Ever heard of Lenovo, Haier, CNOOC? You will.
Their names don't exactly spark instant recognition: Lenovo, Haier, TCL, Pearl River Pianos, State Grid Corp., and CNOOC. If they mean nothing to you, just wait a few years. All of them are prominent Chinese corporations set to go global and may soon become household words.
No longer content to remain no-name suppliers of generic products for American and other offshore businesses, Chinese companies are setting out to become recognizable brand names. The Japanese have their Sonys, Toyotas, and Toshibas. Now, it's China's turn.
In the vanguard of this global movement is Lenovo, China's leading maker of personal computers. It burst onto the American scene late last year when it bought the personal-computer division of IBM for $1.5 billion (half in cash and the rest in stock).
Having passed muster with the authorities in the United States who scrutinize sales of American technology to foreigners, Lenovo is preparing to seal the deal with American consumers. It plans an extensive marketing and advertising campaign to implant the Lenovo name firmly in this country's commercial consciousness.
Lenovo has been working steadily to become China's first global brand. Two years ago, it changed its name from Legend to Lenovo (an invented word from Latin novo, meaning new) specifically because Legend was too common and already trademarked in the West.
In acquiring the IBM computer division, Lenovo gained the ThinkPad laptop and the ThinkCenter desktop, two of the best-known brands in the computer industry. Lenovo's strategy is to link its name with the better-known products, until they become synonymous in the customer's mind.
"There will be no doubt that ThinkPad is made by Lenovo, just like iPod is made by Apple," says Deepka Advani, Lenovo's senior vice president and director of marketing. The products will be produced under the IBM logo for five years. As the Lenovo brand becomes better known, the company will eventually drop the IBM logo and sell them as Lenovo brand ThinkPads and ThinkCenters.
The strategy should help Lenovo gain the recognition it wants, say some analysts. "The way the deal is structured, with IBM retaining a stake and putting its brand name on the line, will help them do that," says Oded Shenkar, professor of international business at Ohio State University and author of "The Chinese Century."
Lenovo is now taking the unusual step of moving its corporate headquarters from Beijing to New York State. The company's chief executive, Yuanqing Yang, plans to move to Westchester County soon.
Another Chinese company crossing that great divide between commercial anonymity and renown is Haier. The 17-year-old appliancemaker, based in the Chinese port city of Qingdao, began quietly selling in the US market in the mid-1990s. It now accounts for about half of the American market for small refrigerators (such as those used in college dorms).
Taking a page out of Lenovo's playbook, Haier announced that it is leading a group of investors bidding to acquire Maytag, the No. 3 American appliancemaker. That would give the Haier group control of such all-American brands as Hoover vacuum cleaners, Amana appliances, and Magic Chef ovens.
Another company with huge brand potential is TCL International, China's largest maker of television sets. Much like Lenovo and Haier, it wants to piggyback on famous global brands. Last year TCL acquired majority control of the French televisionmaker Thomson Electronics. That gave TCL use of the American RCA brand. TCL thus licensed the image of RCA's famous little dog, Nipper, cocking his ear to hear sounds emanating from an antique phonograph. "We want to be the next Sony; we want to be the next Samsung," says Vincent Tan, the company's chief financial officer.
A Chinese company that is gradually winning the hearts of music lovers in the US is Pearl River Pianos, which owns the world's largest piano factory. Competing directly with such established brands as Steinway and Yamaha, Pearl River had garnered about 10 percent of the American market in 2002 and is on its way to capturing a quarter of the market for grand and upright pianos this year.
Other Chinese corporations are rapidly gaining the attributes of global multinational giants. About a dozen have already been listed on the Fortune Global 500. But many may never become household words, since they are either resource companies or partsmakers.
For example: One of the newest additions to the Fortune Global 500 is State Grid Corp. of China, the country's largest builder of electric power plants. For the moment it has its hands full trying keep up with the demand for electric power in China. But one day it may be a global force to reckon with the Bechtels and Hyundais and other globe-spanning construction corporations.
