Rebranding Chinese manufacturers for the high-end segment
Fang Hua

Editor's note: Fang Hua is a senior regional manager of planning and productivity in a leading chemical manufacturing company, an American Society for Quality certified Six Sigma Master Black Belt, and an organizational transformation practitioner with over 10 years' experience in strategic and tactics deployment in manufacturing industry in different countries and markets. The article reflects the author's opinions and not necessarily the views of CGTN.

Decades ago, manufacturing in China became the main driver in minimizing, and in some cases eliminating, poverty and material shortages in the country. It was this strategy that was matched by China's market development. According to the National Bureau of Statistics of China, the urban per capita disposable income (UPDI) has skyrocketed by 105 times (from 343.4 yuan per capita in 1978 to 36,396 yuan per capita in 2018) during the 40 years after China began its reform and opening-up.

Refrigerators, washing machines, ACs, and even cars, which were once seen as luxury goods, are now commonplace. In these 40 years, China encouraged multinational corporations to quickly solve the dilemma of domestic technology, management, and lack of productivity, and to promote the establishment of local supply chains. During this time, a large number of local private companies have grown rapidly. By providing spare parts and foundry services to foreign-funded enterprises, and even quickly imitating the design and technology of imported products, they have become the low-end product substitutes or high-end producers of imported brand products.

During this period, China encouraged foreign brands to open up local factories with attractive policies. These companies brought along their technology, management systems, and productivity to fill the gap in China. Local privately-owned companies learned from foreign brands by being suppliers. Some of the local brands positioned themselves as the foreign brands' low-end substitutes or high-end original equipment manufacturer (OEM). They actively influenced the market by meeting the demand of low-income consumers and by capping premium pricing in the high-income segment.

As China brands scaled their capacity and throughput, they started feeding global markets with goods that were recognized as "cheap and fine." Since it was exactly what the developing countries desired, "made in China" commodities were hot sales. The gate to the market of the third world opened wide to Chinese brands. On one hand, it contributed to the Chinese GDP with positive trade balance; on the other hand, it broke the monopoly in the low-end global markets.

The low-end markets were disrupted, as mass of incumbents were challenged by the low-cost commodities imported from China. As a result, China has become the global low cost manufacturer, and low-end substitute exporter. Thousands of tons of export goods flow across the ocean, along with the brand image already recognized by the world – "cheap and fine" commodities built on imported technology, with a cost and scale advantage.

Now is the time for China's manufacturing sector to reform. The given branding strategy may no long support the changes in demand in the domestic market. As the UPDI grows, consumers' demand has switched upward. Consumers are climbing up the demand ladder, moving towards a brand segment with higher perceived quality. As a result, the mass market no longer sees "cheap and fine" as the priority. Instead, the market values quality, functionality and consumer experience with growing importance. Inevitably, the low-end market size has shrunk causing lots of low-end manufacturers to go out business; survivors have already initiated campaigns to raise the perceived quality of their brand.

In third world markets, as well as some segments in the developed countries, the leading position of the "made in China" brand has been challenged by Southeast Asian competitors with lower a labor cost advantage. Countries like Malaysia, the Philippines and Vietnam come to mind. A huge share of this market has been taken away and a revolution in Chinese brands is imminent.

Haier Group Corporation is a Chinese collective multinational consumer electronics and home appliances company headquartered in Qingdao, Shandong Province, China. /VCG Photo

Haier Group Corporation is a Chinese collective multinational consumer electronics and home appliances company headquartered in Qingdao, Shandong Province, China. /VCG Photo

Switching to the high-end brand segment is never an easy task. High-end foreign brands invest heavily in research and development to explore new technology, new functionality, and new products. These large investments, which serve as a barrier for the high-end market new entrance, enable the premium brands to harvest the high willingness to pay in the high-end market segment. To capture this segment, China manufacturers need to treat their own brand as an asset, and grow its value through persistent investment.

Under pressure from both low-end and high-end market segments in both domestic and international markets, Chinese manufacturers should redirect their strategic focus. They should maintain their competitive advantage in the mass market, and enter the high-end market segment by either creating sub-brands or acquiring a premium brand.

Firstly, the high-end positioned brands will build the brand awareness in developing and third world markets. With the advantage of brand stickiness in these markets, China can boost the segments' willingness to pay and become the incumbent as the first mover. Once Chinese brands are perceived as the premium, and once the UPDI in those markets catches up, China may start shipping high-end products to meet the potential booming demand, and maintain it as China's weapon to broaden the sources of income – the GDP export will boom alongside with the prominent markets.

Secondly, developing a high-end brand rests on a solid base of sustainable capital inflow (for investment) and cutting-edge technology research and development (for product development). Once China owns the brand, high-end manufacturers will play an essential role in national research projects by leveraging their own capital and lab assets. They will become the shield to strengthening the Chinese brand leading position. With the sustainable weapon and shield, China will step up the global economic and technology pyramid, and China will win the eminent position as regards to her global presence.

Admittedly, it is extremely costly and time-consuming to reshape a brand. The key towards the high-end market segment relies not upon the marketing or the power of politics, but upon the true innovation, premium quality, and the differentiated goods that match with consumers' needs and expectations. China has to establish a technology innovation incubator, launch a world-class quality system, maintain a rigorous proprietary regulation standard, and subsidize high-end entrepreneurship initial investment.

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