On October 28, Ford announced that it had picked China's biggest carmaker, Geely, as the preferred bidder for its Volvo brand. In June, General Motors, the former car giant and current burden to the American taxpayer, announced that it would sell its Hummer brand to China's Sichuan Tengzhong Heavy Industrial Machinery Company Ltd. These recent deals lend credence to the idea that the purchase of IBM's PC hardware division in 2004 by Chinese computer giant Lenovo was the beginning of a trend. In all these cases the brand itself seems to be the most valuable asset of the purchased companies. But why are Chinese firms so keen on buying brands rather than building their own? Japanese and Korean firms did not feel the need to buy well-known US brands during their ascent in western electronic and car markets. For example, Toyota never bought ailing Studebaker for its brand. The answer may, surprisingly, be more cultural and historical than economic.
After repressing a revolt led by powerful noblemen in 154 B.C.E., the second emperor of the Han dynasty mandated that Chinese nobles divide their lands equally between sons. By forcing division he hoped to fragment the power base of the hereditary nobility and disrupt the continuity of succession. This effort seems to have been remarkably successful not only in terms of disrupting the nobility, but over two millennia later Chinese communities still practice a system of coparcenary inheritance in which a family's assets are divided more or less equally between heirs who then can take their inheritance and steer their own course. This means that Chinese businesses tend to neglect building brands in favor of diversifying into assets that are easier to split between heirs who many not want to be forced to cooperate under the umbrella of a valuable brand name. Additionally, a century of instability and uncertainty discouraged long-term investment in building a brand. This results in Chinese firms that have little experience building brands and hence a dearth of well-known Chinese brands.
As opposed to the three richest Americans whose names are synonymous with, if not overshadowed by, the brands that made their fortunes (Bill Gates - Microsoft, Larry Ellison - Oracle, Warren Buffet - Berkshire Hathaway), of the world's three richest Chinese (Li Ka-shing, Raymond, Thomas and Walter Kwok, and Lee Shau Kee) none is associated with any internationally known brand. While names like PetroChina, Bank of China and China Telecom are becoming more familiar, these brands generally owe their renown and tremendous size to ownership by and special relationships with the Chinese government. Tiger Balm and Alibaba, private internationally recognized brands built by ethnic Chinese, may be the exceptions that prove the rule.
None of this is to say that it is impossible for a Chinese firm to build a valuable international brand. Rather, a combination of culture and history means that they have not developed experience in brand building and, currently, the US seems to have a comparative advantage in internationally known brands. Someday brands established by China's entrepreneurs will probably be as familiar as Sony, Toyota and Samsung, but for now, cash-flush Chinese firms seem content to snap up American companies for their names, especially while economic troubles mean that they can be acquired at bargain basement prices. In other words, do not be surprised if other brands owned by near-fatalities of the financial crises end up in the hands of Chinese companies with names as familiar as Sichuan Tengzhong Heavy Industrial Machinery Company Ltd.