What do GOME, TCL, Lenovo and Wahaha have in common?
They are all famous Chinese brands. With the increasing pace of China's economic progress, local brands are emerging as well as multinational ones, pointing to the importance of the development of powerful branding. But how? With well-known brand names and strong marketing strategies, not only can companies dominate at home, but also succeed in going global.

GOME Electrical Appliances is China's top consumer-electronics chain. It has 100 stores in China with strong connections nationwide and close relations with electronics producers. Yet it is worried about the impact of foreign competition next year when the country is opened further to overseas retailers owing to China's World Trade Organization (WTO) membership. GOME, plans to expand further across China and also opened its first store in Hong Kong.

Chinese brands adopt different methods to expand their markets and increase their brand identity. TCL, a strong player in televisions and electronics, inked a deal in 2003 to merge its television business with France's Thomson. The company's products are sold in Europe under the Thomson name, although it uses the RCA brandname in the US, where RCA enjoys big brand recognition. TCL took control of Alcatel's cell-phone business this year.

Li-Ning Co. Ltd., founded by former gymnast Li Ning, a five-time Olympic medallist, is China's top seller of athletic footwear and apparel. The company is expected to boost its sales by increasing advertisement expenditure in line with the 2008 Olympic Games in Beijing. It faces competition from international brands such as Nike, Adidas and Reebok.

Legend, China's market leader in PCs, changed its corporate name and identity last year to Lenovo. It is the first Chinese company to be an official sponsor of the 2008 Olympics Games in Beijing.

Some Chinese companies enjoy the advantage of China's huge market. Wahaha, a beverage brand using its name recognition to expand into other markets, such as those for children's clothing, focuses on less developed cities, such as Kunming, in Yunnan province, to avoid direct competition with famous international brands. Ningbo Bird, the leader in the mobile phone market, adopted the same strategy successfully.  To gain an edge over competitors, Guangdong Kelon Electrical Holdings Co. customised its products and introduced combined-brand refrigerators and air-conditioners for consumers in lower-wage brackets.

Chinese companies face strong competition in terms of, for example, innovation. The presence of multinationals in China and popularity of foreign brands in the country are other threats. In addition, most Chinese companies lack marketing experience and fail to understand the importance of brand "positioning". In the face of intense competition, however, it is believed these skills will soon be learned.

Fake goods become a serious threat when a brand becomes popular in China. Some big Chinese and foreign brands cut prices to drive out copycats but this tactic only destroys their brand equity. Besides it does not create a healthy environment and is not the right strategy for dealing with the problem.

Nowadays Chinese retail companies have the advantage of developing distribution networks with small stores, where most Chinese shop. With the WTO-mandated opening of China to foreign retailers at the end of the year, Wal-Mart Stores Inc. and Carrefour will expand their franchises in China. As distribution models change, it will become more difficult for domestic brands to expand in China whilst it becomes easier for foreign companies to do so. Innovation can increase brand competitiveness. However it is not common for Chinese companies to meet the international norm of spending 5% of revenue on research and development. Thus, multinationals retain a competitive edge. Motorola, Nokia and Sony Ericsson have introduced fancy new mobile-phone models, for example, and General Motors and Ford will invest in more affordable models in China by enhancing R & D.

Chinese companies continue to learn and experience from advertisement campaigns, marketing strategies and product launches. The best of these brands will become more powerful in the future.

There is a new trend of establishing research and development centers in localized markets or moving them there. China is booming and the country has talented people with engineering skills and R&D capabilities needed by multinational companies in industries such as IT, mobile phones, cars, pharmaceuticals, etc. to engage in product and prototype design, and production processes, closer to the end users. China is no longer a low-cost workforce country, but a hi-tech country with powerful human resources as well as technical improvement and development. In Shanghai, there are more than 130 foreign-owned R&D facilities.

IT giant Microsoft has established Microsoft Research Asia (MSRA) in Beijing now being a worldwide leader in mobile-phone technology. MSRA, one of five Microsoft research laboratories around the world, carries out research for the use of the company's global operations. In 2003 the company launched its hugely successful Cartoon Wizard - software that transforms end users into animated cartoons that can be sent by SMS and e-mail. The software became one of the four most famous characteristics of MS Office Outlook (Homestyle) in Japan. Microsoft believes that mobile-phone software is produced in China and sent to the U.S.

The Pan Asia Technical Automotive Centre (PATAC) is a 50/50 joint venture between the world's largest automobile manufacturer, General Motors, and Shanghai Automotive Industry Corporation Group. PATAC is responsible for automobile designs and validating parts and vehicles, as well as for the engineering, development and testing of vehicles that meet the specific requirements of roads and drivers in China. It plans to invest USD250 million in a new facility scheduled to open in June 2006 that is slated to become the largest professional and most advanced prototype laboratory for cars in China. PATAC's workforce is expected to grow from 770 to 1,200 by 2010.

In April 2003 General Electric (GE) opened its 47,000-square-meter China Technology Center (CTC) - one of four international R & D centers around the world- in the Zhangjiang High-Tech Industrial Park in East Pudong. GE prefers its big projects such as those in power electronics, advanced manufacturing and materials be undertaken at the CTC, where close work with technology teams can turn ideas into actual products.  One of its power-electronics projects has led to MRI machines that are faster and more powerful. At the same time more efficient machining systems will be introduced to the manufacturing facilities of GE operations globally. GE's R&D workforce has grown very rapidly from a small team to 700 staff, and because of its aggressive expansion in China, it plans to increase this to 1,100 by 2006.

Other companies opening R&D centers in China include the US pharmaceutical company Pfizer, which has targeted Shanghai, and Mercedes-Benz, which has chosen Beijing.

