Henry Stewart Publications, June 2005
Today’s businesses are subjected to a great deal of turbulent and accelerating change, and Asian companies feel this change to a greater degree than companies elsewhere in the world as they try to catch up and overtake the competition. Since 1997 the tremendous pressures of the global economic roller coaster have intensified the struggle for life experienced by the majority of Asian businesses.
Periods of profound and rapid change put a premium on the ability to survive. Take a look at the Fortune 500. A surprising number of corporations that were on the list a decade ago are no longer on it, while the recent economic and social crises have eliminated others entirely.
But Coca-Cola, at well over 100 years old and still the world’s most valuable brand, is likely to be around for the rest of this century. The top brands of the 1920s – Colgate, Kellogg’s and others – have also maintained their industry leadership to this day in many disparate and changing markets, and despite changes of management over the years. Strong brands are amazingly durable, and have the ability to overcome many challenges. By contrast, relative newcomers such as Nokia have also dominated markets in really short time spans and are likely to stand the test of time, but the key to the success of all these companies is their meticulous attention to the development and management of their brands.
The pursuit of longevity has always been a powerful part of Asian cultural thinking, and as there are no life cycles for brands as opposed to products (now down to 6-8 weeks in some cases), branding is becoming increasingly relevant as the world enters a new era of unprecedented change, upheaval and uncertainty. This change is strategic, unlike the incremental change of more predictable times, and therefore requires a strategic response. Brand building is exactly such a response. If successful, it can be the strongest weapon in a company’s armoury and the best guarantee of corporate survival. But Asian companies have not helped themselves in managing their futures via the branding route. As evidence of this, leaving Japan aside, there are hardly any truly global Asian brands, except maybe Samsung from Korea. Even the Japanese brands like Sony are suffering. What are the reasons for this situation?
Why Has Asia Fared Badly In Branding?
First, many Asian businesses still suffer from strategic myopia, often settling for complacency and short-term gains. Symptomatic of this is the OEM (old economy model) trap, where companies build components and end products, or assemble them for their customers, who then place their own brand names on the finished products, adding large price premiums to the production cost. The strategy of relying on OEM business can reap rewards in good times, but the same customers usually turn out to be fine weather friends, disposing of the OEM companies’ services whenever an adverse change to the demand curve occurs. Many companies in Asia have been caught in this commodity trap; a problem that has contributed significantly to the volatility and demise of their economies.
Secondly, many Asian companies have joined the desperate pursuit of operational efficiency through quality programmes, re-engineering, customer service and other prevailing trends that promise success. Necessary though these may be, they are not sufficient to help companies differentiate themselves in this world of similarity. Long-term survival and profitability depend on climbing out of the commodity trap via the only route possible – differentiation via branding.
The truth is that for these reasons and more. Asian companies have failed to create strong brands and to stand out from the crowd. Faced with more deregulation from the introduction of AFTA (ASEAN Free Trade Association) and WTO (World Trade Organisation) legislation, Asian companies are now starting to adopt a more strategic focus, centred on long-term survival and profitability via branding. But governments have had to kick start the revolution.
Asian Governments Seek Brand Ambassadors
Interestingly, Asian governments have had to take the initiative in focusing more attention on the power that brands can deliver in achieving national objectives, and this has helped raise the awareness level among companies of what branding can accomplish, and how urgent it is. For example, significant financial grants and subsidies are available to Singapore and Malaysia for companies wishing to undergo branding activities.
This wake-up call from governments, coupled with the outright fear of even more intense competition from emerging economic players like China joining the global hunt for markets, have caused a growing commitment in Asian boardrooms to developing strong brands. Asian companies are beginning to realise what branding really means and the benefits it can bring – especially in terms of increased corporate worth – and importantly, the consequences of not pursuing it. Chinese companies are desperate to get into the branding game, to the extent that they are buying Western brands, as Lenovo has done with its purchase of the IBM PC business.
Buying a brand is one thing, but developing and managing successful brands is not an easy task. There is no quick fix solution, and many companies do not have the relevant experience or knowledge necessary to embark on this route. A whole new technology is involved. As a Chinese Minister explained, “we have low cost of production, the latest technology and high quality products. The only thing we do not know how to do is branding. And this is essential for our future success.”
Can Asian Companies Perform In The Global Branding Arena?
Some people say that Asian companies will find it incredibly difficult to build international and global brands. Their reasoning is that most of the world markets and the product categories in those markets are already dominated by powerful global brands. Furthermore, they claim that Asian companies have to overcome significant global consumer perceptions of sub-par quality and other concerns relating to the country of origin of the brand.
There is some truth in these comments, and it will be no easy task for Asian companies to develop strong brands or their own, but it is the very nature of the fast-changing business world that can help them. There are no longer hard and fast rules, and innovation no longer belongs to the privileged few. Sony relied on innovation and quality but other players now offer the same at less cost. Sony has paid the price for inadequate brand management.
