That, at least, is the view of Nicholas Wells. He’s an attorney and owner of the Wells IP Law firm, which specializes in trademark, licensing and intellectual property matters. Wells believes Chinese-branded goods will follow the pattern of those from Japan, Taiwan and South Korea. Only the transition from low price to high quality – and from small sales to large – will be much faster than before.
The reason? Markets today are more dynamic. And China has access to massive amounts of capital, thanks to the infusion of dollars by U.S. companies over the past 20 years. “We paid them to do our manufacturing,” says Wells. “Then they turn around and sell to us.”
China has yet to make much of a splash in U.S. markets. Some of its highest-profile brands were crafted from acquisitions – Lenovo’s purchase of IBM’s P.C. division, and Zhejiang Geely Holding Group taking over Volvo from Ford Motor Co., to name just two major deals. (In the case of the latter, the Volvo name was retained.)
Globally, the most valuable Chinese brands today aren’t in the consumer-products sector. They’re focused in areas such as telecommunications, finance and energy. As such, they aren’t likely to spill over into U.S. markets, says Wells.
The real incursion of Chinese-made products will begin in technology and industrial goods, such as heavy machinery. Then it will broaden to include home appliances and automobiles. Expect to see Chinese cars going head to head with established Asian automakers such as Kia, Hyundai and even some Japanese models. Wells says they’ll gain a foothold through low prices, but rapidly evolve to an emphasis on quality.
Chinese-branded appliances and computers “are going to be huge,” he says. “They will be able to compete with the best in the world on quality eventually.” Think of the path forged by successful manufacturers such as Korea’s LG Corp. and Samsung Electronics.
What has stopped Chinese brands from making their mark in the U.S. so far? For years, China focused on providing cheap production to western sellers of consumer goods. More recently, with the steady rise of Chinese factory wages, manufacturers have begun shifting production to other parts of Asia, Mexico and even the U.S.
The trend leaves China with a huge, under-utilized manufacturing infrastructure that can be partially repurposed in two ways: to serve China’s own burgeoning domestic market, and for the production of Chinese brands for sale abroad.
Wells believes China can make the shift quickly. Korea began its economic push as a “devastated third-world country,” he says. China is already a global power, with huge manufacturing and financial resources. Advances in communications and transportation will further accelerate the change, in a manner that previous Asian nations didn’t experience.
There is the potential stumbling block of political and cultural opposition within the U.S. to a strong Chinese presence in the consumer market. Tensions could rise over such issues as the yawning U.S. trade deficit and China’s alleged manipulation of its currency.
“I certainly see potential problems there,” agrees Wells. China’s efforts could be further stalled by a “buy American” campaign, aided by the new wave of social media. But previous efforts of that kind haven’t had much of a long-term impact on the sale of imported goods. “It’s the rare incident that crosses over to where people stop eating ‘French’ fries),” he says.
Not everyone believes that China’s future success in U.S. consumer markets is a given. Analyst Bill Dodson, author of China Fast Forward: The Technologies, Green Industries and Innovations Driving the Mainland’s Future, argues that the nation could be hampered by its rigid, top-down style of rule and economic policy-making. Indigenous companies that become too successful face the prospect of being reined in by an overly controlling government. The billions of dollars spent by China each year to prop up its industries could prove more of a hindrance than help to their long-term growth.
To be sure, innovations in products and technology rarely if ever seem to emanate from authoritarian societies. It’s hard to imagine a Steve Jobs or Elon Musk thriving in such a hierarchical atmosphere. But if Wells is right, we shouldn’t be too quick to count China out as a future force in branded manufactured goods. For all of its internal problems and limitations, the country is determined to flex its muscles in global markets. Western manufacturers can’t afford to be complacent.
Next: Can American brands sell in China?
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Keywords: supply chain, supply chain management, international trade, China economy, supply chain planning