×

Chinese multinationals should do this for long-term success, according to Sir Martin Sorrell

Chinese multinational companies in search of global domination should probably build their business around specific product groups, instead of trying to diversify into too many verticals, said Sir Martin Sorrell, the CEO of WPP Group.

Speaking to CNBC's "Squawk Box" at the sidelines of the China Development Forum, Sorrell said companies that focus on developing their products tend to be more successful in the longer term.

"I think focused strategies around very strict product groups are the way to go, not the diversified conglomerate strategy, which seems to be driven more by trying to diversify assets outside of China and obviously invest abroad," he said.

Sorrell added that Chinese companies should first attempt to conquer China's vast domestic market before looking to expand abroad.

"So exhaust all the opportunities in China first, then you have to start looking at whether you go for the bigger markets, obviously like the U.S. or Western Europe, or you start to pick up some of the smaller markets that are contiguous to China, in the context of Asia Pacific, particularly given the Belt and Road (strategy)," he said.

On Monday, WPP and Kantar Millward Brown released a study that examined the top 100 most valuable Chinese brands, where technology, banks and telecom providers led category brand value contribution in the country.

Tencent remains China's most valuable brand, and among other recognizable technology names, Alibaba came second, Baidu fifth and Huawei sixth. Many Chinese brands are now becoming internationally recognizable due to their presence outside the mainland, according to the WPP CEO.

"A lot of Chinese companies now are expanding abroad," said Sorrell. "Huawei is a very strong example of that, Lenovo is another. These are all companies that are building businesses abroad and you see two different strategies — one, a very diversified (strategy) like a Fosun or a Wanda, which probably is lacking a bit of focus."

The second was the "very focused strategies like (that of) Huawei, ZTE and others that are building strong brands both domestically and abroad," he added.

Neil Hall | WPA Pool | Getty Images

The study found the standout performers were brands operating in products and services that are catered for the urban middle class as China pivots to a more consumption-led economy. Education and travel agencies were the fastest-growing sectors, while technology and retail sectors remained strong, according to the study.

Sorrell said this year's study showed the rise of the Chinese multinationals.

"In fact, this year for the first time, in our survey of the 100 top brands here in China, I think the fifth time we've done it, ... we've seen Chinese brands eclipse some of the foreign MNCs," he said, adding the real competition that foreign MNCs now face come from companies in China, India, Vietnam, the Philippines and Indonesia that are becoming more, and more important.