Following is continuation of an extract from chapter 1 of Asian Brand Strategy which is written for boardrooms and corporate management teams. The book is aimed primarily at Asian business leaders and Western observers. It is written by Martin Roll who is a Business & Brand Strategist, and Senior Advisor at Martin Roll Company, Singapore. 

A strong brand can differentiate a company from its rivals, make it stand out from the competition, successfully influence consumer purchase decision, build customer loyalty, and boost the company’s financial performance. Asian Brand Strategy explores these issues, with a focus on the Asian market environment and on attempts to build Asian brands.

Major companies based in Asia and expanding outside their home market believe innovation and brand building will be vital to flourishing overseas. Accenture asked senior executives what they believed the source of their com-petitive advantage would be in three years’ time. From 2012 to 2013, low- cost R&D slid in importance by 16 percent while low operating costs were down by 34 percent. Replacing them was an increase in importance for selling high- value, quality, branded, innovative products and services.

However, Asia is still one of the world’s biggest providers of commodity products, a production hub housing 47 percent of the world’s manufacturing. Asian manufacturers mostly produce for other companies and the majority of these products are therefore non-branded. In other words, these are volume products without strong brand identities. Instead, the largest financial value is captured by the manufacturers’ customers – the next player in the value chain – primarily driven by strong brand strategies and successfully planned and executed marketing programs.

                                                                                                                                         Read Also: Asian Brand Strategy (part 1)

The difference in the proportion of value captured between the Asian manufacturing price and the Western retail price serves as a good example. A branded sports shoe is produced in Asia at an estimated US$5, sold to the sports shoe brand for US$10, and the consumer buys it in the retail store for US$ 100 – in other words, a twenty- fold increase throughout the “ product- to- brand” value chain. This leaves the Asian manufacturer with only a fraction of the substantial value that consumers are willing to pay for, in addition to the fact that the consumer never comes to know the name of the Asian manufac-turer who originally made the sports shoe.

Since 2000, the number of distributors in the sports goods industry has declined more than 50 percent as many sports brands became distributors themselves. This is particularly the trend among larger brands. The sports shoe brand captures an estimated 40– 95 percent of the entire financial value depending on its level of vertical integration.

Successful global companies share certain common characteristics, including strong brand equity. Despite Asia’s size and economic growth, it has not seen the emergence of many strong, international brands.

Few Global Brands Originating from Asia

In a 2014 Interbrand study measuring the financial value of worldwide brands, only 11 of the top 100 global brands originated in Asia.13 These brands are the familiar technology and automobile giants from Japan and South Korea, such as Samsung, Toyota, Honda, Canon, and Hyundai, and a single Chinese brand Huawei (ranked 94th) appeared on the global list for the first time. A simple question arises: What about the rest of Asia?

Given the size and volume of Asian businesses today, it is evident that Asia could build many more prominent brands and capture more financial value through better price premiums and customer loyalty. Asia certainly has some of the world’s largest companies. China is home to the world’s three biggest public sector companies and five of the top 10 public sector companies in the world. With 674 members on the Forbes Global 2000 list of largest public companies coming from Asia, it is the most strongly represented region. Yet these companies lack the brand recognition and value which accompany most of America and Europe’s largest companies.Branding can become an important driver of shareholder value for Asian companies in the future, as this book will illustrate.

Reasons for the Lack of Strong Asian Brands

There are many reasons why Asian companies have not developed many global brands until now. The appreciation of branding in Asian companies is primarily inhibited by the following five factors:

• Stage of economic development of societies
• Less focus on innovation
• Broad diversification of businesses
• Asian business structures
• Implications of intellectual property (IP) protection

Stage of Economic Development of Societies

Asian countries are at different stages of development. At one end of the spectrum are developed countries like Japan, South Korea, Singapore, Taiwan, and Hong Kong. At the other end are developing countries like Vietnam, Cambodia, and Indonesia. In between are countries like Malaysia, Thailand, China, and India, which are moving through rapid transitory phases. The development stages of these countries can influence business priorities, the degree of business sophistication, and where to fit into the value chain.

When countries and industries move from a low to a hi-tech environment, they are generally more inclined to supplement their low-cost advantage with a holistic value perspective. Very often they are forced to move up the value chain while losing their low-cost advantage in manufacturing to competitors with lower labor costs. Although the value perspective does not exclude seeking to drive costs down constantly, it aims primarily at creating additional perceived value for products and services. This is where brands often start to play their role as drivers of shareholder value through better price premiums and enhanced customer loyalty.

