1、Chapter 1 The Long March“Made in China” lost its novelty long ago. The label has become ubiquitous in much of the world, affixed to shoes, toys, apparel and a host of other items produced for global companies. What is a novelty, however, are China-made goods sold under Chinese brand names. Only a ha

2、ndful of Chinese firms so far have the money and the management expertise to establish international brands; most of the vast remainder are struggling to attain even national recognition. But the pioneering companies testing the waters overseas could be on the threshold of something big.Some believe

3、 that individually, with the help of enterprising local management or eager multinational partners wanting to add new products to their stable, Chinese brands could become a global phenomenon within a decade, marketed on quality and exotic appeal, as well as competitive pricing. Says Viveca Chan, Ho

4、ng Kong based managing director at Grey China, an advertising agency: “If theres one country in the world that has ample potential for taking brands global, its China.”In the short term, the strongest promise is in Chinese medicine, herbs and specialty food, as well as goods that play to the romanti

5、c foreignness of China whether in cosmetics, fashion or music. Says Kevin Tan, general manager for China of market-research firm Taylor Nelson Sofres in Shanghai: “Theres still a lot of mystique associated with China. If youre taking something like cosmetics, which is image-drivensuddenly youve got

6、a strong player.” Also making a bid to go global are a few trendsetting Chinese beverage and beer brands. Further down the road there is brand-potential for products such as home appliances that can offer quality at a competitive price.Some of these brands will eventually go abroad via joint venture

7、s of mergers and acquisitions. For their foreign owners, the brands will provide speedier access to Chinas consumer market and distribution channels, while at the same time serving to complement the owners premium brands in global markets.The concept of Chinese brands has been evolving through the 1

8、990s, but is mow getting greater attention at home. Although the domestic market is still robust, a handful of state-owned enterprises, or SOEs, including listed Chinese companies, are now looking to establish international brands because they reckon the quality of both their products and their mana

9、gement has improved. Chinese joint ventures think their products can compete on quality with foreign brands anywhere, while enjoying the advantage of being perceived as exotic.Besides bringing in additional revenue, a global brand also burnishes a companys image in China, stimulating sales among sta

10、tus-conscious domestic consumers. For example, state-owned soft-drinks maker Jianlibao has developed its overseas market in part to “establish a good image”, which in turn enhances consumption at home, says Chief Executive Han Weixian.But building a brand takes time, money and marketing savvy. Some

11、Chinese brands have nudged into the international market on the back of competitive pricing, but have also utilized other strategies. Jianlibao has highlighted its Asian appeal, presenting itself as the preferred rehydrating sports-drink of Chinas athletes, while Meidi, an air-conditioner maker, is

12、pushing for greater brand recognition. Others like Haier, one of Chinas leading home-appliance producers, have pointedly steered away from price, competing instead on product quality and an efficient distribution and after-sales service. In another example, the American direct investment firm, Asian

13、 Strategic Investment Corp., or Asimco, has positioned its recently acquired Five Star beer as a premium brand.Of course, global sales dont mean global brands, as Grey Chinas Chan points out. And its still early days of Chinese companies. For a start, investment funds for brand promotion are hard to

14、 come by, says Chu Liangjin, the Qingdao-based director of the overseas division of Chinas Tsingtao brewery. “No more than 5% of our total export sales can be reinvested in promoting our brand overseas,” explains Chu, adding that Tsingtao is trying to persuade the foreign-currency authorities to cha

15、nge this standard practice for SOEs. With the governments emphasis on preventing the outflow of foreign currency, the chances of the restrictions being lifted are slim.Although targeted at SOEs private companies have greater spending freedom the 5% limit is bound to hamper Chinese brands. Jianlibao,

16、 for example, has invested about $10 million to sell its brand in the U.S. market, but Li Jingwei, the companys general manager, knows thats just a drop in the bucket. Sitting in his office at Jianlibaos industrial complex in Sanshui, a 40 minute drive from Guangzhou, Li reckons that to successfully

17、 generate brand recognition among Americans, the company needs to spend at least $50 million 100 million on marketing. He has no doubt that consumers will like Jianlibaos range of sports and soft drinks (which taste remarkably like Coca-Colas Coke, Sprite and Orange Fanta), but explains that “we nee

18、d money to invest in promoting ourselves.”Says B.C. Lo, Hong Kong-based vice-president and director of external affairs at Coca-Cola China: “Im not sure whether they can really penetrate the U.S. market or become an international brand, but certainly they are a strong competitor in China.”Indeed, Ji

19、anlibao, which exports to more than 20 countries, will need a great deal more money and years before it can be considered a serious player abroad. Last year the Chinese company sold just 200 000 cases of drinks (there are 24 bottles or cans in a case) in the United States. Although the company has f

20、unded a host of promotional events donating $100 000 for U.S. flood relief in 1997, advertising at Miss America pageants, sponsoring the $20 000 Jianlibao Cup Golf Tournament in 1997 its marketing efforts pale in comparison with those of the likes of Coca-Cola.One promising area for Chinese brands i

