The Management Transformation and Innovation for Time-honored Brand Enterprises

by Chenye Wang

August 15, 2017

Abstract

“Of the nation, of the world.”

— Qiejieting Prose Collection (Lu Xun, 1935)

The history of a famous distilled liquor, Niulanshan Erguotou, a product of Shunxin agriculture, can be traced back to the Qing Dynasty. According to Shunyi county records of this product, “The wine Erguotou tastes somewhat sweet and it is also the local specialty. It is very popular in the local area” (Beijing Shunxin Agriculture, 2017). During hundreds of years of development, they have been well received by consumers. Recently the product success of time-honored brands such as Erguotou wine has been a concern of several parties. Why is this old Chinese brand declining? How should we revitalize the old shops? What is the best way to approach branding?

According to Lu Xun’s statement, considering the time period, I believe this sentence intended to emphasize the importance of upholding one’s own culture first. In the case of Erguotou, we wish for this unique culture and brand to survive in the local and world markets. If such brands can maintain their own characteristics, the world will be colorful and full of variety. The research on innovation and development for this Chinese time-honored brand is both important and urgent, because it bears a rich agricultural and cultural heritage.

Introduction of the Chinese Concept of Time-honored Brands

Characteristics of a Time-honored Brand

In Chinese language and culture, the term time-honored brand connotes a particular type of Chinese business. Such a business would have these characteristics: a long history, use of ancient legend or skills, a unique business culture, and a people-oriented business philosophy. The term “is an official government distinction awarded to certain brand names and shops that have proven histories” (Killmer, 2011, para. 1).

The designation time-honored refers to products or practices that show the cultural creativity of the Chinese nation, with a distinctive Chinese traditional cultural background. Such products have a unique process or operating characteristics handed down over generations. Many of them have superior techniques compared to similar products, by which they have achieved wide social recognition and a good business reputation for the product or brand. Most of them have survived decades or even hundreds of years, so they are considered living cultural relics. The time-honored brand has accumulated profound cultural connotations of the Chinese nation (Jingjing, 2010). It has played an important role in the development of industry and agriculture, the prosperity of the market, the revitalization of the economy, the promotion of fine culture, and the rejuvenation of the Chinese national spirit.

The value of a time-honored brand is twofold (Zhang, 2011):

  • Economic value: A time-honored brand can bring not only a gilded signboard and great wealth, but also increases the value of intangible assets for enterprises.
  • Social value: A Chinese time-honored brand bears the essence of traditional culture, both the city culture and the national culture heritage. In this way such brands also affect the social atmosphere.

The Status of Chinese Time-honored Brands

Generally speaking, the operation of Chinese time-honored brands is not currently very effective (Hu, 2016). At the beginning of the founding of the people’s Republic of China, there were about 16,000 Chinese time-honored enterprises including diverse productions such as retail, catering, medicine, food processing, tobacco processing, photography, bookstores, silk, arts and crafts, and antiques.

Chinese time-honored brands have experienced two crushing influences (Win Business Network, 2013):

  1. Around 1950 of private/public partnerships became a prevailing trend. In 1954 the Chinese government had a regulation that all the capital corporations had to be operated both publicly and privately. Socialism plays the leading role at the same time that individuals’ rights should be protected.
  2. In the Great Cultural Revolution of the 1970s, many factories closed down. The production and management of time-honored brands were damaged. The prevailing sentiment was to favor the forward-looking and modern, so long-standing traditions were not esteemed.

The Economic Situation of Time-honored Brands in the Liquor Industry

During 2013 and 2014, liquor industry revenue and profit growth fell sharply due to a macroeconomic downturn and consequently, business expenses for business related entertainment have declined. For example, sales of catering service declined in Shanghai by 3.3%, about 5 million dollars (Jianglin, 2016). During the second half of 2015, the liquor business improved, but the whole industry was still at a low. By 2016, the liquor industry was in recovery. Generally speaking, many enterprises showed different degrees of income growth, but the statistics still painted a sobering picture. Some regional wine enterprises are still not optimistic.

