Chinese brands go global

While China has been the world’s largest exporter for years, the contents of the containers departing from the People’s Republic are now undergoing a subtle yet significant change. From producing goods for foreign brands, Chinese manufacturers are now increasingly producing for their own and taking them global.

Maersk Midea
It takes the workers at Midea’s production line at the factory in Shunde an hour to put together a microwave. Millions are exported annually, and as Midea goes global, an increasing number are labelled with Midea’s own brands. Photo: Rene Strandbygaard

In the city of Shunde, located at the core of southern China’s Pearl River Delta, is the headquarters of the Midea Group, one of the largest white goods companies in the world.

In the last 15 years, Midea Group’s exports have ballooned from USD 100 million to USD 8 billion. The company has transformed itself and now it is ready for the next challenge: bringing the Group’s own brands onto the global scene.

“We have a lot of work to do, because in some emerging countries the consumers’ perception is a real issue for Chinese brands. It will take some time for them to accept Chinese brands, and that is a challenge for us. Once we have gained these experiences, we can probably look to the mature markets,” says Senior Vice President Andy Gu, who is responsible for the Group’s international business.

New trade patterns

Midea Group is a typical example of current developments in Chinese trade patterns. China’s export boom of past decades has been driven by Chinese companies that have produced for global brands and consumers at low cost. Simultaneously, Chinese companies have built their own brands in the local market, and many of these are currently transforming from local to global brands.

“We need to keep a delicate balance between producing for other brands and our own brand business, so our major focus is on the emerging markets where even the Western brands are not very strong,” Andy Gu explains.

Poster image
See how Midea Group is spearheading the changing trade patterns in China. 4:02

In the past our strength really was in our lower cost. That is no longer true, so we are positioning ourselves as best cost suppliers. Best cost is a combination of product, service as well as price. These are the three major areas in which we compete in growth markets.

ANDY GU, SENIOR VICE PRESIDENT, MIDEA GROUP

The trade champion

Hooked on trade. China became the world’s biggest trading nation in 2012 after growing imports and exports for decades. 

Source: Bloomberg
Shipped in

One in six containers globally are shipped to China.

Shipped out

One in three containers globally are shipped out of China.

Out of an expected USD 23 billion turnover in 2014, the Midea Group’s exports account for USD 8 billion, and while it has sold products domestically under its own brands for years, the majority of the export business has been made up of products for well-known global brands.

Midea Group exports refrigerators, washing machines and dishwashers, to name but a few. In recent years, the Midea Group launched its own brands in a growing number of foreign markets, primarily in South America and Africa.

Driving exports
Zhang Ye is the president of the Shanghai Shipping Exchange, an agency under the Ministry of Transport that implements freight filing regulations and also publishes weekly container freight indices. According to him, Chinese companies going global, i.e. the emergence of Chinese brands in the global marketplace, is a clear and ascending trend:

“The new trend will for sure drive exports from China,” he says.

“Companies that are going global are playing the role as a driving force in mainland China. These companies motivate other companies to go global, while at the same time pushing the products manufactured locally to cater more to the needs of the global market,” Zhang Ye adds.

As part of going global, the Midea Group opened seven factories outside China which, combined with products for own brands and global brands from its Chinese factories, have seen a more complex supply chain emerge.

“The time between shipping the components and when the finished goods reach our customers is much longer than what we were used to, so we have been trying to figure out how to integrate supply chains and provide much more efficient operations outside of China,” Andy Gu says.

He says that Maersk Line “definitely” helps the company in the process, due to its broad global coverage with offices in 120+ countries where the staff can provide helpful local insights.

“Some ports that are difficult for us to handle are much easier for them. For instance, we ship components to Brazil where Maersk has a huge presence, and it’s much easier for them to handle the business at the port and further on to our factory in Manaus.”

Shanghai
Zhang Ye, President of the Shanghai Shipping Exchange.


This translates into new demands for Michael Fu, Maersk Line’s Account Manager for the Midea Group, who helps the Group to control the entire flow from the production in China to the delivery at foreign warehouses, factories and even shops.

“A stable service enables Midea to keep leaner inventories. For Manaus, this lowers costs while keeping the factory running smoothly. Without this reliability, Midea would need to stock up on supplies or risk a production stop,” Michael Fu says.

A journey of logistics optimisation
Fuyao Glass, a Chinese customer of Maersk Line, is the second-largest automotive glass manufacturer in the world, with the ambition to become number one.

Based in Fuzhou, one of the gateway ports in East China, Fuyao has 70% of the market share in China, 35% in the United States and 23% globally. Its clients are a “who’s who” of the auto industry: GM, Daimler, BMW, Volkswagen, Bentley and Rolls-Royce.

Prior to 2011, however, Fuyao was struggling with messy logistics management during the rapid growth of their business in past years. Having transparent costs and an efficient management system became a priority for their logistics management, and Maersk Line was ready with an offer.

“The Maersk Line team in Fuzhou proposed to Fuyao that they centralise all logistics procurement to their headquarters, launch the freight tender once or twice annually and cut down the number of logistics and shipping suppliers,” says Hom Wan, Maersk Line’s Account Manager for Fuyao.

After three years of continuous optimisation, the number of suppliers has decreased from more than 100 to 10; general shipping costs have declined and the sales and production divisions are free from logistics management.

Still progressing
Experts estimate that Chinese companies have the ability to become truly global within 15 years. President of the Shanghai Shipping Exchange, Zhang Ye, nods at the assessment, summarising the current status of the trend as “entering” the global markets with the potential to progress to “staying and developing” in three years.

“And this is likely to happen,” he says, pointing to three driving factors: the Internet creates a clearer picture of global demand, China has the necessary economic capability, and continuous reform and opening of China, the concept of globalisation, will gradually open up the minds of Chinese people.