Western European Consumer Perception of a Chinese Brand. An Examination of Huawei

Table of Content

LIST OF FIGURES

ABBREVIATIONS

1. INTRODUCTION

2. LITERATURE REVIEW
2.1 The Rise of Chinese Companies
2.2 Brand Management Consumer
2.3 Perception
2.3.1 Determinants of Perception
2.3.2 Perception about Chinese Brands
2.4 Huawei

3. METHODOLOGY
3.1 Sample Group
3.2 Questionnaire
3.3 Interviews
4. ANALYSIS

5. FINDINGS AND DISCUSSION
5.1 How Chinese is the Huawei brand?
5.2 Huawei’s Communication Strategy
5.3 Huawei’s Brand Strategy

6. CONCLUSION

7. APPENDIX

8. BIBLIOGRAPHY

List of Figures

Graph 1: Brands Creating Preference

Graph 2: Holistic Brand Management Scheme

Graph 3: Process Of Perception Formation

Graph 4: Familiarity With Chinese Brands

Graph 5: Global Smartphone Market Share

Graph 6: Huawei’s Brand Promise

Graph 7: General Associations With Chinese Brands

Graph 8: Five Features Of Brands

Graph 9: Overall Brand Attractiveness

Graph 10: Purchasing Decision

Graph 11: Knowledge of Chinese Brands by Western European Consumers

Graph 12: Gender-Awareness Distribution

Graph 13: Attractive Design of Huawei’s Smartphones

Graph 14: Gender - Attractive Design Distribution

Graph 15: Association Trendy Brand

Graph 16: Association Technologically Sophisticated

Graph 17: Good Quality To Price

Graph 19: Perception of Huawei Before

Graph 18: Perception of Huawei After

Graph 20: Chinese Brands - Huawei

Table 1: Chinese Technology Investments 2013

Table 2: Brand Growth Strategies

Table 3: Chinese Brand Growth Strategies

Table 4: Top Associations With Chinese Brands

Table 5: Attributes Consumers Have With Brands They Purchase

Table 6: Worldwide Seller Shipments

Table 7: Chi-Square Gender/Brand Awareness

Table 8: Symmetric Measures Gender/Brand Awareness

Table 9: Chi-Square Gender/Design

Table 10: Symmetric Measures Gender/Design

Table 11: Chi-Square Tests Gender/Price

Table 12: Symmetric Measures Gender/Price

Appendix I: List of the Questionnaire

Appendix II: List of Semi-Structured Interview

Appendix III: Brand Characteristics According To West European Consumers

Appendix IV: Cross-Tab: Gender - Awareness Of Huawei Brand

Appendix V: Information Sheet Ascend P7

Appendix VI: A Cross-Tab: Gender - Attractive Design

Appendix VII: Cross-Tab: Gender-Price

Abbreviations

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1. Introduction

The success story about China’s miracle and its economic surge in the past decades have considerably shaped and transformed the global power dynamics and relations. By focusing on building competitive advantages, China’s strengths are not solely based on being a strong exporter anymore. Instead, China has developed new capabilities to advance in the application of more sophisticated technologies. Not only has China become the world’s factory and an attractive investment destination, but it has also made extraordinary strides in establishing and promoting many powerful and large MNCs by redefining their organisational structure and strategies. In fact, the Chinese corporations ICBC, CCB and ABC occupy the first three places in the list of the largest companies worldwide (Bell, 2008, p.1-2; Biediger et al., 2005, p.90-91; Forbes, 2014; Winters/Yusuf, 2007, p.1-2). Moreover, the rise of Chinese multinationals is accompanied by a broad range of diversified overseas investments that were made in order to tap into new markets and to obtain knowledge, technologies and strategic assets (Voss, 2011, p.94-100). However, in light of the changing economic climate of rising labour costs as well as material costs in China, Chinese transnational companies are forced to relinquish their low-cost strategy and thus to find new sources of competitive advantages (Jin, 2009, p.1). One powerful and valuable asset to ensure the sustainability of a firm are brands. A brand can serve as a key indicator for identity and risk reducer for consumers and as a competitive advantage for companies (Keller, 2013, p.21, 34-36). Therefore, many Chinese firms increasingly redirect their internationalisation strategy and outbound investments towards growing their own global brands (Bell, 2008, p.4-5; Ewing et al., 2002, p.198-199; Gao/Woetzel/Wu, 2003, p.3-4; Keller, 2013, p.543; Voss, 2011, p.17-18). Nevertheless, the long entrenched associations of low quality, cheap products and low product safety, often obstruct a successful global branding (Interbrand, 2008, p.2). This conflicting picture between the need to create renowned Chinese brands and the negative overall picture of Made in China, serves as a frame of reference for addressing the research question: How do Western European consumers perceive a Chinese brand? This research will be dealt with on an examination of the case study Huawei, in which consumer perceptions towards the Huawei brand according to the main features quality, design, COO effect and the overall brand attractiveness will be assessed.

