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  China shops for new US export: global brands
by Carl D. Howe
July 18, 2005

China's US$ 18.5 billion bid for Unocal shows that it has recognized an undervalued American export: global brands. Just as the US economy transformed from manufacturing to services in the last century, it now has the potential to transform into a brand economy.

Today's newspapers (the Los Angeles Times, New York Times, Wall Street Journal, to name a few) are abuzz with China National Offshore Oil Corporation's (CNOOC) $18.5 billion bid for US oil company Unocal. China is going shopping for US companies, no question. Last year's purchase of IBM's PC business by Lenovo, and Haier's bid for Maytag this week, laid the groundwork. But why does China want these businesses that US companies have chosen to put on the block?

 
 

I believe that China has recognized an undervalued American export: global brands.

Today, despite manufacturing most of the world's low-cost goods, China has no easily recognizable global brands. It has only a few well-known national brands, such as Flying Pigeon bicycles or Great Wall computers. But rather than start from scratch and build its own brands, China has taken a page from the West and decided to buy its global brands from someone else, namely the United States.

And why not? According to research published by BusinessWeek and Interbrand about the Best Global Brands, in 2004, US brands accounted for 71 percent or $706 billion out of the nearly $1 trillion business value for the top 100 brands. Further, my own company, Blackfriars Communications, notes that US businesses will spend nearly $1.1 trillion on marketing in 2005, much of which is targeted at building brands. No other country has built as much value in global brands nor does any other country spend nearly this amount on marketing; the United States is truly the brand economy.

The deals we've seen so far show that China's businesses understand brand value. The $1.75 billion takeover of IBM's PC business by Lenovo gave it access to the IBM brand (valued by Interbrand and BusinessWeek at nearly $54 billion in 2004). Haier's $1.3 billion bid for Maytag would give it $400 million in value for brands like Amana, Jenn-Air, and Magic Chef. After subtracting the value of those brands, the business itself would cost less than $1 billion. These bids and deals show that even when US companies don't feel they can thrive in specific markets, the brands have real, marketable value.

The US prospered during a manufacturing economy from 1900 through 1980. When Japanese and other Asian tigers took over manufacturing leadership, it thrived again with a service economy in the 1980s and 1990s. The rise of a brand-hungry China offers the US an opportunity to turn the 9 percent of GDP it invests in marketing into exportable brands. We just need to recognize that exporting American brands may become a bigger business than Microsoft exporting software—and require just as much US business expertise and know-how.

 
   
   Carl D. Howe is principal and co-founder of Blackfriars Communications, Inc., a marketing, training, and research firm in Maynard, Massachusetts.



 
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