Establishing luxury brands in China

Despite the term’s overuse, some Western brands are genuinely ‘iconic’ – the graphics and structures they use to represent themselves act as symbols for deeper brand values that over time we have come to understand. In the west we see Tiffany teal blue and we think Audrey Hepburn with a croissant and coffee. We see a red chevron and a thousand images of cowboys pop up in our heads.

So it’s interesting to see how much value certain brands have when stripped of these cultural associations as they introduce themselves to China, which with less recognition of western references, lacks the cultural shorthand usually utilised to imbue these designs with further ‘meaning’. In a recent article exploring the sale of high-end fashion to a culture that experienced the Cultural Revolution, the editor of Vogue China told The Guardian “You need to explain swinging London, Mary Quant, The Beatles, and why these people made a difference. If you don’t explain, they’re just clothes”.

In the same piece, The Guardian quoted a forecast that more than 44% of the world’s luxury goods will be sold in China by 2020. Many of our own clients believe that if they can win a comparatively small fraction of China’s brand share it will put their domestic sales figures into a cocked hat. Still, these are early days, right now only 2% of the population buys top end brands.


Should these predicted figures prove to be even close to correct this would create not only an opportunity but also a paradox of sorts. Here is a relatively un-jaded, economically flourishing market but a market which, owing to the same forces it owes its very existence, may require a whole new marketing approach.

So here’s my question: do brands simply transfer their global campaigns to this new market and assume that the new market will pick up the plot mid-story? If so, it will show that ‘icons’ can exist free of meanings and nuances that often took decades to build, that the status conveyed by a head spinningly high price tag and a western provenance is enough. And I guess most brands are betting on this. But it will be interesting to see if any of the superbrands take things back to basics and invest time in explaining what it is that makes them special and what their iconography is representing in terms of product quality, ethos, and heritage. All of this is doubly challenging as Beijing has banned billboard luxury goods advertising for the time being.

 

My guess is that without investment in building meaning, the brands will quickly become interchangeable (if high-end) commodities. In which case, their popularity will be short lived and much like the carriage clocks gifted by European ambassadors to the Emperor’s court a couple of centuries ago, the brands mechanics will be stripped down, understood and rebuilt along alternative Chinese lines in short order.

Currently, Chinese Vogue is experiencing incredibly high demand for advertising space and if these pages of beautiful yet undeniably interchangeable photographs of handbags with prominent logos cut it long term, then that will be illuminating. However, if the caché of being an established Western brand proves ineffective in creating enduring success, it may turn out that throwing media spend at the opportunity was not enough. Perhaps investing in establishing a deeper meaning in these early days might be a vital part of winning the race to be a long-term leading brand to a culture seeing you with fresh eyes.

 A recent piece in the Financial Times notes that Burberry is making great ground in China by branding itself as both the quintessential ‘and only’ Luxury British brand, with fashion shows importing UK cultural talent to support this impression. Here, I guess, is a brand defining its point for a new market, rather than simply rolling out the established iconography to a new market.

Source:  http://www.jkrglobal.com/design-gazette/establishing-luxury-brands-in-china-2/
Design Gazette / Mr. Silas Amos

Latin America Leads as the Most Socially-Engaged Global Region with Users Spending 7.5 Hours on Social Networking Sites in April - comScore, Inc

Latin America Leads as the Most Socially-Engaged Global Region with Users Spending 7.5 Hours on Social Networking Sites in April - comScore, Inc

Why Latin American Companies Can't Thrive In China

 Guatemala's Pollo Campero, a fried chicken chain, had to shutter the four restaurants it opened in Shanghai (above)

China is an eager customer when it comes to Latin America’s raw materials. But it has proven to be far more finicky when it comes to the region’s value-added goods. Even Pollo Campero, Guatemala’s far-reaching fried chicken chain, failed to gain a foothold in China.
The Chinese city of Harbin, whose grand boulevards and orthodox churches are a testament to the many Russians who made the city home after the revolution in 1917, has some selling points. Its Siberian climate, however, is not one of them – particularly for seven visiting employees from the Brazilian airplane producer Embraer. The dreary weather adds insult to injury for the company officials, whose Harbin factory has basically been inactive since last April.

Embraer’s difficulties in China are hardly an exception. Although the eastern giant has become one of Latin America’s largest trading partners, with annual trade reaching $200 billion, many Latin American companies have tried – but struggled mightily – to gain a foothold there.

Some, like Argentina’s IMPSA, have given up altogether. IMPSA, a producer of the large cranes used to load and unload shipping containers, opened offices in Hong Kong and Beijing in the 1980s. But it soon ran into trouble with its Chinese subcontractor, which launched a separate company, Shanghai Zhenhua Port Machinery (SZPM), and began competing with IMPSA.

“They had large government subsidies. The Chinese government gave them a port, 10 boats and cheap money. It was practically impossible for us and the rest of the world to compete,” recalls Sofía Pescarmona, IMPSA’s vice president. Today, SZPM controls 70% of the global crane market, and sells a number of products in Latin America.

“Asia is still an interesting market, but now we serve it from Malaysia,” says Pescarmona. “We are no longer interested in the internal Chinese market.”

For Osvaldo Rosales, director of foreign trade at the UN’s Economic Commission for Latin America and the Caribbean (ECLAC), the shift in economic relations presents a huge challenge for Latin American governments and companies. “One possible strategy is to be passive. Let China drag us along, which is what we are doing,” says Rosales. “The other possibility is to participate in the Asian value chain, which is structured around China.”