Much has been said about the emergence of Chinese multinationals, their catching-up strategies and their lack of brands (Buckley et al. 2011; Deng, 20114; Zhang, 2003), but so far few studies have focused on a single in-depth examination of a Chinese brand by consumers outside the Middle Kingdom. Therefore, the value of this research is to provide an analysis on what current stage the Huawei brand stands at and which weaknesses it lacks according to consumer perception. This will supply first empirical approaches for the further strategic brand management of Huawei.

In the first section of this dissertation, the literature review will set up the main framework about the internationalisation pathway of Chinese companies and subsequently their brand management strategies. This is followed by a brief overview about the determinants of consumer perception, which will play a crucial part in assessing the brand value. The end of the literature review contains a case study about the company Huawei. The methodology of the empirical research will be dealt with in the second section. In the third section the empirical results will be analysed and the hypotheses tested. The fourth section findings and discussion summarises the results and discusses the subsequent implications. Finally, the conclusion will identify the areas for improvement of the Huawei brand and draw up recommendations for emending Huawei’s brand management.

2. Literature Review

In 1978 the initial transformation of China began by significantly increasing levels of capital and trade flows, which marked the new era of China’s emerging businesses and their growing desire for global presence (Zhang, 2003, p.10-11, 25-40). Today, more than 30 years later, owing to unrelenting endeavours of Chinese firms coupled with China’s national commitment to promote Chinese MNCs, 24 Chinese corporations are represented in the FT Global 500 in 2013 and China is likely to supersede the United States as the largest economy by this year (Financial Times, 2013; Giles, 2014; Nolan, 2012, p.55-56). The looming question is: Where is China heading to in the future? Deng Xiaoping already noted the significance for China not to only focus on manufacturing, but also to construct a marketing country with powerful Chinese brands. Unfortunately, Chinese brands suffer from poor reputations, which render the planning of coherent brand strategies more onerous (Ille, 2009, p.47-48; Li, 2008, p.XIII). Hence, before analysing the perception of a Chinese brand, it is indispensable to gain a solid comprehension of the globalisation strategies of Chinese companies and their motivation behind their brand management, which will be analysed in the next chapter.

