China dominates world manufacturing because of its low-cost labor. So far, though, most Chinese companies have been content with the role of original-equipment manufacturer (OEM), supplying the world's biggest brands and retailers' private labels with products ranging from toys to televisions. But the government is now urging some of China's biggest companies to sell branded products abroad—and many have reasons of their own for trying to establish brands in developed countries. The home market is fiendishly competitive and puts constant pressure on prices, branded products can be more profitable than those of OEMs, and competing in foreign markets forces companies to innovate and improve, thus helping them to move away from their image as producers of cheap goods.

Some Chinese companies have already established a branded presence in emerging markets, with products such as domestic appliances, consumer electronics, and motorcycles. The next move is into developed markets, a process already under way with appliances and consumer electronics. Haier, China's biggest appliance maker, is selling small refrigerators under its own name in the United States and has ambitious plans to win 10 percent of the US market for full-size refrigerators by 2005.¹ (To do so, it must sell 500,000...