Yuan fall can lead to branding strategies

Imperative for Chinese companies to promote increased value rather than lower prices

The recent depreciation of the Chinese Yuan has certainly caught many by surprise, generating knee-jerk reaction and comment, much of which painted a rather gloomy outlook for the Chinese economy.

But as the dust settles a little, many can also reflect further and deeper on this exchange rate policy decision. It should become clear that this was not some sort of wild, rash idea but, instead, a carefully calculated move by the Chinese government to modernize and internationalize Chinese industry.

While some Chinese companies have now built very successful, strong branded products, both domestically and increasingly internationally, entry barriers remain high amid extremely competitive markets around the world. The likes of telecommunications equipment provider Huawei and personal computer manufacturer Lenovo continue to lead the way and have contributed considerably to a positive perception of Chinese technology brands across international markets.

But for the smaller and medium-sized Chinese companies keen to follow in their footsteps, establishing a firm presence in overseas markets as well as increasing competitiveness at home still requires a strong cost-based strategy. This is precisely how many of the now most prestigious, premium brands began their journey up the ladder.

This is the main reason behind the recent currency depreciation initiated by the People's Bank of China: not at all short-termist but rather another step on the long road to premium brand building domestically and internationally for Chinese companies.

Going back a few years, and probably not that many, such a currency fall could not have been interpreted this way - but the overall image of Chinese companies has undergone a major shift in recent years. Chinese Internet, technology and energy brands in particular now enjoy an envious reputation for quality, durability, reliability and service. As a result, any improved price competitiveness should not be greeted with the perception that there will be a similar reduction in quality levels.

But to ensure that any lower prices, domestically and particularly, internationally, are not met with any negativity and suspicions surrounding quality, it is imperative that Chinese companies and the Chinese government promote publicly the increased value rather than lower prices that on offer.

The PBOC's currency management is an enabling factor that allows Chinese companies to build brand awareness and positive brand image but only if competitive prices are promoted alongside more than adequate quality levels. In recent years, the great strides made by Chinese companies in quality and service standards should allow them to put forward a convincing hybrid strategy where lower price is perceived as adding greater value and not simply signaling a short-term dash for sales growth.

Honda represents a perfect example of how one of the world's most successful brands began life firmly with a cost and price-competitiveness strategy. Soon after international markets accepted Honda's early product types, the company moved swiftly up the value chain with line and brand extension, building on the favorable corporate brand image cemented as a result of the early cost advantage.

Chinese companies could follow the example but higher quality branded offerings need to be added quickly to the overall brand architecture to avoid a low-cost, low-quality reputation.

In much the same way that Honda and many other world-famous brands have done - such as BMW, Apple and Coca Cola - Chinese companies should definitely not hide behind their country of origin and identity but should invest substantially and consistently in their corporate brand image.

The rise of brand Honda overcame many apparently insurmountable challenges such as an image of poor quality and shoddy workmanship. But belief in the brand, and investment and improvement in quality led very soon to a quite fundamental change in its corporate image worldwide.

Any brand architecture expansion path pursued by China's multitude of internationally emerging companies should also follow line extension first before brand extension. Higher quality brands that are part of the same product line will be easiest, quickest and most cost-effectively developed and rolled out.

Cost competitiveness, in part aided by currency depreciation, should also not lead to short-term profiteering. Rather, any cost savings should be invested in research and development and related production and marketing areas that will then produce higher quality product line brands.

Encouragingly, my research findings of Chinese companies over the last few years point firmly to a sizeable shift toward a more investment-led business model. A perfect example of this long-term investment approach can be found with Chinese company Wahaha, that has invested heavily in a long-term research and development and new product development project with the UK's University of Nottingham.

More tie-ups with world-famous universities and research institutes and emerging Chinese companies should be expected and provides another opportunity for lasting, symbiotic Sino-European business relationships.

My research findings also suggest strongly that more and more Chinese companies now possess the belief and knowhow to think creatively and introduce related diversification, something that will contribute considerably to a much-improved corporate brand image over the long term.

But even with innovative and successful brand extension, it remains imperative that China's emerging brands invest most in their corporate image. Huawei and Lenovo have shown that a Chinese identity and association can become a positive in the consumers' mind.

It is to the Chinese government that credit has to be given for once again crafting a brand-building path for Chinese companies. It is now the turn of Chinese industry to seize this opportunity with the launch of an "increased value" brand proposition and publicity campaign and a detailed brand architecture plan from which higher quality brand extensions will emerge soon

Of course European companies that recognise and understand this trend and seek to form long-term tie-ups with increasingly cost-competitive Chinese companies could benefit hugely.

Progressive European partner organizations should not just be looking closely at possible Sino-European tie-ups but also be keen to protect and build the Chinese partner's brand, too.

The author is a visiting professor at the University of International Business and Economics in Beijing and a senior lecturer on marketing at Southampton Solent University's School of Business. The views do not necessarily reflect those of China Daily.