China's second wave
Country is now poised to flood world markets with high-end products like cellphones and autos
By Jehangir Pocha, Globe Correspondent, 1/2/2004
BEIJING -- The brand names in neon lights in Beijing's swanky Wangfujiang shopping district may mean nothing to Western shoppers, but they soon will. The "Made in China" label is fast giving way to "Made by China" brands, and a new generation of Chinese-designed, -manufactured, and -marketed goods are on the verge of exploding onto global markets.
While China's first export wave of the 1980s consisted of items such as toys and textiles, this new surge of exports includes high-value, high-technology products such as electronics, appliances, automobiles, computers, and mobile phones.
"The future goal of TCL is to become one of the top five mobile enterprises in the world," said Wan Jianming, president of TCL Mobile Communication Co., which last year challenged major global technology firms such as Nokia and Motorola to grab 12 percent of China's cellphone market, estimated at 160 million units.
China's Ministry of Information says home-grown firms such as TCL, Ningbo Bird Co. Ltd., and Haier Group now account for 55 percent of the handsets sold in China, the world's largest mobile-phone market. Motorola and Nokia, which began the year as market leaders with a combined 40 percent of the market, have seen their market share cut in half.
Chinese firms also are eating away at the domestic market shares of global firms in industries such as home appliances, computers and peripherals, and home electronics with sleek, well-designed products that sell at affordable prices. As they take leadership positions in industries domestically, many Chinese firms also are beginning to target overseas markets.
While global attention has focused on investments pouring into China -- last year China overtook the United States to become the largest recipient of foreign investment with a record $52.7 billion -- this nation's own overseas investments have gone mostly unnoticed.
The World Bank says more than 30,000 Chinese firms have invested about $10 billion in more than 50 countries. While most of the investment has been in Southeast Asia, Chinese firms are increasingly zeroing in on the United States.
On his recent visit to the United States, Chinese Premier Wen Jiabao pointed to China Ocean Shipping Co., which brings goods and materials weekly from the Chinese port of Qingdao to Boston, as an example of a Chinese-owned company that has become successful doing business in the United States.
"I hope more get into the global market, like Cosco," he said as he toured Cosco's facility at South Boston's Conley shipping terminal.
Indeed, the Chinese government has made it a goal to have at least 50 Chinese firms in the Fortune 500 list, which ranks the world's largest companies, by 2010.
One of the companies Chinese officials expect to lead this transition is Haier, which last year became the world's second-largest producer of refrigerators with revenue of $8.5 billion.
In 2000, Haier became the first Chinese company to establish manufacturing facilities in America and Europe. Its $40 million state-of-the-art plant in Camden, S.C., employs more than 200 American workers and makes refrigerators that retail in Wal-Mart for one-third the price of those from GE and Frigidaire.
Haier also has captured one-third of the market for compact refrigerators with innovations such as a minifridge that comes with a folding computer desk. Now the company says it has set its sights on grabbing 10 percent of the standard refrigerator market by 2005.
Other major Chinese producers poised to enter US markets include Legend Group Ltd., the world's third-largest desktop PC maker, and Sichuan Changhong Electric Co., China's largest electronics manufacturer.
Also on their way are two indigenous Chinese cars, the luxurious Zhonghua and the compact Lobo, which will retail in the United States for about $25,000 and $15,000 respectively once a distribution deal is signed.
Even smaller Chinese brands such as Tsingtao beer, Flying Pigeon bicycles, Shanling audio products, and Hero pens are moving into global markets.
China's aspiring multinationals owe their success to savvy marketing more than low-cost manufacturing.
"TCL sells because it has more models, more accessories, and more features," said Sing Xiaogang, 23, a mobile-phone retailer in Beijing. "They also give us better service and higher margins."
Thomas Li, 19, one of the customers peering over the elegant glass cases in a Beijing cellphone store, said he's "come to check out the TCL 818," which allows users to play a range of wireless games.
"No other phone has these games," he said.
Colin Giles, Nokia's senior vice president and general manager in China, said his Chinese competitors, who began life as electronics manufacturers, "understood consumer needs better."
In 2003, Ningbo Bird and TCL launched about 36 models, almost twice as many as Motorola and Nokia. In addition to capturing the low-end market, they also dented the "lifestyle" segment with models such as a $3,000, diamond-encrusted phone and another covered in a specially treated fish skin.
China's new marketing muscle has taken many global companies by surprise.
In 1979, when China emerged from the tumult of the Maoist years, it had almost no modern industry and no domestic brands. Though China quickly turned itself into the world's factory, few expected it to imitate Japan and Korea's quick transformation from cheap manufacturer to global marketer.
Today, China's top five domestic brands are worth $13 billion and Fiona Gilmore, coauthor of "Brand Warriors China," predicted that in 10 years at least one of the world's top 10 brands will be Chinese.
The Shenzhen-based Byd Co. is a good example of how small Chinese firms are morphing into global companies. Once a small-time manufacturer of watch batteries, Byd used foreign investment and technology to become one of the world's leading designers and makers of lithium batteries.
Now, with a market capitalization of $1 billion, the company is making a major play in the market for electronic vehicles.
To support the global forays of firms like Byd, the Chinese government has doubled the number of graduates in China's state universities to 2 million. The record 500,000 students learning English across the nation also points to the hunger many Chinese feel to work and succeed globally.
Chinese entrepreneurs are also being aided by government policies, said Patrick Horgan, managing director of the Beijing-based consulting firm APCO.
For example, he said Beijing postponed the adoption of 3G cellphone standards "to give local manufacturers time to catch up" with the global majors.
This year the Communist Party even began inducting entrepreneurs into its ranks, creating a close relationship between business and government.
For example, Haier is partly owned by the local government of Qingdao, where it is based. Its chief executive, Zhang Ruimin, is currently a member of the Communist Party's elite ruling club, the Central Committee.
Critics say this government involvement, and the liberties Chinese firms take with intellectual property, have been the real drivers behind the success of China's would-be global enterprises.
Nokia's Giles also said the manpower-heavy sales and marketing TCL and others have employed in China, and their limited R&D, inhibits their ability to replicate their domestic success outside China.
Indeed, attempts by Chinese companies to bring Konka televisions and Xiali cars to the United States have failed terribly, mostly because their products did not meet the quality standards US consumers expect.
But TCL's Wan is not fazed.
"We will become one of the world's top five mobile companies," he vowed.
© Copyright 2004 Globe Newspaper Company.
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