Haier recently unveiled two novel television prototypes: an ultra-thin transparent TV screen and Brain Wave, a TV that users can control with their mind.

DRIVE INNOVATION AND LEAD CATEGORIES (cont'd.)

Image credits: Haier; Lenovo; Huawei

OVERCOMING THE ROADBLOCKS (cont'd.)

Automaker BYD created a buzz at this year's Beijing auto show by introducing a remote-controlled car, the F3 Plus.

DRIVE INNOVATION AND LEAD CATEGORIES (cont'd.)

Image credit: BYD

OVERCOMING THE ROADBLOCKS (cont'd.)

RIDE ON INTERNATIONAL BRAND COATTAILS 9

Whether by acquisitions or simply via onetime partnerships, Chinese brands stand to make valuable strides by aligning with brands that are already global sensations or know how to steer through international waters.

Image credit: Doug_Wertman

OVERCOMING THE ROADBLOCKS (cont'd.)

In 2009, after Starbucks tasked G.O.D. with designing a store in Central Hong Kong, co-founder Douglas Young modeled the space after a “bing sutt,” a midcentury-style Hong Kong food outpost where Western foods were first introduced.

RIDE ON INTERNATIONAL BRAND COATTAILS (cont'd.)

9

Image credit: god.com

OVERCOMING THE ROADBLOCKS (cont'd.)

+

Chinese sportswear maker Anta made headlines in 2010 when it started sponsoring NBA superstar Kevin Garnett.

This year, Li-Ning has been making prominent appearances at the London Olympics, it's backing a number of international athletes. Above, Jamaican sprinter Asafa Powell.

RIDE ON INTERNATIONAL BRAND COATTAILS (cont'd.)

9

Image credits: Miami Heat; anta.com; facebook.com/liningusa ; haieramerica

Image credit: metersbonwe.com

OVERCOMING THE ROADBLOCKS (cont'd.)

Meters/bonwe plans to expand internationally in the next three to five years, and has made two cameos in the Transformers movie franchise and tested out the gaming space, collaborating with the producers of World of Warcraft.

RIDE ON INTERNATIONAL BRAND COATTAILS (cont'd.)

9

OVERCOMING THE ROADBLOCKS (cont'd.)

BECOME A LEADER IN CSR

With consumers skeptical about the trustworthiness of Chinese companies and dubious about their green credentials, substantive corporate social responsibility initiatives would go a long way toward rebranding “Made in China” among consumers.

Image credit: photologue_np

OVERCOMING THE ROADBLOCKS (cont'd.)

Patriarchs by nature, Chinese companies will likely begin to adopt a “uniquely Chinese” version of CSR, thanks largely to the government's focus on promoting stability. Beijing is pushing for greater energy efficiency, for example, “because runaway pollution in China means wasted lives, air, water, ecosystems and money—and wasted money means fewer jobs and more political instability,” as The New York Times' Thomas Friedman explained in a 2010 column.

BECOME A LEADER IN CSR (cont'd.)

Image credit: Janie.Hernandez55

OVERCOMING THE ROADBLOCKS (cont'd.)

This is the haze of pollution over Beijing.

Currently the world's top emitter of carbon dioxide, China has set a range of pollution-reduction and other environmental goals, including a 40-45% cut in carbon emissions by 2020 and an 11.4% increase in non-fossil fuel use by 2015 as part of an emphasis on “higher quality growth.” It's an ambitious target, though, given that China's CO2 emissions increased in 2011.

BECOME A LEADER IN CSR (cont'd.)

Image credit: David Barrie

Image credit: NASA

OVERCOMING THE ROADBLOCKS (cont'd.)

While Western companies have gradually come to understand that measures designed to help the environment can also help the bottom line, this is something that pragmatic Chinese leaders in government and business may be quick to understand.

Smart CSR policies are seen less as a matter of generating “warm and fuzzy” feelings and more as “the right thing to do, mostly because it will be the thing that provides the best return,” according to branding consultant Joseph Baladi.

BECOME A LEADER IN CSR (cont'd.)

OVERCOMING THE ROADBLOCKS (cont'd.)

Due in part to mandates that all state-owned institutions publish CSR reports by 2012, reporting is on the rise. In the six years leading up to 2005, only 22 CSR reports were published in China, largely by multinationals; in 2010, there were 703 reports, focusing on a diversity of content. Reporting begets more transparency, which increases awareness of CSR activities among consumers and higher expectations, which in turn helps to drive more impactful CSR efforts.

BECOME A LEADER IN CSR (cont'd.)

Image credit: Juhansonin

OVERCOMING THE ROADBLOCKS (cont'd.)