It is incorrect to assume that the economic stage of development and degree of branding are always correlated. In general, any company can decide to build brands. However, the economic development stage of a country and the level of sophistication of an industry can serve as important indicators to estimate whether branding gains wide appreciation and momentum.

Another important factor to consider while formulating a brand building strategy is the level of importance a consumer will place on a brand or a trademark name when buying a product. Successful companies with strong brands have created the need for a brand and the associated equity, when it previously did not exist.

Finally, about 30 percent of the world’s middle-class spending is contributed by Asians, up from 20 percent in 2000, according to the Brookings Institutions, a think- tank, which defines the middle- class as those earning US$ 10– 100 daily. Asia has therefore become a great cluster of consumer markets with increasing potential for global brands as well as emerging Asian brands.

Less Focus on Innovation

An anonymous survey of senior executives from some of China’s largest state- owned enterprises shows that over half believed that China will be a bigger economic power than the US by 2025. However, only 13 percent believed that China would have overtaken the US on the technology frontier by then.

Although innovation is difficult to measure, R&D spending can be an indica-tion. On a national level, Asian economies have traditionally lagged behind the rest of the world on R&D spending as a ratio of GDP, with the exception of a few nations. Countries that spend the most on R&D are the US, China, Japan, Germany, South Korea, France, and the UK.

In 2013, the following five countries filled the most patent applications in the world: the US (57,239), Japan (43,918), China (21,516), Germany (17,927), and South Korea (12,386).

Asian countries are trying to take a lead in three areas likely to generate the next wave of innovation: biotechnology, nanotechnology, and information technology (IT). Asia spends as much as the US and Europe combined on nanotechnology. In addition, China, India, South Korea, and Taiwan have shifted from top- down, state- directed technology policies to more flexible, market- oriented approaches in order to foster innovation and entrepreneurship. China spent 1.98 percent of its GDP on R&D in 2012, almost tripling the levels it was spending in 1998.

As low cost is ceasing to provide a competitive edge for Asian companies, dif-ferentiation driven by enhanced innovation capabilities will be paramount for future success. Innovation needs to become a top priority for Asian companies aspiring to build strong brands.

Although design is only a tiny part of a broader brand strategy, it can help to create visible differentiation for products and shape customer perceptions.

Sometimes, the right partnerships can boost a brand’s ability to innovate. One of the easiest ways to build creative capital is through joint ventures, mergers, or acquisitions. Lenovo benefited from the purchase of IBM’s personal com-puter business in 2005, instantly becoming the world’s number 3 computer maker, while the longstanding relationship of Apple with Foxconn and other Chinese partners via the beloved iPhone is having a trickle- down effect.

Broad Diversification of Businesses

Another impediment to building brands in Asia in the past was the diversification of businesses spanning many industries with limited overlap and synergies. The prevalent mindset in Asia is based on trading rather than branding, and revenue generation, rather than profit. It is hard to create a relevant, clear, and differentiated brand strategy, and build a corporate brand that encompasses all areas, when a business has its hands dipped in every pie.

Conglomerates are far more prevalent in Asian markets than the rest of world. McKinsey’s research finds that over the past decade, the largest conglomerates in China and India have continued to diversify rapidly, making an average of one new business entry every 18 months, while nearly half of these companies are not directly related to the parent companies’ operations.

Thailand’s Charoen Pokphand (CP) Group is an example of an Asian company moving against the common diversification trend. Traditionally, it had interests in telecommunications, satellite, cable television, motorcycle manufacturing, petrochemicals, and brewing. Despite its diversified businesses, CP has continued to expand its integrated food business by controlling the entire supply chain. By transferring its agribusiness formula to other agricultural products and across countries, CP has also become one of the world’s leading agribusi-ness groups. Its annual revenue in 2013 was US$41 billion.

The Korean beauty firm AmorePacific is one of the best examples of a former, diversified conglomerate that has found great success by focusing on only a single core business. Under the leadership of CEO Suh Kyung-Bae, AmorePacific sold off non-core assets such as a baseball team and an underwear maker in order to focus on becoming Asia’s third largest cosmetics maker.

(to be continued…)