Huawei maybe the best company many Americans and Europeans have never heard of, and that's a big problem for China, according to a recent report in Newsweek entitled Generic Giants. With revenue of more than $18 billion in 2008, soon it will overtake Nokia Siemens as the world's second-largest maker of telecom hardware, after Ericsson.

The challenge for many Chinese companies as they go global is to build an attractive brand image that motivates consumers to pay premium prices for their products.  Headquarters in booming Shenzhen, the telecommunications equipment-maker with a hard to pronounce name made BusinessWeek's latest list of the world's 10 "most influential" companies, alongside Apple, Wal-Mart, Toyota, and Google. Yet Huawei is by far the least internationally recognizable name on the list.

The Chinese government is calling on local companies to build up their brands. According to Newsweek, Premier Wen Jiabao in March called for China to create companies that can innovate and churn out "brand-name export products"—meaning companies with reputations for quality, innovation, and service so strong that customers are willing to pay a premium for their products.

And Huawei is not the only company trying to change its business strategy. In March, Shandong-based manufacturer Haier announced that it was leaving direct manufacturing and concentrating on building the company’s brand and service network. Despite Haier’s fame as a manufacturer, the move was not unexpected, said Kent Kedl, general manager of Technomic Asia, a market strategy consultancy.

“It’s a very natural progression. I don’t think that’s a surprise... that’s the way all brands need to go.” Kedl was quoted in the China Economic Review (CER) as saying. “They start off with the manufacturing [and then] move to being a product developer and marketer.”

Companies find it difficult to differentiate their products and build value. A key reason for China's failure to build global brands is cutthroat domestic competition. In most product categories, hundreds of firms compete for domestic market share, leaving profit margins razor thin. For example, China has more than 500 bicycle manufacturers.

Building a brand takes time, money, and often a complete change in the organization’s strategic priorities. “Haier is still very much a [short-term] sales organization,” Tom Doctoroff, Greater China CEO of JWT said to the CER in June. “Marketing organizations back short-term sales with long-term equity to a point where they are able to command a price premium... There’s no evidence that Haier has made much progress in reinforcing that value added – both on an emotional level and on a functional level.”

The best Chinese companies are putting pressure on industry leaders. The latest Boston Consulting Group (BCG) list of 100 "global challengers," or firms "disrupting the established order of many industries," includes 36 Chinese companies, more than from any other country. Chinese companies, such as Haier and Huawei, have shown "demonstrable success" in ensuring quality control, says Benjamin Pinney, a principal in BCG's Shanghai office.

Despite Haier’s decision to leave the factory floor, China's manufacturing sector has emerged strengthened by the recent turmoil in global financial markets and the country is moving up fast on the services front as well. So says a recent report from PricewaterhouseCoopers on the relative attractiveness of emerging markets for investment by UK businesses.

China's manufacturing sector has shot up from 14th position in PwC's index in 2008 to become the fourth most attractive destination in 2009, beaten only by Malaysia, Chile and Bulgaria, which are all much smaller economies.

The “Made-in-China” brand has suffered as industries like pet foods and baby milk have endured product recall disasters. Newsweek cites a report last year by Interbrand, a London-based consultancy, found that 66 percent of 700 international business professionals cited "cheap" as the attribute best describing Chinese goods. Only 12 percent of respondents said that made-in-China quality was improving. Eighty percent said a "low quality" reputation "most prevents Chinese brands from succeeding in overseas markets."

Doubts also remain over the safety of intellectual property. In 2003, California-based Cisco Systems sued Huawei in highly-publicized case for copying computer codes used in routers. The Chinese company was forced to pull the contested products from the market before dropping the case.
 

While many companies based in China have struggled with quality issues, the country is making progress. Apple depends on its supplier Foxconn to make its popular iPod in China. Foxconn is able to meet the highest standards of quality. The product says 'Designed in California, Assembled in China' on the back of its package.

Branding success for Haier and Huawei will require investments in market research and in improving its corporate structure to become more competitive. However, JWT’s Doctoroff thinks a necessary cultural shift is still a long time off. He concludes, “I don’t think it’s going to happen until the new generation comes into power...  You’re really talking about another 10 years at the minimum.”