Chinese brands: Overcapitalized, underhyped and (soon) over here

For once, the most anticipated launch in tech isn’t from Apple. It’s from China.

Xiaomi, a five-year-old smartphone maker, has set its sights on a U.S. launch. When the brand (pronounced "SHOW mee") tested an online store in the US in May, it sold out all its 200,000 units in 30 minutes. And those were just phone accessories.

At the Re/code conference that same month, Hugo Barra, the firm’s VP of international, sent a tremor through the admittedly excitable tech world by claiming that Xiaomi’s phones would be hitting the US at some undetermined point in the near future.

If the brand lives up to its promise, it will be further evidence of a sea change. The marketing world is used to seeing China as a manufacturing hub and a juicy target packed with a potential 1.3 billion consumers — but not as a rival for branding on the global stage.

In recent years, though, Chinese brands have emerged as just that. Millward Brown’s BrandZ list of the most valuable global brands included 14 Chinese brands this year. Ten years ago, when the company launched the list, there was only one, China Mobile. Chinese brands "went from being very small to gigantic in 15 years," says David Roth, WPP CEO of EMEA and Asia.

Roth cites a couple of reasons we’re seeing more Chinese brands vying to go global: The Chinese government is pushing the idea as a vehicle to promote "brand China," and the economy has grown so much in recent years that multi-billion-dollar companies are everywhere. "Therein lies the rub," Roth says. "Although a lot of the brands are very large, they are virtually unknown outside of China." Roth says recent research shows only 7% of consumers across the globe could identify a Chinese brand.

Branding novices
David Srere, co-CEO and chief strategy officer at branding firm Siegel + Gale, says China is filled with huge companies that lack even the slightest bit of branding acumen. "There are so many billion-dollar companies on the mainland that you’ve never heard of," he says. "But their organization models are sales models, manufacturing models, distribution models, but they’re not brand-building models. I can’t tell how many times in these local billion-dollar Chinese companies I’ll be sitting across from the CEO, and the CMO is his aunt."

In recent years, a few Chinese companies have bucked the trend. In 2003, the Hong Kong-based Lenovo changed its name from the more generic "Legend" and spent millions in the US to raise brand awareness.

China’s new wave of brands
More recently, Alibaba, a Hangzhou, China-based e-commerce provider, became well-known to viewers of CNBC and Bloomberg after it went public last fall, raising $25 billion from its global IPO. The company and its charismatic CEO, Jack Ma, also made headlines when it posted sales of $9 billion within a 24-hour period for "Singles Day," a holiday the brand largely created. That’s bigger than Black Friday in the US.

Then there’s Tencent, a social networking firm that Millward Brown named the fastest-riser in brand value this year. Tencent’s WeChat IM service claims 438 million active users, 70 million them outside China.

While we’re not hearing much about these brands in the US, Roth says the Chinese companies like to present themselves as value brands in fast-growing markets like Africa, Brazil and India. "That’s fine in those markets, but it becomes more challenging when you go to a much more established, more differentiated market like the US," he says.

Following Japan’s branding blueprint
In doing so, China is following the path of Japan and, later, South Korea. For years, products manufactured in both countries were seen as inferior and cheap in the US because they entered the market at the low end. Over time, both changed that perception. Last year, for the first time Japan topped Futurebrand’s Country Brand Index (which rates countries on the number of strong bands it produces, among other factors). South Korea’s Samsung, meanwhile, is arguably the only brand to give Apple a serious run for its money.

Which brings us back to Xiaomi. The company is often referred to as the "Apple of China." In its native country, fans wait outside for days before a major release announcement. However, it’s also been slammed as a shameless Apple imitator.

Roth says that he thinks Xiaomi’s prospects in the US are good. "I think what they will do is challenge the value end of the smartphone market and also the bottom end of the Apple-Samsung part of the marketplace as well."

Meanwhile, another Chinese brand might serve as a cautionary tale. In the early part of the decade, sports apparel brand Li Ning came on strong with a 10-year sponsorship with NBA star Dwyane Wade. The brand even opened up its US office in Portland, Ore., right in Nike’s backyard.

Last year though, Li Ning posted its third straight year of net losses. Critics say the brand didn’t catch on because the logo was too close to Nike’s, a visual reminder of the brand’s also-ran status. (Reps from Li Ning could not be reached for comment.)

Srere says Li Ning "never figured out its position." Even in China, he says, Li Ning never articulated what it stood for, which is a common problem for Chinese brands. As Srere says of Chinese brands in general, "Chinese companies tell a ‘what’ story — it’s all facts. They need to tell a ‘so what?’ story."