'The world will be manufacturing for China'
Over the next three decades, the roles will be reversed and Western companies will be manufacturing for China, the author of upcoming book 'Brand Breakout' predicts
Chinese companies are ready to go global and over the next decades we will see "a lot" of brands originating from the world's second-largest economy becoming known to people worldwide, Nirmalya Kumar, the author of the upcoming book "Brand Breakout: how emerging market brands will go global" told Emerging Markets in an interview.
"China has been manufacturing for the world for the last 30 years. In the next 30 years, the world will be manufacturing for China," Kumar, who is professor of marketing at the London Business School, said.
"The entire wine industry in France is having a boom because of China consumption, the entire German heavy industry and manufacturing industry is booming because of China, the entire Africa, with its resources, is having a boom because of Chinese consumption," he said.
"The entire German car industry is doing fantastically because of China, not because of the US and Europe. The world is already manufacturing for China."
China will become "the largest and the most powerful nation in the world by the end of this decade" and many of the future global brands will originate from there, according to Kumar.
"They'll have something new to offer that no other brand offers. For example the biggest piano manufacturer in the world is a Chinese company, Pearl River," he said.
"For white goods, the largest brand in the world, with the largest market share, is Haier, which is a Chinese brand too."
"For personal computers, it's a tie between Hewlett-Packard and Lenovo for the biggest brand in the world. For smartphones, after Samsung and Apple the next big brands are ZTE and Huawei."
Other emerging markets, such as India and Brazil, are also already developing global brands and this trend will accelerate over the next decades, Kumar said.
The book, which he co-authored with Jan-Benedict E.M. Steenkamp, a professor of marketing at the Kenan-Flagler Business School, University of North Carolina, identifies eight routes for emerging market brands to go global.
|More from Emergingmarkets.org|
|Stephen King: When the money runs out|
|Ruchir Sharma: Third coming of emerging markets|
|Register for free to receive the weekly newsletter|
The first is what he called "the Asian tortoise route," pioneered by Japanese companies like Toyota, Honda or Panasonic. It means selling "a decent product for a very low price" in a Western country to a niche market and then gradually increasing the quality and pricing the new version slightly higher until achieving dominant market presence.
The second is going from a business-to-business company to a business-to-consumer brand, sometimes via an adjacent product category or in a higher value-added business.
The third is the diaspora route, where "you follow your own emigrants around the world. You use that as a beachhead to break into the rest of the market," Kumar said.
The fourth is the acquisition route. Chinese companies have become more aggressive in buying Western brands, with the latest example being that of Chinese meat producer Shuanghui Group which will buy the US's Smithfield Foods for $4.72 billion, de-listing it from the stock market.
Chinese companies were the ones keeping European valuations up during the crisis when they bought many small and medium-size firms, a valuation expert told Emerging Markets recently.
The fifth is the positive campaign route overcoming negative associations with the country of origin. Brands such as Chinese footwear makers Stella Luna and Ospop or piano maker Kayserburg (Pearl River) have either obscured the brand's country of origin or offered extra guarantees or branding components.
The sixth is the cultural resources route - taking advantage of the positive aspects in their country of origin to promote their products.
"Brazil for example is another word for 'fun'. No country has an image for fun that is bigger than Brazil," said Kumar.
He pointed to Brazilian Havaianas shoes, which the companies positioned on the fun factor, selling for $200 in the West.
Chinese company Herborist, which is positioning itself as promoting traditional Chinese methods of achieving natural beauty, is another example.
The seventh is the natural resources route such as Café de Colombia or Sri Lanka's Pure Ceylon Tea.
The eighth route is that of the national champion a government helping a company, either directly via subsidies or indirectly by offering it preferential treatment and erecting entry barriers for competitors, to become a global brand.
Kumar gave the example of Emirates airlines, which originated in Dubai. "Emirates is now considered one of the greatest international airlines in the world."
But the future will clearly be dominated by China, and to some extent by its BRIC partner India, he said.
"In every major industry in the world, China has a world leading company that they are building. They have a government mandate to build it," said Kumar.
"They've been given the resources, they have the mandate to build it, they have the funding in place and they just need to put capabilities in place. And capabilities you can buy. They can hire the people.""In China, they have a desire, they have a dream, and they have the cash behind it. In India they have the desire, they may have the dream, but they don't have the same kind of cash. Indian companies are building global brands but they are not in the same league as China," he added.
- Follow us on twitter @emrgingmarkets