2.1 The Rise of Chinese Companies

It was not until the year 2004 that brought the turning point for the Middle Kingdom as an upcoming large investor with an OFDI flow of US$5 billion. Within six years the number of outbound investments increased by more than tenfold to US$69 billion based on the relaxation of administrative controls and streamlined procedures. In 2013, China’s total investment outflows amounted for US$101 billion, mainly driven by resource-seeking and market-seeking and less efficiency-seeking motives, as China has abundant of low-cost producers. This excessive asset-seeking behaviour stems from intensive competition and sluggish demands in the Chinese market resulting in a growing need for strategic resources, which rarely can be acquired domestically. Thus, Chinese companies especially those operating in the technology sector as TCL and Lenovo are impelled to seek for strategic resources abroad. In many cases advanced economies are attractive sources for acquiring cutting-edge technologies (see table 1). For instance, Europe’s increasing research (+96%) and software (+27%) activities in 2014 are boosting its innovativeness and overall attractiveness. In light of the solid environment, the telecom giant Huawei, who is one of the largest investors into Europe in R&D, has planned to increase its pool of employees by 1000 people each year over the next five years (Bouffault et al., 2011, p.1-2; Buckley et al., 2010, p.154-155; Deng, 2008, p.27; Ernst&Young, 2014, p.7, 20, 24, 34; Kang, 2009, p.78; MOFCOM, 2010; Sauvant, 2005, p.676-678; UNCTAD, 2010, p.4-6, 25, 42; UNCTAD, 2014, p.XV; Voss, 2011, p.78-79, 93-98; Zhaoxi, 2009, p.31-33).

Table 1: Chinese Technology Investments 2013

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Source: The Heritage Foundation (2013)

Generally, there are major types of investments to attain strategic resources: greenfield investments, JV and M&As. JVs pose an appropriate choice of entry type, if the host industry offers growth potential and the investing company can gain a head start over competitors. Greenfield investments are the ideal approach if full control over operations is sought. In case attaining particular assets are given priority, acquisitions are the most effective practice (Chung/Alcacer, 2002, p.1534-1535; Kogut/Singh, 1988, p.242-250; Wei/Liu/Liu, 2005, p.1495, 1497). For Chinese firms, the acquisition mode is favoured as a quick solution to offset competitive weaknesses, which is exemplified by CNOOC’s offer to acquire Unocal, Huawei’s interest in acquiring Marconi, Lenovo’s intentions to buy IBM’S PC and Chinalco’s bid for Rio Tinto. The outcome of those bids turned out differently than expected: all offers submitted, except for Lenovo’s, failed. Acquisition deals are subject to political scrutiny, industries’ sensitiveness and legal regulations that substantially impede the success of deals. However, Chinese companies have learnt from their experiences and are more cautious in their investment plans. They do not rely on one investment type, but have advanced in planning thought out expansion strategies (Nolan, 2012, p.99-102; Rui/Yip, 2008, p.218).

In this context, it is noteworthy to mention that investment decisions of Chinese companies are not driven by their corporate advantages, but by the urgency to generate sustainable competitiveness triggering the prime ambition to buttress Chinese brand labels as the primary pillar for sales (Child/Rodrigues, 2005, p.381, 403; Deng, 2004, p.11; UNCTAD, 2003, p.2) as several empirical studies furnish clear evidence of higher profitability through branded products (Court/Leiter/Loch, 1999, p.102-110; Kapferer 1992, p.285). In this regard, the focal point of the next chapter deals with the main elements of brand management in relation to Chinese companies laying down the framework for further analysis of the brand management of Huawei.

2.2 Brand Management

As a preliminary point, an extensive and reliable expertise about brand management prevails in Western theory (Bell, 2008, p.13). Therefore, Western theories will be applied to examine Huawei’s branding strategy later. Due to space limitations this passage is providing a succinct outline that is relevant to this research.

Brands are intangible assets and recognised as a component in adding to companies’ profits. The domain of a brand can be further specified as a cognitive construct of images, values, feelings and relationships. Taking a sober view, the brand name itself has no meaning, but must be linked with associations in order to create meaning also known as the brand value. As a result, it is imperative to put perception first since the brand concept purely exists in consumers’ minds. By attaching attributes to a product, symbolic value can be established in consumers’ minds, which subsequently guides preferences as shown in graph 1 (Bell, 2008, p.13; Duncan/Moriarty, 1998, p.7; p.112-118; Kapferer, 2012, p.7).

