Global Brand Strategy Issues Delivering on China’s global brand aspirations MOD001220 International Marketing Assignment

MOD001220 International Marketing Assignment –
Global Brand Strategy Issues Delivering on China’s global brand aspirations
Dr. J. Wilson

Institution

Date

1. Introduction

In the global economy, brands and branding are becoming increasingly important factors. It would seem critical for both the firms and the countries where they are located, when adding sustainable long-term value (Schultz 2008). This gives out a clear picture the reason as to why China plans to create a portfolio of ‘global brand champions’. Ostensibly, having no particular affiliation to any country or culture is what is termed as being global.

Haier is the most valuable brand in China and the 4th largest White Goods manufacturer in the world. It is located in People’s Republic of China’s headquarter, Qingdao, with 19 overseas trading companies in countries such as America, Europe, Central Africa, South Asia and China as well. It also has 8 comprehensive R&D centres and 29 manufacturing plants. Haier has become a larger-scale manufacturing company comprising of employees approximated to 50 thousand. In 2008 its total global revenue reached 119 billion RMB. Founded in 1984, its reputation has been heightened significantly throughout the world which should be attributed to the efforts during last 25 years. The brand finally touched 80.3 billion RMB at the end of 2008. Haier has got the most valuable brand in China for 7 years since the year 2002.

Lots of mainstream media such as The Asian Street Journal and Finance Time Forbes speak highly of Haier in recent years (Gao, Woetzel & Wu, 2003). Haier shows us a myth that a small factory as the most successful Chinese corporation, has become a worldwide famous multinational company in 25 years. The growth rate of total sales revenue according to the 2008 annual report did increase by 3.19% which is far from the 2007. The main products are only refrigerators and air-conditioners. Refrigerators gained 26.63% of market share in Chinese market after a 44.3% sales contribution from the business line and have been the number 1 for 19 years. The air-conditioners which can be divide into Home-use and Commercial-use has been experiencing a big challenge. The air-conditioners’’ total sale revenue of Haier decreased by 7.15% at the end of 2008 in Chinese market, whereby the Home-use occupied 27.2% while 5.1% was occupied by Commercial-use only. The revenue went down in both of the overseas market and Chinese due to the financial crisis.

Media and Gree air-conditioner manufacturers are some of the companies that are competing with Haier Company in China’s markets. The gap between Haier and other two companies is widening while Haier’s market share of air-conditioners is decreasing. The total market share of Haier was 8.64% in August of 2008, far from 20.08% of Gree and 18.06% of Midea. Gree and Midea got 47% of market share by the end of 2008 while Hjaier occupied only 14%. Currently, the Chinese market competition for the air-conditioners is fierce.

Both of foreign and domestic brand in China exist and each of the brands are similar with others. Therefore, to increase the market share of air-conditioners and maintain the leading position in China, Haier should make efforts. The declining market share of Haier’s air-conditioners influenced the whole performance of Haier’s total revenue and market share directly, which is according to the 2008 annual report of the Haier’s product which occupied 32.3 sales contributions from business line. Only the market share of air-conditioners was affected in Chinese market among the product catalog of Haier, while other products made an increase which plays less important roles in Haier. To show the performance of air-conditioners in such a competitive market, the market share is the best tool to be used.

Other indicators such as revenues, profits are the internal data to make a historical comparison in the air conditioners, thus are not good ways to show the market situation. Haier has implemented 4 startegies since 1984 combined with OEC (Overall, Every, Control & clear), TQM (Total Quality Management), Market-chain and individual order combination managerial models to run business in order to expand its market share.

4-step strategy map.

 

1. Application of Quelch’s (1999) seven features of a global brand to Haier

 

The number of multinational and transnational companies is on the rise due to changes in business dynamics and an increase in pressure on businesses to diversify their operations and make the most out of opportunities in far away nations. However, despite these changes businesses still feel immense pressure to ensure that they redesign their operations so as to make the most out of the available opportunities (Li, Murray & Scott, 2000). The level of competition faced by transnational and international companies is high which had led to increased emphasis on the strategies that international firms can use to improve their positioning in various market segments.

