Damjan DeNoble and I come together via email, over a period of weeks, to talk China marketing, Korea, hummer, Yugo’s, randomized processes and more. The common thread of the piece is trying to figure out, how exactly, the Chinese are going to create home-grown brands that can compete globally.

If you can bear to read along with this monster of a post, know that we had a lot of fun writing it. The first marathon conversation can be found, here.

Adam:

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So let’s make our way to back to China by way of…Korea.

Now, if you recall, Korean Air used to be legendary for its headline-making crashes. It got to a point where Korean Air — with their telltale powder blue fuselages — was crashing so often that it hardly seemed news anymore. To (foolishly) take a flight on Korean Air was to take your life into your own hands, and there were few people, save for some chest-thumping nationalistic Koreans and perhaps several brave Chinese who were looking for a bargain, who were willing to take such risks.

Fast-forward to today: Korea’s brand stalwarts like Samsung, Hyundai, KIA, and Daewoo have done a remarkable job extending their reach around the globe and contributed to the extraordinary comeback of Korea in Western markets on a legendary scale. In fact, my very first car was one of Hyundai’s best-selling sports coupes in the introductory price range — the Scoupe — and I bought it — going back fifteen years now — because it had the best warranty in the business, for the value.

Cut to China: it finds itself in a present-day malaise similar to what Korean companies used to suffer from back in the dirty ’80s. Have a look at some of the notorious black stains on the Chinese brand record — search for “Chinese crash tests” on YouTube but make sure your jaw doesn’t get bruised — and witness what I’m talking about.

As far as the West is concerned, there are few Western consumers I know who’ll be persuaded to “buy Chinese,” and this likely irks Chinese manufacturers to no end. I bet they’d be willing to do practically anything — yes, anything — to change this state of affairs. Sure, all-Chinese brands like Chery, Geely, and others certainly do make inroads into developing world markets like Moldova or Uzbekistan, but I challenge you to tell me about one low-income American or European family who would be pursuaded to buy a Chery on their own volition (unless they have a death wish). Strategic acquisitions like Sichuan Tengzhong Heavy Industrial Machinery’s buying out GM’s Hummer unit and the on-again off-again Volvo buyout by Geely appear to be vertical moves by these Chinese mainstays to sanitize their brand images and play with the big boys, but so far the market isn’t cottoning on.

Basically, the entire Chinese brand scene needs a concerted rejiggering and there’s no telling how, when, or even if it might be successful in our lifetimes, D.

What ails Chinese brands isn’t going to be repaired in a day, even with the most focused of strategic rollouts and any Western-devised blueprints for how to cure this “brand cancer” isn’t a monkey see-monkey do thing. I’m talking about celebrity endorsements for Chinese stuff (if Western celebrities could even be convinced to hawk Chinese products), sponsorship of large international sporting events where Chinese athletes compete, Chinese swag, or even embedded products for films and TV series — “by the book” approaches all, so I don’t think I’m proposing anything novel here.

What are you seeing out there?

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Damjan:

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Seeing as how we are both Malcolm Gladwell fans, I think that you are trying to set me up with an easy jump off point by leading with the example of Korean Airlines when alluding to the rebirth of the Korean brand. The troubles of Korean airlines are well documented in Gladwell’s book Blink: The Power of Thinking Without Thinking. Turns out, the airlines troubles stemmed from the co-pilots inability to correct the actions of the captain, a hierarchy problem. It’s interesting that you would pick this example to kick off a discussion about China’s supposed branding woes.

Not being able to fly a plane is an operational problem in the most literal sense of the phrase. Oddly enough, if we change the context of problems stemming from strict hierarchies to a business setting, operational problems can again be said to occur, though in a much less literal, and more management oriented sense. And, isn’t over adherence to hierarchy the problem all China analysts point to when pushing a lack of creativity as the reason why China doesn’t have brands?

Like Gladwell points out, this is a big problem because it takes cultural change to solve. The other big component to building a brand, quality, is the easy part. It takes experience, and money. Both only take time to accumulate. I am confident that like the Koreans, the Chinese will one day build a competitive car, and scenes like this failed crash test will be relegated to the past, or at least become a staple of the future emerging Vietnamese car market. It might happen sooner than you think. When Suzuki entered the American and European markets its cars were not high tech. But, they were cheap and fairly reliable. Cheap and reliable are both doable, and dependent largely on experience. I would also remind you that Yugo once broke into the American market, and most of its parts were ten years behind the times before they hit American showrooms. I will also vouch for the cars awesomeness; I rode around in one until the age of six.

But, because of the cultural component, which was hard enough to implement in the relatively small cultural setting of the Korean air fleet, I agree with your overall assessment of Chinese brands “there’s no telling how, when, or even if it might be successful in our lifetimes.” Plus, I think that China has one big financial downturn to weather before it really becomes a big world player.

