abhi_the _gr8_maratha
Senior Member
- Joined
- Apr 15, 2014
- Messages
- 2,193
- Likes
- 609
Why not indeed. Something happened
that had not been predicted by the
economists and analysts. It wasn't the
western markets that were dominated
by Chinese brands. It was the Chinese
market that became dominated by
foreign brands.
Ten years ago, Chinese brands
controlled 70% of the local market.
Now they have been reduced to 45%. If
you exclude the barebones pickup
trucks and minivans that make up the
light commercial vehicle market,
domestic brands have only 29.5% of
the market.
Even in a globalized world, it is
distressing to watch foreigners come
to dominate a local markets. This is
especially, true for an important
industrial segment like automobile
manufacturing. Even in the US, where
the Japanese cars have been present
for 40 years, there are places where it
is considered unpatriotic to own one.
Why have the Chinese failed to build
successful brands even in their home
market? Obviously, they have not
been able to match the quality of
developed countries' manufacturers.
Until recently, they were very
competitive on price. Why can't they
seem to develop successful brands?
The reason for the failure is the way
the Chinese government use their
legal and regulatory system. Foreign
companies coming to China to produce
products for export were lightly
regulated in every way. China wanted
to encourage exports and follow the
Japanese model. In contrast, foreign
companies that wanted to sell into
China faced discrimination.
In theory, this sort of protectionism
should have worked, but instead it
backfired. The first problem for local
brands was a lack of trust. For
example, large Chinese dairies were
only subject to minimal safety
regulations. They took advantage of
this by lacing infant formula with
melamine a byproduct of coal.
Melamine was put into the formula to
allow substandard milk to pass protein
tests. The result was a national
scandal in 2008. Six children died and
over 300,000 were sickened.
To this day, Chinese consumers go to
great lengths to buy foreign brands.
They even ask their friends traveling
to other countries to send back infant
formula a few cases at a time.
Rather than force local dairies, many
of them government owned, to adhere
to stricter standards, the Chinese
government used laws, policy and
even the state media to strike back at
foreign brands.
The state television has accused
Danone, the French food company, of
bribing hospitals in Tianjin to use its
infant formula. It restricts importation
of foreign infant formula created for
other markets imported by third
parties into China. To help local dairies
it has created subsidies.
The auto industry has similar
problems. Domestic Chinese auto
companies didn't do well in crash tests.
In surveys, local brands get criticized
for poor quality and engineering.
Foreign companies are required to form
50-50 partnerships with local firms.
The Chinese were thinking of dropping
this requirement. Trading partners
might retaliate if China were ever to
start exporting cars in large numbers.
But since they don't, the largest
politically connected; state owned
Chinese companies were able to keep
the restriction in force. With this type
of protectionism in place, it is even
more unlikely that China will be able
to develop export markets.
The Chinese required foreign
companies to produce "indigenous"
brands. For example BMW Brilliance
makes the local Zinoro. Dongfeng
Nissan builds the Venucia. The most
successful is the SAIC-GM-Wuling
Automobile Company's Baojun. They
sold 100,000 Baojins in 2013 up 20%.
This would be great except that
Baojun's achievement came at the
expense of local Chinese brands.
China has also inhibited foreign
competition by failing to enforce
intellectual property laws. Stealing
intellectual property in China is done
on a massive scale including wide
spread computer hacking to steal
information.
Stealing from foreigners may seem like
a good idea in the short term. But if
Chinese companies can steal from
western companies they can also steal
from each other. A brand is one of the
most important and valuable assets of
any company. If it cannot be protected,
then companies do not have an
incentive to build it up.
Consumers in India, Indonesia and the
Philippines do not have the
overwhelming preference for foreign
brands. Indonesia and the Philippines
actually have a clear preference for
local brands. India gives the foreign
brands a slight edge.
What is interesting is that although
their preferences are slightly different,
the views of local and foreign brands
in these three countries are quite
similar. Foreign brands are considered
to be more fashionable and of better
quality. Local brands are believed to
offer a better price. There is a
universal preference to support local
companies. As to reliability, consumers
in all countries rated both local and
foreign brands about equally.
It's not that Chinese companies cannot
compete with foreigners. Jin Duo Bao is
a cold herbal tea that outsells Coca-
Cola in China even though it is more
expensive. It sells well because it is
appeals to local beliefs and
preferences.
Rather than attempt to regulate the
market, the Chinese should take a
lesson from the Indian processed foods
market. The local companies view their
competitors as positive. With large
advertising budgets foreign firms have
been able to increase the size of the
market and create new market
segments that nimble local companies
with better distribution and local
knowledge can exploit.
