Online Extra: SVA: "This Is a Testing Period"

The high-end TV maker's overseas sales honcho, Chen Hong, describes its intial global branding push

SVA is one of China's best-known companies, producing the country's first domestic-brand color TV 20 years ago. Last year, it had sales of $4.6 billion and is now making a push overseas to sell its plasma-screen TVs and LCD monitors. Chen Hong, SVA's vice-president for overseas sales, recently spoke with BusinessWeek Asia Correspondent Frederik Balfour about brand-building and the challenges of being a state-owned company competing globally. Edited excerpts of their conversation follow:

Q: How has your company evolved in recent years?


The year 2000 was very important for SVA [because that was] when the chairman said we should go to the international market. Also joining [the World Trade Organization] was big challenge for Chinese companies [who would face direct foreign competition on their own soil].

This was a very big decision for SVA. In China, most Chinese companies just focus on the domestic market, and until now, the same is true for foreigners [whose goods are produced here].

Q: What did you start selling overseas?


SVA-brand LCD monitors, DVD players, [traditional] TVs, and LCD TVs are all branded. U.S. sales last year were $40 million, up from just $7 million in 2002. Our sales target is $80 million to $100 million in 2004.

We had [only] done original-equipment manufacturing [OEM] for other brands, but it's very difficult for us because now the competition is very, very strong. This is especially true in Shanghai where the labor, management, and land costs are the highest in China. If we stuck with OEM we would lose business, though it still accounts for half our sales at the moment.

Q: What's your strategy in the U.S.?


Most SVA top managers didn't know anything about U.S. market. We contacted Costco (COST ) and Best Buy (BBY ). But the big challenge for us if you want to set up a strong brand in the U.S., first we should invest a lot of money for advertising and promotion. In China, SVA is a big company, but compared to famous brands -- Samsung, LG, Sony (SNE ), and Panasonic (MC ) -- it isn't.

Q: What's your budget in the U.S.?


We're advertising in consumer-trend magazines and information technology magazines. Our budget is very little -- maybe $300,000 per year. This is a testing period -- we just want to know American customers' needs and what product functions are suitable for the U.S. If we don't identify this, we can't spend more on advertising.

Q: How do prices in the U.S. compare to China?


Our [42-inch plasma] TVs sell for about $2,700 in the U.S. In China it sells for $3,400. In the U.S. we sell to big distributors or in the superstores and big chains. In China we sell to local agents, which makes the retail price higher.

We don't sell [standard] color TVs in the U.S. I think we can earn [more] money from high-tech products, so we focus on plasma TVs and LCD screens.

Q: How have you approached brand-building at home?


In the past no one cared about branding, just the price. But we realize if we focus [only] on the price we haven't a future. Every year we take 6% of revenue to invest in R&D. We spent about 1% of revenues last year on advertising, while five or six years ago we spent virtually nothing. We also do some charity work and knowledge testing for students, as well as an electronics-design competition.

Q: And you have the Shanghai soccer team.


Yes, the football club is very useful for our brand image. Sometimes we invite football stars to do advertising for products.

Q: Does being a state-owned enterprise create any handicaps?


In 1980s and 1990s a state-owned enterprise could get a lot of benefits, like loans and government support. But now things are different. The government wants to push us into the market. Sometimes the state company isn't as efficient.

Q: Do you have privatization plans?


Our assets are so big, so maybe we should attract foreign investors or a shareholder structure. The government thinks about these things, but we are still state-owned [and thus must do the government's bidding]. But it's difficult. It's the government law vs. laws of the market. Since we entered the WTO everything will depend on the laws of the market.

Q: Where will you be in five years' time?


Five years ago we only focused on OEM. Nobody knew the brand. But now I feel even today we are still small, and we do OEM, and we need the OEM business. Our long-term focus should be on SVA, even though today we have a lot of OEM. We should do our own brand. But we are still testing the market.

Like Deng Xiao Peng said, you have to place one stone at a time to cross the river.

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