I also really like Dan Harris’s point about how Chinese professional basketball players are about as good as really good high school players in the United States. Americans start playing basketball seriously when they are very young and skill is proportional to the number of reps one takes. This, he says, holds true for basically anything.

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Adam:

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Brands are indeed funny across Asia. I can’t really wrap my mind around them.

Take the Japanese case for example. The world’s second largest economy by GDP, but a nation which peculiarly deems practically anything that’s cheap to have a quality that’s lower than albatross guano. The only thing which seems to impress Japanese consumers are products which not only carry the loftiest of brand recognitions, but also the ones which boast the steepest price tag. Have you ever heard of a Shibuya Square dollar store? Or how about an all-you-can-eat Tokyo sushi joint? Just doesn’t happen in Japan. The Japanese are inured against low prices. It’s a luxury goods porn movie.

Then you’ve got the Koreans, straddling an always contentious seismic line — viced firmly as it is between the two rival powerhouses of 21st-century Asia — the Japanese juggernaut and the soaring Chinese tiger. At the end of the Korean War, both halves of the Korean peninsula were almost at a per capita GDP doldrums par. But like two thoroughbreds at the Kentucky Derby — first the North pulls ahead, no wait…it’s the South, no WAIT, it looks like it’s the North, no…uh, the South, I tell you, it’s the South in the lead! — since then — almost Shaft-like — South Korea (ROK) has been “outta’ sight,” and North Korea under the Kim cultists has no chance of making a comeback.

But it’s that ROK story whuch has been most instructive. South Koreans have gone from being a backwater agrarian nation relegated to picking up the shards of the War’s devastation into one of the wealthiest brand consuming societies on the face of the Asian continent. The Koreans, always prepared to outdo their former Japanese colonial oppressors, can be as brand-lusting as their island neighbors to the east. Definitely a market sandbox that Western brands want to play in.

And finally, there are the Chinese. If you’ve ever hung around a Guangdong or Shenzhen cafe, you’d readily notice the way Chinese post-’89ers wear their flash threads or tote around their shiny electro-gear: labels out, y’all! They want you to know they bought that Real McCoy Tommy Hilfiger coat or that shiny Gucci bag, not a cut rate shanzai facsimile of same. And they aren’t ashamed to show you the price tag and proof-of-purchase to back it up! Chinese consumers are only too proud to have squandered three months of their hard-earned salary just to afford the privilege of strutting around their city’s high street for an afternoon so that you can eat your heart out. In a nation with a per capita GDP less than Guatemala’s, that’s no small feat.

The overall trend in all three nations seems to be for their citizens to continually upgrade by seeking out ever-more lucrative brand purchasing opportunities. Western brands.

Prominent Beijing-based marketing swami David Wolf, of Wolf Group Asia, recently pointed out how the previously supposed best and fastest way for the Chinese to make big brand impacts globally was through vigorous M&A activity. But Wolf cautions that, if this persists into the coming decade, buying other companies to catapult them into more secure Western markets will prove to be the PRC’s undoing.

Having said all that, I don’t know what else Chinese manufacturers can do in the short-term to make big marketing and brand splashes in the West. Considering the devastating auto crash test YouTube clips being passed around virally, there’s just too steep of an upward climb.

Sure, it’s inspiring to watch the Chinese — by hook, or, er…by crook — recovering quickly and taking evasive action in dominating various key markets, and I refuse to believe they can’t overcome their present challenges, as they have all others. They’ve shown the world too many times and in so many otherwise hopeless cases that they refuse to be outlasted. But as concerns global branding — a case which can be as precariously delicate as a gauze bandage — I’m having trouble seeing the how, not the if.

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Damjan:

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When talking about big questions, answering the if is a fairly straightforward affair, since it is beholden to trends that are often studied, and therefore as obvious to pick up on as the question is big. Conversely, the how is always to answer when a question is big, because big questions have many variables working together; here the vast amount of information presents a problem.

When the question is contained within a smaller canvas, a smaller niche, the if is often harder to answer because the information for it is not as obviously attainable. The how question, however, is easier to get at since the number of variables is often smaller; this is where a prediction can readily be attained by looking at stake holders, policies, and markets because, again, the variables are limited.

That’s why psychics and most (but not all) economists are able to make money. For example, lets pretend I am an economist looking at China’s fast growth, it’s current lack of international brands, and Asia’s love for brands that communicate status. From here it’s reasonable for me to assume that many Chinese entrepreneurs have noticed all three of these these trends and that many of them are trying to cash in by creating domestic worthwhile brands.

I do believe in two things when it comes to marketing: a natural human drive to sell, sell, sell, and a a corresponding human willingness to buy, buy, buy. Those two are probably enough for American consumers to eventually start buying Chinese brands. America’s capacity for innovation is falling: we’re not training enough scientists, and we’re not making products. In fact, we’re only really getting better at things like marketing. But, what happens when we have nothing left to market? Well, we help China market its goods.

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