· Chinese brands pull ahead of US, claiming 28% of total brand value in the Brand Finance Engineering & Construction 25 league table, as the Belt and Road Initiative opens up new opportunities in the industry.
· China’s CCCC is the fastest-growing brand in the sector, up 33% to US$4.6 billion.
· General Electric remains sector’s most valuable brand, despite 9% contraction to US$32.0 billion.
The combined value of Chinese brands now accounts for over 28% of US$226.9 billion total brand value in the Brand Finance Engineering & Construction 25 league table, leaving the US behind with a share of 25%. There are six US and six Chinese brands in the ranking, and while last year the two countries were on par, each accounting for just under 27% of the total brand value in the sector, this year the Chinese brands have asserted their dominance. Their aggregate value has increased from US$58.3 billion in 2017 to US$64.4 billion in 2018, while the combined value of the US brands has fallen from US$58.1 billion to US$57.3 billion, owing to the 9% decline recorded by General Electric, the sector’s most valuable brand.
The most valuable among Chinese brands in the Brand Finance Engineering & Construction 25 league table, China State Construction Engineering Corporation (CSCEC), saw a 19% increase in brand value to US$25.0 billion and climbed above Germany’s Siemens into 2nd spot in the ranking. CSCEC’s brand strength also improved an impressive 6%, rising to 71.2 on the Brand Strength Index (BSI), making CSCEC stand above other Chinese brands in the table. CSCEC’s strong performance this year came after much more modest 4% growth in brand value in 2017, which at the time had been slowed by rising debt. The company’s strong order book, improved cash flows, and ample cash reserves were among the factors contributing to a faster growth in 2018.
China Railway Construction Corporation (CRCC) also had a good year, with brand value increasing 18% to US$12.2 billion and moving one place up the ranking, while Metallurgical Corporation of China (MCC) gained 9% and climbed one place to 13th. However, not every Chinese brand fared well this year. China Railway Group (CRECG) lost 8% of its brand value and rolling stock manufacturer CRRC Corporation lost 6% of its brand value slipping down the ranking from 8th to 11th.
CCCC is sector’s fastest-growing brand
A further testament to the strong Chinese showing in the Brand Finance Engineering & Construction 25 ranking, the fastest growing brand was the China Communications Construction Company (CCCC), which gained 33% year on year to US$4.6 billion. CCCC performed well this year, increasing both revenues and gross profit margin as it won contracts in Malaysia, Brazil, Serbia as well as a number of key contracts under the Belt and Road Initiative.
Chinese construction companies will face a tougher domestic market in 2018, after the ruling party renewed a pledge to focus on debt management at its October 2017 congress. Analysts predict that China’s infrastructure investment growth in 2018 will drop to 12%, down from 20% in the first 10 months of 2017, though the mightily ambitious Belt and Road Initiative will accelerate China’s drive to become the world’s economic powerhouse. With US$900 billion of projects planned or underway to link China with Asia, Europe, the Middle East, and east Africa, Chinese authorities will invest around US$150 billion a year in a move that will stimulate trade and economic growth.
David Haigh, CEO of Brand Finance, commented:
“China’s engineering and construction companies are perfectly positioned to drive the trillion-dollar Belt and Road Initiative, probably one of the most ambitious in history. But multinationals can also tap into this great business opportunity, with Siemens and GE already signing multiple joint agreements with Chinese parties.”
GE remains most valuable despite contraction
General Electric suffered a moderate contraction to its brand value, decreasing 9% to US$32.0 billion. The GE brand has lost 39% of its value since 2014, when it was worth US$52.5 billion, though it remains the world’s most valuable engineering and construction brand.
GE’s medium-term revenue forecasts are tempered by growing global interest in new forms of renewable energy generation. This causes significant pressures and risks to an iconic industrial age brand in an increasingly green world. Nevertheless, GE retains significant brand equity with stakeholders, maintaining a strong AAA brand rating, and has an opportunity to leverage that reputation and credibility into new markets away from its traditional turbine-based engineering works.
German brand Siemens (down 5% to US$22.0 billion) is in a similar position with similar pressures and risks.
Bryn Anderson, Director at Brand Finance, commented:
“GE has been able to retain its strong brand amongst customers and other stakeholders despite increasing challenges from new competitors outside its traditional fields of dominance. But the clock is ticking: if GE does not gather momentum soon, brand strength and brand value could continue to erode”.
Note to Editors
Every year, leading valuation and strategy consultancy Brand Finance values the world’s biggest brands. The 25 most valuable engineering and construction brands in the world are included in the Brand Finance Engineering & Construction 25 2018 league table.
Brand value is equal to a net economic benefit that a brand owner would achieve by licensing the brand. Brand strength is used to determine what proportion of a business’s revenue is contributed by the brand.
More information about the methodology as well as definitions of key terms are available in the Brand Finance Engineering & Construction 25 2018 report.
Data compiled for the Brand Finance Engineering & Construction 25 league table and report is provided for the benefit of the media and is not to be used for any commercial or technical purpose without written permission from Brand Finance.
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About Brand Finance
Brand Finance is the world’s leading brand valuation and strategy consultancy, with offices in over 20 countries. Brand Finance bridges the gap between marketing and finance by quantifying the financial value of brands. Drawing on expertise in strategy, branding, market research, visual identity, finance, tax, and intellectual property, Brand Finance helps brand owners and investors make the right decisions to maximise brand and business value.
Definition of Brand
Brand Finance helped to craft the internationally recognised standard on Brand Valuation – ISO 10668. It defines brand as a marketing-related intangible asset including, but not limited to, names, terms, signs, symbols, logos, and designs, intended to identify goods, services or entities, creating distinctive images and associations in the minds of stakeholders, thereby generating economic benefits.
Brand Strength is the efficacy of a brand’s performance on intangible measures, relative to its competitors. In order to determine the strength of a brand, we look at Marketing Investment, Stakeholder Equity, and the impact of those on Business Performance.
Each brand is assigned a Brand Strength Index (BSI) score out of 100, which feeds into the brand value calculation. Based on the score, each brand is assigned a corresponding rating up to AAA+ in a format similar to a credit rating.
Brand Valuation Approach
Brand Finance calculates the values of the brands in its league tables using the Royalty Relief approach – a brand valuation method compliant with the industry standards set in ISO 10668. It involves estimating the likely future revenues that are attributable to a brand by calculating a royalty rate that would be charged for its use, to arrive at a ‘brand value’ understood as a net economic benefit that a brand owner would achieve by licensing the brand in the open market.
The steps in this process are as follows:
1 Calculate brand strength using a balanced scorecard of metrics assessing Marketing Investment, Stakeholder Equity and Business Performance. Brand strength is expressed as a Brand Strength Index (BSI) score on a scale of 0 to 100.
2 Determine royalty range for each industry, reflecting the importance of brand to purchasing decisions. In luxury, the maximum percentage is high, in extractive industry, where goods are often commoditised, it is lower. This is done by reviewing comparable licensing agreements sourced from Brand Finance’s extensive database.
3 Calculate royalty rate. The BSI score is applied to the royalty range to arrive at a royalty rate. For example, if the royalty range in a sector is 0-5% and a brand has a BSI score of 80 out of 100, then an appropriate royalty rate for the use of this brand in the given sector will be 4%.
4 Determine brand-specific revenues by estimating a proportion of parent company revenues attributable to a brand.
5 Determine forecast revenues using a function of historic revenues, equity analyst forecasts, and economic growth rates.
6 Apply the royalty rate to the forecast revenues to derive brand revenues.
7 Brand revenues are discounted post-tax to a net present value which equals the brand value.