Chinese firms face brand building test

15 October 2012

BEIJING: Less than a third of Chinese firms think the strength of their brands and innovation capabilities will assist overseas expansion efforts, a study has found.

Ernst & Young, the advisory network, surveyed 617 executives. This included 146 from China, just 23% of which agreed that "brand strength and reputation" would help their organisation to grow abroad.

By contrast, some 47% thought product or service quality should exert a beneficial effect, while 40% cited the possession of leading technologies and 32% pointed to a global supply chain.

Figures fell to 31% upon considering the standard of their company's workforce. Superior innovation skills secured an even more modest 29% on this metric, with speed of execution on 27%.

Marc Symons, a financial services expert at Ernst & Young, gave the example of the banking category as one that was likely to witness an increasing desire to target new markets going forward.

"To date the Chinese banks have been relatively domestically focused," he said. "But over the next ten to 15 years we will definitely see more international institutions very similar to the way we see Japanese institutions expand around the world."

When asked in which areas senior management teams needed to enhance their knowledge to succeed overseas, another 47% of those polled selected their understanding of international markets.

Scores here came in at 44% for providing the correct incentives for staff in different countries, and 39% with reference to reflecting local cultural traits and "ways of doing business".

Of the 45 "global" companies featured, all of which had operations in two or more regions outside China, a total of 36% expressed concerns about recruiting and retaining key talent.

Among the 66 firms aiming to expand at the regional level, 40% hoped to access new technology or innovation, while 33% were keen to tap a gap in demand, and 32% prioritised securing new customers and services.

"Companies here in China, whether state-owned or privately-owned enterprises, are under pressure to have consistent, continuing growth," said Joe Tsang, Asia Pacific technology leader, Ernst & Young China.

"So on top of doing business in the domestic market, companies are looking into other markets to achieve this revenue growth."

The most attractive geographies in terms of possible growth in the next three years included Western Europe on 32%, the Middle East and North Africa on 29%, the US or Canada on 22%, and Brazil on 20%.

Data sourced from Ernst & Young; additional content by Warc staff