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Mark O'Neill

In just 10 years China has become one of the world's biggest manufacturers of household electrical appliances, building a production capacity much greater than its domestic demand, and wants to become the world's biggest exporter of these goods.

 It may succeed in this goal but its products will not, as Beijing wants, carry their own brand names but those of foreign companies.

   China has almost no internationally known brand names and its firms lack the finance, expertise and global network to follow the footsteps of Toshiba, Matsushita or Samsung.

  The growth in volume of Chinese production has been dramatic.

   Output of colour television sets in 1995 was 20.58 million, up from 4.35 million in 1985. Output of refrigerators was about nine million in 1996, against 9.185 million in 1995 and 1.448 million in 1985.

  Output of washing machines was 9.52 million in 1995, against 8.87 million in 1985, and of air-conditioners about six million in 1996, up from 5.2 million in 1995 and virtually zero in 1985.

  China wants to repeat in these products its success in electric fans and black and white television sets, where it is already the world's top exporter.

  'We are the best production base in the world for white goods, which are labour-intensive and do not require a very high technology,' said Jiang Feng, vice-director of the China National Council of Light Industry.

  'We have cheap labour, a rising level of technology and very big domestic market. Our target is to be the world's top exporter of these (washing machines, refrigerators and air-conditioners) within three to five years,' she said. 'We will make some of our companies the world's biggest producers of domestic electrical appliances.'   The domestic brands are winning the war in the Chinese market against imports and the output of foreign-owned joint ventures. In washing machines and refrigerators, Chinese brands have 90 per cent or more of the domestic market, with 70 to 80 per cent in air-conditioners and more than 60 per cent for colour televisions. 'There is less and less market for imported goods, except for special items with a high level of technology such as large-size televisions or very big refrigerators,' Ms Jiang said.

  The domestic market is being increasingly dominated by the larger Chinese firms, with the top 10 companies holding 88 per cent of the market in refrigerators, 81 per cent in washing machines and 80 per cent in air-conditioners.

  This success, with Chinese products reaching international quality, is a result of the intense competition in the domestic market because of excess production capacity, some of it from foreign-owned ventures.

  In refrigerators for example, China has a total output capacity of 20 million units a year, including 15 million by domestic firms and five million by foreign-invested joint ventures, against annual demand of about nine million. Of its more than 30 domestic producers, 13 were in the red last year.

  In air-conditioners, China can produce 10.2 million units a year, against actual output last year of about six million. In colour television sets, the production capacity is 36 million sets, against demand of 20 million.

  The drive for more exports is in part an effort to use this idle capacity.

  China exported 5.37 million colour television sets in 1996, down from 5.75 million in 1995. Exports of refrigerators last year were about one million units, against 980,200 in 1995. Exports of washing machines in 1995 were 498,300, up 28.49 per cent from 1994, and of air-conditioners 394,000, up 74 per cent from 1994.

  The problem for China is that nearly all of these exports carried a foreign brand name and it has no internationally recognised brands. 'China has the technical expertise and cost competitiveness but lacks a world marketing network,' said Thomas Chan, head of the China Business Centre at the Hong Kong Polytechnic University.

   'Chinese firms are mostly single-product firms that lack the money to do global marketing.

  'So, like Taiwan for computers, China will become a major producer of consumer electrical appliances for the world market using foreign brand names. It could provide the products for international firms to compete against each other in the world market and give European and American firms the chance to recapture market share they have lost to the Japanese.'   Brand creation will take longer than making products.

  'China still has a very long way to go to make its brands international,' said Shelley Lazarus, chief executive of Ogilvy & Mather Worldwide. 'Of 10,000 Chinese firms with the right to export, only a few understand the importance of developing a brand. So the first step is a change of mentality.'   Miles Young, president of Ogilvy & Mather in Asia, said that China was just waking up to the importance of creating feeling for products and promoting a 'better feeling' for the 'Made In China' label.

   'A brand is something you feel about, an appeal that is more than purely rational. It is how people feel about a product and not just how they use it,' Mr Young said.

  The Chinese government was very conscious of the need to act, he said.

  'Within five years, we could have well-known Chinese brands. China should pick a few quality products.'   The country must also improve its national image, so that foreign consumers have a better feeling when they see the 'Made in China' label.



Chinese brands run into image problem