The recent decision to depreciate the yuan by the People’s Bank of China, or central bank, caught many people by surprise. This triggered speculation that all was not well with China’s economy.
But now that the dust has settled, it is time to reflect on the deeper implications behind the exchange rate decision. In doing so, it should become clear that this was a carefully calculated move by the Chinese government as part of its reforms to modernise and internationalise the country’s industrial base.
While many companies here have built successful domestic and international brands, the global marketplace has become extremely competitive. Businesses such as telecommunications equipment provider Huawei Technologies Co Ltd and PC manufacturer Lenovo Group Ltd continue to lead the way.
But for the smaller and medium-sized companies keen to follow in the footprints of Huawei and Lenovo, establishing a firm presence in overseas markets still requires a strong strategy. That is why the currency depreciation move will help in this process of brand building.
A few years ago, you would have struggled to interpret the decision to adjust the yuan against the US dollar in this way. But the image of Chinese companies has undergone a major transformation.
Internet, technology and energy brands enjoy an envious reputation for quality, durability and reliability. The currency swing will not change that. At the same time, it is imperative that the government and companies promote publicly the “increased value” of these branded products rather than dwell on the fact that they are now cheaper.
The great strides made by companies in quality and service standards should allow them to put forward a convincing hybrid strategy, where lower prices are perceived as “added value” and not simply a way to generate sales growth.
Honda Motor Co Ltd represents a perfect example of how one of the world’s most successful brands began life by adopting a cost-competitiveness strategy. After international markets accepted the company’s early products, it moved swiftly up the value chain with globally recognised brands.
Once again, credit must go to the Chinese government for producing a policy that boosts brand building. It is now the turn of industry to grab this opportunity and build for the future.