Intellectual property rights (IPR) is a controversial topic in China. It may be a problem for foreign-invested R&D centers in China because penalties and enforcement for those violating IPR in China are not sufficiently severe. However, R&D centers do not seem worried about IPR infringement; on the other hand they are concerned about personnel issue. China has "created" a large pool of highly educated and qualified engineers but how to choose, groom and retain the right staff will be a difficult and very important task for them.

Foreign companies continue to find China’s business and legal environment challenging, but at the same time they continue to establish or expand operations and the inflow of capital is unabated. But competitions for resources, especially human resources have increased with more and more domestic companies evolving into efficient and market orientated operations. Increasingly they poach managers from joint ventures and WOFEs to enhance their post-WTO position. Also new entrants to the market offer premium terms to ensure quick success.
So there is a clear supply - demand gap in experienced and qualified staff meeting international standards and having sufficient understanding of the Chinese market. The term “business is local” applies especially for China, making HR management - how to attract and retain key people - a critical issue.


THE MANAGEMENT POOL – LOCAL OR FOREIGN MANAGEMENT

This is a topic with no clear directions. Whilst the local manager is more cost effective than an expatriate, the western manager is perceived to be a more sophisticated and efficient businessman with solid proven international business know-how. But he may lack the local knowledge, and what is even more important, the business net-work , that a local manager can provide. So far localization has been slow but the process is accelerating and many MNCs have set-up programmes to gradually implement localization. So the gap in ability and competence is closing as more and more functions are transferred to locals. One proven solution is to install “a cultural unity” consisting of a local as general manager ensuring “business is local” combined with a Westerner as deputy general manager (factory manager, controller etc.) to ensure that production and performance standards of the western partner are observed. The policy on safeguarding corporate interests or ensuring balance of power does very much determine such structure. If localization is a priority the expatriate manager should be employed on the basis of a mission, e.g. to train locals and stay until the can take over.

CHALLENGES

The Generation Gap - Chinese managers of today are better educated and than say five years ago. As a result we are seeing a “clash”: Mao soldiers turned managers versus MBA graduates.
The Cultural Gap - In Joint Ventures managers delegated by the partner may be difficult to integrate because of conflicting objectives. [“Sleeping in the same bed but having different dreams”]. Such JVs are less attractive to prospective employees.
The Skill Gap - The local talent pool is still very small – estimates stipulate only about 300,000 skilled managers out of a 120 mil. work-force. Universities have only started to gear up for the creased demand.
Demand & Supply Gap – Undersupply of good managers makes job-hopping in search of ever better employment a constant feature of the present HR market in China.
Different Character Traits - based on location and heritage (e.g. people from Shanghai versus Beijing, city versus country side). The immobility of key staff to work in another city or the countryside.
Employer Image - Prestige plays an important role in China, also in the case of an employer. Potential managers are impressed by well-known brands and would like to associate their name with the company since it raises the personal image. Also staff views the company as a family, and to be a member of a prestigious family is every employees’ ambition.

PROFILING FUTURE LOCAL LEADER

China’s economic structure is continuously demanding adaptability but also principles. Above all, integrity and humility.

The right person should be qualified, competent, motivation-driven, open minded and self-controlled as well as exercise leadership and have a passion for a shared vision. Future leaders should lead rather than control, they should be able to delegate authority to subordinate managers instead of covering up their own weakness in certain areas e.g. finance.

SOLUTIONS

The HR management instruments of Personnel Development and Retention Management have to be extensively applied to allow for an effective and continuous career development of the leaders of the future.

Career Development

Career development opportunities have a high priority for young executives, who want to see their chances for advancement.

A detailed performance management programme needs to be implemented to identify in a step-by-step approach high potentials and assess their desire to learn, their integrity, adaptability, willingness to take risks, people skills, problem-solving skills and to find out whether the person is a key contributor, his/ her development potential and limits.

A ”Personal Development Plan” is drawn up for successful ones and development measures may include job enlargement or promotion, job rotation in China or within Asia, training programmes, project assignments, membership in professional association etc. It is essential to track the progress and to discuss the results openly with the employee.

Some MNC’s have successfully institutionalized career development programmes. However, experience shows that in some companies development plans were not implemented for the following reasons: there is no tracking system; there is no evaluation of the results; line managers do not regard career development as their responsibility and/ or they have little time to develop their staff, and there is too little support from the top.

Major Chinese companies are catching up, e.g. Lenovo Computer, formerly called Legend, has a sophisticated assessment (morality, talent, responsibility, ambition), training and career development system in place.

Training and Coaching

Training in China takes another dimension and the learning concepts need to be adopted to be successful. Generally speaking classroom-based courses may not be the right tool. Instead job rotation, on the job coaching through an external mentor, work based organizational improvement projects with presentations to management, outdoor-based Adventure Workshops to shift mindsets, sandwich MBA programs, learning by doing programmes such as a Management Game are more suited to achieve tangible results.

Another proven concept is the establishment of an in-house “China Academy” which normally runs on a regular basis for two to three days. The Academy program is typically designed for middle and senior managers and high potentials from different departments and companies within the group in China and perhaps even Asia. They mainly focus on the challenges and solutions of doing business in China, company and business specific strategies and management issues. It provides a very suitable platform to exchange cross-functional knowledge and experience amongst colleagues. Also it helps to foster cooperation within the company and group and to break down existing barriers (e.g. departmental, inter-company, regional and global).

Employer Branding

Recruitment in China has a different dimension: Prestige plays an important role. Candidates are impressed by well-known brands and would like to associate their name with the company since it raises the personal image. Also staff views the company as a family, and to be a member of a prestigious family is every employees’ ambition.

HR Management is not an easy task in China but with creativity there are solutions that may help.

Contact the author at hwstremme@fiducia-china.com