It’s no secret that Chinese brands are trying to reach out to the US and Europe. But if Chinese names are starting to appear on the shelves, then a fundamental question arises. Is the European consumer willing to trade his Nike trainers for a pair designed by Chinese athlete – and will the American swap his Buick for a Geely?

Overall expectations are high for Chinese brands. As Martin Sorrell, CEO of WPP, the world’s largest advertising agency, recently put it: “There are very few countries in the world that can compare with the creativity here. In my view is it is only a question of time before Chinese brands make it big. I would say watch out.”

Many in the industry agree, and getting brands to go global is high on Beijing’s agenda. Indeed, the Ministry of Commerce has a special fund that gives preferential treatment to companies seeking to grow their brands internationally. This targets a wide range of industries – such as beauty, hotels, restaurants and electronics – and the government is lobbying for firms that have access to state funding at very low interest rates to be allowed to compete in US and European markets.

To some extent brand recognition has increased for Chinese companies already. Regular rankings by PR and advertising agencies show that brands such as China Mobile, Li Ning, ICBC and Tencent are slowly gaining consumer awareness. But there is still a long way to go.

For example, not a single Chinese entry appears in Interbrand’s 2010 Best Global Brands ranking, compiled for Omnicom – a disappointing result for the world’s second largest economy, whose companies feature regularly in the Fortune 500 listings. The bottom line is that Chinese companies are getting richer – but they don’t appeal to the international consumer yet.

If sportswear manufacturer Li Ning’s recent downturn in its home market is anything to go by, transforming a big Chinese company to an international brand remains an uphill battle for many. The firm had huge ambitions both in China and overseas, but after overtaking Adidas at home, sales dropped by 50% in the first half of this year. The likelihood is that soon it will be relegated back to third place as Nike and Adidas, in their eagerness to tap into China’s booming consumer market, boost distribution, R&D and marketing.

For as long as it sold cut-price versions of its foreign competitors’ products, Li Ning’s sales boomed. Its mistake, though, was try to raise itself to their level. In general, Chinese customers do not want to pay extra for a domestic brand if they can afford a foreign one. So the ‘Made in China’ label was Li Ning’s undoing.

A recent research note from advertising consultancy Millward Brown underlines the point. “Trust is the Achilles’ heel of Chinese brands,” it remarked. “Global product recalls involving tyres, milk powder and toys have all served to undermine trust in products from China.”

According to a McKinsey report, only 30% of consumers trust Chinese brands, down from 44% in 2007. Olivier Faucon – marketing manager at the Paris offices of Haier, the Chinese consumer electronics and home appliances giant – is blunt about its public-image problem. “We feel we always have to do a little better than our competitors,” he admits.

Add to that the difficulty of entering a mature market in economies that are stalling, cultural barriers and a shortage of distribution channels, and it’s no wonder that Chinese companies aren’t in any great hurry to take to the international stage. Particularly not when the home market is booming, with GDP growth rates averaging 9%-10% a year.

For most, the risks of going global still seem to outweigh the potential rewards. Many are just not ready to leave a market they are familiar with. And many get it wrong. “Chinese brands don’t have a clue about how to market themselves overseas,” says Saurabh Sharma, planning partner in Beijing for the advertising, marketing and PR firm Ogilvy & Mather. “They think it’s about being the loudest and the biggest.”

It’s a message that does not go down well with the Western consumer. “One of the biggest challenges they face is the sheer complexity of what they want to say and how to say it,” adds Sharma.

Chinese firms’ advertising and branding skills lag way behind those of their foreign peers, and by far the biggest spenders on ads in China are Western. According to a report by the Chinese ad agency Charm Communications, US firm Procter & Gamble spends the most on advertising in China, followed by France’s L’Oréal, British-Dutch multinational Unilever and US-based Yum! Brands. Trailing in sixth place is China’s top spender, Wahaha, the soft-drinks manufacturer best known for its joint venture with France’s Danone.

For many Chinese companies, putting money into branding and advertising is not a key issue. Many are ready to go global on paper but continue to emulate what foreign firms are doing, both in product and image terms. Li Ning’s slogan for the 2008 Olympics – “Anything is possible” – bore an uncanny resemblance to Adidas’s “Impossible is nothing”. Even when they reach out internationally, in many cases Chinese brands reflexively follow the market rather than lead it.

Industry analysts, however, say that change is going to come progressively. WPP’s Sorrell, for instance, points out that the company’s clients in China have been predominately Western until now, but that the balance is increasingly moving to Chinese brands as they understand the need to add a premium to their name.

Chinese companies know that selling cheap, ersatz goods is not sustainable in the long term and are ramping up their marketing and R&D budgets to create products that are genuinely distinctive. Since 2008 international advertising companies in China have added fast- expanding ‘going global’ departments for those brands ready to take the leap.

The few success stories that have emerged to date demonstrate how Chinese consumer goods might one day shape the market. Lenovo (see Rising, p18), which bought IBM’s PC business for $1.75bn in 2005, is now the world’s second-largest supplier in the world, with a 13% market share. It achieved this by capitalising on IBM’s technology while keeping up with market trends and continuing to innovate.

Haier, the number-one Chinese home appliance manufacturer, first entered the US market in the 90s with two niche products: small, cheap refrigerators for students, and wine coolers. Twenty years later it is a global name, with European sales up 50% in a year. Its marketing budget has shown a similar rise, and the company has moved its production lines and R&D centres to Europe, where it hopes to achieve a 5% share of the market by 2014, selling high-end products to young, trendy consumers.

Success for these brands has involved letting go of their ‘Chineseness’. They insist they are truly international and that there is little if no national identity left. And with more and more Chinese brands making the shift from being simple manufacturers to innovators, a growing number of names will be out there: from car manufacturers to beauty products and from retailers to consumer-goods manufacturers.

So yes. The European or US consumer will be sitting behind the wheel of a Chinese car one day. Just not yet.

“It takes time to build a brand,” says Simon Vericel, senior consultant for PR firm Hill & Knowlton in Beijing. “Chinese companies know this and are waiting for the right moment to go global.”

The global players

HUAWEI
REVENUE IN 2010 $27.3bn PROFITS $3.6bn
Huawei is a typical example of a Chinese outfit overcoming its ‘Made in China’ label. Heavy investment in R&D and competitive prices have made it the world’s number-two telecoms equipment company. It employs 55,000 in R&D alone. Penetration is strong in Europe (10%-15% market share) but the company has struggled to enter the US, where suspicions of its previous links with the army remain a barrier. Huawei hopes to generate annual sales of $100bn within the next five to 10 years.

LENOVO
REVENUE IN 2010 $173.9bn PROFITS $2.5bn
Lenovo aims to be the Nike of the PC industry. It has branched out from PCs to directly tackle Apple and others with tablets and a smartphone. However, main revenues still come from China and emerging economies. Despite buying IBM’s PC business in 2004, the company still has not truly managed to position itself as an international brand.

HAIER
REVENUE IN 2010 $21.4bn PROFITS $1bn
A small state-owned firm revived by its current CEO, Zhang Ruimin, in the 1980s. The company adopted its final name, Haier Group, in 1992 and quickly set out to penetrate emerging Asian markets and the US.

Even though Haier claims to be international, with production facilities and research centres around the world, it still suff ers from being linked to the local government of Qingdao where it was founded.