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Source: Kapferer (2012)

Nowadays, people consume goods to depict their desired individuality. This process of selfsymbolism enables a brand to become a part of identity creation and subsequently to build close ties with customers ultimately contributing to brand assets and strengths (Escalas, 2004, p.168172; Rosenbaum-Elliott/Percy/Pervan, 2011, p.48-59, 67; Schultz-Kleine/Kleine/Allen, 1995, p.327-328; Thain/Bradley, 2012, p.56, 119). The interdependent relationship between the fundamental segments brand asset, brand strength and brand equity and relating sub-categories are detailed in the next graph 2.

Graph 2: Holistic Brand Management Scheme

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Source: Kapferer (2012)

Companies with renowned brands can generate a significant percentage of profits simply because they nurtured their brand assets over a long time period effectively, which lead to their brand strengths. This success is partly based on their dedication to and consistency in brand management. It does not mean that once a brand strategy is implemented it cannot be changed anymore, but rather that amendments have to be carefully managed. A strong brand relies on a 360 degree orientation of all parties involved. Moreover, a corporate brand philosophy has to be established throughout the organisation so that efforts are directed towards supporting this brand (Kapferer, 2012, p.15-17, 32-35, 191-192, 243-244). Another characteristic of powerful brands is that each brand has a flagship product representing the brand’s meaning and obsession, which contains a distinctive set of associations, the brand image, from where they can transfer into other products. For instance, the Chanel brand is epitomised in No.5, while Apple has the iPhone as a flagship product (Kapferer, 2012, p.42-44). In addition, a fundamental lesson is that brand management is always a two-sided relationship between the brand and its customers. Keeping brand promises and nurturing consumers persistently with perceived differences are decisive in maintaining a brand’s popularity (Amalancei, 2013, p.275-279; Kapferer, 2012, p.236). Before analysing Huawei’s brand management, a solid knowledge about how Chinese companies have evolved in their own brand execution is vital to explain the challenges they face.

Until the turn of the millennium, there was no Chinese idol in branding at the forefront to emulate from that caused growing concerns for Chinese managers to develop a global brand from scratch given the fact that this subject limns an intangible and unfamiliar area (McGregor, 2005, p.260; Roll, 2006, p.XIV). As a consequence, Chinese companies commenced mimicking marketing strategies of Western TNCs, whereby Asian brands were particularly favoured as Samsung or Sony. In doing so, Chinese firms were often involved in litigations accused of copying brands at lower prices (Gao/Woetzel/Wu, 2003, p.5-10; Roll, 2006, p.104; Sokianos, 2006, p.37; Zhu, 2003, p.96-109). By 2007, four million Chinese brands were registered in total reflecting upon the aspiration for international recognition (Ille, 2009, p.50). For this research it is not only relevant to focus on product associations, but also to take into consideration the overall image of Chinese brands Western European consumers have, in order to compare and contrast the findings of Huawei with the thoughts towards Chinese brands.

Country of origin effect

Besides the brand image, the COO is also an influential cue in product evaluation for consumers, which has been confirmed in several studies from Ahmed et al. (2004, p.114-115), Elliott and Cameron (1994, p.49), Hamzaoui and Merunka (2006, p.149) and Verlegh and Steenkamp (1999, p.521). Particular country stereotypes can thus heavily hamper brands from countries encumbered with disadvantageous connotations. One could argue that, as globalisation progresses, corporations eagerly seek to build plants across several countries, which should offset the COO effect. Nevertheless, increasing international production and sourcing do not impair the country of origin effect, because consumers do not draw different conclusions from the country of design and country of production. Instead they form perceptions about where the company is nationally from (Ahmed et al., 2004, p.102; Insch/McBride, 2004, p.263-264; Keegan/Green, 2005, p.343; Verlegh/Steenkamp, 1999, p.536-538). Thus, COO information is a key indicator in defining costumers’ evaluation (Srinivasan/Jain/Sikand, 2004, p.65-66). In view of the bias towards product quality of Chinese products, Chinese brands find themselves in a difficult situation (Interbrand, 2008, p.2).

