Building Global Brands from Emerging Economies

Image: Aly Song / Reuters

If there are 1,000 contract manufacturers in China, maybe 100 of them will decide to build their own brand and at least 10 will succeed

Big ideas often come out of small conversations. This seems to be the case with marketing guru Nirmalya Kumar’s latest book Brand Breakout: How Emerging Market Brands Will Go Global, which he has co-authored with Jan-Benedict EM Steenkamp.

“This book started one evening in my apartment [in London] when I was sitting with my friend JB [Jan-Benedict]. The latest Interbrand [a brand consultancy] 100 global brands list had come out. Not a single brand from the emerging markets was on it,” says Kumar, a professor of marketing and co-director at the Aditya Birla India Centre at London Business School.

“JB and I started talking about why things are the way they are. First we came up with reasons why there were no emerging market brands on the Interbrand list. Then we started to figure out how, if emerging market brands had to go global, they would need to go about it.”

Kumar and Steenkamp found one part of the answer in the list of the top 500 companies in the world. China has 73 companies on it—the second largest after the US. And here’s the nub: Most of these are business-to-business [B2B] companies, or those in the business of extracting natural resources, or those like China Mobile that are monopolies in their local markets.

B2B CAN DO WITHOUT BRANDING
“In B2B marketing, brands play a very small role,” says Kumar. “You go to the man on the street and ask him to name any of the top B2B brands. Chances are he won’t be able to name any. You ask people about ABB, nobody knows about ABB. Before it became Sony-Ericsson, nobody knew of Ericsson either.”

Nevertheless, there are some B2B companies that have been able to build big brands. But they are exceptions. “General Electric gets a branding because of being in washing machines and other electronic goods. Shell gets a name because of gas stations. IBM has a brand name that is consumer-oriented because they were in PCs and they have been around for 100 years or more. Otherwise IBM would not be a known brand,” says Kumar. “There are companies like Tetra Pak in packaging or Intel with its ‘Intel Inside’ campaign, which have been able to build brands.”

Companies from emerging markets don’t need to build global brands because most of them are not in consumer-facing businesses. Take Indian IT companies, for instance. They have concentrated on IT services, and not built products where they would have needed to create brands. “I suspect that the logic of a product company is very different from the logic of a service company,” says Kumar.

This is precisely why contract manufacturers in emerging markets haven’t developed brands. “Their existing business model is very successful. To evolve into a new business model with uncertain chances of success and doubtful profitability is unlikely,” he says.   

Kumar cites the example of contract manufacturers in Bangladesh. “No country owns contract manufacturing like Bangladesh. When I was in Bangladesh, they told me, we have to have our own brands; we are tired of manufacturing for others. But their existing business model is so profitable, the question is do they need to develop brands?”

Also, to build a global brand in the business-to-consumer (B2C) space, companies need to create awareness among Western consumers through advertising and marketing—that may be an expensive proposition for emerging market countries. “The United States, Europe and Japan are probably the three most expensive places in the world to advertise. Given that, no emerging market can rationally make a case for advertising investment,” says Kumar.

Besides this, the country-of-origin effect [a psychological effect on customers when they are unfamiliar with a product] is also at play. “All Western consumers, when asked what they think of a brand that comes from India or China or any other emerging market, say it will be of poor quality,” says Kumar.

The irony, of course, is that consumers from emerging markets think the same about brands from their own countries. “Even Indian and Chinese consumers would say that brands coming from emerging markets, including their own, are of poorer quality than Western and Japanese ones.”

BUT BRANDS CAN BE BUILT
The dearth of global brands from emerging markets can be corrected in the time to come. There are a number of strategies that companies in these countries can follow in order to build brands in the West.

One is to use the diaspora route. “This strategy involves companies targeting immigrants from their own country and building enough scale and sales to support a brand push. You see a lot of brands doing that, including Pran [Foods] from Bangladesh, Dabur, ICICI Bank and, to some extent, SBI, Nando’s from South Africa, and Corona from Mexico,” says Kumar.

