Some reflections of 7 years of Chinese brands venturing abroad
This article is written by Richard Xu of Grand View Capital and originally published in Chinese on WeChat. Translated by Momentum Works team and republished here with the author’s permission.
During the period of time where Goodbaby (好孩子集团) expanded to North America, our team took a few years to create two independent brands: a mid-to-high-end brand called GB, which was sold through BabiesRus, the largest maternal and child chain store in the United States at the time, and another low-end brand called Urbini, which was sold through Walmart.
In addition, the group acquired a US brand called Evenflo and a European brand called Cybex. These four brands went hand in hand in the European and American markets, forming a frontline for our brand to go overseas.
These were the little steps of brand building. The team used various methods such as mergers and acquisitions, trade show, Blogger, e-commerce, etc., and has also invested a lot of capital, but I think before we talk about these methods, we should combine them and look at a more macro perspective. I think this is also the basis for the current discussion on the way Chinese brands should take while expanding overseas.
Brand is a vertical dimension, and going overseas is a horizontal dimension
A large number of consumer products in China have begun to go overseas intensively in recent years. However, going overseas is only one dimension of brand strategy. In profit-seeking enterprises, there are also multiple dimensions such as online, ‘sinking markets’ (referring to rural and part of urban population previously not touched by brands), and product expansion.
Not only are brand and product two different things, the brand itself and expanding overseas are two different things. The intersection of these two lines constitutes the current pattern of brands going overseas.
Let’s review:
- National brands are still struggling
Branding is a concept that is very close to most people’s lives. It seems that everyone can more or less hear the discussion of some national brands, luxury goods, and overseas brands, such as the story of Bosideng （波司登） and Canada Goose (大鹅). Domestic entrepreneurs said with sorrow that a round sticker on their arms (of Canada Goose) would sell for 5,000 yuan more than theirs. Chinese people have also felt that international brands are better than national brands for many years. Of course, these may be due to product quality, marketing, and psychological reasons.
This is a reality that we have to admit. National brands are still struggling. Many companies’ domestic brand strategies are still not smooth enough. This year we have seen a boom in consumption and the emergence of many new Chinese brands. But if you really want a breakthrough, everyone knows that it will take a long time.
This long-term influence has also affected the strategies of Chinese brands overseas. If you can’t do well even in your own country, how can you talk about going overseas? As a result, most of the earlier consumer goods companies that expanded overseas bought over international big names as they were not confident in their own brands. Most of these international brands were second-rated, and national firms combined product line breakthroughs and brand strategies with a strong supply chain and low profit model to engage their plans of going overseas.
- “Brand going overseas” or “going overseas to be a brand”
If we don’t talk about buying, and only talk about making your own brand, then another interesting phenomenon has emerged: we see that many Chinese brands have grown bigger through overseas expansion, who all want to be the next Apple or Coca-Cola.
This is also determined by China’s super product-oriented thinking. In terms of product differentiation, we can achieve the extreme but we are not willing to differentiate and create a completely new brand.
This style of play has its advantages. It is suitable for China’s strong supply chain and strong product characteristics. As long as the local sales team is strong, it can be rolled out quickly. Examples of its success are Oppo, Gree, Lenovo, etc., and these national names are all well-known players of the industry. The national representative of this market has strong capabilities, abundant resources, and gains market share rapidly.
However, without the right team, you cannot expand. Moreover, it will encounter bottlenecks when breaking into new markets, especially markets with different cultural backgrounds.
This model is suitable for leading companies with strong resources and capabilities, such as Huawei. But for a large number of small and medium-sized enterprises that have not succeeded in China, how can they go overseas? It’s easy to fall into the danger of blindly imitating other international brands; after all, it is too difficult to become a “Coca-Cola”.
In the early stage, Goodbaby sold the same products in both their China and overseas brand. However, it was discovered that this strategy could only win in the emerging markets, and it was not easy to work in North America. This is also why we launched products unique to North America, and people have now begun to explore the distinction between “brand going overseas” and “going overseas to be a brand”.
A personal experience on the differences between Chinese and Western brand strategy
There are many reasons for the above pattern, such as talent structure, supply chain advantages, brand understanding, and even language and culture. Many people have systematically analyzed them. Let me share some past experiences with you:
- Get rid of the excessive worship of the brand
The long-term downturn of the Chinese brand has over time formed our excessive awe of overseas brands. Companies believe that international brands are of a very high standard, and they must invest heavily or can only buy over overseas brands. The media also always tell stories about Starbucks spending a lot of money on consulting companies to design Christmas cups, and Huawei spending a lot of money to cover airport wall advertising in Europe. Many companies have no way to start in unfamiliar markets except to spend money. I think this is the main psychological reason why brands have been relatively difficult to go overseas before the internet and independent seller sites/apps.