Investment and Innovation

Expansion into foreign markets entails the exposure to compete with incumbents, who honed their branding expertise for many decades, which puts new entrants into a precarious situation, who choose to gain foothold in new markets. As a result, in order to ensure a sustainable brand, the corporate objectives and structure have to be redirected towards supporting the overall brand strategy. Furthermore, Asian businesses tend to neglect investments into market research and brand consulting services, which stand in sharp contrast to other companies, ultimately impeding themselves in acquiring crucial skills. In essence, investments in R&D are decisive in driving innovation, which underpin the unique competitive edge for firms to overcome high entry barriers (Birnik/Birnik/Sheth, 2010, p.524-528; Roll, 2006, p.106).

Communication

The foundation of each brand is an effective communication plan to identify critical points to grab attention and to transfer the brand meaning through different channels for instance via positive word-of-mouth of opinion leaders or expert reviews. In case of Chinese companies, emphasis is placed on threshold promises as good quality pledges and attempts often remain on a superficial level. They struggle to constantly live up to their brand promises resulting in consumer dissatisfaction. Without a distinctive set of brand associations, Chinese firms fail to build a global brand. Consequently, the key principle for them should be the improvement of authenticity (Chen, 2011, p.5-6; Interbrand, 2008, p.10; Rosenbaum-Elliott/Percy/Pervan, 2011, p. 109-110; Varey, 2002, p.65-66, 154-157, 239). Additionally, Asian enterprises are inclined to hire top executives with a financial or engineering qualification who often overlook consumer orientation resulting in an insufficient dedication for marketing a strong brand (Bell, 2008, p.98-99).

So far, none Chinese brands are ranked in the world’s most valuable brands by Interbrand, because they are generally acknowledged as being not significant. In 2013, Asian brands only made up 10% of the list of the world’s best brands, while the remaining fraction was divided among the Americas, Europe and Africa (Interbrand, 2013a; Interbrand 2013b). Yet, considering the steep learning Chinese corporations yield, some promising brands as Alibaba or Haier arise, who are holding strong market positions domestically and additionally possess the capabilities to transfer the brand into a global brand (Brandz, 2014, p.44, 70-73; Pinedo, 2011, p.63). Interbrand (2008, p.2) further suggests that Chinese firms enter emerging markets first as those consumers might not be that conscious about China’s low priced proposition.

In general, there are three growth strategies to enhance a brand that can be applied to different brand development stages (Roll, 2006, p.107). The two following tables 2 and 3 will first lay out the brand growth strategies and second exemplify some Chinese brand expansion strategies to underline the preceding brand theory.

Table 2: Brand Growth Strategies

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Source: Roll (2006); Ille (2009)

Table 3: Chinese Brand Growth Strategies

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Source: Roll (2006); Kang (2009); Jin (2009); Bell (2008); Haier (2013); Hisense (2012); Lenovo (2014)

As seen in the cases above various strategies can help enhancing brand assets and strengths, but it also reveals that uncoordinated investments as in the example of Hisense can cripple any attempts to build popular brands (Bell, 2008, p.313). Still, one should not underestimate the numerous Chinese brands, which are on the rise within the next five years. Offerings of high quality and innovative products and services will bridge the bad image and assist in narrowing perceptions of Chinese brands (Swystun, 2006, p.7; Zeng/Williamson, 2003, p.48). Consumer perception is a highly complex subject and crucial for assessing a brand (Keller, 2013, p.325). Thus, the upcoming section addresses the perceptual process and the general perception of Chinese brands. This will be critical for both assessing the Huawei brand and identifying challenges that Huawei faces. Besides, it will play a major role in analysing if and to what extent Huawei’s associations are similar to or different from Chinese brands.

2.3 Consumer Perception

A brand’s power resides in consumers’ minds. In other words, consumer perception is a response to a firm’s communication plans by conceptualising brand knowledge. Therefore, consumer perception is a useful indicator for measuring the effectiveness of brand management and identifying potential problems of brand management (Keller, 2013, p.68-69; Arnould/Prince/Zinkhan, 2005, p.172). How is consumer perception formed? What factors determine consumer perception? These questions are to be answered in this part.