Moreover, there are Asian corporate leaders with the vision necessary to harness technology and ideas, both of which are freely available, and global niche markets are available to those who can move in quickly. Samsung and LG Electronics do not bother to create costly new technologies but instead take those technologies and beat the developers to market. Speed and agility are not strengths possessed by many of the existing global giants. Asian CEOs must use market dynamics to exploit the weakness of the power brand companies and establish new and innovative brands for the future.
As for negative perceptions associated with the quality of Asian-made products, Japanese companies have managed to overcome this issue over the last 30 years, and companies in other Asian countries are making similar strides forward. For example, the Chinese brand Haier has made inroads into the highly competitive US market for consumer durable white goods products. But it took a CEO who once lined his factory workers up in front of defective products and took a sledgehammer to each unit to impress upon them the critical importance of product quality. He knew that a company could never establish a strong brand without top class product quality.
Slip up on quality and the brand image, profits and shareholder value plummet. The Mercedes E Class was voted bottom in a quality survey of over 800,000 people in the USA recently. Hyundai from Korea was voted top. Mercedes is losing share, profits and market capitalisation while Hyundai is gaining. Ten years ago, Hyundai was not on the international radar screen for motor vehicle brands.
Such examples are few and far between unfortunately, and there are many additional aspects of branding that Asian companies have to improve upon in order to achieve international recognition.
What Should Asian Brands Do?
First, corporate thinking has to stop rigidly focusing on short-term profits and concentrate more on long-term brand building. Brands are assets that require investment, and there has to be a better balance here. It all comes back to strategy, and there is no doubt that brand strategy now drives business direction in the New World. Petronas, the Malaysian oil and gas company, started investing in Formula 1 ten years ago with the aim of becoming a global brand, for example, and it is now known around the world.
Secondly, there has to be a top management mind-set change about what building a brand really involves. A brand is not merely a logo, slogan or advertising, as promised by many agencies offering these services. Too many companies in Asia have made promises to consumers via market communications that they could not deliver, with the result that a great deal of money has been wasted and consumers disappointed.
This is symptomatic of the fact that brand management is often inadequate, and this is what the Western brands do so well. But times are changing. Two Malaysian brands – Pensonic Holdings Berhad, a consumer household electronics company, and Kinta Kellas plc, an asset management and development consultancy – are both currently undergoing total organisational change in order to bring their new brand strategies to life across multiple markets. They are looking at all touch points with consumers in an effort to gain an emotional association with them.
As Dixon Chew, group managing director of Pensonic said, “We want all ranks in the organisation to live the brand – from the cleaner to the CEO. We are now planting the seeds of the Pensonic brand in the entire organisation to build a strong brand culture. We want all employees to carry and display the brand values in their daily work. The whole organisation will be the future driving force to elevate Pensonic into a powerful brand.”
So behind all corporate success these days are solid brand strategies, with clearly defined brand visions, values, positioning statements and plans for fulfilment. Brand management is holistic and has to be done professionally. Brand strategies have to be brought to life by people, and the development of a brand culture is vital if companies are to deliver on the messages projected by market communications. As brands are relationships that only exist in people’s minds, those relationships have to be built and nurtured with care. Brand successes and failures are linked directly to levels of consumer satisfaction and delight.
Thirdly, although product quality has improved tremendously in Asia with many companies having reached world-class standards, it remains an indisputable fact that service quality needs drastic improvement. What never ceases to amaze is that the generic personality of Asian people promotes warmth, hospitality and caring relationships, but this is rarely translated into service quality. Service brands have got to work much harder on the consumer experience. Raffles International, a company that holds both Raffles and Swissotel branded hotel and resort chains, has gained global status because it is fervently tackling the tough job of managing all consumer touch points rather than just putting people in beds. Branding is about great experiences.
The Investment And Rewards?
Many Asian CEOs tend to back away from brand investment, but it need not be as high as many are led to believe. It is not how much money a company spends but how well it spends it. Starbuck’s evidently only spent US$20m in advertising and promotion in its first 20 years – some Asian mobile telephone brands spend that in one year and do not even get out of their own country. Focus is key, and now is the time to focus on building a brand strategy for the future, and the escalating levels of competition that lie ahead.
For those companies that get it right, the benefits accruing to a strong brand are nothing short of astonishing. Powerful brands provide long-term security and growth, higher sustainable profit and increased asset value because they achieve:
Higher sales volumes
Economies of scale and reduced costs
Greater security of demand
But more than this, powerful brands are strategic and valuable assets in their own right and are often worth multiples of the net assets of the business they belong to. The attention now being paid to the valuation of brands shows how substantial their contribution to the profitability and worth of companies can be.
So for Asian companies wishing to create sustainable, profitable international and global market positions, branding is the road to travel. This is the strategy that has been missing from many boardroom discussions over recent years and one that could possibly have saved a number of firms in the last two recessions. A strong brand is essential for survival in the 21st century.