China’s ‘brand perception’ is holding it back – but that might be changing

Ed Conway wrote an interesting article in The Times this week pointing out that, while the numbers might suggest that China is the “world’s greatest manufacturer”, the truth is less straightforward.

Your smartphone might have been made in China, but “the real technological wizardry, including the display, the processor, the battery and the storage chips, were probably made elsewhere.” China is currently the world’s assembly point, not its “factory and design house” – some 36% of total Chinese trade consists of goods made entirely from foreign components.

Before China can make the transition from low-wage manufacturing economy to the high-wage mixed economy its leaders are always  talking about (the China 2030 plan), that has to change.  Conway reckons that is beginning to happen.

He points out that the latest iPhone has a battery that was made in China rather than in Taiwan, and that “the most interesting new smartphone manufacturer” around at the moment, OnePlus, is “actually Chinese”.

He may be right, but before China can really move on from being an assembler of goods for export to being a creator of goods to export it has one more major hurdle to overcome – brand perception.

You may have read over the last few years about Chinese tourists buying baby milk and nappies to take home with them, and last week I pointed you to the odd story of Okamoto, a little-known firm with a grubby head office in back street of Tokyo. Okamoto makes condoms. And despite its unprepossessing office, says, it is a $1bn company by market capitalisation, with world-class materials technology, shares at a 22 year high, a transitional marketing push in the works, and a name synonymous across much of Asia with “better sex”.

You see, Okamoto condoms are made in Japan. And as such they are trusted by the Chinese (it’s all about quality) in way that Chinese condoms just aren’t. So nearly every Chinese tourist that comes to Japan (and 2.8 million have gone this year so far) buys Okamoto condoms at the same time as they buy Japanese nappies (less likely to cause rashes) and watches (if you buy them in Japan you know they aren’t fake).

This matters. If the Chinese don’t trust their domestically designed products, why should the rest of us? But it is also something that can change very quickly: remember when everything made in Japan was considered to be unusable rubbish? It wasn’t that long ago. And remember when the same was true for Korea? According to the JD Power quality rankings, Kia now makes the second-best quality cars in the world (after Porsche).

Perhaps Conway’s admiration for the OnePlus suggests the tide might soon turn in China too.