2.3.1 Determinants of Perception

In today’s understanding, perception refers to the course of giving meaning to stimuli comprising of senses as a taste, vision, feeling, smell and hearing. Perception is central for information processing enabling human beings to interpret and react towards their environment (Arnould/Price/Zinkhan, 2005, p.299-304).

Graph 3: Process Of Perception Formation

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Source: Arnould/Price/Zinkhan (2005)

The formation of perception contains five stages (graph 3), in which the first critical step is to expose consumers to information. It may sound simple, but in a world overloaded by information, consumers’ sensory discard irrelevant information immediately. Thus, designing advertising, that is able to be noticed in the pre-attentive screening process, is decisive for the formation of perception. In the second stage, information is filtered and a small selection will be consciously processed. Afterwards, existing knowledge is applied onto the selected pieces in order to categorise and to organise the new information. During the final two stages, the information pieces are being interpreted and finally integrated into existing knowledge. It is important to note that every perceptual processing varies according to social culture a person is surrounded by. For instance, European consumers are more aware of product quality and brands than American consumers. Therefore, acceptance of new brands for Chinese companies targeting Europe might be of greater challenge (Arnould/Price/Zinkhan, 2005, p.308-320; Gao/Woetzel/Wu, 2003, p.10).

Consumer perception plays an essential role for marketing purposes regarding perceived COO effect of a products’ image and a products’ perceived quality in particular. First, COO is a selective criterion consisting of a mental map of a country’s culture, goods and national image to determine the probability of a positive consumption experience. Yet, not all products and services evoke country-specific image effects. Second, perceived quality is a profound determinant over the products’ superiority in meeting desired requirements. Additionally, perceived quality is closely tied to the high technologies implemented, the design of a product and also the perceived durability of a product’s performance. Hence, quality is a key feature in distinguishing a product from others, which shapes a brand’s attractiveness and a firm’s competitive advantages. In short, the decision criteria help consumers to predict and judge the brand and the products’ overall excellence (Arnould/Price/Zinkhan, 2005, p.320-323).

2.3.2 Perception about Chinese Brands

According to a survey, Western people have an ambivalent stance towards China. On the one hand, China is valued for ancient traditions, Chinese medicine and traditional Chinese morals and values. On the other hand, Chinese government is seen as undemocratic, rigid and inhuman. Moreover, China is perceived to have serious environmental issues. This negative image is also mirrored in Chinese products being considered as pure copies of Western products, junk goods and poor in designs (Bell, 2008 p.120-122; Interbrand, 2007, p.5; Swystun/Burt/Ly, 2005, p.2- 4). The study by Swystun, Burt and Ly (2005, p.3) asked to rank the following industries automotive, phones, PC, appliances, toys and clothing against the criteria safety, reliability, price, innovation and value on a scale 1-5. The result was that none industry scored on average more than 3 meaning all industries were rated below global standards. Besides, 79% of respondents believe a Made in China tag harms Chinese brands (Interbrand, 2007, p.5; Swystun/Burt/Ly, 2005, p.2-4). A representation of the top associations with Chinese brands and attributes consumers associate with the brands they purchase can be found in the next tables 4 and 5.

Table 4: Top Associations With Chinese Brands

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Source: Swystun/Burt/Ly (2005)

Table 5: Attributes Consumers Have With Brands They Purchase

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Source: Interbrand (2008)

In comparison, it can be seen that quality issues and the low priced products are still dominant in consumers’ perception, but the words ‘innovative’ and ‘aggressive’ - both vital attributes for branding - are first glimmers of hope to ultimately turn the bad image of Chinese brands into a positive one (Interbrand, 2008, p.2; Swystun/Burt/Ly, 2005, p.2-4). The best-known Chinese brands outside the Middle Kingdom are displayed in graph 4.

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