History cuts both ways for old brands
While many old Chinese enterprises are fading, some are promoting their legacy through modern marketing methods
In July 2001, China Central Television broadcast an unusual television drama to millions of people. The airing of Dances with Sheep followed a highly successful programme of the same genre, Da Zhai Men.
Both depicted the triumphs and tribulations of two of China's oldest brand names. Dances, a 20-episode series, focused on the history of woollen yarn manufacturer Heng Yuan Xiang, now known as HYX China (Group). The protagonist in Da Zhai Men was Chinese medicine firm China Beijing Tongrentang Group.
The sheer commercial quality of Dances - an outright marketing ploy financed by HYX - may have been a bit too much for Chinese audiences. Using the real names of the company and its key personalities, it failed to attract the same ratings as Da Zhai Men, which, while based on Tongrentang, used fictitious names and dramatic licence to illustrate its history.
Nonetheless, Dances showed that Chinese companies are getting serious about promoting and exploiting their legacy brands, which are often imbued with history and tradition. Many are hundreds of years old.
'Old brands have a place in consumers' minds,' said Lorenzo Ni Zhihua, assistant to the chief operating officer at HYX. 'But you need to refresh their memories regularly.'
Out of China's 1,600 old-brand companies - down from 16,000 when the communists came to power, only 10 per cent are efficient, according to the Ministry of Commerce. About 70 per cent of these manage to scrape by, but the rest are on the verge of bankruptcy.
Consumer habits are changing swiftly as a growing number of choices hit the market, backed by slick marketing campaigns.
One victim of the new competition has been China Quan Ju De, the famed Peking duck restaurant franchise. The 140-year-old restaurant is fast losing customers to trendier Sichuan, Hunan and Shanghai restaurants that also serve Peking duck.
HYX says leveraging the value of its old brand is well worth the millions of yuan it now spends on advertising and publicity each year. This year, its advertising expenditure could reach 80 million yuan and in three to five years, 200 million yuan.
But China's traditional brands are not only under threat for want of marketing. Like other lumbering state-owned enterprises, many old-brand companies are encumbered with poor management, bloated workforces, lack of innovation and rampant counterfeiting.
Take scissor brand Wang Ma Zi, whose 353-year history was almost brought to a close last year when its owner, Beijing Li Chang Wang Ma Zi Industry and Trade, filed for bankruptcy in a Beijing court.
'A dated management structure had restricted the enterprise's development,' said Bai Xiqian, general manager and chairman of Beijing Li Chang Wang Ma Zi.
The company had been losing money since 1995. To arrest its decline, the Beijing government arranged a marriage between Wang Ma Zi and four other state firms, none of which had any experience making knives and scissors.
By the end of May last year, the company's assets were 12.84 million yuan, but debts had surged to 27.80 million yuan.
Mr Bai said the lack of innovation left it easy for counterfeiters to produce similar products, sometimes under the style of 'Old Wang Ma Zi' or 'Wang Ma Zi', using a different Chinese character for 'Wang'. The brand was saved by seven former Beijing Li Chang Wang Ma Zi employees, led by former plant manager Cui Yulan, who raised 500,000 yuan to establish a private firm. The new company pays a 5 per cent royalty to Beijing Li Chang Wang Ma Zi to produce Wang Ma Zi products.
The withering of the nation's oldest brand names had prompted concern among government officials and academics. In a seminar this year to evaluate the development of old-brand companies, Vice-Minister for Commerce Zhang Zhigang stressed that these enterprises were 'a part of the Chinese cultural heritage'.
While the definition of an 'old brand' is a bit vague, the consensus meaning appears to be well-known trademarks existing before the launch of capitalist reforms in 1978. The commerce ministry is reportedly mulling over amended terms for classifying an 'old brand' that will include standards based on credibility, innovation, service, profitability and handicraft skills.
Mr Zhang urged enterprises to move beyond relying on their glorious past, and to introduce modern corporate structures such as chain stores and franchises. He also suggested increasing investment in human resources.
Strategies followed by HYX and Tongrentang are exactly what the ministry wants to see.
Tongrentang listed shares of its 335-year-old Chinese medicine firm on the Growth Enterprise Market in October 2000, and established a $1.86 billion joint venture last year with Hutchison Whampoa to develop traditional cures.
HYX, meanwhile, has diversified its product portfolio to include woollen knitwear and household decorative ornaments.
'History is an old-brand name's best guarantee,' said HYX's Mr Ni. 'The problem is, many enterprises remained stuck in there.'