Branding in China.

Branding in China.

At the 2009 Summer Davos summit's opening ceremony, China's Premier Wen Jiabao hailed scientific and technological innovation, calling it "an improvement pillar." "We will make China a country of innovation. We will seek breakthroughs in key technologies that are vital to industrial transformation and upgrading," he said. The premier's statement resonated among experts and entrepreneurs at the summit. 　　

His comments were timely. The silver lining for the global financial crisis is that it has revealed long-existing cracks in China's rapid growth journey -- lack of independent brands and technology innovation and this has pointed to opportunities for transformation. A tabulation of southern Guangdong Province customs figures shows exports of independent toy brands have achieved better and faster growth than those without independent brands.

One strategy that Chinese firms is adopting is to look around the world for struggling but globally recognised brands. This is because Chinese companies, while enjoying cost advantages thanks to a vast pool of cheap labour, have an image problem. Foreign consumers think of Chinese goods as admirably cheap but lacking in quality. As Chinese firms move up the “value chain”, they are keen to buy foreign brands that they can attach to their more promising products.

Although it is quicker (and possibly cheaper) to buy a well-known brand than to build one from scratch, Chinese entrepreneurs are not throwing money at any and every firm with a well-known name. Shanghai Automotive Industry Corp (SAIC), which last year trumped a South Korean rival to buy Ssangyong, Korea’s fourth-largest carmaker, recently pulled out of a deal to buy MG Rover, a foundering British car company that has since folded. In fact, SAIC had apparently acquired much of the intellectual property that it wanted from Rover and was unwilling to foot the bill to keep the firm going. In this case, the Chinese were as keen to get their hands on useful technology as they were to secure the rights to a western brand.

Winning Move: A brand for a company is like a reputation for a person. Although it may be possible to marry the best foreign brands with cheap local products, certain intangible assets are not easily transferrable.