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The Chinese-based screen manufacturer is the third biggest selling television maker in the world

Marcus Reubenstein
This Christmas, millions of Chinese made goods will become festive season stocking fillers. While beneath Christmas trees there will be countless premium goods encased in boxes marked with the logos of top American, European, Japanese and Korean brands; but the contents of those boxes would have been made in China.

China is very accomplished when it comes to making goods; it’s lagging when it comes to making brands. That’s okay. That statement would have held true for Japan in the 1970s and 80s and for South Korea in the 1980s and 90s. Its north Asian neighbours did it and so will China.

So when will China do it, how will China do it and how well will China do it?

The first question is why? That’s not such an obvious question to answer. In many respects India enjoys similar, if not greater advantages than China when it comes to global brand building. While Indian people by and large have a far greater understanding of and (through its large English speaking population) ability to deal with the West, China is at least a generation away from that cultural understanding. However, China is still well ahead of India in terms of its potential to create global brands.

A huge domestic market gives Chinese manufacturers scale, and competition within that market sharpens the teeth of Chinese companies to face the challenges of a global marketplace. This is not to say that success in China provides any sort of workable template to market to the rest of the world – it doesn’t. Nonetheless successful Chinese manufacturers have emerged from a competitive market, learning what to produce, how to produce it, distribute it and sell it in the world’s most populous market.

Having achieved that, Chinese companies then have the capital to look elsewhere for growth opportunities. And there is plenty of capital in China.

Extrapolating data from a 2014 Credit Suisse survey of the results of more than 2 600 listed Chinese companies, their average annual profit is around $225 million. Recent CommSec data found average full year net profit across ASX 200 listed companies to be $175m. That’s 28 percent greater dollar earnings per company in China, which has a substantially lower cost base.

Along with these 2 600 listed plays, there would be several thousand more private and state-owned enterprises all with the kind of scale to justify lofty global ambitions.

China also has great experience manufacturing either components or entire product lines of major Western brands. Clearly the capital, the infrastructure and the human resource to build world-class products is already in great supply.

So why does that not translate into Chinese products and brands?

While the massive and fast growing domestic market provides abundant opportunities for Chinese manufacturers to grow globally, it’s a double-edged sword with two significant other challenges.

First, there is no great imperative to target global markets when the local market is still so profitable. Second, Chinese people by and large shun Chinese-made brands.

In the past 12 months more than 110 million Chinese people took an overseas trip, 47 million travelled to Hong Kong. The reason? Mainland China levies high duties on premium imported brands. Hong Kong does not, making everything from Chanel handbags to Canon cameras much cheaper than in the mainland.

If a group twice the size of the population of Australia takes a shopping trip to Hong Kong each year (with a similar number taking shopping trips to South Korea, Taiwan and Japan), there is no question: Chinese people understand the value of brands.

If you want to show off success in China, you have an iPhone, a Swiss watch, a European car, Japanese made electronics and American running shoes. If you’ve made it big in America you buy a Cadillac. Nobody who’s made it big in China drives a Chinese-made car.

China’s challenge is not that it can’t make first rate products and sell them domestically it’s (in great part) that China won’t make these products to begin with. That will change, and a good example is television maker TCL.

The southern Chinese-based screen manufacturer is the third biggest selling television maker in the world. In a global market which a generation ago was dominated by Japanese brands, like Sony and Panasonic, TCL outsells every Japanese brand, sitting behind the two Korean giants Samsung and LG.

TCL’s global marketing and branding is nowhere near as sophisticated as its major rivals, but its product is excellent, it is the only fully vertically integrated Chinese TV maker, the company invests heavily in R&D and it pays great attention to distribution and building relationships with its global retailers.

The company has been particularly successful in building relationships with Australian retailers. Last year in Australia television sales declined by around 11 per cent but, according to TCL, it grew revenue in the Australian market by more than 60 percent.

While TCL was founded in 1981, it did not implement a global business strategy until 2003. Twelve years, 75 000 employees and $22 billion in annual sales later, one can argue it was a pretty successful strategy.

But building global brands takes time – and we are still only 15 years into China’s century.

Of the top ten global brands (ranked by Forbes) most were around long before China began liberalising its economy in the late 1970s and almost all were established long before China’s recent emergence as a global economic powerhouse.

Here’s the top ten list and the years those companies, or their main products, were created:

1. Apple: 1976

2. Microsoft: 1975

3. Google: 1998

4. Coca-Cola: 1886

5. IBM: 1911

6. McDonald’s: 1955 (original restaurant opened in 1940)

7. Samsung: 1938

8. Toyota: 1937

9. General Electric: 1892

10. Facebook: 2004

How will Chinese companies break into the list? Like eight of the above brands, they will do so by leveraging off a massive domestic market. And China will benefit greatly from the next generation of industry leaders, an entire legion of whom would have been educated in Western countries.

There’s also a political imperative driving Chinese business growth. Earlier this year, under the stewardship of Premier Li Keqiang, China’s government unveiled its “Made in China 2025” strategy to modernise industry, focus on high value add production and compete and market Chinese business to the highest global standards. After this decade of groundwork, as a hi-tech global exporter, China’s central government wants the country to stand shoulder-to-shoulder with Germany and Japan by 2049.

With so much state ownership and the government playing such a big hand in the economy, for China’s policymakers to espouse such policies, support them with incentives and give them a timeline is good for China and good for economies like Australia, which are so reliant on continued Chinese growth.

In the context of global economic development, there won’t be too many sleeps until those presents under the tree are no longer greeted with a Grinch-like, “Well . . . it’s . . . ah . . . made in China.” One Christmas soon it will be a very merry thanks for the brand that’s “well made in China!”

• Marcus Reubenstein is the founder of consultancy firm Red Door Asia.