Navigating the new Silk Road

Chinese brands face unique challenges as they go global

Since President Xi Jinping unveiled the “Belt and Road” initiative in 2013, there has been a five-fold increase in the volume of rail-freight sent from China to Europe. A modern silk route has begun.

China is assertively leaning into this expansion with collaborative loans intended to motivate the countries along this new route to join their ports and their trade to the new gateway.

But proximity and accessibility will only get companies and products so far. The Chinese companies that will be successful in unlocking the opportunities along this route will be ones that bring their story, their reputation and their brand character to new shores. “Brand China” takes on a whole new meaning in this endeavour and the first companies that put their names into the global market will mark the trail that others will follow.

Be it “Made in China” or “Made in PRC”, historically Chinese products have had mixed receptions around the world. Awareness of Chinese brands in international markets declined over the past three years (by 26% according to BrandZ). However, some positive attitude indices compared across countries have shown certain revealing patterns. Across Europe, attitudes are broadly less positive towards any country outside of the continent, with China consistently trailing in the rankings. In developing markets, we see notably more positive impressions of brands from Great Britain and America, with China again performing consistently lower.

However, when we look at this against a younger cohort, the trend is in fact reversed. There is a positive perception that Chinese brands are innovative and unique, which makes the brands flow across borders successfully.

This innovation perception of Brand China is driven by Chinese technology brands. DJI – the brand of choice for drone fans globally, headquartered in Shenzhen – represents 70% of worldwide drone sales. Huawei, the telecommunications company, is already the third largest brand in the sector with a 9.4% market share worldwide. Youzu and Elex are both young Chinese gaming companies that continue to gain more fans and more revenue in foreign markets.

Going global: communication plays a critical role for brand China

Being “innovative” and “unique” in their offering are just two of the fundamental brand perceptions that are driving uptake of brands such as Oppo, Vivo, Xiaomi, Alibaba and Tencent globally, but this doesn’t necessarily drive adoption. Making the brand known, differentiated and locally relevant is key for Chinese brands that want to kick-start their offering and garner consumer trust and confidence offshore.

Orolay, the down jacket brand, became the top selling item on Amazon’s female clothing channel recently, earning its nickname “The Amazon Coat”. Orolay is predominantly selling on Amazon, using it as its prioritised sales channel, with sales from there alone contributing 70% of the brand’s total revenue. This success is down to the understanding of local consumers and the tailoring of the product design to fit consumers’ demands – information that has been acquired through integrated data analysis across multiple channels including social media and search.

The role of communication (advertising and media) becomes critical in driving local market consumers who are “less engaged” or “indifferent” towards Chinese brands to become “moderately” to “highly engaged”. In addition, this helps to create an emotional understanding of brands, which is a real determinant for long-term success offshore.

When reviewing the characteristics of successful players in the BrandZ Top 50 Chinese Global Brand Builders 2019 survey, we see that these brands were quick-footed and deliberate in driving innovation. They were also able to localise their marketing strategy and have built their strength through powerful alliances and strategic partnerships (for example, distribution tie-up).

The BrandZ Top 50 Chinese Global Brand Builders 2019 report is an exclusive study conducted each year by WPP and Kantar to evaluate Chinese brand power – a metric of equity. Brand power is measured based on three factors: brand distinctiveness; brand relevance in meeting functional and emotional needs; and brand salience.

Many Chinese brands have recently started to gain success overseas, and the coming years will act as a springboard for Chinese companies looking for growth. It is therefore important to understand the challenges that these brands face when they go global. Firstly, limited awareness of Chinese brands overseas affects the potential for premiumisation of the offering. This means that these brands would need to set very competitive prices to compete with existing international brands, while also having to outperform Chinese players with similar market-entry strategies.

Secondly, in the past the credibility of Chinese brands has been in jeopardy, resulting in a slowdown of the adoption rate. So the “new” Chinese brands that are entering the market need to break with this image and build credibility by showing better quality and value.

Finally, many Chinese brands go to market with a limited brand-building budget, to run a quick test-and-learn soft launch in new overseas markets. Combining this with the issues around awareness and credibility, it is advisable to avoid such a strategy and instead plan for the long term.

Four key challenges for Chinese brands seeking to grow overseas

1. Cross-market campaign development for media planning and buying

Essential to all media activation in any market is the need to systematically evaluate the environment in which your brand intends to operate. At MediaCom we plan channels and content together in the most optimal way in order to drive growth. This is done through “Systems Planning”.

While understanding the local media landscape is paramount, it is also essential to assess the message receptivity and sentiment of Chinese outbound communications within the local market. Therefore, it is necessary to take appropriate measures according to local nuances. The central brand theme and brand character work that originated in China should be:

• adapted to the local market’s nuances
• aligned with consumer preferences
• synergised with the local communication environment

2. Cross-cultural collaboration

Understanding differences in the media landscape across markets must be combined with an understanding of cultural differences in communication style. These differences have a direct impact in the implementation of the project, media participation, time planning, and understanding of subsequent reports. Each market has distinct and separate ways of decoding the briefs and drafting responses.

Once the China team has sent the media brief to overseas markets, the understanding and response of each market is different. Therefore, in the preliminary preparation stage it is essential to take into consideration cultural differences to avoid misunderstandings. In doing so, we ensure that we capitalise on the knowledge that local teams have of their local landscape, whilst also encouraging the innovation inherent in bringing culturally diverse teams together to solve problems.

The domestic media in China is often highly flexible and agile in its work, while overseas media tends to be more systematic and have stricter workflow requirements, resulting in longer lead times than Chinese brands are used to. While working on global media plans, it is important to factor this in, in order to avoid delays and negative effects on campaigns.

3. Legal procedures, data protection and privacy regulation

There is a global shift towards more comprehensive legislation on data privacy. China implemented the PRC Cybersecurity Law of 2017, Australia established the Privacy Amendment (Notifiable Data Breaches) Act 2017 and the EU introduced the General Data Protection Regulation (GDPR) in May 2018. GDPR applies to every individual and entity doing business with the European Union. Regardless of their physical entity, if they deal with personal data sitting in the EU, they need to comply with GDPR.

4. Cross-border commercial stewardship

One of the biggest operational challenges for Chinese outbound media communications arises in the settlement of local media payments, due to capital outflow restrictions in China. The solution is dependent on the geographical and financial operating centres of both the client and agency.

Read more from Atticus Journal Volume 25