Building Brands Globally and Responsibly
    2012-12-13 16:33:09      Web Editor: Luo Dan
CRI's Stuart Wiggin explores the challenges that Chinese corporations encounter when hoping to expand internationally, the possible pitfalls they face, and the trend towards pursuing sustainable business practices.
By Stuart Wiggin

Since 2001, Chinese Corporations have been encouraged by the government to "go out" and seek international markets, or "go global" as it has become known within academic literature. Despite the government mandate to "go global", Chinese multinational corporations (MNCs), including many state-owned enterprises (SOEs), typically lag behind their western counterparts in terms of their global brand presence, organizational capacity and innovation. While Chinese MNCs play an important role in the ongoing development of China's economy and dominate certain market segments domestically, they tend to exert much less influence in international markets and command much less respect among consumers. The belief, rightly or wrongly, that Chinese companies generally produce inferior products is just one of the obstacles that Chinese corporations have to face when expanding internationally.

In 2001, the year during which the Chinese government encouraged Chinese corporations to expand globally, 12 Chinese companies featured in the Fortune Global 500. Ten years later that number stood at 61; 57 of which are headquartered on the mainland (49 are SOEs). As an increasing number of Chinese firms have gone overseas and tried to acquire bigger competitors, especially in developed countries, the problems they have encountered have become more prominent. According to Yue Zhou, assistant professor in logistics, business and public policy at the University of Maryland's Robert H. Smith School of Business, two of the biggest problems facing Chinese MNCs are a lack of brand recognition and a lack of innovation.

Despite having some of the largest companies in the world in their respective industries, such as Lenovo, Huawei and Haier, Zhou notes that most Chinese brands are still mainly recognized by Chinese consumers whereas foreign consumers and investors remain unfamiliar with the advantages and qualities that Chinese firms can bring. As Zhou told CRI, "Brands take time and money to maintain as well. From a textbook perspective, brands are signals. When the quality of your product is hard to tell, how do you convince your consumers that you are actually providing a good quality product? It's by building up a brand. That takes a lot of time, and you have to put in time and effort to show consistency and quality."

At the same time, consumers and governments in developed countries are placing more of an emphasis on corporate social responsibility, while developed countries require companies to be socially responsible in light of new challenges especially related to the environment. As a result, more businesses are partaking in socially responsible business practices which not only benefit society but also the companies' image. For those companies dedicated to improving their levels of social responsibility, membership within the United Nations (UN) Global Compact, a voluntary initiative which allows for the implementation and disclosure of sustainability principles and practices among its members whilst adhering to ten universal principles covering human rights, labor, environmental and anti-corruption issues, not only provides businesses with a platform by which to share best practices, it also gives companies the opportunity to prove to the wider community that they are serious about pursuing business practices which benefit society at large.

The UN Global Compact was established ten years ago by former UN Secretary General Kofi Annan, with the objective of engaging with the private sector and collaborating with the UN to promote corporate social responsibility (CSR). In the context of expanding into international markets, being aware of the local needs is an important aspect of being successful and this can often depend on how a company carries out its day-to-day operations. Meng Liu, China Representative of the UN Global Compact told CRI, "We do see that a lot of Chinese companies, when they go global, they encounter different problems or have some risks. Therefore, the UN Global Compact developed a working group on business and peace, which focuses on what are the responsible investment practices in those conflict affected areas. We convene a global panel of experts, engaging not only Chinese companies but also other multinationals together to work on this topic, as we believe that positive responsible business actions could drive changes which will contribute towards development and peace."

However, aside from being able to discover which practices are best to pursue, especially in developing regions, Meng Liu noted that being part of the Global Compact is also important for Chinese corporations, because they will be able to partake in important institutional rule-setting procedures globally and, in doing so, establish their standing within the international community at a time when corporate social responsibility is increasingly on the radar of governments and the general public. The initiative itself has been criticized due to its voluntary nature and lack of regulatory force and has been described by a number of non-governmental organizations as an exercise in "blue washing"; whereby corporations are given the ability to deflect attention away from their operations and instead hide under the protective banner of the respected UN brand.

When asked whether "blue-washing" has proved to be a problem among Chinese companies hoping to boost their brand image abroad, Meng Liu, the UN Global Compact's China Representative stated, "I don't think this is (an issue) only for Chinese companies. Any such companies in the world might want to use our brand to serve their PR goals. We've created our integrating measures, which means that all our members are mandated to publicly disclose what they have implemented, what progress they have made in implementing the ten universal principles of the global compact." Failure to disclose such information within two years of joining results in companies being de-listed; thereby losing the benefits of belonging to the UN Global Compact framework.

Assistant Prof. Zhou of the Robert H. Smith School of Business pointed out that aside from focusing on sustainable business practices; innovation provides the key to success for global brands. However, Assistant Prof. Zhou was keen to note that innovation does not always lie in technological advantage, acknowledging that companies such as Microsoft, Intel and Boeing have been successful as a result of technological innovation, but highlighting the fact that companies like Wal-Mart, which focuses upon business processes and procurement, can also be successful without being hi-tech.

As for the state of Chinese MNCs, Zhou explained, "China is still at a different stage of development compared to many of the big economies in the world. Chinese firms in the past few decades have been focused mainly on all competing with MNCs from developed countries within China. They're trying to improve their efficiency, improve their quality, and improve their productivity just to survive in the Chinese market." The historical context, therefore, puts Chinese MNCs at a comparative disadvantage and as Zhou went on to state, the focus of Chinese corporations "hasn't always been to grow a global brand; they have a huge domestic market at hand, and there's a large amount of demand that needs to be satisfied. It's natural for them to be inward focused for a few decades. And now, some of those domestic markets are saturated, and it's natural for them to look beyond the Chinese national border and look to global markets. And that partly explains why you don't see a lot of global branding efforts by Chinese firms."

And for those that attempt to build their brand abroad whilst also pursuing sustainable business practices, one of the key considerations for gaining the trust of consumers involves adapting to the national corporate culture and local business practices of the country within which one is trying to expand. In the context of the recent case of Huawei and ZTE coming under scrutiny in the US, Assistant Prof. Zhou told CRI, "I think it is important that Chinese firms get used to relying more on the rules of the law and familiarizing themselves with the legal procedures in those countries, and developing their skills to make their case in front of policy makers." Furthermore, Zhou also emphasized a greater need for transparency in order for Chinese MNCs to communicate effectively to potential consumers, investors, policy makers and the society at large in order to allay any concerns that may exist. 

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