Never has interest in the Chinese economy and in Chinese businesses been greater than in 2015. But despite all this hype, spotting a Chinese brands in an overseas markets is still a rare occasion.
Even on China’s home soil global brands still dominate China’s domestic players in their respective categories. And while trailblazers like Xiaomi have achieved significant success in China as well as making their mark in overseas markets, they are, as we open 2016, still the exception rather than the norm.
So, what does 2016 have in store for Chinese brands? What can we expect and what will surprise us?
Corporate Dinosaurs: Slain by Digital Warriors
For many years corporate giants dominated China. The likes of Lenovo, Midea and Suning had established market strongholds simply due to their domination of traditional retail channels.
Just before Christmas I visited SimplyWork, a coworking space in Shenzhen and was blown away not only buy the scale, but also the quality of the facilities.
These national brands were the only ones that were ubiquitously available, had achieved impressive recognition levels and were competitively priced. It seemed like these brands were bound to dominate their respective categories for good and that they were about to make an entrance to the international stage.
Some, such as Huawei, have managed to gain moderate traction, but rather than focusing on overseas expansion most of them are now fighting for survival in their home market.
The Xiaomi Model
In China, everything changed when Xiaomi launched its incredibly successful online driven sales model. Spurred via ‘flash sales’ (the sale of a fixed quantity of a certain product on a specific day) Xiaomi has raced to become China’s top smartphone brand within just a few short years.
The interesting finding here is not just the impressive success of Xiaomi, but more so the inability of its major competitors to do much about it. In fact, their entrenched business model and the need to sell through traditional ‘offline channels’ has made them inflexible and sorely vulnerable to Xiaomi’s attacks on their market share.
it remains unclear if 2016 will finally become the year that Chinese brands make a big splash in overseas markets. It seems more likely that a new breed of digitally grown brands will emerge and that they will shake up many sectors.
In addition to that, the fact that their brands have been poorly managed has further hurt them:
Back in 2014 I worked on a project with a major Chinese electronics brands. Prior to the project kickoff my client had conducted consumer research in China and found that their awareness rates with Chinese consumers were near perfect, but that their image was not.
According to their market research, especially younger Chinese shoppers described the brand as “a middle aged man”, and a brand that their parents would buy, but that doesn’t really appeal to them. These findings came as a shock to the brand as they realized that their brand really was a handicap, rather than an asset.
Also, very recently major Chinese shopping malls placed ads in the international edition of the New York Times attempting to ‘convince’ Chinese consumers that shopping in the real world is just a much better experience than buying things online (see screenshot below). Only the most skilled fortune tellers will be able to predict how this strategy is going to work out for them…
The implications of these trends for 2016 are:
- Brand pedigree is irrelevant. In China brand managers can no longer pat themselves on their backs to celebrate past achievements. None of that matters if a competitor lurking on WeChat can simply take established brands down in a matter of months.
- Awareness matters less. Being well known is of course a major advantage. After all, one of the key tasks of a brand manager is to build brand awareness. In China however, business is increasingly becoming regional. Building strong bonds with a specific audience niche, or in a local market can be far more effective than driving nationwide awareness campaigns. I predict that regional factors will become more important in 2016. A one-size-fits-all approach to brand management for ‘the China market’ will work less well.
Forget about Beijing and Shanghai: Shenzhen it is
When it comes to Chinese cities most people will think of Shanghai and Beijing first. I predict that this will change. The place where change is happening and where the future brands of China are forged is neither of these two metropoles. It is Shenzhen. The city located in Guangdong province is not only where Tencent, the operator of WeChat, has its headquarters, but most importantly it is the Silicon Valley of China.
Beijing and Shanghai are certainly important economic centres, but 2016 is the year of Shenzhen.
It is the place that attracts entrepreneurial individuals and cash rich investors alike. Two weeks ago I attended a panel discussion on Chinese startups. Laurent Le Pen, the charismatic French founder of the Chinese wearable brand Omate responded that “employees leaving his company to start their own business” was one of the key challenges he is facing.
Just to put some numbers to the scale of this trend: on some days the number of WeChat corporate account applications (so called ‘service accounts’ and ‘subscription accounts) exceeds 10,000 just in Shenzhen (that is per day). These WeChat accounts are increasingly used by Chinese startups to sell their products.
Just before Christmas I visited SimplyWork, a coworking space in Shenzhen and was blown away not only buy the scale, but also the quality of the facilities: In a 5,000 m2 large space SimplyWork offers not just Wi-Fi and hot desks, but also a canteen, a fitness room, showers, a gaming room and resting spaces to the 100 startups operating from that single location. Given that they have a long waiting list of startups looking to move in, SimplyWork is about to open up more co-work spaces throughout the city.
Thus, in 2016, keep an eye on Shenzhen:
- Beijing and Shanghai are certainly important economic centres, but 2016 is the year of Shenzhen. Companies like Tencent have put it on the map and new brands built by true visionaries, often initially trained by Tencent, will manifest its image as China’s ‘Silicon Valley’.
Takeovers, Friendly and Unfriendly
Takeovers are still less common in China than they are in other markets. In particular hostile takeovers. The recent hostile takeover attempt of the Chinese real estate giant Vanke by Baoneng Group has come as a surprise to many.
Without going into the technicalities of corporate takeovers in China (the rules are a bit different here), one observation is that many cash rich Chinese companies have paid very close attention to this takeover attempt.
As a result, not few of them have become aware of their own ‘takeover options’. It is thus likely that we will see more M&A activity in China in 2016. From a brand perspective, M&As are always a challenge.
Younger Chinese shoppers described the brand as “a middle aged man”, and a brand that their parents would buy, but that doesn’t really appeal to them.
Internally, as different corporate cultures clash and also externally, as existing and prospective customers need to be alerted to the fact that the company they were doing business with no longer exists in that same form.
Oftentimes this turns into a long-winded turf war, as both M&A parties can bring forward strong arguments for maintaining their respective brand and simply ‘replacing’ the acquired brand is not always the best option. I am currently working with a client from the financial sector that was acquired by a Chinese bank and navigating the brand architecture into the right direction is proving to be a highly delicate undertaking.
Key takeaways are:
- M&A activity is likely to increase in China, but Chinese companies are often ill prepared for the brand strategy implications of takeovers.
- Also internationally, Chinese firms have initiated a shopping spree. In Europe and Taiwan acquisitions by Chinese companies are already a big topic.
In conclusion, it remains unclear if 2016 will finally become the year that Chinese brands make a big splash in overseas markets. It seems more likely that a new breed of digitally (WeChat) grown brands will emerge and that they will shake up many sectors. It is likely that the southern city of Shenzhen will be the birthplace of many of these startups, and that the city will develop into a growth catalyst for Chinese brands.