Brand Breakout – How Emerging Market Brands Will Go Global

Brand Breakout – How Emerging Market Brands Will Go Global

September 18, 2014

Anyone with more than a passing interest in how global brands develop should take note.

 Financial Times

June 19, 2013

Last month the Best Brand Awards 2013, held by Bangladesh Brand Forum in collaboration with Millward Brown Bangladesh, unveiled Prof. Nirmalya Kumar’s new book, Brand Breakout, which focuses on emerging brands from developing countries.

Between 1990 and 2010, the world witnessed a change in economic dominance with the advent of emerging economies. Originating from countries of the developed world such as China, India, Brazil, the market share of these economies had doubled to 40% round the globe. Despite the ubiquitous presence of emerging brands, they are yet to reach global state.

World marketing experts Nirmalya Kumar and Jan-Benedict Steencamp in their book discuss eight strategies that shed light upon the path emerging market brands can take to finally go global. The authors have identified the problems these companies will face and discussed how they may overcome these barriers.

Mr. Kumar has been very conscious of current global trends and this is best reflected in his up-to-date case studies. Each chapter tells the tales of outstanding brands which had humble origins. It depicts the journey of ambitious entrepreneurs who led their brands from their initial dilapidated state to their present apex positions. Such was the journey of Haier which today is recognized as one of the 50 most innovative companies on earth (Businessweek).

The language is very straightforward and expressive, written in a fashion that makes the reader want to keep reading on. The layout is simple and albeit short (225 pages), the book is brimming with myriad examples of emerging brands including Toyota, Hyundai and Samsung. At the end of each chapter the Managerial Takeaways provides recommended actions, which summarize the essence of respective strategies.

The prime example of emerging economies would be China, which has been selected as the paradigm of emerging brands in this book. With its consistent GDP growth rate of near 10% between 1979 and 2012, China’s GDP is as large as those of Brazil, Russia, India and Mexico combined. Its presence is ubiquitous in every market across the globe. However, the perpetual mindset of viewing Chinese products as “cheap” prevents them from charging premium as global brands to.

This book discusses eight strategies that struggling brands can implement to enter “global brand” status.

The Asian Tortoise Route

The first chapter builds upon Confucius’s saying “it does not matter how slowly you go, so long as you do not stop.”

The aim is to first attain a beachhead in Western markets and target price-sensitive consumers by offering decent products at affordable prices; then slowly attack the immediate next segment, and so on until ultimately firms enter the premium segment, providing high-end products.

Pioneered by the Japanese, this approach was swiftly followed by South Koreans and the Chinese.

The outcome? Colossal. These “Asian Tortoises” made it to Interbrand’s leading Asian brands list, 2012. The once struggling companies like Toyota and Samsung, today are major players in the American market, marketing millions worth of goods. The most quintessential of all examples however was set by Haier, which began as a manufacturer of poor-grade refrigerators in 1958, and stand today as “China’s most exciting consumer brand.”

There are significant constraints however. The local firms must be protected from foreign competition in domestic markets. Furthermore, substantial investment is a necessity. But the greatest impediment is time    – it takes at least a decade to fully mature into an Asian Tortoise.

The Business to Consumer Route

This chapter addresses leading B2B firms from emerging markets who have successfully integrated themselves into prominent consumer brands, as seen in case of HTC, Galanz and, Huawei.

 B2B companies can evolve into consumer brands by implementing the 3V model, where “V” stands for value: valued customer, or who to serve; value proposition, or what to offer; and value network, or how to distribute. Additionally, constant investment in R&D is a must. The payoff to HTC for doubling its R&D expenses propelled its position as the first Taiwanese brand to make it into Interbrand’s 100 Best Global Brands list.

