Why Chinese Brands Can't Compete

Pop quiz: Off the top of your head, how many Chinese brands can you name? 

If you said zero, don't worry: You're like 94% of Americans, according to findings from research agency Millward Brown. Perhaps it's not our fault, though. On Interbrand's latest list of the 100 most valuable global brands, not a single company is Chinese. While American brands dominate the list, 14 other countries are represented, with even tiny Finland cracking the chart. How can not even one brand from China, the world's second-biggest economy and most populous country, be on the list?

There's no simple answer for China's lack of representation, but several contributing factors help shed light on the issue.

Food safety scandals are all too common in China. Most recently, fast-food sales slumped after workers at a supplier for McDonald's and Yum! Brands were allegedly caught using meat that had fallen on the ground and were accused of changing expiration dates.

The concerns haven't just tainted products sold in China, but also items made there. Earlier this year, leading pet food retailers Petco and PetSmart halted the sale of pet food made in the nation after a rash of dog deaths were linked to some China-made treats. Other safety scares that have sent Chinese running to imported brands include a tainted baby formula outbreak that in 2008 resulted in thousands of Chinese babies falling ill and some dying.   

The "Made in China" label is ubiquitous in this day and age, but it often carries a stigma of inferior quality. In a recent poll, nearly one-third of Americans said they wouldn't support a brand they knew to be Chinese-owned. 

Intellectual property 
The regulatory issues in China extend beyond safety concerns. Intellectual property rights, which underpin the system of patents, trademarks, and copyrights necessary for brands to thrive, are much more lax in China. According to a recent U.N. report, over two-thirds of the world's counterfeit goods come from that country, and brand owners have often complained about the lack of enforcement of intellectual property rights in China.  

The culture of fraud in China is sometimes laughable. In 2011, 22 fake Apple stores were found in one Chinese city alone. Knockoff brand-name goods are regularly sold around the country, and some see piracy as a deeply ingrained part of the culture. Tom Doctoroff, the author of the book What Chinese Want and a marketing expert on China, told Forbes: "When it comes to innovation, the Chinese won't deliver. China is the total flip-side of the U.S. Piracy goes back to the China world view that individual rights don't matter."  

As Doctoroff said, the Chinese downplay the value of the individual, compared to the U.S. Its state capitalist system means that success in business often comes from the assistance of the government, not from a brilliant idea, a superior product, or a better strategy. 

The difference in culture begins with the Chinese education system, where rote learning and standardized testing are a much bigger part of school life than in the U.S,  and where the system favors memorization over creative thinking. While the U.S. lacks so-called STEM (science, technology, engineering, mathematics) graduates, it has no shortage of creative minds, be they in Hollywood or brand management.

China's state capitalist economy and communist policies further reinforce those differences as individuals lack freedom of speech and property rights, and the planned economy de-emphasizes the need for individual innovation.

How it all adds up
China is making strides to bring its regulatory systems up to Western standards and alter its education system, but culture is hard to change. The differences in China are underpinned by an opposing set of values that de-emphasize the individual, and with it concepts such as innovation and branding that come out of the creative mind rather than state planning.

The Chinese economy has boomed over the last 20 years, along the way becoming the world's largest manufacturer, surpassing the U.S. in goods produced in 2011. But being a manufacturing-based economy means that Chinese companies are largely competing on price, which is much less sustainable of an advantage than having a strong brand. Along with China's boom, wages have skyrocketed, quadrupling in the last five years, making it less competitive for manufacturers than other developing countries. Many U.S. companies have shipped jobs from China to Mexico, where labor costs and transportation are cheaper, while others have moved production to Vietnam and other parts of Asia.  

China's GDP continues to grow at a blistering pace, and the country will likely eventually become the world's largest economy by virtue of its enormous population. But without a cultural change that enables successful brands, the country will struggle to move past a manufacturing-based economy and match the living standards of Westerners and the profit margins of Western companies.  

That means Western brands will continue to prosper in China and dominate the rest of the world, while China's cultural influence will lag even if it has more economic weight to throw around.

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Read/Post Comments (4) | Recommend This Article (1)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On August 12, 2014, at 1:31 AM, Richmond wrote:

    Yeah and the logic of this article will tell you China's success doesn't come from selling products to the US. All those Made in China products Americans are so use to are profited by US and foreign corporations not China. Meaning all the money China makes doesn't come from outsourcing. The US and Europe combined don't make the majority of China's exports. And remember those exports are mostly outsourced for foreign companies. So how much really is China dependent on the US? Check out Forbe's China rich list. None of the top ten are in the business of outsourcing. That's what it means that Americans don't recognize Chinese brands. China is making money without Americans as their customer. And China is the number two economy in the world. That means China doesn't need the US,

  • Report this Comment On November 03, 2014, at 11:49 PM, Patsaison wrote:

    Indeed foolish, all this China bashing is simply reflective of a foolish bias, and simplistic view, not really delving into and understanding what is going on.

    China makes products for US brands. And then there are domestic brands that are not exported--why export when there are 200-300-600 million customers domestically?

    But underneath all this, there is so much going on in China, and a huge and growing domestic consumer market.

    Don't be a fool.

  • Report this Comment On November 04, 2014, at 12:31 AM, LazyCapitalist wrote:

    "On Interbrand's latest list of the 100 most valuable global brands, not a single company is Chinese."

    Unless I'm looking at the wrong list (which is entirely possible), Huawei (a Chinese company) is No. 94 on the list.

  • Report this Comment On November 04, 2014, at 12:36 AM, LazyCapitalist wrote:

    Ah, since this article was written in August, I'm guessing I was looking at the wrong list. (I'm looking at the recently released 2014 list, while the author was probably viewing the current at the time 2013 list).

    Well, either way China has cracked the list for the first time at No. 94. So Chinese brands (or at least Huawei's brand) can apparently compete.

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Jeremy Bowman

Fool since 2011. I write about consumer goods, the big picture, and whatever else piques my interest. Follow me on Twitter to see my latest articles, and for commentary on hot topics in retail and the broad market.

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