Putting that theory into practice is harder than it seems. Even the auspiciously named Brazilian bus manufacturer Marcopolo has failed, in China, to repeat the success it enjoyed in South Africa, Egypt and India. “Our plant in China is the only one that doesn’t produce buses. It only produces parts,” says Rubens de la Rosa, CEO of Marcopolo. “Why don’t we have the same authorizations as the local manufacturers? Volume is a major competitive advantage and China, when it comes to volume, doesn’t share.”

‘Guanxi’ is not ‘networking’

Part of the problem is that China and Latin America have pursued very different industrialization models. Embraer’s case is a clear example. “Embrear is a large company thanks to its strategy of buying the best systems and components for its planes,” says Richard Abulafia, vice-president of Teal Group, a consulting firm specializing in the aerospace and defense industries. “China, on the other hand, buys components and systems from whoever is willing to give up the technology, just like the Soviet Union did.”

IMPSA’s Pescarmona makes a similar argument. “China wouldn’t let us produce in their country unless we gave up the knowhow that we had painstakingly gathered over the course of more than 100 years. We preferred not to do that,” she says.

People familiar with China say that cultural differences are another stumbling block for Latin American companies. The nuances of Chinese culture, needless to say, are not easy to master. “In Latin America, people say not to mix friendship with business. But in Asia it’s totally different,” says Julie Kim, director of the Asia-Pacific Center at Chile’s Diego Portales University. “That is a crucial difference that you have to understand in order to do business there.”

In China, business depends on a tradition known as Guanxi, a network of connections and favors. The system precedes the Communist Party and bureaucracy, starting with family relationships. It grows as an individual goes to school and gains connections. Guanxi isn’t networking as Latin Americans understand it, but rather an exchange of rights and obligations, a chain of favors.

A few Latin American firms have had success in China despite the cultural barriers to entry. Chile’s Compañia Sudamericana de Vapores, whose former president managed to establish a relationship with the late Communist Party leader Deng Xiao Ping, managed to get a foot in the door in China. Another example is the Mexican bread company Bimbo, which bought a Spanish bread company that already had operations in China.

Those few companies that have had success in China tend to produce products there that will ultimately be sold in Latin America. To enter the market with manufactured products and services, on the other hand, has proven far more difficult.

Embraer is an interesting example. The Brazilian firm has lost ground in China to a rival Canadian company called Bombardier, which recently closed a deal with the Commercial Aircraft Corp. of China to provide planes of 100 to 149 seats. Embraer was barred from producing similar planes. Why? The answer may very well have to do with guanxi.

Embraer’s head of operations in China, Guan Dongyuan, has some guanxi. An engineer who studied at University of Sao Paolo and the China Europe International Business School, he previously represented the mining company Vale. But his counterpart with Bombardier, Jianwei Zhang, has even more. An engineer who graduated from the University of Tianjin, Zhang was a public administrator from 1975 to 1982. He then completed an MBA and a doctorate in administration at the University of Montreal before joining Bombardier.

“Relationships are crucial in China,” says Bombardier’s CEO, Pierre Beaudoin, in a corporate video. “For long term success, one has to be patient.” And they have been patient: Bombardier has been doing business with China since the 1950s.

Visibility is another problem. Outside of Latin America, people don’t know much about the region or its companies. According to Michael David, a senior consultant with the Boston Consulting Group in Beijing, “the region would benefit from increased student and academic exchange with China, and more cultural products, like fashion and cuisine, in the country.”

But that hasn’t turned out to be easy either. Guatemala’s Pollo Campero, the most international of Latin America’s fast food joints, failed in its attempt to break into China. In 2007 the fried chicken chain opened its first store in Shanghai. It planned to open 500 more restaurants in China within five years. Pollo Campero had reason to be optimistic based on its success in expanding throughout Latin America, into the United States and even in Indonesia and India. But after just two years, the company closed its original four Shanghai locations. Today, it doesn’t have a single restaurant in China.

That’s bad news for Latin American industry as a whole. Unless the region’s firms can change strategies and become more patient, the Latino model for trade with China will continue to be one that consists solely of commodity exports.

Source:  ©Worldcrunch - in partnership with America Economia (http://m.worldcrunch.com)

Photo - cornfed1975

What's, one of the leading Chile food company is now in China

In 2010 Watt's shifted track and decided to promote dairy products sold under the brand names Calo and Loncoleche, including cream, Gouda cheese and baby formula.
A Chilean dairy company finds success in China.
SHANGHAI-- It's never been a problem for Chile to sell copper to China. The Chinese came knocking, hungry for the metal to wire new cities and factories as the Chinese economy hit full steam. Copper accounts for roughly 85 percent of Chile's export sales to the Asian giant.
Knocking on China's door is another story... and one Juan José Vidal knows well.
As the Asia business manager for Watt's S.A., one of Chile's leading food companies, it's his job to bring an array of jams, juices, cheese and baby formula to the Middle Kingdom and beyond. The company's products hit Chinese grocery stores three years ago.
It's a mission that puts the company in a kind of pioneering role. Neither a towering multinational, nor a small entrepreneurial enterprise, Watt's hopes to find just the right fit in China-- capitalizing on a market that's increasingly open to foreign foods and increasingly able to buy them. Chinese consumers also seem willing to pay a little extra for foreign labels given concerns over the safety and quality of domestic food. But their tastes and buying patterns can be difficult to unlock.
"China is a world unto itself," said Vidal. "What works for example in Mexico or the United States, you might find here it doesn't work. I think as foreigners and as westerners, we have a hard time understanding that in China things take time, and perseverance."

Source: Ruth Morris
Latin Business Chronicle (http://latinbusinesschronicle.com)