With increase in globalization and development of global trends, international companies play a vital role in shaping business dynamics within local environments. Though competition with local businesses is one of the reasons for the high levels of competition faced by international companies, both have an influence on the strategies that are adopted at national levels (Keller, 2000). Furthermore, international businesses are responsible for nearly 60% of global trade volume which implies that their performance may affect national economies and influence global economic trends. It is therefore imperative on individual businesses and researchers to come up with strategies through which local and international businesses can strategize their operations such that they aid improvement of global economic conditions and their profitability. Many international companies have adopted extensive branding strategies to help improve their brand image and therefore sustain their operations during economic hard times.

Local businesses are also following the examples set by the international firms (Schultz, 2008). A critical review of branding reveals that it is a strategy that is commonly used in markets so as to create awareness on a product, develop a unique image of a product and help improve loyalty to product. The uncertainty that has gripped the international market due to market shocks has forced businesses to review their operations and come up with clear roadmaps to improving sustainability of their operations. Furthermore, extensive branding strategies at the international marketplace are being driven by an increase in the number of players at both national and international level that compete with international companies (Hong & Wyer, 1995). A thorough understanding of the requirements in branding and the brand development process while injecting creativity and innovation in developing brands remains a critical requirement for international businesses in strengthening their operations.

The increased use of celebrity endorsements amongst businesses and strengthening of corporate social responsibility strategies are seen as direct efforts by local and international businesses aimed at improving and maintaining their brand images. Evidently, innovation plays an important role in determining the overall gains that an international business will make.  The multiple challenges faced by international businesses which include having to operate in different markets segments, varying cultures, complex business models and differing expectations by organizational stakeholders may hamper and complicate the brand development and branding processes. The geographical diversification of business operations may also affect coordination of branding and brand development activities.
Keller (2000) ‘The Brand Report Card’, gives us some suggestions of how to build
strong air conditioners brand for Haier. The suggestions comprises of the below:

• The air conditioners excel at delivering benefits stakeholders truly desire.
• The stakeholders’ experiences with the air conditioners are consistent.
• The air conditioners are clearly differentiated from others.
• Managers responsible for air conditioners related deliveries and actions understand what the brand should mean to stakeholders.
• The air conditioners stay relevant to its stakeholder overtime.

The above do not take into account key issues involved when establishing global brands for Haier, though they are certainly salient points in the context of building the Companies brand. For instance the air conditioners brand from China, which it its original country may influence a consumer’s decision-making process. Moreover, the name given to the brand and its association to China may also influence consumers. Therefore examining the features of the most commonly cited world’s top ten brands is the only way to determine what constitutes as a global brand. The research was carried out by Quelch (1999). Quelch (1999) distinguished the following seven common features in his article into what features are shared by the world’s top ten brands:

1. 1. Strength in home market

Haier needs to be strong in China’s market, in order to be successful on a global scale. The top ten US brands such as Coca Cola, McDonald’s and Microsoft dominates the global market, which is no coincident. If considered closely, it can be noted that these brands have equally dominated in their domestic as well as global markets. China is well placed in this respect, as it can be seen that some of its brands such as China Mobile has in the region of half a million registered users.

1. 1. Geographical coverage / balance in sales

All global brands that are extremely strong in Europe are also well known in Europe. By definition of a global brand, it should at least have a minimum level of recognition, awareness and sales all over the world. Again, Nokia which is one of the leading brands have a high level of awareness on a global scale. At present, Haier brands do not command the same levels of brands recognition across all geographical markets.

1. 1. Addresses similar consumer needs worldwide

The physical products that meet the same widely-held human needs are almost the same worldwide. In some cases the majority brands tend to highly standardize their marketing mix, while global brands may adapt to local needs. In this regard, a number of Chinese brands such as air conditioners manufacturer Haier largely standardise their market mix.