Until last week, few American investors had heard of China National Offshore Oil Corp., that nation's third-largest oil company. Then its Hong Kong subsidiary, CNOOC, made a surprise play for US-based Unocal Corp., outbidding another American oil company, Chevron. The bid - easily the largest foreign takeover attempt ever by a Chinese company - has sparked political concerns in the US about the implications of China's rise as an economic power.
A CNOOC takeover would have "disastrous consequences for our economic and national security," US Rep. Richard Pombo (R) of California said at a congressional hearing last week. The Bush administration says it is initiating a top-to-bottom review of its Chinese trade policy.
The brouhaha over CNOOC highlights the perception problems that China's big companies face. They're making their move into the US at a time when American anxieties over China's enormous trade surplus are rising sharply. China is not the first Asian country to face these problems, but it comes with unique challenges. The brands come from a country that is still communist.
Indeed, many of China's new global players are still wholly or partially state-owned, although they function like privately owned companies and are listed on the world's stock exchanges. Lenovo was spawned by the Chinese Academy of Sciences in 1984 at the beginning of China's market transformation and opening to the world. For most of Lenovo's life, CAS still held a majority interest. Haier's longtime chief executive, Zhang Ruimin, likes to call himself the "Chinese Jack Welch" after the famous American business icon and former head of GE. But Jack Welch was never a member of the Central Committee of the Chinese Communist Party.
These Chinese companies may fail because, insulated by the protected cocoon of their home market, they lack global savvy and experienced managers, some say. But Haier, TCL, and Lenovo honed their management and business skills before launching global subsidiaries. The influx of foreign competition in China, especially in the three years since China joined the World Trade Organization, has provided the locals with tough, world-class competition.
Then there's the question of experience abroad. Some management experts wonder whether the Chinese companies will be able to develop the cadres of managers able to operate in foreign locales.
Lenovo officials, for example, talk openly about their need for international management experience.
"The only way I can do my job well is to learn the way IBM does it as soon as possible," Qiao Song, Lenovo's heard of procurement, told Wired magazine.
By acquiring IBM's PC division, Lenovo has gained many seasoned IBM executives. The purchase and decision to move its corporate headquarters to the US may pay off in the long term. "The move is important not only for branding purposes but even more so for developing capabilities," says Professor Shenkar.
Lenovo was almost knocked out by American and European computer firms, when tariffs on imported computers were lowered substantially in the early 1990s. It still faces intense competition at home from Dell - competition that has kept its profit margins and stock values low. Yet it withstood the foreign onslaught to emerge as the largest seller of personal computers in China and now it's the third-largest PC company in the world.
Head office: Beijing (soon New York)
Founded: 1984, in a two-room bungalow in Beijing by 11 scientists from the Chinese Academy of Sciences, a government agency charged with commercializing research. It's now the leading PC maker in China and the third-largest PC maker in the world.
State ownership: Lenovo's purchase of IBM's PC division last year put the government's stake at just under 30 percent.
Head office: Hong Kong
Founded: 1981, to make cassette tapes. Now the world's largest maker of television sets.
Acquisitions: German electronic-appliance maker Schneider; joint venture with France's Thomson Electronics.
State ownership: The Huizhou Municipality owns 25 percent, the rest public.
Head office: Qingdao
Founded: 1987. China's leading maker of white goods, such as washing machines and mini-refrigerators. In the US since 1994. Opened a factory in Camden, S.C., to make full-size refrigerators for the US market.
State ownership: None; Haier is a "collective," with 100 percent of profits retained by the company.
Pearl River Piano
Head office: Guangzhou
Founded: 1956, well before market reforms were introduced but has prospered in recent years selling pianos to rising Chinese middle class. Owns the world's largest piano factory, turning out 250 models a day. Has joint venture with Japanese pianomaker Yamaha.
State ownership: 100 percent Guangzhou Municipality.