China 2008: National Brands v.s. International Enterprises

This next installment in the CDT series on important issues facing China in concerns China’s domestic market. See also previous articles: China and the Developing World, Nationalism, Internet Culture, and Identity, Environmental Crisis, The Global Financial Crisis, Revaluation of the Yuan, and Human Rights.

If we can say that the 2008 Beijing Olympics was a brilliant show in which China tried to market itself to the world, then the Sanlu milk contamination scandal marked the beginning of the post-Olympics period in which China returned to reality. Although the nation is already one of the world’s greatest economic powers with respect to its gross domestic product, there has always been a fear among many Chinese people of an invasion of foreign multinationals. The state has been trying to promote national brands, but, just like Sanlu’s milk, the quality of their products has encountered problems. Among the newly rich and also some less wealthy, the cult to go after foreign brands is still growing, and international brands still dominate, especially in the high-end technology market where Chinese national brands have always had difficulties with their lack of innovation.

CDT has been tracking several events in China’s post-Olympics domestic market where Chinese customers face tough choices with respect to national and international brands.

The first event started with Microsoft’s attempt to attack piracy, which began with its lawsuit against Hong Lei, the developer of “Tomatolei,” the most widespread pirated version of Windows XP in China. Hong Lei was quickly put in jail in September. Then in October, launched its controversial WGA patch update which black-screened pirated Windows XP users’ desktop backgrounds every hour. As a result, this move triggered an eruption of anger and discontent from Chinese netizens toward Microsoft. However, the anger could not solve the problem. The state encourages people to switch to the open source platform Linux, but for the majority of ordinary users, there are not too many alternatives but to continue to use pirated versions with “black screens” or simply not install the update as the official prices of authentic versions are still fairly high for them.

The second hot topic was the news, “Jailed Customer Faces Large International Enterprises.” Two years ago, ASUS accused Huang Jing, a female college undergraduate, of extortion as Huang asked ASUS for $5 million so she would not publicize problems with her ASUS laptop computer. Huang was put in jail for ten months and was finally released for insufficient evidence. The news became heated this November as Huang got reparations from the state and started to countersue ASUS for selling defective products and putting its customer in jail.

The Taiwan-based ASUS soon became a target of angered online criticism as many people had experienced frustration with consumer rights protection in China. (However, international brands are usually considered more reliable.) The event seemed to become just another case in which netizens played the role of justice against civil rights abuse. However, as the discussion garnered more people’s attention, some netizens pointed out that Huang’s partner and agent, Zhou Chengyu, was actual a notorious online second-hand laptop reseller who had tricked sellers and buyers many times. As more details were later revealed by the Chinese media and also ASUS, Huang and her partner looked more and more suspicious. Some netizens have quit the campaign against ASUS as they found little justice to fight for. Many are still in the battle as they have more distrust toward the alienated ASUS despite all the negative news about Huang Jing. However, very few have shown their support toward ASUS.

The Baidu scandal somehow reflects another side of Chinese consumers. was once thought of as a successful model of Chinese native brands. It has been constantly dominating China’s search engine market, surpassing the international search engine giant as it was once considered to produce better relevant search results for Chinese customers then . However, due to suspicion of its guilty involvement in the Sanlu scandal as well as its later bid-ranking scandal, which unfolded in November, it has become a new target of online criticism largely driven by netizens’ general anger toward internet control. The native Baidu is probably going to lose Chinese customers’ trust if it does not change its strategy in the near future, as many netizens have already declared to not use Baidu products anymore. In contrast, Google has recently become exceptionally favored by many Chinese netizens although it also exercises some Internet control in China but only in the political sphere.

Just like in many developing countries, there is a general hostility toward foreign things in China as people tend to regard foreign factors as the causes of many domestic problems. The custom has a very complex historical origin and can be traced back to as early as the Boxer movement in the late Qing Dynasty. Many people always suspect that there is some western conspiracy behind their misfortunes. For instance, in the Microsoft case, some netizens suspect that it was Microsoft’s “conspiracy” to first let pirated versions of Windows XP occupy the Chinese market and sweep out native software. Now Chinese people’s daily life heavily relies on Window, so it has started to kill pirated versions and become a monopoly. Similarly, ASUS got alienated as there is a general suspicion (with the state’s tolerence for political reasons) that Taiwan-based corporations have done many unethical things in mainland China such as in the 2006 Foxcoon case and 2007 Xiamen PX case. For the same reason, Google got alienated too when it first entered China in 2005.

It is also believed that supporting national brands will somehow help solve problems. Nationalists even take their claims further to deny foreign products as a means to help their nation. (See the 2008 Carrefour boycott, and the anti-Japanese movement in 2005.) According to a recent study, Nationalism plays a very important role in making Chinese customers’ decisions.

However, some people sometimes find little moral ground to support their sentiment. After the milk contamination scandal was fully revealed, many completely lost their trust in domestic milk companies, many of which were once national/local pride while the New Zealand company Fonterra won the respect of many Chinese. In the Microsoft case, some netizens also doubted whether they, as pirated Windows users, have any moral ground to condemn Microsoft. Similar things also happened in the ASUS case as some netizens pointed out that Huang Jiang and her agent are too greedy, and also ASUS wasn’t responsible for jailing Huang Jing (but the state was).

They also find that sometimes some national brands are just not worthwhile for them to support. Some national companies lack an adequate business ethical code as they only know how to make profit but have little concern for their users’ experience. After people found that Baidu used its political advantage to make a profit in business, many of them have turned to Google as its “Don’t Be Evil” motto now has become more appealing to them. Also, in response to Microsoft’s anti-piracy effort, there was also this news that Nanchang city forced all internet cafes to replace pirated operating systems with Red Flag Linux, a Chinese-made Linux system. However, the one-time forced installation fee is RMB 5000 (approximately $725, which is far higher than a reasonable price for a Chinese small business) while Red Flad is in no way better than any other open-sourced versions of . (See the artcle “The World’s Worst Way to Market Linux.”) It seems like local protectionism, and besides offering native companies easy money to make, does not really help them build their products better.

In the age of globalization, Chinese customers have experienced a difficult dilemma between national brands and foreign multi-national brands, which will probably continue to be a big theme in China’s future economical development.