China wants its brands in U.S.Companies don't want to be known just for low-cost products

By David Greising
Special to The Morning CallBEIJING
It's a long way from here to a castle in France, but that was an early stop — a pilgrimage of sorts — for a group of senior Chinese executives intent on taking the next great leap in capitalism.

At Chateau Touffou, the Chinese huddled with representatives from the ad agency Ogilvy & Mather to plot a global branding strategy. Ever since advertising visionary David Ogilvy bought it, the agency has used the castle to woo big clients like Motorola and American Express. This time the client was Brand China.

If Chinese companies ever become household names — if Lenovo computers and Haier refrigerators and Chery automobiles ever rival Dell and GE and GM — Brand China can trace its roots to the meetings last October in France where Ogilvy taught the Chinese the secrets of Brand Marketing 101.

''The Chinese going outside is still a very new thing. It's very experimental at this stage,'' said Joseph Wang, chairman of Ogilvy's southern China business, who attended the meeting run by Ogilvy chief executive Shelly Lazarus. ''I can't point to a super success yet.

But you've got to remember this one thing: Chinese companies are very quick learners.''Walk the aisles of a local Wal-Mart, Target or Best Buy, and the words Made in China are stamped on everything from sweat socks to auto parts to cell phones.

But those products still carry all-American brand names like Fruit of the Loom or Delco or Motorola.China won't stay Brand C forever, though.Chinese companies are not satisfied just slapping someone else's name on their products.

Some Chinese companies want to buy established western brands, others will build from scratch. They all share a common urge to own brand names they can export worldwide — and import the profits back to China.Consumer electronics company TCL of China bought Thomson Electronics, maker of RCA televisions.

China's Shanghai Automotive Industry Corp. was seeking a western brand when it offered to rescue Britain's failed MG Rover early this year.Go-it-alone strategies seem likely to be the favored strategy, though.China's Haier Group tried to buy instant credibility last spring with its bid for Maytag Corp. But when Whirlpool Corp. nabbed Maytag, Haier opted to go solo.

Haier currently sells low-end refrigerators in Wal-Marts and Targets across the United States, where it competes exclusively on price. But its strategy calls for a push into higher-end products, and bigger profits to Haier.To pull it off, Haier is building a research and design center near its U.S. production plant in Camden, S.C.

There it will collect intelligence about American tastes and market trends. Back in China, designers will use the information to dream up new products that will sell in the United States. In Europe Haier is building market share on an aggressive push into high-style, high-end products.Think U.S. competitors don't take China's new branding effort seriously? They do.

China's China's Chery Automobile Co. may be a rounding error compared to General Motors Corp.'s $193 billion in annual sales. But when Chery announced a daunting plan to enter the crowded U.S. market by 2007 — amidst hints that its advertising budget might reach $225 million a year — GM took note. The auto giant threatened to sue, claiming Chery sounds too much like GM's Chevy. Chery in late September agreed to use a different name plate when it comes to the states.

Nowhere is the push to push product more pronounced than at Lenovo Group, China's biggest maker of personal computers. A close look inside Lenovo's business shows how China's brand-name giants plan to take on the wider world.

Combining leading edge technology, low-cost production, top-flight management methods and cutting edge marketing, they hope to get the job done.Lenovo took two bold steps designed to put it on a world-class stage.

Last year, it ponied up an estimated $75 million to become a top Olympic sponsorship, on the same level as brand-name giants like Visa, Coca-Cola and McDonald's. Then in May it paid $1.75 billion to buy the ThinkPad brand and the rest of the personal computer business from IBM Corp.''China's brand history is very short,'' acknowledges Yuanqing Yang, who engineered the IBM deal late last year. ''Maybe we need time to have several famous brands worldwide. Maybe Lenovo is the beginning of the trend.''Now Yang and other executives on both sides of the Pacific Ocean must make the IBM merger work.

That will mean tackling a challenging cross-cultural merger, keeping production costs low, introducing new technologies, and introducing the Lenovo brand outside China — all while dueling for market share with entrenched giants Dell Computer Co. and Hewlett-Packard.Yang notes that compromise will be key to any success.

For Lenovo, that has meant adopting English as the official language and moving the corporate headquarters to Purchase, N.Y., near IBM's corporate offices. Yang, 41, remains chairman of the company, but the chief executive is an American, former IBM sales executive Steve Ward, 50.