China Inc. Powered By Strategic Alliances And Branding

The transformation of China into a global corporate partner is the underlying theme of this week’s U.S. visit by Chinese President Hu Jintao. China Inc. has been adopting the practice of strategic alliances and branding techniques in an effort to convert their business model from follower to leader, from contract manufacturer to innovator, from supplier to partner.

Sixty Chinese companies, 47 State owned and the rest privately owned, are set to become global players over the next decade, according to the IBM Institute for Business Value.

Spearheading China Inc.’s outbound initiatives to ally itself with U.S. corporations is its biggest computer manufacturer, the Lenovo Group, buyer of IBM’s personal computer business in 2004. Lenovo entered into a long-term deal with IBM, itself a global alliance network champion. The Lenovo Alliance, based at IBM’s headquarters in New York, taps into its partner’s branding and consulting capabilities. China Inc. also moved into the European market when Chinese TV maker TCL purchased French-based Thomson's television operations in 2004. Other recent China Inc. acquisitions include SAIC's 50.6 per cent stake in South Korea's Ssangyong, CNPC's 4.2 billion dollar purchase of PetroKazakhstan and Haier's unsuccessful bid for Maytag in 2005.

On his way to talks with President Bush, the Chinese leader stopped this week in Seattle to meet with Microsoft and Boeing. The occasion was used to bring attention to the latest Chinese partnership initiatives, particularly newsworthy on this side of the Pacific as they feature money coming back from China to U.S.-based corporations.

This is an important PR move designed to show cooperation in addressing the trade deficit between the two countries and to showcase China Inc.’s seriousness about respect for intellectual property rights.

In conjunction with the Chinese president’s meeting with Bill Gates, Lenovo announced that it intends to spend 1.2 billion dollars to buy and pre-install Microsoft software over the next 12 months. The two companies will jointly promote the use and benefits of authorized Microsoft software products in China, as well as in some 65 countries and regions around the world.

Today President Hu visits Boeing where China is ready to sign a deal to buy 80 jets worth approximately $4 billion.

Other strategic deals recently forged with China include:

– AOL/Time-Warner has partnered with China's number two media company. The broadband content arm of Shanghai Media Group (SMG) will provide material for a Chinese language version of AOL.com aimed at Chinese speakers in the United States. SMG Broadband will provide the actual material to U.S. firm MediaZone, which is a partner in the AOL Chinese language site.

– Coca-Cola and Lenovo will co-sponsor the 2008 Olympics in China.

– American Airlines has signed a strategic technology agreement with Lenovo, to provide Admirals Club members with access to Lenovo PCs.

Gaining resources is one side of the equation. Selling product as a direct marketer is quite another. China will follow "western ways" in meeting this challenge as well. As it increases its presence outside of its own market, China Inc. is quickly learning to go to market with new branding initiatives, such as:

– Lenovo changed its brand name in 2004 from its original moniker Legend. It took the "Le" from Legend, a nod to its heritage, and added "novo," the Latin word for "new," to reflect the spirit of innovation at the core of the company.

– Neusoft, China’s largest software and technology service exporter, also changed its brand image and logo last March, in an attempt to build brand recognition among foreign customers.

– Langchao Group, China’s top software appliance supplier, aims for 30 per cent of its sales to come from overseas markets by 2010. Yesterday the company changed both its name and its brand to Inspur, a combination of the words "inspire" and "spur."

China Inc. is using strategic alliances and branding in its forays into the global market. They also understand that successful branding means more than a new name. Operating on a world-class level requires good corporate governance and partnerships. A positive brand reputation is its goal as the 2008 Beijing Olympics looms on the horizon. China seeks to resolve doubts about its reputation on the economic stage.

China Inc. appears to be serious about IPR as its long-term interests require it to become a viable global business partner. The Microsoft deal aims to assuage concerns over intellectual property rights (IPR). Last week, U.S. Secretary of Commerce Carlos Gutierrez visited Beijing to set the stage for Hu's visit. Speaking at Chongqing University, he said counterfeit products were harming US companies and posing a threat to China's own long-term development.

In response Yan Xiaohong, deputy chief of the National Copyright Administration of China, said rewards of up to 300,000 yuan (US$37,000) are being offered for any tips leading to the exposure of underground DVD operations. He added, since 1996, China has broken up 223 illegal laser disc production lines, including six this year.

China Inc.’s concern is that its internal barriers would not stand in the way or slow down its growth plans on the global front.

China has already overtaken the United States as the world's largest exporter of a broad category of electronic goods including computers, mobile phones and digital cameras, according to the Paris-based Organization for Economic Cooperation and Development. Exports of Chinese information and communications technology goods rose by 46 percent Y2Y to $180 billion in 2004. U.S. exports amounted to $149 billion, 12 percent higher than the previous year. China's trade overbalance in tech products nearly tripled to $31 billion in 2004 from $12 billion in 2003. The country first became a net exporter of such goods just a year before that, recording a 2002 surplus of $3 billion.

China's booming trade surplus in PCs and laptops stood at $45.4 billion last year, the new data showed, and its overall trade in ICT goods has grown an average 38 percent per year since 1996. China also overtook Japan as the main exporter of such goods to the United States last year.