In an increasingly competitive market, the technical requirements of the liquor industry were improved through government regulations. Government regulations are strict, so quality has to improve for consumer protection. The upgrades are costly for the producers. As a result, production costs continue to increase, so that those small and medium manufacturing enterprises that did not meet the technical requirements and did not have a solid economic position were forced out of the market.


Figure 1. Economic standing of time-honored brands in general (Network Media, 2016).

  • 10% Making profits

  • 20% Long-run loss

  • 70% Maintain the status quo

 

 

 

 


There are many reasons for the decline of time-honored brands. Although the external causes are a part of the decline, the most important factors are internal. Each of these influences will be discussed.

Challenges for Chinese Time-honored Brands

Outdated operating procedures. The era of the planned economy left a heavy burden. Many enterprises had too many employees relative to their accumulation of materials. Unlike in a market-driven economy, cultural expectations and government regulations prevented the balancing of workforce and materials, resulting in wages consuming more than business were able to bring in. Cash flow would then be stagnant or negative.

Under-utilization or misuse of Western business philosophies. Under the influence of western business philosophies and a variety of new business formats, many time-honored brands abandoned their former ways. While there is value in these western philosophies, they were developed in a different cultural context. At times these philosophies and the related practices are not ideal or even possible to implement in the current cultural and political context in China.

Lack of talent. With the development of a market economy, the traditional handicraft technicians engaged in labor-intensive work have been turned off, the backbone of technology has gone out, and the traditional crafts have been lost.

Technology versus tradition. For many time-honored traditional enterprise products, the traditional mode of production is very time consuming. This makes it difficult to compete with companies using mechanized operations and technological innovation. Such companies can out-compete those who maintained traditional ways, even if the time-honored brand product is superior. For example, for wine production, it may be impossible to maintain the old flavor without maintaining the old technology and processes that are labor-intensive and thus more expensive. Yet there is pressure to reduce costs and save energy.

Brand protection faces challenges. The enterprise’s own intellectual property rights (IPR) protection awareness is weak. Many time-honored brands have been slow to register trademarks, but many have done so in recent years. For those time-honored brands that do have registered trademarks, they are still susceptible to rampant product trademark counterfeiting by companies selling lower quality and cheaper products, creating unfair competition (Win Business Network, 2013).

Backward marketing concept. Many old enterprises still believe in the idea that “Good wine is not afraid of deep alley”. This proverb conveys the idea that if the wine is good, even though the place to sell wine is far and remote, customers like the wine and they will tell others about it, then more customers will come for a drink. This approach is not currently suitable for the market economy. Because other brands are good at advertising and have a modern sales strategy for a younger consumer and modern market characteristics, if time honored brands keep their traditional way to sell goods, they will not compete well (Ping, 2015).

The traditional concept of profitability. The content of the traditional profit concept make the time-honored enterprises lack of competitive pressures and consciousness, unable to cope with the fierce market competition. The economic situation in China has changed dramatically in the past decade, but time-honored brands tend not to adapt to these changes. In western countries and the United States especially, government strongly emphasizes individual rights. One result of this emphasis is that the distance between top tier earners and bottom tier earners has been smaller than it is in China, and personal status is considered more equal. However, our corporation managers are not good at giving rights to the lower tier earners because of traditional class status. Thus the wealth gap is large, and those at the top feel no pressure to share profits more equitably. Many time-honored businesses are not attracting the best talent because of this inequitable distribution of profits (Xiaojie, 2017).

The service model. Some old enterprises continue the same thinking and service mode of the seller’s market that existed under the former planned economy model. They lack enthusiasm and fail to create a comfortable and inviting environment for customers (Xiaojie, 2017).

The products. Most of the old enterprises have only one or two unique products, but enterprises that focus their resources on a small number of products will be high risk (Xiaojie, 2017). Sometimes the market situation is such that focusing attention on niche markets and doing one product well may not be profitable.