Perhaps the next generation of leaders will drive more substantive change: In a 2012 survey by Deloitte on Millennial attitudes toward business, Chinese youth stand out in their concern about the lack of commitment to sustainability among business leaders. More generally, Chinese citizens rank the highest globally in terms of a desire to be in tune with nature, according to the GfK Roper Consulting's Values Factbook.

BECOME A LEADER IN CSR (cont'd.)

Image credit: state library and archives of Florida

OVERCOMING THE ROADBLOCKS (cont'd.)

Since a sense of collective responsibility is an important aspect of Chinese culture, along with conformance to social norms, environmental concern could well start to drive consumer decisions. Plus, as growing numbers of Chinese see their basic needs met, they're beginning to demand more of consumer goods and services, not only in terms of sustainability. Impatient with substandard product quality, food-safety violations, poor accountability for major missteps and so on, they are less tolerant of secrecy and lack of transparency.

BECOME A LEADER IN CSR (cont'd.)

Image credits: familymwr; Katie Tegtmeyer

Image credit: Haier

OVERCOMING THE ROADBLOCKS (cont'd.)

Haier's global brand building has emphasized its environmental credentials

BECOME A LEADER IN CSR (cont'd.)

OVERCOMING THE ROADBLOCKS (cont'd.)

Lenovo has some of the best green product ratings among PC manufacturers.

BECOME A LEADER IN CSR (cont'd.)

Image credit: Lenovo

CONCLUSION

Image credit: Dave Morrow

The journey to Western shores will undoubtedly be an arduous one for Chinese brands. We've seen some notable stumbles, such as sportswear maker Li-Ning closing its only U.S. retail outlet, a 2-year-old store in Portland, Ore., in February. JWT's Tom Doctoroff believes that China as a nation will “cross the river by feeling the stones” as it ascends to the global stage—“inching forward, occasionally overreaching but quickly correcting course.”

CONCLUSION (cont'd.)

We've outlined some key strategies that Chinese brands might use to overcome the roadblocks to expansion:

• taking back “Made in China” rather than be constrained by the label;

• competing at a world-class level, offering superior products;

• leaning into national identity and turning “Chineseness” into an advantage;

• tapping into the worldview of Millennials, a more open and globally connected generation;

• driving innovation and leading categories;

• riding on international coattails, aligning with popular global brands;

• and becoming a leader in CSR.

CONCLUSION (cont'd.)

This list is by no means comprehensive, nor is there a one-size-fits-all equation for successful expansion into developed markets. For the methodical and cautious Chinese, this need not be the first order of business anyway—a booming domestic market and lucrative developing markets represent tremendous opportunity. The lessons learned here will ultimately help brands move beyond those markets. And as rising incomes create more discerning emerging market consumers, improved quality and safety standards are likely to follow. The question is whether consumers will follow Chinese products up the value chain or veer toward established brands.

Image credit: IvanWalsh.com

CONCLUSION (cont'd.)

If they can pioneer unique niches for themselves, Chinese companies won't need to go head-to-head with successful brands. “Trickle-up innovation” is one area of potential: taking low-cost products designed for developing markets to penny-pinching consumers in developed markets. After all, the Chinese are masters of driving down costs.

Image credit: epSos.de

CONCLUSION (cont'd.)

More generally, products will need to compete at or above a world-class level, given that consumers are carrying their negative perceptions of Chinese-made onto Chinese-created.

Image credits: Angusf; Li-Ning

CONCLUSION (cont'd.)

That will come over time as Chinese companies hone their advertising and marketing skills—keep in mind the industry in China is relatively young. Chinese are adept at studying the competitive advantages of other cultures and putting them into practice in uniquely Chinese ways, a point Doctoroff makes. Savvy executives will watch and learn from many of today's dominant brands, mastering the best practices of branding.

Image credit: travel2.0

CONCLUSION (cont'd.)

Chinese brands have an opportunity to tell a fresh story about China, emphasizing everything consumers like and appreciate (its culture, its people) or easing anxieties tied to the Middle Kingdom.

Image credits: Fransisco Diez; Stevendepolo

CONCLUSION (cont'd.)

The next generation of business leaders may help accelerate change in China's corporate world. Millennials have grown up in a booming and interconnected China, and many are Western-educated, trained to think more creatively. As a result, we'll likely see a push-pull between the Millennial mindset and prevailing cultural norms.

Image credit: mobilechina2007

CONCLUSION (cont'd.)

The idea of Chinese brands is new to many consumers, but it won't be for long. From Bosideng's recent landing in central London to Haier's drive to produce American-targeted goods (via an upcoming U.S.-based R&D center), more Chinese brands are pushing into Western markets every day.

At the end of the day, people are not buying national brands, and they're not buying brands that have a certain provenance, they are buying great brands, and

that's the most important thing.” —JOSEPH BALADI, CEO of BrandAsian, author

of The Brutal Truth About Asian Branding

THANK YOU

THANK YOU