Exporters make tough switch from original equipment manufacturers to makers of recognized products, reports Xu Wei.
Even after 10 years, Wang Zuping still has fresh memories of how difficult it was to promote his products to customers in the Middle East.
“To them, the made-in-China labels meant poor quality. We went from one customer to another, and none of them wanted our products,” said the chairman of Hangzhou Liangliang Electronic Lighting Co Ltd, who established his Dubai outlet in 2005.
Wang started by giving out his products, mostly light-emitting diode bulbs, for free as he sought to gain the trust of consumers.
His company, with a yearly production value of more than 500 million yuan ($81.7 million), now sells its products in more than 70 countries, and has outlets in North Africa, the Middle East, Russia and South America.
“Building up your own brands is a must if you want to go global. But beyond that, the quality of products is key,” he said.
Wang’s case is typical of many Chinese export-oriented small and medium-sized enterprises that seek to explore the emerging markets, including Africa and the Middle East, to break away from their traditional role as original equipment manufacturers.
Lack of branding and effective marketing has long been a problem for China’s export sector. A report by the General Administration of Quality Supervision, Inspection and Quarantine in 2013 showed that more than 90 percent of the country’s exports are sold as OEM products.
Shan Wei, director of the department for supervision and inspection of the quality agency, said that Chinese SMEs are at a crucial stage of brand-building as they compete globally.
“Our research showed that SMEs in China have much better awareness of brand-building, especially now that quality is no longer a problem. What they need most from the government is help with branding,” he said.
Shan said branding and marketing are crucial for SMEs because of their financial constraints. Emerging markets, especially Africa, offer “unprecedented opportunities” for them, he said.
Chinese leaders have called for the upgrading of made-in-China products on several occasions this year as the country faces the pressure of decelerating economic growth.
President Xi Jinping said earlier this year that China should devote more effort to transforming its growth model. That effort, he said, should include the transformation of “made-in-China” to “created-in-China” products and a shift from speed to quality, as well as an emphasis on branding.
During a keynote speech at the China Quality Conference in September, Premier Li Keqiang called for the promotion of product quality and the upgrading of added value of Chinese products.
Before entering the Middle East market, Wang said his team spent a year doing research.
“Many other Chinese merchants were already doing business there and selling the same products,” he said. “I was thinking: if things continue like this, I will never make a breakthrough.”
“I started to realize that we must develop an advantage through making products that are unique and of good quality. We need to offer good products at good prices,” he said.
Wang said he also produced many advertising T-shirts and gave out lots of free samples.
He followed similar strategies when his company entered the African market, including Kenya, Tanzania and Nigeria, in 2009 and 2010.
“We were there when people in those countries could barely afford LED bulbs. We also started by giving out free samples,” he said.
Wang said compared with developed markets, such as the European Union and United States, it is easier for SMEs to get established in emerging markets.
Tapping into emerging markets is also a common option for many of the country’s vehicle producers.
Xie Feiming, deputy general manager of Higer Bus Co Ltd in Suzhou, Jiangsu province, said the African and Middle East markets are providing a major part of the company’s global growth.
It has increased exports by 75 percent thanks to customers in emerging markets, especially Algeria, Russia and Qatar. The company has sold more than 3,000 buses in each of those three countries.
“Our key advantage lies in good performance and low costs,” he said.
Another way for SMEs to break out of their OEM role is through foreign acquisitions, especially to enter the developed markets such as the EU and US.
Wang Xianggui, president of Soundking Group Co in Ningbo, Zhejiang province, said he regarded the acquisition of brands in the United Kingdom as a crucial step for gaining entry to the international market. The manufacturer of sound equipment has so far acquired the UK-based brands Cadac, Studiomaster and Carlsbro.
“The branding of products is the key,” he said. “Without recognized brands, customers will not acknowledge the products’ quality. Without the acquisition of international brands, we could never have established ourselves in the international market.”
Song Zhenhuan, chairman and chief executive officer of Goodbaby International Holdings Ltd, one of the world’s leading baby stroller producers, said: “We believe that to enter an established market, such as the United States, and build your own team is a very slow process.”
Goodbaby has acquired two overseas stroller brands this year, including Germany’s Cybex GmbH and Evenflo Company Inc, a US manufacturer of infant and toddler car seats, gates and bathing products.
“We purchased those brands because they have very good consumer relations. They have built up consumer loyalty over the years, which is exactly what we need to localize our business,” he said.
Song’s company also functioned as an OEM for many years “but that mode is not sustainable”, he said.
The acquisitions this year have enabled his company to increase its profitability and learn about the market and needs of consumers, he said.
“The company’s innovation must be market-oriented. A majority of OEM enterprises are selling their products cheaply due to the lack of branding. The acquisitions enable us to connect directly with consumers and complete our global network,” he said.