November 30, 2004

China's Name Brand Grab: From Rovers To Twinkies

The Chinese mineral grab is now an auto-parts America...and an autoparts BRAND grab in England, with MG Rover. It will soon be the Twinkie grab. More on that in a second. The Chairman of the Hong Kong Chamber of commerce made a comment when I heard him speak in June. He said the Chinese would eventually have to get better at marketing and branding. He also said they would also change their image from being producers of cheap plastic junk or simple manufactured producers of global name brands. He cited the Japanese post-war example. Japan moved from being a low-cost producer of low-level consumer and manufactured a low-cost producer of premium quality cars and electronics. The Chinese, he said, will make a similar transition. One way to do that is to BUY recognized global name Rover for example, instead of trying to build one. The Chinese don't just want to compete on price alone...they want to compete on cars obviously, but perhaps in other goods as well. The Europeans have the high-end consumer good markets locked up pretty well...companies like LVMH...and current darling Burberry. Of course you see great fakes of all these high end consumer goods everywhere in China...and to my untrained eye, you can't tell the difference. For all I know, the Chinese products are better! It could be that having something expensive made by a Western company is a status symbol...a sign of conspicuous consumption...and that no Chinese firm will ever really crack the high-end consumer goods market. That could be. In that case, the Chinese will just have to buy Burberry! Just like theybought MG Rover. For investors, it's another short list to build. Look for high-profile, struggling brands that could be taken over by Chinese investment. Chinese investment flows have recently started "going the other way," headed back towards investment in brands and bankrupt businesses inthe West.) And by the way, as a recent article in the Wall Street Journal showed, it's not just high-profile brands, but rust belt businesses like auto parts you'll want to look at. More on this in the January issue. Interstate, the 77-year oldIowa based comany (Wonder Bread) filed for Chapter 11 in September. With all the Atkins non-sense, the Twinkie brand is getting crushed (although according to a Sac-Bee article from the weekend Deep-fried Twinkies areone of the season's most popular Christmas gifts, including iPods and gift cards). Bureaucratic blowhards in Canada and Europe want to ban any food containing something called Trans Fats because it makes the children plump and sugary. This could be bad for Interstate's future. But surely Chinese children need sugar! And surely the Comrades of the Central Committee in Beijing would admire the logic of the plan...fatten up America...literally. Make them too fat to compete with thinner Chinese counterparts. If the dollar utterly collapses and Americans can no longer afford DVD and Tivo players (a hot item at Wal-Mart on Black Friday...$8 billion in retail sales all over America), they can afford HostessTwinkies. Plus, they're just plain delicious. I would personally like to see it since I can't find Twinkies anywhere. And won't it be just a matter of time before someone finds out that the low-carb diet is bad for some serious and scary way? Anyway, Interstate seems to be doing fine on its own, as you can see from the chart above. Until the Chinese make their Twinkie acquisition bid, I suppose we should keep our eye on the Autoparts and automotive business. The excerpt from an article in today's Telegraph shows that Europeans are already deeply concernced. In my most recent report, I predicted GM would be a Chinese company by 2050. Maybe I should have said Volkswagen...or Mercedes-Benz. From today's Telegraph. EU Spells out Trade Threat From China "China's lightning advance into the production of cars, computers and high-tech industry poses a serious threat to Europe's economic base, according to a report by the European Commission. "Guenther Verheugen, the new enterprise and industry commissioner, said the EU must improve to avoid quick relegation down the world's economic league as Asia storms ahead on every front. "Once despised as low-cost producer of shoddy textiles and toys, China is now starting to match western technology, but at a far lower cost." "...China's industrial policy has selectively attracted foreign direct investment in technology intensive industries in order to benefit from foreign technology and organisational know-how," said the report. Mr Verheugen said Europe needed to respond by spending far more money on research and development."


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