1. 1. Consistent positioning

There is the same set of values of a particular brand worldwide. For instance, Sony is synonymous with innovation all over the world, while Disney promotes the same family values throughout all of its markets. Haier is one of the few Chinese global brand contenders that promote the same set of values across the world. These are values centred on trustworthiness, customer service, integrity, innovative and entrepreneurial spirit, truth-seeking and accuracy.

1. 1. Country-of-origin effect

The definition of the COO or country-of-origin can be given into several ways. This includes country-of-corporate-ownership, country-of-assembly, and country-of-design (Li et al. 2000). Nonetheless, it is mostly associated with brand origin or the country that manufactures the brand. Hulland (1999) for example, says that the source country of brands can be looked at as an important determinant of brand choice. Televisions from Japan, watches from Switzerland or automobiles from German often perceive a positive COO effect, while China, mostly Haier has to develop such a positive association. Without any doubt, this is a real challenge that is facing Haier Company looking to establish air conditioner recognition.

Unmentionable research has indicated that country-of-origin affects consumer behaviour as well as the consumers; perceptions of brand image (Hong & Wyer 1995, Peterson & Jolibert 1995). The dependency of the COO effect is largely based on the product category and transparency of the brand name.Haier needs to overcome the COO effect in order for it to be successful. ‘Made in China’ has mostly been seen as being ‘of low quality’ and ‘cheap’, therefore, one would postulate that a strong affiliation to China may hinder global ambitions in order to establish a global brand. Only a limited amount of research has directly examined the COO effect in relation to China, compared to studies in the West (Kwok et al. 2006, pg. 164), which is perhaps surprising. It is difficult to find anything these days that is not produced in China, give that it being the ‘workshop of the world’. Consumers always view the brands based on the origin of the origin of the brand, despite the fact that many of the world’s top global brands such as air conditioners of Haier comes from China. This happens as opposed to the country of manufacture.

1. 1. Product category focus

The majority of the world’s leading global brands focus on one main product category, for instance Coca Cola which majors on soft drinks. Therefore, a more diversified range of products in Haier Company is likely to make it more difficult for air conditioner which is the Company’s main brand to become a leading global brand. Futhermore, the majority of China’s leading companies are diversified, which are given a name of ‘jituan gongsi or ‘group companies’. For promoting the corporate brand name across a range of product categories, these firms adopt a branding strategy. For instance, Midea which is one of China’s leading home appliances manufacturers is also involved in real estate and logistics. It is liable to make positioning and developing a coherent brand message using the same corporate brand name across a range of product categories, mostly challenging Haier Company (Loos & Davies, 2006).

1. 1. Corporate brand name

Having a strong brand name a corporate for Haier Company is extremely important. The brand names are of much important to both Haier Company and the customers. The brand name or trademark for Haier identifies and separates their goods from those of other dealers (Reece & Ducofee 1987). According to Keller et al. (1998), one always-noted branding objective is to have branding names that are meaningfully inherited, so that the name itself conveys relevant product information. There are two broad approaches to branding, which is according to Kohli and Suri (2000). For instant, a brand name can reinforce the product such as air-conditioner of China, convey a related abstract image such as Highland Spring water, or it can stress on one or more attributes. The second option is to have an ‘unrelated’ name. This comprises of words that have no connections with the product being named.

Haier Company have started taking branding more seriously in order to face a changing environment, but their understanding of the idea remains vague and superficial (Fan, 2006, pg. 368). Loos and Davies (2006) asserts that only a few of Chinese manufacturers have had a successful establishment of global brand names of their own despite extensive experience in producing for a number of the world’s most famous brands. Haier (air conditioner) and Lenovo (PC’s) are the two leading brands being mentioned here. As they become active outside their country of origin, companies’ often wish to change their brand name. For instant, for the US Sprint to become active in countries outside US, it forced the management to change its name to Sprint (Riezebos 2003, pg. 124).

