100 Brands and a Picture of Modern China

Today, for anyone interested in China (i.e. anyone interested in the future), a treat: the launch of the annual BrandZ ranking of the 100 most valuable Chinese brands.

As ever, what it tells us about the People's Republic is even more fascinating than the list itself.

First though, hot off the presses, here's the top ten:

Tencent, the giant internet services company, took top spot for the first time and Alibaba entered the ranking in second place after its record-breaking flotation last year. Long-time number one, China Mobile, is now third.

The combined value of the top 100 is $464.2 billion, a staggering increase of nearly 60% since WPP commissioned Millward Brown to produce the first BrandZ China ranking in 2011.

But what are the stories behind the headline numbers?

1. Market-driven brands are outstripping state-owned enterprises

Reflecting China's economic rebalancing, and policy shifts to encourage greater competition, market-driven brands (those without state shareholder backing) dominated in terms of value growth. Their value grew by 97% in 2014, while state-owned enterprises (SOEs) fell by 9%.

Even when the impact of the Alibaba juggernaut is excluded, the value of market-driven brands rose by 43.5%.

In 2011, every one of the top five was an SOE. Today it's just two. Market-driven brands now make up 47% of the total value of the top 100, compared to 29% last year.

What all this suggests is that government policy, shaped by the Third Plenary in November 2013, has succeeded in producing more favourable conditions for more open competition and brand value creation in China.

2. Tech brands are outstripping everybody

Technology companies and tech-related retail brands – which occupied three of the top five slots – were the dominant force in the latest ranking. Tech has now overtaken banks as the highest-value category ($106.9 billion) within the top 100, contributing 23% of its total value. In contrast, tech brands account for less than 1% of brand value in the equivalent Indian, Brazilian and Latam rankings.

The BAT brands – search engine Baidu, ecommerce site Alibaba and portal Tencent – have expanded from their core offering to enter each other’s domains. Through alliances and acquisitions, each has attempted to become the default web ecosystem, the one-stop destination where customers can satisfy all their needs for search, news and entertainment, ecommerce, banking, email and myriad other services. The competition between them has helped to drive them all higher in brand value.

In this super-connected country, estimated to have 480 million smartphone users in 2014, the rise of tech brands looks set to continue.

3. The Chinese no longer see Chinese brands as inferior to multinationals

Five years ago, there was a 26-point difference between the "brand power" of Chinese and multinational brands in the eyes of Chinese consumers. Today the scores are almost identical.

The Chinese used to associate the idea of "premium" products with global brands, but that tag no longer belongs solely to the multinationals.

Consumers have become savvier, demanding quality products with better functional properties, but at a price reflecting China's more modest economic outlook. Xiaomi, for example, has become the most popular mobile handset maker by offering an affordable luxury concept – a premium brand with Chinese characteristics.

Two key factors are driving this change: 1) Chinese brands have become better at developing and implementing marketing campaigns, and integrate their marketing and sales functions more effectively; and 2) more sophisticated, thriftier Chinese consumers see brand as a symbol of value and not simply a badge of status.

4. Brand investment delivers superior stock market returns

Between July 2010 and October 2014, the MSCI China (a weighted index of Chinese stocks) increased by 4%. During the same period, a share portfolio consisting of all the BrandZ China top 100 brands appreciated by 32%.

This proves firstly that valuable brands deliver superior returns, and secondly that investments in brands to differentiate them from the competition are rewarded in the stock market.

As the BrandZ report says, the relationship between brand value and strong returns is becoming even more critical in China as it moves to a more market-driven economy, brands compete on a global stage and investors expect results.

5. Chinese companies are getting the itch to expand internationally

The spectacular arrival of Alibaba in the West's consciousness, in the form of its flotation on the New York Stock Exchange (now valuing the company at more than $250 billion), has done much to improve the international reputation of "Brand China".

Floating Alibaba instantly made it one of the most valuable companies in the world. Acceptance of Chinese consumer brands (as opposed to investment opportunities) will take longer. However, having traditionally concentrated on their vast home market, Chinese firms are now setting their sights on international territories.

No-one walking the floor at the Consumer Electronics Show in Las Vegas earlier this month could fail to notice the number of Chinese brands on display.

Eight of the BrandZ top 100 already derive more than a quarter of their revenues from overseas markets. For Lenovo (the world's leading PC manufacturer) and ZTE (telecommunications equipment and systems) it's more than half.

The pace of change will depend on the determination of Chinese firms to move from being manufacturers for Western brands to being marketers of their own brands.

Some dismiss out of hand the idea that the West could embrace Chinese brands. But that's what they said about Hong Kong, Japan and South Korea.

Photo: Cecilie ?stergren