21、n the global marketplace is white goods of low to mid technology. By some estimates, Chinese brands have roughly 90% of the domestic market for refrigerators and washing machines, 70% - 80% of the market for air conditioners and 60% for color televisions. “In many areas the quality of products has i

22、mproved to the point where they are quite marketable,” says Philip Day, a vice president at consulting firm A.T. Kearney in Hong Kong. “What were now seeing is Chinese companies getting their act together in terms of marketing.”Haier is among the best known white goods brands in China. Under the qui

23、dance of its dynamic president, Zhang Ruimin, the company has turned from being a loss maker into an exporter. It claims that more than 60% of the imported washing machines in Japan are made by Haier, and that in the U.S., it holds a 20% market share for 36 liter to 180 liter refrigerators. In the f

24、irst 11 months of last year, Haier brand refrigerator exports to the U.S. reached $15.6 million, up from $12.6 million for the whole of 1997.Mario Zhu, an analyst at ABN Amro Securities in Shanghai, says Haiers marketing team has helped build the companys reputation in Europe and now in the U.S. “Th

25、ey have research centers that give them updated information on market demand,” she adds. “They do aggressive advertising and theyve got good R&D.” Haiers Zhang says the companys strengths are high quality and good distribution with good networks for sales and service.Certainly, Haier doesnt spen

26、d much on marketing, compared with the amount earmarked by most international companies. In the U.S., Haiers promotion budget accounts for only a partly 1% of its American sales. The company has opened a specialty shop on New Yorks Fifth Avenue and in March hired a design company in Los Angeles to d

27、etermine what American consumers liked best in a refrigerator. Zhang admits Haier hasnt “developed a real brand name yet” among average American consumers, but points out that its starting to get some recognition among refrigerator makers, distributors and specialty shops.Another Chinese brand in th

28、e U.S. market is Meidi. A collective enterprise that churns out air conditioners in Guangzhou, Meidi in 1997 achieved $386.5 million in sales, of which $70 million stemmed from exports. In 1998 the company stressed overseas markets, and as a result expects exports for the year to reach $80 million o

29、ut of total sales of $604 million, according to Peng Qiang, director of the companys overseas division. He believes the “time is mature” to develop the overseas market for Meidi, which competes on both price and brand recognition. “We are attending more overseas exhibitions to further improve brand

30、recognition and have spent more on advertisements, especially in Hong Kong,” Peng notes.Chinese brands under the wings of foreign companies usually have the advantage of plumper marketing budgets and better access to management expertise. But although overseas companies typically buy these brands to

31、 gain access to Chinas consumers and distribution channels, they also can have large plans for their acquisitions. “The multinationals that are buying these brands up Chinese brands are not going to restrict their business to the domestic market,” says Day of A.T. Kearney. “Some of these brands aren

32、t necessarily going to be pitched against premium brands abroad immediately, but they might be pitched in other segments of the market. Id look at China in the long term as being the source of significant competition for multinational brands globally.”Take the case of Unilever, one of the worlds lar

33、gest consumer goods companies, with annual sales of about $50 billion. This mammoth Anglo Dutch group in July bought Laocai, a Chinese pickled vegetable and soy sauce brand that it plans to take global within the next five years. Unilever wouldnt specify exactly how much it has earmarked for buildin

34、g recognition of Laocai among consumers.For its part, Asimco in 1995 bought a controlling stake in Five Star, then an 80 year old state owned brewery in Beijing. Jack Perkowski, Asimcos Beijing based chairman, believes the brand overhauled, repackaged and resold at a premium can give Tsingtao a run

35、for its money in overseas markets.Tsingtao, which has been exporting beer to North America since 1978, has had sales there of about $7 million annually over the past three years. Five Star, on the other hand, could “become one of the smaller imported beers in the U.S.,” says a beer industry analyst

36、at a British brokerage in Hong Kong. One reason is that Asimco has chosen an efficient distributor, Florida based Northland Beverage Corp. In September, the first four containers of Five Star were shipped to the U.S., and if all goes well, Perkowski reckons Asimco will be selling 3 million cases ann

37、ually in about two to three years. That would help the beer to crack the list of 25 best selling foreign brands in the U.S. 16 now topped by Mexicos Corona beer.New York based cosmetics maker Coty also has grand ambitions. In 1996, it forged a venture in China with Yue Sai Kan Cosmetics, launched fo

38、ur years earlier by glamorous China born American, Yue Sai Kan, a household name and face in the country of her birth. Technically a wholly owned American company, Yue Sai Kan Cosmetics is considered one of Chinas leading brands of color cosmetics. The alliance has propelled Coty almost overnight to

39、 the No.1 spot in Chinas market, and in October the joint venture opened a $20 million factory in Shanghai, complete with an R&D centre.“We want to take the Yue Sai brand and make it the first Chinese international brand,” says Jean Andre Rougeot, Cotys executive vice president. “China as an eco