Market strategy. The main market for time-honored brands is the elderly. The biggest selling point for time-honored brands is the cultural story. Young people are less attracted to time honored brands because in general they do not identify with the old historical culture. Young people may agree that history and culture are good things, but consumers pay more attention to how a history and culture relates to themselves. Thus, these products have a local market, but typically they are not marketed to other areas.

Lack of established distribution channels. Many time-honored brands do not recognize or value the potential for international brand expansion. Under the trend of economic globalization, some old brands rely on small markets and do not seek out new markets.

Countermeasures: How to Revitalize the Time-Honored Brand

The biggest problem existing for the time-honored brands can be summarized as the rigid structures that no longer are optimal in the current economy and social climate. This weakness has resulted in widespread losses for China’s time-honored enterprises. Under the condition of market economy, China’s time-honored brand enterprises face many difficulties and challenges. Inefficient processes, aging mechanisms, and aging consumer groups are the most important factors hindering the development of time-honored brands. Possible solutions are as follows:

  1. Understand competitive forces.

Chinese time-honored brand enterprises must realize that competition among enterprises is the competition of brands. Therefore, under the circumstances that China’s time-honored brands do not have advantages in terms of product prices or widely-established selling channels, such enterprises must gain a share of the market in other ways. These enterprises would do well to develop special products and services to improve the core competitiveness of time-honored. These enterprises could keep the old goods and services and other traditional business modes, but also make full use of time-honored cultural resources by emphasizing the cultural importance of regional time-honored products. In this way, more traditional culture might be valued within modern life (Network Media, 2016).

  1. Enhance awareness of the value of conserving Chinese traditions.

The abuse and misappropriation of trademarks and trade names of old brands occurs frequently, which seriously hinders the healthy development of time-honored brands. One solution is emphasizing the history and culture of these products as linked to national identity rather than only local identity. With development of wider distribution of time-honored brand products, authorized distribution channels must be identified so that customers can know that they are getting the authentic version of the time-honored brand. Advertising could be developed to include photographs, historical descriptions of the historical processes and locations, emphasizing young people appreciating the unique cultural traditions (Network Media, 2016).

  1. Enhance brand awareness for the younger generations.

At the same time as focusing on publicity of its ancient culture, old brands must understand the integration of modern culture, so they can attract the attention of younger consumers (Network Media, 2016). This can help establish a new market base for young people to feel a need for the protection, inheritance, and development of time-honored history of their national culture. Old enterprises can publicize their corporate culture and core values, and transplant them to the general audience through a variety of media types including negotiating use of their products in film and television productions, as well as more conventional advertising. In addition, it is also an excellent form of publicity to connect with tourism and cultural management. Old enterprises should keep track of which channels of advertising are most effective, then focus on those. The old brand can also create an external design to establish a unique characteristic for itself, if no design currently exists.

  1. Advocate with government officials for preservation of old brands.

Affected by demolitions, rent increase, selective investment, and other objective reasons, many old brands are leaving their landmark positions. Directors of old enterprises should advocate for time-honored brands as conveying national cultural values. Some brands do not have enough money to compete successfully in the modern market, yet they are a cultural legacy that is valued nationwide. In such cases, individuals and government should lend a hand to foster the continuance of a symbol of national pride and identity. Government should allow trade secrets to be guarded. The government could build new buildings, give discounts to old brands, and attract them together to form an old style group. For example, if one shop has 10 customers, and if these shops are grouped together, there will be more customers coming. It will be a specialized market for certain customers, then these visitors will likely be attracted to the other old brand products that enhance perceptions of the national culture.

  1. Protect market share from dishonest competition.

The old brand is a kind of intangible asset. It has great commercial value. It is important for enterprises to establish a brand protection strategy. Old enterprises should learn to use relevant laws and regulations to protect trademarks, brands, trade secrets, and other intellectual property rights.

Criminals often imitate the old brands to sell cheap products for greater profit. A large number of fake goods flooded the market in the past, so that consumers’ confidence in the old brands has been reduced, resulting in serious damage to the old brands (South China Sea Network, 2014).