When Goodbaby first went overseas, the team, including me, had this mentality. It took Goodbaby 20 years to transform from an OEM manufacturer to one with its own brand. We were definitely prepared, but after working with the European and American teams for a period of time, a brand marketing campaign completely reversed our perception, or at least it let me personally understand that ‘branding’ is not that mysterious afterall.
In 2014, Goodbaby acquired the cutting-edge German brand Cybex. At the time, Cybex’s founder and CEO, Martin Pos became the designer of the global brand of Goodbaby. Martin’s style is very similar to Elon Musk – he is also an imaginative entrepreneur who has been pushing the boundaries of the industry.
Not long after Martin joined the company, he took his wife, hired a few European models and photographers, ran to Venice with a stroller, took a photo tour, and posted on Instagram. I didn’t really know what Martin was doing. It seemed that the photo just revealed his personal lives and the Venetian square. What’s even more amazing is that throughout the shoot, Martin didn’t want a child model – when our product was a child stroller!
I felt that it was unfair at that time – that people are simply making money while not putting much effort. It seems that the Europeans are so unrespectful of their work, and they don’t even ask for ‘troublesome’ baby models. Little did I know that this so-called Cybex brand promotion work caused a lot of waves in the industry that year, making Cybex a star at an exhibition in Cologne.
After communicating with the team and talking to Martin personally, I realised in hindsight that many of his work were simple, but also very sophisticated at the same time. For example, he chose to push the stroller to Piazza San Marco and he used Instagram, which was not well known at the time. The most interesting thing that I asked him was: “Why don’t you hire a child model?” and he said: The person who will be buying the stroller is the parent. You don’t need to photograph the children, you just need to show them what your stroller will look like.
Therefore, in Cybex’s advertisement, there are parents who wear windbreakers on the street to feed pigeons and push strollers, and there are rock parents who are covered with tattoos and push strollers with flower arms, but there are no children. All of this seems to us to be so unreasonable. But from his perspective, this is how it works in Europe.
For the first time, I truly realized that there is nothing mysterious about brand building, but it is simply a definition of lifestyle and emotional connection. It may just be a matter of conveying to the right consumer through a suitable channel like Instagram.
- Make use of brand differentiation to break overseas.
There were two case studies that I remember very vividly when I was studying. One was the firewall strategy of Swiss watches, and the other was the appearance of the Japanese car Acura in the United States.
What would you think if I told you that Swatch plastic watches and Breguet branded watches are produced by the same company?
Yes, they all belong to The Swatch Group, which is also the world’s largest watch group. Watches ranging from US$50 to US$1 million are produced by the same company. If they are of the same brand, it would undoubtedly be a disaster. So the differentiated brand plus firewall strategy came into being, that is, using low-end products Swatch as a firewall to occupy market share, and using high-end products to maintain brand premiums or profits. This strategy has supported the growth of many international brands for decades. The story of the Swiss on brand differentiation is also written in the books of many business schools.
In the 1980s, the Japanese took this strategy one step further when making cars. It is important to know that the share of Japanese cars in the United States is only strong after many years. Basically, Japanese cars also have differentiated brand strategies such as Toyota and Lexus, Nissan and Infiniti, Honda and Acura. Acura was born as a design for the North American market, and later moved from North America to the rest of the world. I always think that Japan’s overseas expansion 50 years ago has many pitfalls that China should study or pay attention to.
At that time, the headquarters of Goodbaby’s Boston branch was helmed by Chicco’s former CEO Greg Mansker. The strategy of the Goodbaby at the time was really to hire people. You may not be familiar with Chicco, so let me make an analogy: it’s like hiring Tim Cook now. At the beginning of his strategy in the United States, he set up a local customized brand and a combination of high, middle and low end items. We made two independent brands, using GB to occupy the high-end market, and Urbani to occupy the low-end market. For example, Urbani is a firewall product combined with Wal-Mart.
- Don’t just seek for profits
Many companies think that they can make money with a reputable name/brand. However, even a well-known brand may not be able to maintain profits. Needless to say, the performance of Nokia and Mercedes-Benz over the years, even Lego, the absolute giant in the toy industry, experienced problems in their profits 10 years ago. Long-term revenue and supply chain difficulties have almost driven them to a desperate situation. In 2002, there was a popular design called the Christmas Warrior, but because the supply chain couldn’t keep up with the demand, they weren’t able to reap the maximum profits.
Many companies think that by acquiring a famous overseas brand, everything will be well and huge profits will be enjoyed. Goodbaby also acquired Evenflo, a century-old brand in the US maternal and infant industry. This brand has basically entered all stores in the United States, just like Lego ten years ago.
Only after we completed the merger did we discover that Evenflo at the time was really in big trouble – they were unable to design unique products, channels were unwilling to cooperate, and workers were lazy. The words of Mansker, an American old man at the time, were similar to those of Zhugeliang (Chinese politician during the Three Kingdoms period): Evenflo was like a terminal cancer patient with a shot in the leg. We have to wait for him to slowly regain his vitality before giving him a strong medicine.