The Diaspora Route

Currently, there are 215 million “first generation migrants” in the world with the Chinese and Indians being the pre-eminent ones. Over 30 million Chinese and 20 million Indians are scattered across every continent. Companies can effectively harness the purchasing powers of migrants for 2 main reasons:

  • Their median income in many areas are higher than the inhabitant population as seen in case of Indian-Americans ($90,528) and Chinese-Americans($67,331).
  • Telecommunications and cheap air travel allow migrant families to stay connected.

When people move from their home culture to a different culture, they modify their attitude with the new host “culture,” a process known as acculturation. This creates 4 modes of acculturation:

 

                Untitled

                       Fig: Modes of acculturation for the diaspora (pg 74)

Ethnic affirmers and biculturals offer the most lucrative scope for home-country firms.

Ethnic affirmers reject the host culture and cling on to their home culture to preserve their self identity. They provide attractive market for homemade commodities. A company that effectively leverages this position is our own Pran-RFL Group. It caters to Bangladeshis residing in UK and the US, where the major segment is Islam based and is sensitive about its diet.

Biculturals on the other hand, follow both home-country and host-country customs. They tend to be the most educated and affluent of all 4 modes and are social, making them great “promotional conduits” to wider population. This makes them the “beachhead” for entering new markets. ICICI made good use of this opportunity by targeting Indians well integrated into Canadian and UK society with offerings like if a customer refers a friend, he/she gets 500 minutes free talktime to India. It propelled ICICI’s deposits five-fold.

However, the activities of companies like Mandarin Oriental demonstrated an unexpected byproduct: reverse diaspora. Companies were quick to notice how visiting tourists often wished to carry their experience back with them. This gave rise to this novel concept by which visitors to emerging nations try to replicate their experience and in the process, spread the culture of emerging nations. An explanation for how the Mediterranean kitchen conquered Northern Europe.

The Brand Acquisition Route

The previous three strategies unfortunately are slow, requiring at least a decade and enormous investment. Impatient entrepreneurs feel they must do in 20 years what the US and Europe did in 200 years. They believe purchasing a foreign brand to act as a beachhead instead is more viable.

The past decade witnessed the breakneck economic growth of China, India, and other emerging economies, a clear indication of the capacity of emerging brands. Hence, the stories of Lenovo purchasing IBM, Tata taking over Jaguar UK, and Geely buying Volvo.

The strategies employed are of two types:

Brand retention, observed when the acquiring brand purchases a foreign brand and keeps both separately in its portfolio. This allows wider access to foreign markets while enabling the acquiring brand to gain first hand “trust.” This can be tricky however as it requires guidelines to prevent both brands from “cannibalizing” each other and also ensuring the cost structure remains unchanged. Geely’s acquisition of Volvo faced significant management problems when they could not maintain the “right balance.”

Brand merger, when the acquiring brand decides to delete the acquired brand over time and integrate both into one business. Lenovo demonstrated an effective way for this in its acquisition of IBM through the “maintain, link, build” approach.

Whichever path the company takes, it must ensure due synergy. Vast majority cases show 2/3 failure rates.

The Positive Campaign Route

People never send gifts that have the label “Made in China”. Why?

This question actually makes us stumble on a widespread phenomenon: country of origin effect.

“The country of origin can be an asset- or a liability,” based on these 6 dimensions: quality, innovativeness, aesthetics, prestige, price/value, social responsibility. It acts as a shortcut to consumers who form a preconceived image about a country’s brands irrespective of their merits.

Chinese products are associated with the image of “cheap quality.” Developing nations in general rate low on all aspects except price. The factors behind this homogenous image of developing nations include their economic development, culture and heritage, governance and people.

From the consumer’s part, the factor that appears most significant is their knowledge and involvement as this is directly linked with their decision-making; knowledge expresses their “ability” to process product details; involvement shows their “motivation” to seek and process information.

Countries cannot instantly dissolve their negative image. Overcoming it, is a gradual process through these following 7 strategies:

  • Disguise the origin in choosing the brand name
  • Confront negative associations
  • Focus on favorable “nuggets”
  • Offer extra guarantees
  • Emphasize aesthetics
  • Utilize reverse-manufacturing
  • Invest heavily in marketing

As far as China is concerned, “made by Chinese” would project a stronger image of their workmanship.