  1. Upgrade product positioning.

Consumers have increased options compared to the past. It is important to understand the needs of consumers. Time-honored brands also need to study the consumer to understand their product grade positioning (Network Media, 2016). While remaining true to their commitment to quality and the product’s reputation, they can make changes such as adding a line of smaller quantities that could meet a demand for a reduced price while maintaining a profit. In addition, some customers may be interested in buying in bulk at a discount, which could also be profitable.

  1. Improve service quality.

Old brands must change their former service model, focusing on serving customers and taking care of customers’ feelings. These enterprises should train their employees with service skills. They should study the changes in consumer preferences and consumer attitudes.

  1. Develop technological innovation.

Old enterprises should adhere to the combination of inheritance and innovation (Jing, 2017). Time-honored brands should promote their artisan spirit, but also actively use modern management and production technology when it improves their quality standards and when necessary to comply with government regulation. It is a necessary challenge to adapt to the forces of market competition and adhere to government guidance simultaneously. This will maintain a positive relationship with government and foster a supportive environment for enterprises.

  1. Show procedural compliance.

Directors of old enterprises should take a leadership role to guide the implementation of government regulations and standards. They can strengthen their industries’ understanding of how government policy is adhered to.

  1. Adopt innovative management concepts.

Many Chinese enterprises do not have systematic and scientific training methods. Old enterprises should actively expand the scale of operation where feasible and adopt the use of advanced technology to transform management skills and processes. Old enterprises generally have a strong family management model, which is beneficial in the early stage of enterprise development. With the expansion of management and production, this management model has become insignificant. Therefore, time-honored enterprises should innovate management mechanisms if needed. Best-qualified persons should be promoted rather than by family loyalty. Management should treat equally all staff, give opportunity for development, and reform the salary system to be merit-based rather than unequally rewarding family members.

Recovery Strategy for Shunxin Agriculture

For the recovery task, Shunxin agriculture proposed to make take many revitalization measures similar to those described above.

The following list replicates some of the categories in the list of revitalizing countermeasures in the previous section. This list, however, focuses on specific strategies and plans for Shunxin agriculture.

Understand competitive forces. In the liquor industry, one market risk is the current domestic low-end liquor market competition is becoming increasingly fierce. Shunxin agriculture is interested in expanding liquor products in overseas markets. At present, globalization is an inevitable trend (Dalun, 2008). Only by opening the door to the world can Chinese products achieve real prosperity. In the difficult year of 2016, the enterprise still finished the Sichuan Chengdu new production facility. It focuses on the western market of China, covering the southwest and northwest regions. It founded a five-hundred-million yuan provincial market in Hunan, Jiangxi, Hubei, Heilongjiang, and Shanxi. The national market strategy is rapidly advancing (Jianglin, 2016).

Enhance awareness of the value of conserving Chinese traditions.

Beijing Erguotou culture garden is a museum currently under construction that will promote Erguotou wine’s cultural traditions and sell their products (Sina Finance, 2017). It will open in 2018. The building has three floors, 25 thousand square meters, and will be the largest museum in the industry.

Upgrade product positioning. For 2017, the basic development of Shunxin agriculture must be innovative. The company for the first time announced the major strategic product lines: a high-end Erguotou product, the traditional Erguotou products, and a hundred-year liquor as a new product (Ganjiuhui, 2017; Sina Finance, 2017). The goal is that by 2020, the scale of liquor production performance will expand dramatically. The time-honored brands in the liquor industry should always keep the Chinese traditional values as central in their product positioning.

Adopt innovative management concepts. Shunxin agriculture understands the need for more human-centered management practices. By attending to the needs of the whole person—the material, spiritual, cultural, and psychological aspects of motivation—the company can inspire employees to create more wealth for the enterprise. Chinese enterprises should provide more comprehensive services for employees, so that they feel invested in the success of their workplace and put their full efforts and talents into their work (Ping, 2015).

References

Note. These references (with the exception of Killmer) were accessed in the Chinese language, and titles are Google translations of the originals.

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