Western brands are coming under siege from developing-country ones
THE past 20 years have seen a massive redistribution of
economic power to the emerging world. But so far there has been no comparable
redistribution of brand power. Fortune magazine’s 2012 list of the
largest 500 companies by sales revenue included 73 Chinese firms, more than from
any other country except the United States, with 132. Yet Interbrand’s 2012
list of the 100 “best global brands” included not one Chinese firm.
However, in “Brand Breakout”, a new book, two academics,
Nirmalya Kumar and Jan-Benedict Steenkamp, argue that developing-country firms
are swiftly learning the art of branding. A few emerging-market brands have
already gone global: it is hard to watch a football match in Europe without
having “Emirates” burned onto your retina. More are on the way: Haier of China
(white goods), Concha y Toro of Chile (wine), and Natura of Brazil (beauty
products). Westerners feeling besieged by the rise of the developing world
comfort themselves with the thought that they still hold the high ground of
premium-priced branded goods. But they should be in no doubt that
emerging-market contenders are mounting their warhorses and readying their
battering-rams.
The authors argue that emerging-market companies are
advancing along eight paths to brand success. All are strewn with obstacles but
each offers a possible route to the global heights. The most obvious is the
path previously trodden by Japanese firms such as Toyota and Sony, and then
South Koreans such as Samsung and Hyundai: first, establish a beachhead in the
West by selling a good-enough product cheaply; then relentlessly raise your
price and quality. Pearl River of China has become the world’s biggest
piano-maker and now rivals Yamaha (itself once an emerging-market challenger)
on quality. Haier, having become the world’s biggest white-goods maker, is now
out-innovating Western rivals with ideas like a TV powered wirelessly, with no
trailing cables. (Its European slogan is “Haier and higher”.)
A second path is to focus on business customers first and
then woo consumers. Mahindra & Mahindra of India went from making tractors
to producing cars. Huawei, a giant maker of telecoms equipment, is now a rising
producer of mobile phones. Another Chinese firm, Galanz, began as a contract
manufacturer for Western firms but now sells microwave ovens under its own name.
A third path is to follow diasporas. Reliance MediaWorks of
India has launched the BIG Cinemas chain in America, to show Bollywood
blockbusters. Jollibee, a fast-food chain from the Philippines, has opened
outlets in places, from Qatar to California, with Filipino communities. But
breaking into the mainstream can prove hard, as Jollibee’s limited success
shows. Perhaps more fruitful is a sort of “reverse diaspora” strategy used by
Mandarin Oriental hotels (China) and Corona beer (Mexico): Western businesspeople
returning from trips to Asia, and American students returning from spring break
in Cancún, have sought out Mandarins and Coronas back home.
A fourth path is to buy Western brands off the shelf, as
Tata Motors of India did with Jaguar Land Rover (JLR), and more recently Bright
Food of China did with Weetabix. Bright can now use its huge distribution
system back home to get Weetabix cereals on China’s breakfast tables while
using Weetabix’s distribution system in the West to sell Bright products such
as Maling canned meat. However, five years on from Tata’s takeover, JLR’s
glamour, and its success in selling to the emerging world’s new rich, have done
nothing to lift sales of Tata’s own cars.
The next three paths set out by Messrs Kumar and Steenkamp
are ways for emerging-market firms to escape their home country’s reputation
for poor quality, or lack of a positive reputation. One is to latch on to some
aspect of the national culture that sounds nice: Havaianas, a Brazilian
flip-flops maker, taps into the local beach life. Another is to tie the brand’s
image to the country’s natural beauty, as Concha y Toro does with Chile’s wine
country. A third, more passive strategy is to rely on government efforts to
change the country’s image, as with the “Incredible India” campaign and
Taiwan’s “innovalue” slogan.
The final path to global brand greatness is to be a pampered
national champion. So far this has produced some notable failures—Chinese and
Malaysian carmakers come to mind—and just one spectacular success: Emirates. In
2000-12 the Dubai airline enjoyed a compound annual growth in sales of 23.1%.
The airline’s growth has in turn helped Dubai become a logistics centre for
business and, against all odds, a popular tourist destination.
Never give up, no matter what
Many of the obstacles in emerging-market companies’ paths to
global prominence are of their own making. An obsession with market share at
all costs can fatally undermine their finances. A habit of pilfering foreigners’
ideas can discourage them from developing distinctive products and brand
identities. A reluctance to employ foreigners as managers may make it hard to
understand other cultures, and thus to crack new markets.
However, the fat margins enjoyed by globally recognised
brands are a powerful incentive for emerging-market firms to shift from
quantity to quality, and to venture outside their comfort zones in search of
universal appeal. Acer, a Taiwanese electronics firm still on its way to
worldwide prominence, last year had a margin of just 0.4% (on sales of $16
billion) whereas well-established Samsung of South Korea made about 10% (on
sales of over $150 billion). The new breed of emerging-market firms is packed
with smart people who are determined to conquer the globe. Messrs Kumar and
Steenkamp asked managers at Midea, a Chinese domestic-appliance maker, to
describe their corporate culture. They replied: “Never give up, no matter
what.” The West’s great brands should listen to those words and tremble.
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