Chinese Brands: The Next Big Thing

In five years it will be commonplace to buy Chinese brands in the United States.

A Chicago ad executive believes he can help Chinese manufacturers navigate the unfamiliar waters of American marketing and launch a wave of new brands on the U.S. market.

Scott Markman's favorite loaded conversation starter is, "Name me all the Chinese brands you can think of." For most people, it's a short list -- Lenovo computers, Haier appliances and Tsingtao beer.

But Markman estimates there are "very conservatively 2,000 companies that have the money, product quality and scale to go up the value chain." His view is supported by research from Beijing Heading-Century Consulting Co. Ltd, a Beijing-based M&A firm, which found that by year-end 2007 there were 2,400 Chinese companies with annual revenue between $80 million and $25 billion, a number expected to grow to 4,000 by 2015. And in those numbers, Markman sees opportunity for his company, Chicago-based branding and advertising agency The Monogram Group.

Chinese companies who have sought to establish a brand in the U.S. market, Markman says, have traditionally done so through acquisition. Frequently, that has meant buying distressed assets, which the Chinese firms have seen as an inexpensive way to gain a foothold in the United States.

Markman argues that such an approach, particularly for consumer products goods manufacturers, can be much more expensive than the capital investment required to start from scratch. Moreover, he notes that the cultural gap between Chinese owners and American managers and workers can be profound. Many times, Chinese owners want to run things their way and are unwilling to compromise, even as they may fail to understand cultural norms in the United States that could result in their failure.

Markman says many Chinese CEOs have developed their manufacturing firms in a brutally competitive environment. They are frequently engineers or machine operators who understand the details of operations, finance and human resources, but have little or no experience with marketing and branding. Oten, he notes, the function doesnt even appear on their organization chart.

"The whole thing is like a 10-year-old boy looking at a puppy in the window and saying, 'I want it,' but being afraid to do what it takes to buy a puppy," he says, adding, "They know that if they sell their product for $4 at OEM price and it is sold at $30 in retail America, they are leaving a ton of money on the table. Every one of them knows it. How to get from here to there is like going to the moon. It is so mysterious and scary."

Markman says a vital step in gaining Chinese clients is to establish a trusting relationship. That can be a slow process but he explains, "Once you get that trust, which is worth its weight in gold, then they want you to do everything for them. I have helped them to source a president/CEO candidate, get contracts signed, get a warehouse space, set up a 3PL contract, and vet providers." In fact, Markmans contract with one client has made him "100% responsible for sales and distribution. We are going beyond the creation of a brand to the entire sales side as well. The value proposition inherently had to morph and grow and expand."

In five years, Markman predicts, it will be commonplace to buy Chinese brands in the United States. He believes there will be 25-50 brands that will be widely marketed and purchased. As U.S. consumers become more familiar with Chinese brands, he says, there will also be a metamorphosis in how they view Chinese products.

He notes that many media stories portray Chinese goods as poor quality or even dangerous. "Like anything else in the media, it is all true but there is another side to the story," he says. "There are hundreds of global, world-class, super-sophisticated, high-quality companies in China. Now, Mr. and Mrs. America never heard of them, they dont make the news."

But as consumers buy these quality products backed by savvy marketing, Markman believes, they will attain the same kinds of reputations as Japanese or Korean manufacturers such as Honda or Hyundai have done.

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