Losing the brand and intangibles wars – in China

No — this is not about Chinese counterfeiting American brands. It is about what brands Chinese consumers want:
New York Times – “Made in U.S., Shunned in China”

Abby Chan, a 23-year-old advertising copywriter, took a break from shopping for Levi’s jeans at a mall here on Wednesday evening and relaxed at a table in a Starbucks restaurant.
Aside from coffee and denim, there were not many American brand products that interested her. She covets Chanel clothing and Louis Vuitton bags, dreams of owning a BMW or Mercedes-Benz someday, and struggles to think of an American brand that appeals to her.
“There are more choices for European brands, more styles, so they are more interesting,” she said.
. . .
China’s economy is galloping along just as a long series of America’s weaknesses are combining to hurt American exports. With many of America’s name brands made in China these days, from clothing to cars, the Chinese are beginning to wonder what a “Made in U.S.A.” label really has to offer.
“The only U.S.-produced items that I can think of that exist in large quantities in China are dollar bills,” said Matthew Crabbe, the managing director of Access Asia Ltd., a market research firm
But the handful of products that Americans make well, and which sell like hotcakes, do not have labels on the sleeves – Boeing’s aircraft and General Electric’s power plant equipment, railway locomotive parts and aircraft engines. Beyond those, American exports to China consistently grow more slowly than imports, and this year, they have slowed even more.
. . .
At the consumer level, tastes in China are also changing to the detriment of American companies. As China becomes increasingly cosmopolitan, an early admiration for all things American is fading. The generation of students who raised a copy of the Statue of Liberty during the Tiananmen Square protests in 1989 has gone on to acquire tastes as international as any in the world.
American car brands like Ford, marketed in the United States with a lot of waving flags, are promoted here as quality vehicles that show their owner’s taste and sophistication.
“Putting explicit American symbols in advertising will be alienating, not because of anti-Americanism but because of Chinese nationalism,” said Tom Doctoroff, the chief executive for greater China at the JWT Advertising Agency.
Shopping at a store selling Coca-Cola merchandise in the same Tee Mall where Ms. Chan shopped, Estella Chong, an English teacher who has never lived outside China, said that attitudes had changed. “Maybe some people thought American brands were better than Chinese brands or had better after-sales service,” she said. “Now they don’t think so.”
. . .
The biggest strength of the United States in many markets has been its innovation. At a conference in Beijing on Tuesday, Gov. Arnold Schwarzenegger of California held up a new solar cell that had been designed in Silicon Valley, though it was actually manufactured in China.
But China’s rampant copying of everything from movies to auto part designs makes it hard for American companies to profit even by licensing their ideas. The Chinese government is determined to move into higher- technology industries, moreover, and is hiring top scientists to be researchers.
China wants new products to be “not just ‘made in China’ but ‘designed in China,’ ” said Gov. Huang Huahua of Guangdong Province at a news conference here on Thursday evening.

Message to all those folks who keep telling us that if we just have more IP enforcement in China we will be fine: you are a decade too late. Yes, we need to do more to protect legitimate IP (as opposes to the bogus patents and the thousand-year copyrights). But we aren’t going to prosper in this new globalized I-Cubed Economy on yesterday’s ideas.
As the economy has evolved, we have exchanged one treadmill for another. The industrial era was a relentless pursuit for lower cost and greater productivity – mostly through economies of scale and the substitution of capital for labor. The I-Cubed economy is about relentless innovation — fueled by information and intangibles. Shorter product lifecycles, faster change, more design intensive are the norms. Time to market is trumping thousand-year IP protection.
The Chinese understand this (see my earlier posting on Chinese design), as do American companies. Missing in action is the US government – which can’t even seem to understand that R&D funding is important, let alone the other areas of intangibles and innovation.

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