Some Chinese firms such as Haier are adopting the same approach. For instance, in attempt to improve quality perceptions and create an international image, Haier Company has started using English in their brand names (Webb 2001). How important is a brand name? Kohli and Labahn (1997) in their study into brand naming process, they concluded that the creation of brand names is regarded by managers to be very important. A number of marketing managers feel that branding names on their own, without considering and advertising support can have an impact on sales.

Summary

The main aim of section 2 was to propose a classification of Haier brand largely based on the seven major features of a global brand, as proposed by Quelch (1999).The major contribution lies on how Haier Company ‘distant’ from its country of origin and classification of Chinese brands to show a greater likelihood of achieving global brand status, which is one thing that is clear from the findings I have written. Many Chinese brands show global aspirations since they are no longer focused purely on their domestic market. Yet, a number of theses firms face huge challenges, not least overcoming the COO effect. ‘Made in China’ in developed countries is still often associated with inferior quality and cheap prices. COO effect remains a major issue, although attitudes tend to be more favourable in developing countries such as Argentina and Brazil. Political governance, human rights record, environmental degradation and Tibet are some of other negative factors in China. It is perharps no surprise for all those reasons that a significant COO ‘distance’ exists between firms that are classified as ‘Domestic Champions’ and those that are ‘global contenders’ for instance in an interview, commented that;

“In China, the advertising will be very much leveraging the heritage of a
    Chinese company, but in the US, we won’t be making direct mention of
    that.’ Rather, it clearly wants to position itself as a global brand and
highlight the quality of its computers (Gao et al. 2003).”

Lenovo’s credentials as a ‘Global Contender’ are supported by the fact that it has sponsorship of the NBA in the US and the relocating of its head office to the US, it has an Italian-sounding name, sponsorship of the 2008 Beijing Olympics has former IBM staff on its board and the purchase of IBM’s PC business in 2005. Furthermore, the company is now represented in 55 countries as indicated on its website. This is in contrast to Haier Company, although it has its branches in several countries including UK, it is very much mainly focused on its domestic market. It undoubtedly has global aspirations, but will face a number of challenges, including the global financial crisis, the COO effect and how to overcome a market that is already facing consolidation.

In short, Chinese Companies that have show marketing prowess on the local level, have a track record in low-cost and have high quality manufacturing, are the most likely to succeed in establishing brands in overseas markets (Gao et al. 2003). Germany and its Japanese neighbour are the only challenge on how China can emulate them by developing a well-recognised, established country brand that portrays a positive image. It is acknowledged that the findings are highly indicative, despite the fact them being based on a small sample of several case studies. Nonetheless, this can act as a foundation for empirical research in future. Areas of future research may look at measuring Chinese brand awareness across countries, classifying a larger sample of Chinese brands, or possibly a longitudinal study measuring Chinese brand development.

1. Application of Marketing Metrics
   1. Marketing metrics

According to the CMM, the most authoritative consultancy company in China, Haier gained 26.2% market share in the whole Chinese household appliance market in 2008 and still was the No.1, especially in the high-end industry, the covered market share even reached 30%. In the overseas market, Haier still got the revenue about 5.13 billion RMB, although Haier faced financial crisis and Haier’s revenue decreased by 16.51%. According to the map below, Haier has divided the mainland of China into 8 units as sales areas on the base of Geographic and Demographic factors. Then Haier segments every area into 5-class according to the development of the economy condition, as a result to create a 5-class distribution network. Because of the differences in each city class, limited personnel and cash flow of Haier, Haier issued different distribution strategies in order to satisfy consumers’ needs and expand the market share. The market share of the focus product-air-conditioners in 2008 was about 14%, while Haier’s main competitors Midea and Gree got almost 47%. According to the Graph 3 below, Haier’s air-conditioners’ market share decreased from 18.56% 2005 to 14% 2008.