Every policy, every law, every
regulation created by governments to
solve a problem will have unintended
consequences. These are sometimes
worse than the issue that was meant
to be solved. Sometimes the best use
of power is not to use it at all.
that had not been predicted by the
economists and analysts. It wasn't the
western markets that were dominated
by Chinese brands. It was the Chinese
market that became dominated by
foreign brands.
Ten years ago, Chinese brands
controlled 70% of the local market.
Now they have been reduced to 45%. If
you exclude the barebones pickup
trucks and minivans that make up the
light commercial vehicle market,
domestic brands have only 29.5% of
the market.
Even in a globalized world, it is
distressing to watch foreigners come
to dominate a local markets. This is
especially, true for an important
industrial segment like automobile
manufacturing. Even in the US, where
the Japanese cars have been present
for 40 years, there are places where it
is considered unpatriotic to own one.
Why have the Chinese failed to build
successful brands even in their home
market? Obviously, they have not
been able to match the quality of
developed countries' manufacturers.
Until recently, they were very
competitive on price. Why can't they
seem to develop successful brands?
The reason for the failure is the way
the Chinese government use their
legal and regulatory system. Foreign
companies coming to China to produce
products for export were lightly
regulated in every way. China wanted
to encourage exports and follow the
Japanese model. In contrast, foreign
companies that wanted to sell into
China faced discrimination.
In theory, this sort of protectionism
should have worked, but instead it
backfired. The first problem for local
brands was a lack of trust. For
example, large Chinese dairies were
only subject to minimal safety
regulations. They took advantage of
this by lacing infant formula with
melamine a byproduct of coal.
Melamine was put into the formula to
allow substandard milk to pass protein
tests. The result was a national
scandal in 2008. Six children died and
over 300,000 were sickened.
To this day, Chinese consumers go to
great lengths to buy foreign brands.
They even ask their friends traveling
to other countries to send back infant
formula a few cases at a time.
Rather than force local dairies, many
of them government owned, to adhere
to stricter standards, the Chinese
government used laws, policy and
even the state media to strike back at
foreign brands.
The state television has accused
Danone, the French food company, of
bribing hospitals in Tianjin to use its
infant formula. It restricts importation
of foreign infant formula created for
other markets imported by third
parties into China. To help local dairies
it has created subsidies.
The auto industry has similar
problems. Domestic Chinese auto
companies didn't do well in crash tests.
In surveys, local brands get criticized
for poor quality and engineering.
Foreign companies are required to form
50-50 partnerships with local firms.
The Chinese were thinking of dropping
this requirement. Trading partners
might retaliate if China were ever to
start exporting cars in large numbers.
But since they don't, the largest
politically connected; state owned
Chinese companies were able to keep
the restriction in force. With this type
of protectionism in place, it is even
more unlikely that China will be able
to develop export markets.
The Chinese required foreign
companies to produce "indigenous"
brands. For example BMW Brilliance
makes the local Zinoro. Dongfeng
Nissan builds the Venucia. The most
successful is the SAIC-GM-Wuling
Automobile Company's Baojun. They
sold 100,000 Baojins in 2013 up 20%.
This would be great except that
Baojun's achievement came at the
expense of local Chinese brands.
China has also inhibited foreign
competition by failing to enforce
intellectual property laws. Stealing
intellectual property in China is done
on a massive scale including wide
spread computer hacking to steal
information.
Stealing from foreigners may seem like
a good idea in the short term. But if
Chinese companies can steal from
western companies they can also steal
from each other. A brand is one of the
most important and valuable assets of
any company. If it cannot be protected,
then companies do not have an
incentive to build it up.
Consumers in India, Indonesia and the
Philippines do not have the
overwhelming preference for foreign
brands. Indonesia and the Philippines
actually have a clear preference for
local brands. India gives the foreign
brands a slight edge.
What is interesting is that although
their preferences are slightly different,
the views of local and foreign brands
in these three countries are quite
similar. Foreign brands are considered
to be more fashionable and of better
quality. Local brands are believed to
offer a better price. There is a
universal preference to support local
companies. As to reliability, consumers
in all countries rated both local and
foreign brands about equally.
It's not that Chinese companies cannot
compete with foreigners. Jin Duo Bao is
a cold herbal tea that outsells Coca-
Cola in China even though it is more
expensive. It sells well because it is
appeals to local beliefs and
preferences.
Rather than attempt to regulate the
market, the Chinese should take a
lesson from the Indian processed foods
market. The local companies view their
competitors as positive. With large
advertising budgets foreign firms have
been able to increase the size of the
market and create new market
segments that nimble local companies
with better distribution and local
knowledge can exploit.
Every policy, every law, every
regulation created by governments to
solve a problem will have unintended
consequences. These are sometimes
worse than the issue that was meant
to be solved. Sometimes the best use
of power is not to use it at all.
