Branding and innovation, answers to China’s slowing manufacturing

When Japanese autos first hit foreign markets decades ago, consumers perceived them in much the same way they see "Made in China" products today – cheap and mass-produced.

Japanese auto producers gradually transformed their images through a greater focus on quality, and now Chinese entrepreneurs are trying to do the same to survive and prosper amid an increasingly competitive market.

Squeezed by rising production costs, sluggish external demand, heavy tax burdens and tight financing, some enterprises in China have opted to abandon manufacturing and value-added production to pursue quick, easy money in the riskier capital and property markets.

However, many others, believing in the significant role of the real economy, have bravely chosen to stay on and find a way out.

"The real economy is of great importance to a country's development. Although the environment now is not good, you need to have that kind of entrepreneurial spirit in you to overcome the hardships," said Liu Hanxi, chairman of Hainan Nanguo Foodstuff Co at the ongoing 2012 APEC SME Summit.

Liu pointed to inflation, tax burdens and labor costs as major challenges for his company. But he said if a company has developed a mature and irreplaceable brand, its chances of survival are much higher, as it can raise product prices and keep innovating to add new value to its products.

Fostering a desirable brand becomes increasingly urgent in the face of adversity, he said.

Xu Zhihua, CEO of Peak Sport Products Co Ltd, a shoemaker in southern China's Fujian province that has gained increasing popularity overseas, echoed Liu's views.

"Judging from our development in recent years, well-branded manufacturers earn no less than those who put money in the speculative market. We are not just producing, we are nurturing a brand," Xu said.

Peak Sport's reputation has been hard-won. Xu still remembers when the company attended a trade fair in Las Vegas in 2002. It did not receive a single order, because their prices were much higher than other Chinese producers and, at that time, China-made goods only meant "cheap."

By concentrating on building up its brand and product quality, it finally wrestled a share in the competitive sports market – and not just because of its prices.

The process of winning the trust of consumers is time-consuming, and there need to be concrete cases that prove to customers that "I can and I am trying to improve," Xu said.

The company's efforts appear to be paying off. Peak Sport labels have made appearances on NBA courts and the company has formed partnerships with the Houston Rockets and Miami Heat. It products are sold in over 30 countries, with robust sales in the Middle East and Eastern Europe.

Xu said the company is actively tapping the North American market, and it will continue to seek a differentiated position and concentrate on moving in that direction.

Zuo Xiaolei, chief economist at Galaxy Securities, said China's manufacturing sector still has huge room for growth, as long as Chinese manufacturers can keep updating their technology and improving their products, just as the Germans do.

"Look at manufacturing in Germany. They have retained such vigor for decades, all because of their technology and innovation, " she noted.

Zuo has also called for more financial and policy support, along with less government intervention, in enterprises' upgrading and transformation process.

"Let the market work its magic and guide the enterprises," she said.

SOURCE: chinadaily.com.cn