From west to east

Corporations in the West are increasingly under threat from those in the East, which are making Western markets their priority, moving away from low-cost, value products and placing more emphasis on building brands. Their power should not be underestimated, says Robert Lester

lenovoNews that Lenovo, the Chinese personal computer manufacturer, is considering buying European rival Packard Bell is indicative of a wider shift in power from West to East in the corporate world.

It emerged earlier this month that Nanjing Automobile Corporation and Shanghai Automotive Industry Corporation, the Chinese companies that battled to buy MG Rover’s assets two years ago, are teaming up for an assault on the global car market. Korean car manufacturer Hyundai and its sister marque Kia have also announced ambitious plans to become serious global players, while Japanese behemoth Toyota is on the verge of overtaking General Motors to become the world’s biggest car maker. Outside the car sector, the Far East helped reignite Barclays’ multi-billion-pound bid for Dutch bank ABN Amro after the state-run China Development Bank bought a sizeable strategic stake in the British bank.

These developments, along with the continued strength of Samsung in the electronics market, have led some experts to predict a changing world order in the coming years, with brand message playing a key role. Corporate Edge chairman Chris Wood believes Western companies are “living with a false sense of security” and underestimating the threat from Asian rivals (MW last week).

Calm before the storm
He says: “This is the calm before the storm. We are assuming that things will go on as they have been, with the East providing the cheap stuff and the West providing the high margins, but that’s changing in front of our eyes. Companies in Asia are not stupid. They realise they need to build their brands. This is very real and it’s bad news for European brands.”

Wood points to Lenovo, which bought IBM’s PC unit two years ago, as an example of a company from the FarEast making a concerted effort to build its brand on a global scale. Lenovo has a sponsorship deal believed to be worth between £10m and £15m with the Williams Formula One team and Wood adds: “When you have got a company putting that sort of money into sponsorship it shows it is taking its brand very seriously indeed.”

Lenovo is now the third biggest PC manufacturer in the world after Hewlett-Packard and Dell, but has so far made little impression on European consumers. Williams F1’s head of marketing Scott Garrett says Lenovo realises it has to make Western markets a priority if it is to make up ground on HP and Dell.

lg_prada“This deal allows it to get its brand out there in front of the world’s consumers quickly,” he adds. “If it had tried to do it market by market it would have taken a much longer time, but it is in a hurry. Companies from the Far East don’t tend to have as much commercial patience as companies in the West. Lenovo’s growth in the Far East, especially in China, has been so rapid in the past few years that it doesn’t see why it shouldn’t grow that quickly everywhere else as well.”

Kia and Hyundai are also focusing on Europe and on taking their brands upmarket. They opened their first European factories earlier this year at a combined cost of €2.3bn (£1.5bn) and Kia hired Peter Schreyer, the man behind the Audi TT, as its global design chief last year. The company’s Cee’d model is the first Kia to be completely designed and produced in this continent and has won rave reviews from the motoring press, with Autocar saying: “A landmark car – the Koreans are coming.”

Further evidence of Kia’s ambition and increased focus on brand came in January when it poached Toyota GB’s commercial director Paul Philpott to become its UK managing director. He told Marketing Week at the time (MW January 18): “Kia is a very ambitious company, but has a poorly defined brand. The product range and quality is coming, but we need to get the desire into the brand. The development of the Kia brand from pretty much a blank sheet of paper is one of my primary tasks for the next three years.”

Another Korean brand looking to move away from its “value” roots is LG Electronics. The company, which signed a £3m-a-year shirt sponsorship deal with Fulham Football Club earlier this year (MW May 17), had last year’s must-have mobile phone – the Chocolate model – and followed it up by launching a Prada-branded handset. LG also has a joint venture business with Philips and the combined group is the world’s second-largest flat-screen TV maker.

Former LG Mobile marketer John Bernard, who has just joined Sony Ericsson in a global marketing role (MW last week), says: “Brand is becoming more and more important for Asian companies. They tend to start by differentiating themselves by price and then the brand message comes later. They focus on value, but also on maintaining a high quality. If people get something that is cheap, but rubbish, they’re not going to buy the brand again.”

Former Toyota and Thames Water marketer Mike Moran, who now runs marketing consultancy The Orchard Consultancy and motoring consultancy The Automotive Partnership, agrees that companies can only go so far with a value message. “The bottom line is that it’s about products,” he says. “Samsung really started to make it work when it started to improve its products. It invested heavily in excellent product design and product and functionality. People always gravitate towards great products.”

hundaiBull’s-Eye
Moran spent almost seven years at Toyota, but has also worked at Ford. He says there is a “fantastic contrast” between working for American and Japanese companies and adds: “The old saying goes that American companies fire and forget to aim, whereas Japanese companies aim, aim and then aim some more, but when they do fire they always hit the bull’s-eye. The chief executive of Volkswagen once said that if you could combine the Japanese approach to planning and quality with the American style for sales and marketing, that would be a hell of a car company.”

The threat to Western brands from the East comes largely from four countries, all of which are at very different stages in their development. Japan can no longer be considered a challenger, particularly in the car industry, where Toyota, Nissan and Honda are all major players. Korea occupies the middle ground, with the likes of LG, Kia and Hyundai trying to follow Samsung upmarket. Then there is China and India, which look set to move into the value space previously occupied by the Koreans. Each represents its own threat and, with many companies boasting pockets as deep as their ambitions, Western rivals will underestimate them at their peril.

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