Brand Breakout - Nirmalya Kumar charts the rise of brands from emerging markets as they make the leap from local to global.
Nirmalya Kumar: The starting point was really looking at the top companies in the world. If you look you will see that 25 per cent of them are from emerging markets. Look at the richest people in the world and you will find that 25 per cent of them are from emerging markets. But look at the top hundred global brands and you will see one from an emerging market -- Corona from Mexico. So, the question is why?
When most people in the western market are asked to name a Chinese brand, they get a blank. So that’s where the idea came from. As a result, the book is not about best practice because nothing exists today, but next practice, how would you develop global brands out of emerging markets? That’s where we started and came up with the ways companies could do it.
Why do emerging markets need to develop global brands? The point is that as it becomes more and more expensive for them to produce goods, they’re going to have to move forward from simply being the manufacturing capitals of the world. And related to this is the transformation that is taking place, where for almost 40 years, China has been a manufacturer for the world. In the next ten years, the world will manufacture for China. There is no doubt about it.
You are already seeing it with respect to luxury goods, the wine market, and for a lot of the commodity markets like food and oil. China and India are not going to simply be export machines, but also going the largest import machines in the world.
That’s why you see the Chinese government trying to buy up a lot of businesses and land abroad - whether it’s vineyards or dairy farms in New Zealand and Australia, or farmland in Africa. In the next 10 to 15 years China will become richer and they are trying to ensure that the supply will be in place.
NK: Absolutely! On the other, more negative side, the learning I had was with respect to the way Chinese companies are put on the stock market. They may own three factories, but will put only one factory on the stock market. Alternatively, they might have factories that produce six products and they will put one of the products on the stock market.
When you do so what happens is that you can completely manage the results of that one company on the stock market. In the world of shared costs, who knows if a particular factory or product is actually running at a profit or loss? Or they might have a company that owns farms, makes the juice pulp, produces the juice, and finally brands and sells it to the market. They will list the branding entity at the bottom end of that juice value chain on the stock market. But this listed company has to buy all the juice pulp from the upstream sister company.
There’s a whole untold story about the integrity of these companies in terms of stock market listings. Furthermore, their ownership structures are opaque.
NK: Each of my books is a standalone book. But, this book intersects two themes that are enduring in my work: emerging markets and marketing. In the last two books – India Inside and India’s Global Powerhouses – the emphasis was very much on the emergence of India. In contrast, the three books before that were focused on marketing. With this book and the next I'm coming back to marketing, but with the emphasis on emerging markets.
NK: First, they need global brands because basically as the costs go up in emerging markets they need to go further into the value chain and capture more of the price that the end customer pays; otherwise they’re not going to be competitive at some level. For example, the producer of many Apple products, Hon Hai (also known as Foxconn), makes two per cent return on sales; Apple makes 30 per cent return on sales. So it’s a question of entering more profitable businesses.
NK: Yes. All major emerging market countries like China, India, Indonesia, Malaysia, and Turkey desire to build global brands. Historically, we know that no country has ever become developed without having some global brands come out of it. It happened with Korea, it happened with Japan, it is going to happen with China and other areas. Twenty years ago if I had told you Korea will have global brands, you would have laughed at me. If I told you 50 years ago that Japan would have global brands, you would have laughed at me.
NK: With China you can already see that there are brands – like Galanz, Huawei, Lenovo, Haier, Herborist, Pearl River Piano, TCL, and ZTE – that have gone global, but may not be top of consumers’ minds. In the next decade you will see more and they will register with consumers. Beyond China, from other emerging markets firms like Havaianas and Natura from Brazil; Dabur and Tata from India; and Emirates from Dubai to name a few.
NK: Basically they’re going to find out who their future competitors are. They underestimated the Koreans and the Japanese, so our warning to them is don’t underestimate these companies. They are your future competitors, and not only are they your future competitors, some of them are going to buy out some of your best known global brands. Think of Land Rover and Jaguar which are now Indian-owned or Saab, Volvo, and Wheatabix which are Chinese-owned. If they can’t build the brand, one of the routes is to acquire brands. It’s faster.
NK: It’s the same. The differences are in the details, but the big picture is the same – as a country becomes developed it has more R&D resources, more marketing resources, and the ambition to become global.
NK: I would say the opposite. I would say in India there are greater branding skills and capabilities, but in the desire to build global brands, China is further ahead. Every Chinese manager we talked to talked about the need to become a global brand. I talked to one of the leaders at Shanghai-based Bright Food and he said, we are constantly thinking why can’t we be like a Nestlé?
With China there is another difference. Most of the time when developing countries were trying to build global brands in the past, they didn't have quality products. Historically, the Japanese and Koreans didn’t have quality products. In China’s case, nobody disagrees that China has world-class manufacturing capabilities. The best products in the world, including the Apple iPhone and the iPad are made in China.
So they already have the product capability, now they need to add a branding capability. That has got to be easier than the other way around. So that is one of our arguments. Let’s say there are a thousand manufacturers in China who have mastered world-class manufacturing. Let’s say out of the thousand a hundred decide to go and build a global brand. Maybe ten of them will succeed.
NK: Africa is a bit further behind. In Africa, the only country where we recognise that there might be some emerging global brands is South Africa, because South Africa already has global brands like the restaurant chain Nando's and the DeBeer’s Forevermark.
NK: My next book is related, but different, about how global brands from the West need to adapt for emerging markets. We have already interviewed 30 people running global brands. They explain how they’re changing their organisational structures to give more importance to emerging markets, how they are changing their product and value propositions to be more in tune with emerging markets, how they’re using local brands in emerging markets to develop them for other emerging markets, and how they're acquiring local brands to fill gaps in their local brand portfolios. It’s very exciting times for global brands.
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