How the brand factor fits into the global economy

How the brand factor fits into the global economy
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First Published: Wed, Apr 30 2008. 12 28 AM IST

Model development: Don Schultz says that at this point, India appears to be the only emerging market where both the brand and the country can profit from the value of branding.
Model development: Don Schultz says that at this point, India appears to be the only emerging market where both the brand and the country can profit from the value of branding.
Updated: Wed, Apr 30 2008. 12 28 AM IST
There is little question that the information technology revolution has had a huge impact on all businesses, markets and economies. While there is surging excitement over search engines (Google and Yahoo!), social networking sites (MySpace and Facebook), wireless and mobile (Apple and BlackBerry), a larger systemic change is occurring in the basic economic models, driven by the rise of brands and branding. While the global results of this branding revolution are increasingly apparent, the reasons behind these changes are not as well recorded or defined. Here is one point of view:
Industrial development
Over the last 200 years, a basic industrial development model drove much economic progress. The driving nations were initially the UK and western European countries such as France, Germany and Italy. The US emerged during the 20th century.
The model was based on domestic firms using the country’s natural resources, turning them into manufactured products and then differentiating them with brand names.
Model development: Don Schultz says that at this point, India appears to be the only emerging market where both the brand and the country can profit from the value of branding.
Thus, we saw the rise of the German automotive industry/brands (Mercedes-Benz, BMW and Audi). In the UK, it was Rolls-Royce, Wedgewood and Twining. Firms in France and Italy focused on agricultural products (Champagne wine and Parma ham) and fashion (Chanel and Armani). In the US, it has been a mixed bag, ranging from automobiles (General Motors and Ford) to food products (Procter and Gamble and Kraft Foods) and entertainment (Warner Bros and Universal).
But, they all used basically the same model. Develop products. Brand and promote them. And, from a strong domestic base, export the brands to the rest of the world.
The promotional development of brands allowed the organization to add consumer value to basic products. That generated additional sales and profits. These were then returned to the brand owner. That, then, generated huge economic gains for both the company and the home country.
For the most part, these home market-developed brands, when exported, tended to bring the culture of the company and the country along with them. The basic model was to convince consumers in other nations to accept the developed products along with the culture which generated and supported them. A prime example is the US entertainment industry.
Because brands and branding were such critical ingredients in a firm’s and a country’s success, there was, and continues to be, great emphasis on protecting the value of those brands, primarily through patents, trademarks, sales marks and other legal means.
Transition branding
In the last 40 years, another economic model has developed. I call it the transition branding model. This is typified by Japanese and Korean firms. In these natural resources-poor countries, domestic companies, often with the support of their governments, have imported raw materials, processed them and turned them into copies or improvements of products originally developed in the traditional industrial markets.
Japanese companies have focused on automobiles (Toyota, Honda, Nissan), optical products (Seiko, Panasonic) and cameras (Canon, Nikon, Olympus). Korean firms have become important in consumer durables such as cellphones (Samsung), automobiles (Hyundai and Subaru) and home appliances (LG).
Both Japanese and Korean companies have chosen not to export their cultures with their products, preferring to be culture-neutral. That has allowed them to become global suppliers, with few social stigmas.
Companies using this transition model have tended to focus on traditional marketing, that is, mass-media advertising and promotion, to build their individual brand names. This has helped them dominate many product categories. It appears, for brand protection, they have tended to rely more on continuous product innovation than legal means.
Emerging market
The third model, which I call the emerging market model, is primarily a hybrid of the previous two. Three basic approaches have developed:
a) Firms and countries sell the country’s natural resources in an unbranded state to other, more sophisticated, processors in advanced economies.
Russia, East Asian countries and West Asia (all primarily petroleum-related) typify this approach. No branding or added consumer value is developed or added. The same is true of African firms and nations. With the exception of a few precious stones and metals from South Africa, African countries and companies generate substantial short-term revenues and profits without adding any customer or consumer value through branding.
b) The second model is typified by China. Chinese companies buy raw materials and ingredients and turn them into branded products though, in most cases, not for their own companies or for their country. They are primarily sourcing organizations for the industrial countries and companies.
Thus, much of the manufactured production output of China has only passing references to the country as the source, and even less to the individual firm which manufactured the product. So, there are few attempts to add consumer or customer value through a brand or branding which could conceivably add a longer term value for the manufacturing organization and the country as well.
c) The third emerging market model is being practised by Indian companies. While India has some natural resources, Indian companies have become very skilled at importing ingredients and raw materials and turning them into branded products. These are increasingly sold in the domestic market and exported around the world. Examples include automobiles (Tata, Mahindra and Mahindra and Bajaj), branded steel products (Mittal Steel), computer software (Infosys and Wipro), and so on.
In most of these cases, Indian companies have modelled their products on existing industries, but have added an additional ingredient, service, to differentiate the firm—that is, service in all its variations, from customer service to technical support and back-of-the-house operations. Brands play a key role in differentiating Indian products, and will most probably have a key role in the ongoing success of Indian companies.
While this economic classification scheme is still evolving, it appears the rules of the “brand marketing game” are now fairly well established. What is still to be determined is what will happen to other firms in other countries that are just beginning to enter this global marketplace.
One can only wonder about Brazil and Chile in South America. Each has substantial natural resources, but neither has built many sustainable brands. The same is true of Australia and New Zealand. Firms there seem content to sell their natural resources in unbranded forms. We find the same situation in Mexico, Canada and Eastern Europe. Most of these areas have substantial natural resources, but have not yet developed them into strong global brands.
Brands and branding are becoming increasingly important factors in the global economy. Adding sustainable long-term value would seem critical for both the firms and the countries where they are located. As the importance of culture increases around the world, one can only speculate on how the value of industrial nation brands might decline and be replaced by brands from newer countries and firms found in the emerging market model.
At this point, it seems only India is set to profit from the activities of its firms, as it appears to be the only emerging market where both the brand and the country can profit from the value of branding. But, only time will tell whether or not Indian companies realize the opportunities. That is what makes the marketplace so exciting.
The author is known worldwide as the father of integrated marketing communications (IMC). Author of various books and articles on IMC, Schultz is professor (emeritus-in-service) of IMC at The Medill School, Northwestern University, and is also president of Agora Inc., a consulting firm.
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First Published: Wed, Apr 30 2008. 12 28 AM IST