The Cultural Resource Route

The positive campaign route shows how country image inhibits emerging market appeal based on the 6 dimensions. However in few cases, country image has enhanced a brand’s appeal.

Cultural myth-making, enables companies to imbue their brands with values, beliefs and symbols of their country of origin. Marketers must carefully select relevant and unique cultural meaning to which customers can relate. An excellent example of this is Harley-Davidson which has its own HOG society among its customers.

The cultural meaning has to be credible with the country of origin, unclaimed by anyone and, recognizable anywhere on earth. It will be transferred via the following mechanism: brand development, brand communication, and brand reinforcement.

However, a serious constraint of this approach is it is not relevant for all countries. Mr Kumar stated the greatest scope for this exists for China and India, which “are very ancient, dating back to at least 2000 B.C.”

The Natural Resources Route

Natural resources are “naturally” believed to be undifferentiated homogenous commodities. However, countries like France have discovered ways to brand natural resources. Emerging nations emulate France’s example through 4 steps:

Untitled 2

The process begins with forming a relationship between the resource and its location. Both the resource and region should have unique traits. Often the location might be associated with a “myth.” France with its own champagne demonstrates this at its finest.

Second, the production process must be “transparent” to meet social and environmental concerns. Production process must be impossible to imitate in a bid to raise entry barriers.

Third step includes performing independent audits in a bid to authenticate the natural resource brands.Once the brand has created its place in the consumer’s mind, the final step is to ensure intellectual protection of the resource globally by organizations like WIPO.

The National Champion Route

Events like wars and calamities lead to the state supporting local companies directly (e.g. subsidies) or indirectly (e.g. preferential treatment) until they become self-reliant. Such was the beginning of Volkswagen, Emirates, Samsung, and others. Over time the state ensures efficiency by encouraging local competition. In the long run, these firms are left to market forces or privatization so that they can take advantage of international markets.

But what are the implications of this “state capitalism?”

This chapter presents the findings. It examines how this system is prone to cronyism and corruption and that indefinite state aid often acts as disincentive to firms for developing self-sufficiency. Without control mechanisms, the state help might often be futile.

Relevance to Bangladesh

Among the strategies discussed, the Asian Tortoise, diaspora and positive campaign routes are viable for Bangladesh. Mr Kumar has clearly mentioned “the Tortoise may work in Bangladesh.” He has addressed how Westerners associate Bangladesh with poverty, natural calamities, and political instability. His suggestions are, this perception can be changed by showcasing the positive traits such as their ability to overcome obstacles. He highly admires the courage imbued in the Bangali spirit as depicted in the Liberation War. He suggests that the activities of Dr Muhammad Yunus be highlighted. Furthermore, initiatives to show our progress in girl education and human welfare should be featured in Economist articles.

Companies like Pran-RFL have already demonstrated effective application of the diaspora route, an example which should be emulated by upcoming companies.

Remarks

Brand Breakout serves as a pragmatic guide for the emerging brands helping to lift themselves from local markets into the global arena. A “must have” for any brand manager, this book will also serve as a guide for Western companies who should not underestimate the potential of developing nations who can devise counter-strategies for these “up-and-coming” emerging global brands.

Mr Kumar currently heads strategy of Tata Group and is also a consultant, coach, speaker and author. He is the Professor of Marketing and Co-Director of the Aditya Birla Centre at London Business School.

Jan-Benedict E.M. Steenkamp is the C.Knox Massey Distinguished Professor of Marketing and Marketing Area Chair at Kenan-Flagler Business School, University of North Carolina and the Executive Director of AiMark. He is rated as the most influential marketing scholar of the last decade. He has been featured in New York Times, Harvard Business Review, The Economist and other outlets.

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