The second is the cultural resources route. Even though brands from emerging markets are considered to be of inferior quality by Western consumers, there are certain things that are regarded positively. “Even though Brazil has a poor image for any brand that comes out of it, nobody questions Brazil for fun, beach, sun and sand. That’s why they have a brand called Havaianas that sells flip-flops,” says Kumar.

Similarly, China is known for its ancient medicine and silk. India is known for ayurveda, a culture of history, yoga and religion. If a brand from an emerging market country positions itself around these things, it has a good chance of being accepted.

Image: Susanne Hakuba

Nirmalya Kumar, professor of marketing, London Business School

BRANDING COMMODITIES
Another route, which is very important for India, is through branding commodities. India has several such opportunities from Darjeeling tea and Mysore coffee to Basmati rice and Alphonso mango.

Once countries are able to brand commodities, they are able to get a price premium on that. “We have shown it with Columbian coffee (in our book). Even when coffee prices dip, Columbian coffee prices don’t dip as much. And Columbia is not even the largest producer of coffee. It is Brazil,” says Kumar.

First, the geographical region where a particular commodity is produced needs to be defined properly. “I have not seen any effort on this front in India. I know there is a Tea Board [of India] but there is a need for a Darjeeling tea board that authenticates things,” says Kumar.

Second, the production process needs to be tightened. “There are 14 steps that go into making some kind of wine in France. I bet you that even nine of them are not necessary. But it’s a way to show people that a lot of care is being taken in producing the wine to give it special qualities.

“Also, a very tough enforcement scheme needs to be put in place. If you try to put champagne on any sparkling wine produced anywhere else, it cannot be called champagne. Only sparkling wine from the Champagne region in France can be called champagne,” says Kumar. And any company using ‘champagne’ for sparkling wine gets sued by the French.

“Even the Americans had to remove the word champagne from their California sparkling wine,” says Kumar.

WHY CHINA IS AHEAD
Kumar is of the view that companies in China are better poised than those in other emerging markets when it comes to creating global brands.

“When Japan, South Korea and Taiwan started going down the path of globalisation, their quality of products was poor. Over time they put in R&D investments to improve the quality. China is the only exception as an emerging market; they have world-class manufacturing and nobody questions the quality of Chinese products when they are produced to Western specifics,” he says.

And it is easier to brand a product that is already high on quality. Kumar explains this with a thought experiment from his book. “Assume there are 1,000 Chinese manufacturers on contract for Western product companies and brands. They are manufacturing iPads and iPods for the world. So they can’t be bad. Out of those 1,000, let’s say 100 decide to build their own brand and try to diversify out of the low-margin contract manufacturing business where they are always at the mercy of Western companies. Out of the 100 who decide to do their own thing, 10 succeed. That means you will have 10 global brands coming out of China in the next decade.”

What also aids Chinese companies is that they think long-term. Indian companies don’t.
 
“Chinese companies have a long-term orientation, which comes from Confucius. They are playing for the next 100 years. They are not playing for the next 10,” says Kumar.

“And there is a reason for that: Indian companies are borrowing at very high rates from the capital markets. The major Chinese companies have state banks that are supporting them to some extent. So they are not paying the same interest rates, and can play the longer game much better,” he adds.

The Chinese government, too, has an eye for the future. “We might complain that the Chinese state is oppressive, but I have to grant one thing to the Chinese government—they do make big bets for the future,” Kumar says.

Take, for instance, their bet on urbanisation: “China knew 30 years ago that urbanisation is going to take place and they needed to have the infrastructure in place. They built that infrastructure. Today you can say that the Shanghai-Beijing train looks half empty. Yes, maybe it does. But they are not building it for today. You have to build the infrastructure for the next 20 years. I am sure it is going to be full some day,” says Kumar.

He adds, “The same thing is true for Shanghai and Beijing airports. They realise that they are building infrastructure for the next 20 years. We can’t be building an airport every two years.”

This interview was done when Nirmalya Kumar was professor of marketing at London Business School. He is now a member of the Group Executive Council, Tata Sons