If you really want to rely on overseas brands to take us away, I am afraid most companies will be disappointed. Old brands do not necessarily have high added value, and it is difficult to start a new brand to chase high value-added brands. The so-called accidental events of brand popularity are hard to come by after all. I believe that the basis of a brand going overseas is to use the brand to accurately define the product, so as to maximize the plus points of our products while increasing users’ awareness.
Chinese strategy – moving into the future
Finally, we have to admit that in the past two years, more and more small and medium-sized Chinese enterprises have gone overseas, and they have combined the characteristics and advantages of Chinese companies to develop a way for Chinese brands to go overseas.
- Emergence of more differentiated brands
China has become more and more comfortable differentiating in terms of providing a range of high, middle and low end products. This concept was very similar to Japanese firms when they first expanded overseas. Apparel and electronics brands have applied this approach on a large scale in the past three years. For example, Semir(森马) has incubated five or six high, middle and low local brands in Southeast Asia and Europe.
There is also an interesting example of the mobile phone company:
I remember when I first went to Africa, I saw many copycat logos on the streets of Egypt, such as Faceboon and Stars&Bucks. Once I saw a store on the side of the road, the logo on it was a huge “itel”, which was almost identical to the Intel design, except it was red. When my colleagues and I came back to complain, others told me that Itel is a brand under Transsion, China’s most powerful African company. At that time, few people in China knew about this brand.
In order to fully occupy the market in Africa, Transsion first launched Tecno high-end mobile phones. Then, in order to cope with the sinking of the African market, it took the initiative to “copy itself” and made Tecno’s low-end imitation Itel. Transsion has four or five brands of different ‘levels’ and time periods in Africa, each acting as a firewall, with a market share of more than 52.5%, and it is the first place in this region with a population of over 1 billion.
- Product and brand – both goes hand in hand
Let’s talk about what China is more familiar with than the West.
In the industry, there are two main types of profitability — product profitability and brand profitability. Product profitability is through mature products and mature supply chains that reduce costs and bring more profits, while brand profitability is achieved through brand value. Behind this is the reflection of the two topics of product localization and brand internationalization. In the future, we will strive to be strong in both areas – in product profitability and brand profitability. I think this situation will definitely come one day.
But currently, we often find that product profitability and brand profitability are often not achieved together when brands try to go overseas. Many companies do not earn profits in Europe and the United States, but make profits in emerging markets. In addition, we have already said that Chinese companies that are in pursuit of high brand profit is not a path that we are particularly good at. In this period of time, we may pay more attention to changing the consumption pattern from west to east, seizing the newly emerging consumer groups that are actively rising, and maximizing the advantages of the supply chain in markets such as Southeast Asia and Africa. This is what we are good at.
- The Internet gives more means to reach consumers
Like what Martin said, we don’t need child models. Lego has also had a strategy of “children second, retailers first” (of course, this cannot be explicitly stated in the advertisement, or it will end up like Xiaomi)
Context: XiaoMi released a controversial ‘nuclear bomb’ advertisement that led to controversies in Japan due to its imagery referencing the second world war nuclear attacks.
When expanding overseas, you need to know who the consumers are, as they are the ones paying.
This is another area where China is ahead of the world – the use of internet platforms. The birth of TikTok, Utilities apps run by Chinese companies, Multi Channel Networks (MCN) , and independent seller sites/apps have given Chinese companies rich channels and tools to reach target groups.
In this sense, with the Internet paving the way, the overseas environment is much more mature than before. We are no longer relying on nothing 10 years ago and can only spend a lot of money to hire ‘foreign monks’. There are a lot of tools for brands to use now, and China is familiar with operations, familiar with traffic, and the rapid iteration of the way makes comprehensive brands go abroad. Transcendence became possible now.
- A cycle between overseas and the Chinese market
Finally, we have the Chinese market. When we talk about expanding overseas, we often ignore China, or we can say that ‘overseas’ is completely separated from the Chinese market. But in fact, many companies do not just go overseas to make money. Going overseas is also a very effective way for the predecessors to turn the company into an international brand and improve the reputation of national brands in the country. And this road is more suitable for new brands and SMEs. In a place with so many domestic giants, how can I make a presence?
If product profitability and brand profitability are exercised to the extreme by going overseas, there will also be plenty of room for growth in China. DJI and Encore, which have risen overseas, are typical examples, and they represent the way for China’s electronics brands to go overseas and break through. Everyone is familiar with it, so I won’t repeat it.
We mentioned above, including Goodbaby’s international brands, are also on this road. These successful cases are worthy of careful study by every person going overseas. I think they are successful models from all angles of brand differentiation in both Chinese and overseas markets.