Issue: Sep 2007


CCID Consulting: Be Alert of the Brand Trap in the Post-joint Venture Age



by Mal Babbin

According to the survey conducted by Enterprise Strategy Consulting Center of CCID Consulting, up to 80% of Chinese brands in joint ventures become mere production lines for their foreign counterparts. A joint venture between Yangzi Electrics and Siemens has evolved into an enterprise solely owned by Siemens; Dongbao originally partnered with Electrolux, has been acquired by Electrolux and no longer exists; "Zhongyi's" production lines are now producing Electrolux refrigerators. Chinese enterprises can easily attract foreign capital, however, it is the foreign capital that has caused the demise of Chinese brands. Similarly, China's automobile industry is also facing the same challenge. For example, almost all of the international automobile giants have set up joint ventures in China. The cars produced and sold in China are almost all of foreign brands. Recently, Chinese automakers such as Chery, Hafei, and Geely have all opened their doors to foreign capital. By doing so, these Chinese enterprises are setting off a new up surge with the establishment of joint ventures in China's automobile industry.

Direction for domestic brands. Hopefully, bitter experiences will make Chinese entrepreneurs realize that when establishing joint ventures, the most valuable asset is not land or equipment but their own brand names. The value of a successful brand is priceless. Particularly, under the context of international competition, where enterprises whose products no longer vary as much, brand recognition has taken a place in the consumer's decision-making process. Multinational enterprises are using their brands as a tool to consolidate China's markets. Chinese enterprises need to be farsighted when forming joint ventures with foreign enterprises. Instead of "exchanging brands for capital", they should commit to developing their own brands. If domestic, Chinese companies do not have any control over brands, they will certainly be controlled by others and phased out in the market. Therefore, sticking to one's own brands should be a principle adhered by Chinese enterprises forever. The reason why China Faw Group Corporation gave up establishing a joint venture with Mercedes-Benz is because it wanted to protect its Jie Fang brand. By doing so, the Faw Group has ensured itself of its survival in the truck sector. The Faw Group has seen its J6 truck roll off the production line and its sales volume reach 200,000 trucks in 2006, which accounts for 8% of the total amount of trucks sold in the world, ranking No.3 in the world. Such an achievement demonstrates the Faw Group's adherence to its own brand.

Today, the situation in China's post-joint venture age in the automobile industry has become much clearer. Dongfeng Yue Da's fight for control of its stock signalled the coming of the cold "post-joint venture age", with its partners directly challenging the company's control. Wahaha's and Groupe Danone's affair has become a warning to all automobile makers in China.

CCID Consulting believes that after entering post-joint venture age, China's automobile makers should pay close attention to two key points and take effective measures to carefully ward off any possible risks. Firstly, to strive for control over shares. Without control of the majority of shares, there will be no decision-making right, meaning letting others control your fate. At times, control of shares cannot be gained due to limited power. Chinese enterprises should seek control of operations overseeing brand development and distribution, so as not to be shaped by others; The second is that successful self-made brands are much more valuable than any tangible capital. A brand is not only the symbol and foundation of an enterprise, but also a sharp weapon, which can be used to defeat your competitors, seize market share and gain more business opportunities. No matter what, concentrating on the development of a brand and maintaining control over an enterprise should be the direction firmly adhered to, by China's automobile entrepreneurs.

Brand grows with innovation. Forming the sound foundation for the development of brand competitiveness in the context of international competition, innovation is essential for a brand. Currently, Chinese brands lag far behind those brands created by joint ventures in terms of technology, performance and quality. Such a gap in the technical field has seriously impacted the enhancement of domestic brands. Originality and innovation play a key role in increasing the value of a brand. Only by setting up a sound technical foundation and owning intellectual rights as well as constantly improving and making breakthrough advancements in technology, can the foundation of a brand be enhanced and relatively secured.

By investing in technology, innovation and developing one's own brand; China Faw Group continues to enhance the value of its Jie Fang brand. There is a sharp difference between Jie Fang trucks and its competitors such as Mercedes-Benz and Volvo in terms of both product and technology. However, facing its limitations bravely, Faw Group started to set up a comprehensive roadmap from 2001. From J3, J4 and J5 to today's roll out of J6, the Faw Group will see the fruits of their labor, in the long run by sticking to the principle of being original and innovative. Jie Fang's J6 targets the high-end heavy duty truck market. High-end meaning that Jie Fang's heavy duty trucks have set their eyes on global market, showing that the brand competitiveness of Jie Fang has increased to a great extent.

CCID Consulting holds that investment in technology and innovation is an investment in the market, which also enhances brand value. China Faw Group Corporation will never follow the suit of some of the Chinese enterprises, which went along the route of "introduction-lagged behind-reintroduction- lagged behind again" as well as the extinction of Chinese enterprise's brands, autonomous rights and initiative rights of the market after forming joint ventures and cooperation with foreign enterprises.

About CCID Consulting

CCID Consulting Co., Ltd. (also known as CCID Consulting), the first Chinese consulting firm listed in the Growth Enterprise Market of the Stock Exchange (GEM) of Hong Kong (stock code: HK08235), is a direct affiliate of the China Center for Information Industry Development (hereinafter known as CCID Group). Headquartered in Beijing, CCID Consulting has so far set up branch offices in Shanghai, Guangzhou, Shenzhen and Harbin, with over 300 professional consultants and industry experts. The Company's business scope has covered over 200 large- and medium-sized cities in China. Apart from home market development, CCID Consulting is establishing international cooperation links across the United States, the Asia-Pacific region and Europe, by setting up agents in the U.S., Japan, South Korea, Australia, Singapore, Italy and Russia, with the aim of going global.

Based on four major competitive areas of powerful data channels, industrial resources, intense knowledge and deep understanding of information technology, CCID Consulting provides customers with consulting, research and IT outsourcing services covering strategy planning, IT application, marketing strategy, human resources and information technology outsourcing. Our customers range from industrial users in IT, telecommunications, energy, finance, automobile, to government departments at all levels and diversified industrial parks.

CCID Consulting is committed to becoming the No. 1 brand for strategy consulting, the No. 1 consultant for enterprise management and the No. 1 expert in market research. For more information, please visit our website at http://en.ccidconsulting.com/ .

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