A reply I've used in the past is that it is very expensive and time-consuming to build brands. Hence, firms from both countries may have thought it better to buy established brands. So if you can't build 'em, buy 'em! A few years back now--my blog is becoming "venerable"--I discussed the phenomenon of "reverse colonization" wherein Indian concerns were buying up British marques at a rapid clip. Think of the Tata Group which I like to think of as "ICME": Indian Company Making Everything for those of you weaned on a steady diet of Road Runner cartoons. Especially for Anglophiles, don't the names Tetley Tea, Jaguar, and Land Rover ring a bell? The same holds for China to some extent with the example of Lenovo buying the rights to use the IBM name together with its ThinkPad line of laptops.
However, these examples should not obscure the broader fact that a lack of recognizable brands is truly a handicap with IPE implications. Most of the value-added in the global supply chain emanates from higher-level, intellectual property-heavy concepts such as branding. Indeed, many global corporations like Apple are little more than a logo stamped on products largely manufactured elsewhere to their spec. With labour and other manufacturing costs in China not bound to stay at a permanently low level forever, there is certainly pressure to move towards these value-added upper echelons of the supply chain instead of being stuck with the grunt work. Despite much criticism about China's efforts to promote national champions to the exclusion of foreign competitors, it remains true that the Chinese haven't managed the feat which Germany, Japan, and South Korea have. Ditto for India with a somewhat longer time frame in mind.
While perusing a recent Business Horizons issue in which I myself have a contribution (more on this later), I came upon an interesting article by marketing bigwig Jagdish Sheth and folks at Interbrand and the National University of Singapore discussing this very conundrum: How can we speak of the rise of China or India if they are still stuck in the second division at building recognized brands? Make no mistake; this erstwhile "marketing" issue may have important social and environmental consequences insofar as China may hold on too long to labour and environmental arbitrage when it's in its best interests to move up the value chain. Here is the abstract:
During the past quarter of a century, Asia has risen to become the world's factory. This trend has, however, coincided with the relative decline in value of manufacturing compared to other value adding activities, including R&D, design, and branding. This significant “value shift” has eroded the margins of manufacturing firms and sparked considerable interest among executives in Asia to design, brand, and market their own products. To date, though, this transition from being manufacturing oriented to becoming brand owners has largely only been accomplished by Japanese and Korean firms. In the rest of Asia—including in the rising giants of China and India—there are very few valuable brands. In fact, there is not a single Asian brand from a country other than Japan and Korea in Interbrand's 2008 valuation of the world's top 100 brands. Our article discusses, in depth, the challenges that Asian manufacturing firms encounter as they try to become “branders” and how these challenges can be overcome. Based on our collaboration spanning academia and consulting, we have been able to tap a wealth of information made available through research, case studies, and Interbrand's database of completed brand related assignments across Asia.Why does branding matter more than manufacturing nowadays? Here's a brief history:
During the past few decades, we have seen a significant shift in value away from manufacturing toward design, marketing, and customer service. This is in sharp contrast to the Industrial Age, when manufacturing contributed the most to value creation of all activities undertaken by firms. The Industrial Revolution was largely a revolution in manufacturing that led to a mobilization of resources and an increase in productivity beyond anything previously achieved throughout millennia of human civilization. The industrialization recipe also proved highly replicable, spreading across countries in Europe and North America before arriving in Asia. In just a few decades, industrialization catapulted Japan from an isolated feudal state to a modern industrial nation capable of defeating Russia, a major European power, in war. Industrialization subsequently spread across Asia in what was often labeled the “flying geese” pattern during the 1980s. This initially transformed the “tiger economies” of Hong Kong, Singapore, South Korea, and Taiwan. Industrialization subsequently spread to other Asian countries including China, India, Malaysia, Thailand, and Vietnam.And here is what I believe is a key takeaway concerning the need for increased customer-centric focus as opposed to building "national champions" and similar nation-centric notions that have so far failed to achieve what they aimed for:
However, during the past 25 years the rules of the game have changed significantly. In the post-industrial world, manufacturing is no longer the same engine of value creation that it was during the Industrial Age. As high quality products can now be produced anywhere, manufacturing has increasingly been re-located to emerging markets with low labor costs. As a result of these changes, manufacturing has largely become a commoditized capability characterized by substantial competition and declining margins. Those capturing the most value in the post-industrial economy now are firms which control critical capabilities relating to design, marketing, distribution, and service. The actual manufacturing of products is increasingly outsourced to manufacturing specialists. In this new world of outsourcing, companies no longer necessarily compete based on the manufacturing assets they own.
Defining the offering becomes the next key priority. This includes specifying the products and services that the company seeks to offer its target segments based on the key hooks identified in the market research. For many firms, this seems to be the end of the process to define the offering. We argue that it is equally important to look at the customer journey across all touch points; this includes marketing communications, sales, payment, installation, ongoing usage, and customer service. In short, it takes the perspective of the prospective customer, and follows how the customer will interact with the company at all stages. Only by aligning all touch points will the customer undergo a consistent brand experience. This means tilting the company away from traditional functional silos toward an end-to-end process thinking, with the customer at the center. Many firms we have worked with lack strong cross-functional teams that are empowered to operate transversally across the organization. Such teams are critical to conduct comprehensive feasibility studies and specifications of what it takes to deliver the offering. As previously discussed, it is important that the underlying quality and performance of a company's products and services are sufficiently high in order for the emerging brand to become successful. Achieving this usually requires a high degree of cross-functional collaboration.It's a rite of passage that China has yet to make, but the authors do provide some thought-provoking ideas on how to get this task done. Needless to say, it's better accomplished through clever marketing than through protectionism. Proton, anyone?
And no, I will not spend good money on something called a "Chery Tiggo." More focus group work on naming products, pretty please.