Developed markets show Chinese appliance brands how to improve both their products and marketing

Leading Chinese appliance brands see the European and North American markets as highly important in helping them to establish a global footprint, though they also find them tough nuts to crack.

Chinese brands, like the white goods manufacturer Haier, have been persistently growing in Europe and North America because they believe the tough competition in the two regions can help them learn how to improve both their products and marketing strategies. In turn, these lessons could be beneficial when they explore other markets.

It is the classic lesson from the school of hard knocks: Competing successfully in developed markets and beating the best in the world is an endorsement of product quality.

And, by gaining prestige through success in developed markets, companies gain additional marketing tools for the ventures into emerging markets.

Haier, for instance, entered North America by finding a niche market in compact refrigerators for student dorms. In Europe, it also had some success in product innovation. In the United Kingdom, some of its products were rated with a "best buy" recognition by which.co.uk, a trusted platform for consumers to seek product advice.

But the difficulty of truly establishing an appliance brand in Europe cannot be underestimated. In the white goods sector, the dominance of two established European brands - Electrolux of Sweden and the Bosch and Siemens Home Appliances Group of Germany, makes it tough for new market entries.

Electrolux as well as Bosch and Siemens each have a comprehensive range of products, from premium products to low-cost products, that is backed by strong brand reputation and recognition. Other challengers to Chinese companies are the white goods brands from Turkey and other parts of Asia that have already entered the European market and established their niche advantages.

These are the obstacles for Chinese brands. While they could enter a market with attractive prices, that strategy may lead consumers to believe the products are of inferior quality.

The highly mature white goods market in Europe is very different from other sectors, like the electronic goods sector, where the Chinese multinational Lenovo operates. For Lenovo, its entry into Europe was slightly easier because the continent doesn't have many indigenous electronic goods makers, meaning European consumers do not have strong emotional attachments to a single local producer.

Another factor that makes the white goods sector difficult to enter is the durability of most of the products in the market.

Consumers may be happy to give Lenovo a try, after a few years of which they may switch to another brand, but they may be more reluctant with a Haier fridge or washing machine that will last 15 years.

Thus, in the face of tough market conditions in Europe, the key for Chinese appliances is to have a long-term strategy and more investment in marketing and sponsorships.

In North America, Haier's sponsorship of the National Basketball Association has been a great boost to its brand. In Europe, it could also conduct more sponsorship events, such as marketing activities for major European soccer leagues like the British Premier League and the German Bundesliga to help the brand gain an association with quality. It is important here to realize that entering mature markets North America and Europe as a first step to international expansion may not be the best idea for every company.

While the industry leaders in China can test the waters in mature international markets and not have the pressure to generate profits immediately, companies with less financial strength may struggle and be forced out of the market by tough competition.

A less aggressive strategy, which was adopted by the Chinese appliance brand Midea, is to first develop in emerging markets or other markets closer to home. In these markets, profits can be generated straight away. After a few years, these companies can grow and be ready to tackle more mature markets.

Both business strategies have their merits. If a Chinese appliance brand chooses less competitive markets as the first steps to its international expansion, they won't learn as quickly as they would have had they faced stiff competition in a developed market. But some emerging markets don't have stable environments to accommodate a level playing field for foreign companies.

Emerging markets are by no means easy options, as geopolitical, business and foreign exchange risks are all factors Chinese companies have to consider.

Whatever path Chinese appliance makers choose, they must have a long-term plan. It will be another few years before Chinese appliances become household names in Europe, but it will happen in the near future.

The author is lecturer at Leeds University Business School and director at the Business Confucius Institute at Leeds University. The views do not necessarily reflect those of China Daily.

(China Daily European Weekly 02/06/2015 page9)