By Gordon Chu | October 27, 2009

Journey to the West: China’s Move to the US

Sitting here in Los Angeles, California, I often find myself fixated on one single deliberate thought of my role here at METAN – how to get into China. My usual Monday morning rants start off with a “what if we did this…” or “we need to do that…”, but never do my thoughts deviate far from what needs to be done in China (as evident in nearly all my past newsletters).

However, China is a two-way street. And as much as we see this golden opportunity to and make a splash, Chinese companies see us nearly the same – how to get into the US market. Sure, Chinese brands have made their way outside of China to their Asian neighbors or even further west to pockets of Europe. But the United States – this is the major leagues for these companies. This is where they can make a real name for themselves outside of their four walls in China.

Whether through an acquisition or just creating a better global marketing presence, Chinese brands making the leap to the US should not take anybody by surprise. The sagging US economy is struggling to pull itself out of this current recession while the booming China market is clearly on the uptick. Think of this as the ‘perfect storm’ for Chinese brands to enter the US market while the price is right.

Still, there will inevitably be hurdles with Chinese brands entering the US market and expecting immediate (or any) results. In a recent article by the China Market Research Group, it reports several issues Chinese brands will face when entering the US market.

BRANDING

It’s no mystery that Chinese companies have traditionally not been great at branding / marketing. Part of this can be attributed to China’s disconcerting view of brand value as a whole. Take a stroll in Beijing’s silk road market and the streets are lined with fake luxury bags, watches, and wallets. A $5,000 designer hand bag can be conveniently yours for a mere price of $5 if you haggle enough with the street merchant.

Fundamentally, China business has operated under one rule of thumb – you compete on price. And when costs become the main driver in the business model, the idea of building value in a brand becomes low on the priority list.

To succeed in the US, Chinese brands need to recognize (and quickly) that the long-term requires brand value and not just growing revenues at marginal profits.

HUMAN CAPITAL

For many Chinese companies, when a business issue arises, the solution is often to throw more resources and bodies until it’s properly solved. It might be crude, it might be short-term, but in China, it certainly is effective.

Human capital is viewed more as a commodity than it is an investment in the US. Remember, China operates with quantity, not necessarily quality, and this certainly applies to how companies treat employees. Retaining quality employees is a concern for any Chinese brand looking to grow in any market – either in China or elsewhere.

The ability to leverage the knowledge and operate more efficiently will be a major pitfall for many companies looking to grow beyond status quo. It’s no wonder there has been a flurry of acquisitions by Chinese companies of US entities to retain these assets. Chinese companies are not just buying brands, they are acquiring the expertise necessary to compete in developed markets.

PATIENCE

Usually, diversification is a positive attribute for any portfolio of companies. It hedges risks and builds a solid foundation for steady growth. However, in China, the idea of ‘steady’ is subjective and the mentality of ‘now’ is more appropriate of how many Chinese companies operate.

The exponential growth of China’s economy really reflects their own ambitions to be number one. Whether it is a small company selling widgets for mobile phones or big conglomerates aiming to be the next Google, the goal has never been to be second-best.

The issue is not so much the ambition, but in the journey along the way. Companies such as Toyota and Sony have taken decades in the US to build a brand that communicates value. Branding is often a matter of patience and time for consumers and foreign markets to feel comfortable with the brand. For many Chinese companies, the ambition to grow and to be number one often eclipses the subtleties between brand marketing and brand building.

Now, beyond branding, human capital, and the idea of patience, there are several other issues Chinese brands need to consider when entering into China that the article does not state. As much caution to the wind we throw to those who look to enter the China market, the same can arguably said to those Chinese companies embarking on American soil.

CULTURE

The idea of a business culture runs along the same vein as that of how a company brands itself. Just how there has been a lack of attention and awareness to a company’s brand, the very same can be said to that of the business culture.

Some may argue that the business culture is organically derived and is a bi-product of the success of the company, but there are still fundamental traits that are consistent across nearly all working class in China. From the organization structure to the way communication flows, there are differences and subtleties that can make or break the functionality of a company. Throw in a US entity that bares no similar assimilation to that of their Chinese counterpart and the complications of the business culture becomes much more tangible for many Chinese companies.

Bottom line, launching a US presence requires more than occupying an office space and filling in the operational nuts and bolts of the business. It requires the qualitative awareness to align both cultures to function as one – an area that many Chinese companies are getting accustomed to for the first time.

INNOVATION

These discussions of branding, human capital, patience, and business culture all culminate to one key factor to the success of globalization: innovation.

At the end, innovation drives success and is rewarded in nearly all developed markets. Despite China’s booming economy and ability to succeed on the laurels of low-cost, innovation is a void many Chinese companies need to address in order to succeed in the US.

In a culture where independent thinking is not encouraged and where intellectual properties are undervalued, China will face monumental hurdles to develop their domestic brands overseas that match their own expectations of growth. For now, a cheaper alternative through acquisition of ready-to-wear companies such as Lenovo and Hummer have the required infrastructure and operations for innovation. However, as the US market begins to recover, options for acquisition will soon run dry and force Chinese companies to look internally for their own path forward.

CONCLUSION

These points are not to say Chinese companies cannot succeed exploring in the US. In fact, the short and long horizons are paved with great opportunities for China to globalize their domestic brands in the US market. In an increasingly smaller world, the evolution of business requires globalization in order to grow.

For the Chinese, these mentioned issues are not hurdles, but rather opportunities to better raise the status quo for a growing business. And as the US market recovers from the economic downturn in the near future, US companies will need to be prepared for a revamped market with new Chinese competitors.

Gordon Chu is the VP of Business Development at METAN Development Group. For comments/questions, email gchu@metanmedia.com.