Posted: October 1, 2014 |  AUTHOR: KEN FOX | CONTACT ME

 

Alibaba’s listing on the New York Stock Exchange (ticker: BABA, September 19, 2014) raised 21.8 billion U.S. dollars in the world’s largest initial public offering (IPO). The Alibaba listing, with its opening share price of $93.89 U.S. dollars per share, is not only historic but raises the bar on Chinese global branding.

Only a limited number of Chinese home grown brands have earned global familiarity, or relative strong brand equity such as Lenovo (the world’s largest PC maker), Haier and possibly Tsingtao beer. Other Chinese brands may be familiar but typically lack clarity or relevance among U.S. consumers and non Chinese residents. Some of these brands include:
-Baidu-China’s dominant internet engine
-China Mobile-the world’ largest telecom network
-Great Wall Motor Company-manufacturer of Geely autos and other
branded SUVs and trucks
-LI-NING-maker of sports and athletic shoes
-Moutai-maker a potent liquor first mass produced during the Qing dynasty in the 17th century, and today the toast of choice for special occasions.
-Tencent-China’s largest and most diversified Internet Company, best known for its instant messaging service called QQ. Tencent is listed on the Hong Kong stock exchange.

The more U.S. consumers can touch and interact with Chinese brands the more value they will earn. To own Alibaba shares of stock may be more than an investment but a piece of history, a status symbol or showing support for a great brand and business. Unlike many other recent IPOs, Alibaba is generating a lot of revenue and has been profitable. The company generated revenue of $8.6 billion in the fiscal year ending March 2014. Its model is working, and beyond China.

Alibaba’s success has to do with a number of facts and achievements. Jack Ma was an English teacher who started the company from meager beginnings. albibaJerry Yang, the CEO and Founder of Yahoo had his company invest 1 billion U.S. dollars for a 40% stake in the start-up in August 2005. This investment has helped Yahoo way more than Jerry Yang envisioned. In fact, because of Alibaba’s public listing and Yahoo’s forced sale of some of that stock, Yahoo will earn approximately $5 billion in cash. Until recently, Yahoo owned 24% of Alibaba, helping Yahoo stay alive and healthy. Originally, Yahoo was an underdog and late e-commerce player versus eBay and Amazon. Yahoo’s investment in Alibaba facilitated a large number of savvy Chinese internet users to find Alibaba’s offerings through T-Mall and Taobao. It helped them buy things they may not have found locally and at great prices.

Brand Equity has been discussed by academics and business practitioners for decades. It involves the strength of a brand. However, measuring brand equity (measuring the degree of strength of a brand) has been challenging. However, any way one looks at the brand equity of the Alibaba brand we find strength. This is reflected by its sustainability, and with millions of Chinese consumer purchases occurring daily. Its easily pronounced (English) brand name has also contributed to high brand awareness and familiarity to U.S. and other global consumers.

David Aaker, a past professor of marketing at the University of California (Berkeley) defines brand equity:
Brand equity is a set of brand assets and liabilities linked to a brand, its name and symbol, that adds to or subtract from the value provided by a product or service to a firm and/ or to that firm’s customers.

Simplistically, components adding to the value of a brand to a firm can be shown as follows:

brand wheel

Other proprietary assets can also contribute to brand equity, such as patents, trademarks and distribution channel relationships.

Source: Managing Brand Equity: Capitalizing on the Value of a Brand Name, 1991, by. David Aaker
(who is currently Vice-Chairman of Prophet, Inc.)

Recent results from Millward-Brown’s 2014 BrandZ™ Top 100 Chinese Brands Study shows:
Chinese entrepreneurs have been developing more successful market driven companies and brands for a while.
Expanding Chinese brands globally, face two major challenges: 1. building awareness, and 2. changing the overseas perception of “Brand China.”
From their 2013 Going Global Awareness Study, only 20 percent of consumers worldwide can name a Chinese brand, highest in Brazil 29% and lowest in the
U.S. 6%.

One interesting example of an upcoming Chinese global brand is Haier. The company has come a long way since starting in the 1920’s. haier It evolved from a joint venture with a German appliance company Liebherr Haushaltergate (Liebherr) which shortened the name to the Haier Group Corporation. By 2010, Haier designed, manufactured and marketed over 15,000 products in 96 categories in over 100 countries throughout the world. Haier now is:
-The number one brand in refrigeration appliance
-The number one global brand in freezers
-The number one brand in electrical wine cooler/chillers
-The number one manufacturer of home laundry appliances in the world

Haier entered the U.S. recognizing an underserved market in mini refrigerators. It targeted hotels dormitories and other locations. It also entered the air conditioner and full size refrigerator markets in the U.S. To do so, it opened its first manufacturing facility in the U.S. in Camden, South Carolina in 1999. Additionally, Haier opened a Research and Development facility in Camden in 2013.

Haier operates from three regional headquarters: Quingdao, China, Paris and New York City. This is one company to watch and one to emulate in terms of a quality emphasis and a Chinese global brand growing.

Other Chinese brands such as BYD (auto manufacturer) have a way to go before becoming more easily recognized. Global consumers may also be confused by not being able to distinguish between Chinese brand names and those from companies based in Taiwan such as: Acer, ASUS, HTC and Foxconn (Hon Hai Precision Industry, Ltd.).

Commentary
Historically, Chinese brands did not make a global impact. Chinese companies and manufacturers were content with only selling to the Chinese market which mirrored their government’s isolationist mindset. Also, Chinese brand names were typically hard to pronounce or not readable among non Chinese. Thankfully, has changed first with Lenovo buying IBM’s PC division in 2004 and now becoming the leading PC maker in the world.

Alibaba is more than a success story. The company has legitimized Chinese branding. It has proven its success among the local population before going global and public. This success is a reflection point for Chinese marketing and branding. The Alibaba story, including Jack Ma’s humble beginnings and Jerry Yang’s investment will become legendary. However, it also reflects the Chinese government’s loosening of reins by allowing home grown companies to participate in free enterprise. This is a good thing, and paves the way for more Chinese companies to launch globally. Also, along the way, they can become more astute brand marketers, showing the world that Chinese products and services can reflect legitimate and worthwhile benefits.

Resources:
Why Alibaba Isn’t in Your Fund, Barron’s, September 22, 2014
Alibaba IPO to Give Yahoo Windfall, Wall Street Journal, September 19, 2014
2014 BrandZ™ Top 100 Chinese Brands, Millward Brown (a WPP Co.)
Haier America, Who We are and What We Stand For , Haier Corporate, 2014
Haier, Branding for a Global Transformation, WIPO (World Intellectual Property Organization) (date N/A)
Ten Chinese Brands You Must Know, Barron’s, August 13, 2012
Haier America is relocating to Wayne (NJ), apparently with no strings, NorthJersey.com, October 20, 2013
Managing Brand Equity: Capitalizing on the Value of a Brand, by David A. Aaker, 1991
Yahoo to Invest U.S. 1 billion in Chinese E Commerce Site, New York Times, August 11, 2005

SUBSCRIBE to our Newsletter   

 

©2017, The Global Galaxy blog is produced by The Soundings Group, LLC, Charleston, South Carolina, USA, www.thesoundingsgroup.com. The company is an international business consulting firm, specializing in new market assessments, market entry strategies and marketing guidance. The scope of Global Galaxy is to cover timely international trends, issues and business building ideas. Its purpose is to educate, inform and stimulate thinking for business opportunity analyses.

 

Comment