40、nomic power will continue to thrive in the next five to ten years. As part of that growth, youre going to see more and more Chinese brands.” Rougeots theory is that Western women with sensitive skin will be attracted by cosmetics that have Asian herbs as key ingredients. Adds Yue Sai Kan: “We try to

41、 incorporate the best Asian concoctions with Western technology. For instance, we have orange blossom and green tea lipsticks.”This blend of East and West may not captivate all consumers, but a lot of smart people are betting it will be enough to help launch Chinese brands into global markets.Chapte

42、r 2The New EconomyHow Real Is It?Does the New Economy exist? Not long ago, with growth strong and markets booming, the answer seemed an obvious yes. But then came the bust. In the first half of this year, output grew at an annual rate of just 1% - and theres still a chance of an outright recession.

43、Many pundits have left the New Economy for dead. Now theyre talking about the “Bubble Economy”.Not so fast. We think that there really is a New Economy, properly defined, and that its here to stay. In our view, the wild excesses of the late 1990s and the stock market plunge of 2000 2001 combined to

44、obscure a fundamental change in the structure of the U.S. economy. The New Economy was never about the end of the business cycle. Recessions can still occur. Nor was it about price earnings multiples rising to the ionosphere. It was and is about an economy capable of growing more rapidly without inf

45、lation than it did during the long slump of 1973 to 1995, because of technology driven increases in productivity, the worlds best financial system, and the unleashing of entrepreneurial energies through deregulation.Looking ahead, were cautious about the immediate future. But we remain optimistic ab

46、out the two to three year outlook. Since the middle of the 1990s, labor productivity the output per hour of work has grown at a rate of 2.4% annually, even after the latest downward revisions. These gains are likely to continue, though probably a lightly slower pace. At the same time, immigration is

47、 helping to expand the labor force. Put those together, and the U.S. can most likely sustain annual gross domestic product growth of around 3.5%. Thats a healthy contrast with the period of 1973 to 1995, when GDP growth averaged 2.8%. Moreover, its safely below the overheated 4% - plus growth of the

48、 late 1990s and right in line with the average for the 20th century as a whole, when America experienced the greatest increase of wealth in the world history. Other nations seem to agree. Theyre betting on the long term strength of the U.S. economy by investing in American assets ranging from Treasu

49、ry bills to new auto plants.In contrast, the short term isnt so pretty. Those who thought the New Economy meant good times forever have been mugged by reality. Along with being faster growing, the New Economy is more exposed to the forces of volatility. The tech investment cycle has extreme ups and

50、downs. Innovations, once funded by fairly stable corporate research and development budgets and government grants, is whipsawed by fluctuations in financing from venture capitalists and initial public offerings. And deregulation exposes once insulated businesses like phone and electric companies to

51、the unpredictable forces of competition. Even globalization may add to volatility, if it means tech investment goes cold all over the world instead of in different countries at different times, as before.Overall, the good news outweighs the bad. So far, it looks likely that the U.S. economy will man

52、age to skirt a recession this year, if just barely. The outright bust has been confined to a few sectors, such as Internet companies and telecom equipment makers. Even though the slump in capital spending substracted almost 2 percentage points from economic growth in the second quarter of 2001, the

53、overall economy still managed to grew a bit. A rapid series of interest rate cuts by the Federal Reserve has buoyed consumer spending and housing, and there is likely to be at lest one more. Lower rates have offset the hit to consumers from the tech induced decline in their stock market wealth. In s

54、hort, the new sources of volatility havent been severe enough to drag the entire economy into recession.The timing of a full rebound boils down to when businesses resume serious investing in new plants and equipment. Right now, theyre reluctant to buy new gear because they have plenty on hand from t

55、he last capital spending binge. Industry is using just 77% of its capacity, the lowest rate since 1983. Companies are filling orders out of inventory instead of new production. David A. Wyss, chief economist at Standard & Poors, which like Business Week is a unit of The McGraw Hill Companies, sa

56、ys this business cycle is similar to those of the 1950s: Capital spending was the first component of GDP to slump and will be the last to recover.Wave of InnovationThe best bet: Capital spending will finally come back strong sometime next year. With inventories running low, companies will need new e

57、quipment and software. Plus, some of the gear they already have will be outmoded. In the cutthroat business world, companies cant afford to keep using out of date equipment even if it still has years of serviceable life. Equipment that lowers costs will be in demand. With capital spending back to tr

58、ack, the economy should reach full strength a year from now, if not sooner. The latest survey of 50 economists by Blue Chip Economic Indicators pegs GDP growth at 1.8% this year and 3% next year, with the annualize growth rate reaching 3.5% by the second half of 2002.The next expansion may well look

59、 different from the last one, with a new complement of companies leading the charge. Pharmaceutical and biotech companies are likely to expand rapidly, riding the wave of innovation that results from the unraveling of the human genome. As for info tech, expect a mixed bag. Its hard to see whos going to sizzle by making slightly faster routers