Financing half of the market shares occoupied by Midea and Gree, Haier should realise the threats and try to change the current situation. Graph 4 gives a PLC indication of air conditioners for almost 6 years since 2008. We can find out that according to the figure, the Company’s revenue slightly decreased in the year 2006, while an increase was experienced in the year 2007, and later followed with another decrease in 2008. But what can be noted is that this PLC is a typical scalloped PLC since we can forecast that Haier will launch new product in future, which will see it adding more new characteristics or enter another market to find new clients.  The revenue and gross profit growth rate of air-conditioners according to graph 5 and graph 6 are not stable but fluctuated dramatically from 2004 to 2008 and both dropped sharply at the end of 2008. There was an increase in revenue for 28.17% and 10.58% by the year 2008, while the Heir’s revenue decreased by 7.15% in the same year.  The total assets of Haier reached 16.9 billion RMB and increased 38.28% than the end of 2008. This is according to the 3rd quarterly report in 2009 and CMM, which are the most authoritative consultancy company in China.

Haier builds “one store one district” in the 4-class and 5-class such as some town and villages. Can Haier cut the intermediate links and reduce the costs in channel of distribution this way.  It is beneficial for Haier to control the retail terminal sales and management.
Haier created a system which is unique, that combine designing, producing and selling together.  One third of the products produced and sold overseas, another one third of the products produced and sold in China, and another one third of products produced in China but sold in the overseas markets. Haier has a diversified distribution strategy in China – 5-class distribution network.

Summary

Some recommendations are made based on the previous analysis of Haier to expand Haier air-conditioners market share in China.

1. Haier should complete after-sales, improve technological innovation, expand promotion network in regard to Home air-conditioners, in order to realise management of the whole process and promote business competitive strength.
2. Haier should centralise big clients and big program, popularise the sales model in cultural marketing, project marketing, improve order forecasting system and strategic marketing in regard to Commercial air-conditioners business.
3. In third, fourth and fifth class city markets sales and services network, Haier should speed up the Chinese market network construction.
4. To cupture the surging demand in rural market, and enforce the distribution channel and promotion in this economic recovery period, Heir should pay more attention to the opportunity of “Rural Area Subsidised Electrical Appliances Purchase Policy” made by the government.
5. Compared to it competitors, Haier should improve its product innovation. This is because the consumption propensity within the growing numbers of middle-income class in domestic first and second class markets are environment-friendly, high-end, health and fashionable products. These consumers are more and more focus on the products’ functional innovation and additional value. Step by step, the proportion of middle and high end consumption will improve. Haier should develop customer-oriented products based on diversification and personalisation.

 

Conclusion

 

Apart from being the most valuable brand in China, Haier is also the 4th largest Goods manufacturer in the world. The market competition of the air conditioners currently in Chinese market is fierce. Both of foreign and domestic brands exist and each of the brands is the same to each other. How Haier can take the advantages and increase the market of the Chinese market is the only problem. Haier should make efforts to increase the market share and maintain the leading position in China, as the most valuable brand in China. Quelch’s applications are used to analyse decisions that marketers have to take or issues they face in air-conditioners. Brand development activities are internal strategic efforts that have to be carried out with keen considerations on the strategic positioning of a firm and its products. The availability of resources and expertise that can be channelled to branding activities may also affect the extent of the brand development strategies adopted by a firm. This implies that the internal positioning of a firm plays an important role in determining the efficiency of the brand development strategies.

This is further supported by findings positing that good branding strategies can potentially result in gain of competitive advantage and enhance employee experiences. This points to the effect that branding activities have on the internal capabilities of an organization. Having the ability to design internal systems such as customer relationship management systems may also affect brand equity development within firms. Poor customer relationship management strategies develop a bad brand image for an organization and its products. Such organization wide strategies can easily be managed by small organizations that on the other hand may lack the technical capability and financial backing to develop effective customer relationship management systems. Furthermore, different divisional cultures within an organization which is a common phenomenon within multinational companies may adversely affect the implementation of branding strategies. A strong uniform culture provides a uniform platform for a firm to develop internal strategies whereas a divided corporate culture is associated with multiple threats that complicate the implementation of strategies.
Based on the analysis Haier, a number of conclusions are made to increase haier air-conditioners market share in China, such as big program, improving product innovation, centralising big clients and expanding promotion network.

 

References

 

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