Scandals mar hopes of a Chinese MNC

HONG KONG: Tainted pet food, toxic toothpaste, unsafe tyres and toys — the list goes on.
Scandals involving Chinese products in recent months have caused the “Made in China” label to mean defective, dangerous, and - in the case of poisoned cough syrup in Panama - deadly.

Fret not, experts say, brands such as PC maker Lenovo Group or Brilliance China Automotive Holdings could still capture global market share and become multinationals like Japan’s Sony Corp. or South Korea’s Hyundai Motor Co.

However, that process could take years.
For now, image problems will force savvy players to shape up for a global marketplace and weed out weaker firms, while the massive domestic markets of the world’s fourth-largest economy cushion short-term pain.

“In terms of their own management and operating policies, they will be raised to a much more international standard,” said Jonathan Chajet, Asia-Pacific strategy director for Interbrand.

“It’s how much (they) play ‘this is from China’ in the branding. That’s the part that will probably be set back a little bit.”

In July, Chinese officials said that nearly a fifth of the country’s food and consumer products were substandard.

Just this week, Mattel recalled 1.5 million Chinese-made toys around the globe over fears their paint might contain too much lead.

But the potential to become a global player can lure investors: Lenovo’s stock gained more than doubled in the past year, versus the market’s roughly 31.8%.

Haier’s Shanghai-listed arm, Qingdao Haier Refrigerator Co Ltd, roughly quadrupled over the past year, outperforming the market’s roughly 175% rally.

Experts say an internationally prestigious Chinese brand will most likely emerge first in consumer electronics, because of that sector’s dependence on constant innovation, with new devices — think iPods or Blackberrys — quickly able to spur markets.

“Because the industry is changing constantly, you would expect that new leaders will emerge with each generation of electronics,” Chajet said.

But most Chinese firms still lack marketing savvy, analysts say, specialising as they do in low-cost manufacturing. Not one Chinese firm made Interbrand’s “Best Global Brands 2007” list.

Many are learning, however. China’s top corporations boast impressive foreign partners, such as Shanghai Automotive and General Motors and Kingdee, from which they are keen on picking up technology, management and marketing expertise.

Some brands, including Lenovo, top TV and cellphone maker TCL Corp., Brilliance, and appliances vendor Haier, are making slow — if bumpy — progress.

TCL, which Philips lauded years ago as a potential future Sony, racked up losses in Europe after buying businesses from Alcatel and Thomson.

Lenovo — which in 2005 bought IBM’s PC division for $1.25 billion — has gone toe-to-toe with Dell and Hewlett- Packard, but has struggled abroad.

Longer term, the firm should overcome negative country of origin stereotypes due to its affiliation with IBM, analysts say.

“Pricewise, consumers think that ThinkPad products are IBM, and lower priced Lenovo products are Chinese. This is how Lenovo has taken advantage of it, and it has helped them break into international markets,” said Alex Tang, an analyst at Core Pacific-Yamaichi in Hong Kong.

JP Morgan’s Charles Guo said consumers know large quantities of electronics are already made in China.

China — on course to become the world’s second-largest consumer market by 2015 — offers local players an escape hatch: a massive and rapidly expanding domestic market.

Staking out home markets before going global is a well-trodden path. Samsung grew from selling fish and fruit in the 1930s into the global conglomerate it is today.

Lenovo controls its home market, as do firms in other sectors from brewery CR Snow to Mengniu Dairy.

But to go international, those brands eventually need to be linked with a larger “China Inc.” theme. 
“With France you might think luxury, Japan you think precision, Germany you think efficiency, America creativity,” said Chajet. “But for China, it’s difficult to understand what it’s going to stand for, what it’s going to mean in the world.” Reuters