Few would dispute that China is a formidable competitor in the global arena. The growth of the trade deficit between the U.S. and China is a testimony to China’s success.
In the last two decades, the U.S.-China trade deficit ballooned from $10 billion to $273 billion. Toys to televisions, few U.S. or European manufacturers can compete with the economic advantages of Chinese production and labor.
Yet in the global economy, China has a competitive weakness that sits in plain sight: brand equity.
A quick 20-second Quiz:
Easy, right? Now let’s try the same quiz… again, in 20 seconds:
How did you do? Unless you are Chinese, (and maybe even if you are Chinese), the second quiz is much more difficult, correct?
Now, expand this list to most branded products… Unless you’re thinking of martial arts superstars or very long walls, China simply falls short on brand recognition. If you are from Asia, you may know several Chinese brands, but on the global stage, China has failed to become a true brand competitor.
Successful branding is one of the reasons why American brands sell so well. Of course, Japan, Germany, France and other countries have great brands… Sony, BMW, Christian Dior. However, I would argue that in today’s global market United States is still the world’s powerhouse of branded products.
Right now, I’m in my office looking at two computer screens, with the brand names of Dell and Magnavox, a printer branded HP, a wireless router branded Cisco… Yes, I know what you are thinking: Then I look at the little label on the back, and yes, every single one of these items is “Made in China.” All of these products are Chinese-made, but they are American-branded. So are they Chinese products or American products? How much value does the American brand really add to the product?
Ask yourself, as a consumer from the U.S., Europe, Latin America, etc… Would you rather purchase a wireless router branded Huawei or Cisco? Never heard of Huawei? It’s the largest brand of computer router in China… and yes, many tech people might know and trust this brand, but not the average American or European consumer.
Imagine that you are at your local electronics store, and you want to buy a wireless router. The sales person says, “This Huawei router and this Cisco router have the exact same technical specifications and the same price.”
Which router would you buy? I’d guess 95% of you would buy the Cisco router. Okay, the sales person offers to reduce the price of the Huawei router by 10%. Would you buy it now? Okay, 20% off the Huawei router. Would you buy it now? Eventually, a typical American or European consumer might consider the Huawei router… but at what discount?
In short, the difference in selling price represents brand value or brand equity of the competing products. Brand is a matter of marketing. Brand is a matter of perception. Brand is a matter of purchasing decisions. Brand is a matter of global competition. In this regard, China is far behind the U.S., Europe and Japan.
While American and European companies rely on inexpensive Chinese labor to produce our products, China relies on American and European brands to sell the products.
Ponder these questions:
To be clear, I believe that China is a very respectable competitor in global trade. I believe that China produces some of the world’s finest products. (My mother only brought out the fine china porcelain plates on special occasions.) For many centuries, the Chinese demonstrated leadership in global commerce, long before the rise of large-scale European or American foreign trade.
That said, if China wishes to truly dominate today’s world economy, it must first win the global battle of the brands. This will be a tough battle indeed.
By Ray Hays, http://www.rayhays.com
Good news on the economy? Actually, yes, for U.S. Trade. Yesterday, the Department of Commerce released the following update based on July’s numbers: Today’s report showed that U.S. exports of goods and services in July increased 3.6 percent from June to $178.0 billion. The value of exports in July, as well as the individual export values for goods and services, was the highest on record.
In his speech last night, President Obama put a spotlight on America’s competitiveness on the world stage. American technology innovation. American manufacturing. American infrastructure development. American education… And, yes, American exports.
Obama proclaimed his vision is that “Made in America” must continue to be a worldwide brand leader. He received a bi-partisan ovation for that part of his plan. Little to argue on that point, but is it possible in a world where U.S. businesses cannot compete with cheap overseas labor?
I’ll leave the political views to the pundits… Politics aside, Republicans and Democrats both have good ideas on how to increase exports. However, in the real business world, shareholders generally don’t care how you make profits; it’s the financial results that matter.
Yesterday’s report from the Department of Commerce suggests that the U.S. is heading in the right direction.
Can the U.S. double exports and grow jobs over the next five years? The short answer is yes, we can succeed, and we must succeed in growing exports.
First, the U.S. cannot afford to become a second-rate exporter. We have too much vested in the global economy to allow us to fail.
Second, the global economy wants the U.S. to succeed, because the U.S. economy is too big to fail. An unstable U.S. economy means an unstable global economy. That’s why the IMF, the EU and other global players are pleading with Washington to get our economic house in-order.
In a nutshell, U.S. exports equals U.S. jobs. Exports represent 11% of the U.S. gross domestic product. Exports support 10 million U.S. jobs. If the U.S. could double exports in the next five years, we would put millions of Americans back to work. (I will leave the exact calculation to the economist gurus.)
Impossible? Absolutely not. The U.S. achieved this rate of export growth in the 1970s, and with the right focus, we can achieve it again.
Why can I say that confidently? Because I’ve worked with companies that have doubled or tripled their exports in a few years, especially small businesses. My professional opinion is that a focus on helping small businesses to export can make a significant impact on U.S. exports and U.S. jobs.
According to the latest figures from the SBA, small businesses are a big part of U.S. exports. For example, 97.5% of U.S. exporters are small businesses, and they represent 31% of U.S. export value. Small businesses also provide half of the private sector jobs in the U.S. I believe that small businesses have considerable opportunity for improvement and growth in export revenues and export-related jobs.
Many small businesses in the U.S. are willing to export, but they just don’t know how to do it. We need to recruit these potential exporters, train them and assist them in launching into foreign markets.
The advantage of small businesses, it they can make quick decisions and implement an international export strategy, with a tangible revenue impact usually within 3 to 6 months. The only thing they need is some guidance… Their entrepreneurial spirit will take if from there.
If we focus on helping current U.S. small business exporters and identify new small business exporters, here is what I believe the U.S. can realistically achieve:
Combining small business export support with the organic growth of large business exports, (helped by a weak U.S. dollar), the goal of doubling U.S. exports in five years is quite achievable.
How much is this going to cost U.S. taxpayers? Nothing. Currently, the U.S. has thousands of volunteer executives working with small businesses to help them export. These volunteers are members of the U.S. District Export Council, state trade promotion programs, local chambers of commerce and other non-profit organizations. This volunteer initiative can be expanded with zero tax dollars.
What about the tax dollars spent on export promotion? The fact is that U.S. export promotion is run on a shoestring budget, with the collaboration of the U.S. Commercial Service, International Trade Administration, SBA and others agencies. As a business executive, I have used the services of these export programs to generate revenues for U.S. companies and more jobs for U.S. workers.
Export promotion has a multiplier effect because it is a collaborative effort among government agencies, business and individual volunteers. By my estimate (which could be debated), for every tax dollar spent on export promotion generates five to ten times their value in direct and indirect revenue. Export growth results in more business revenues, more U.S. jobs and a healthier economy.
My personal opinion is that export promotion provides a significant return on investment because it is a revenue generator, which very few government programs can claim. I would feel 100% confident in putting more tax money toward export promotion.
That said, I also understand and respect the view that government programs need to run more efficiently, and throwing money at a problem is not the best solution. Perhaps with better measurement of return-on-tax dollars, these programs will merit their fair share of federal and state budgets.
It is good that the issue of export promotion is in the spotlight. Let’s hope that Washington can agree on a strategy that will produce tangible results. Meanwhile, I will continue to do my part, working with like-minded international executives, to help small businesses grow their export revenues and put America back to work.
For more information on the District Export Council and other exporting resources, please see the links on my blog.
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