Economist Intelligence Unit: Branding seen as key to survival for many Asian companies

As Asia’s companies grow ever more internationally ambitious, the need for strong brands will grow significantly. Just as important, the shifting business landscape within Asia, particularly China and India, will also demand the use of stronger brands, according to Brand and deliver: Emerging Asia’s new corporate imperative, a new report from the Economist Intelligence Unit.

The report examines the current state of branding in emerging Asia. It looks at how companies are tackling the next – crucial – stage of their evolution by harnessing the power of brands. It also analyses the lessons that can be learnt from pioneering firms in Japan and South Korea that have already succeeded in building global brands.

Among the report’s key findings:

In the past, Asia’s emerging multinationals could thrive without strong brands. In the future, they will need brands just to survive. Companies in emerging Asia have grown quickly into large businesses without using brands because they have been in the right place at the right time. Construction companies have benefitted from urbanisation and car companies from rapid motorisation. Banks have thrived in protected markets. Many others have seized on Western multinationals’ search for low-cost production. But this “brandless success” will not continue. Cost advantages are eroding, markets are opening and competition for customers is intensifying. Many of these competitors will be Western companies that have honed their branding skills over many years. Some estimate that Chinese companies have less than ten years in which to change their business models.

Branding isn’t only about succeeding in local markets, it’s crucial to going global. Today, businesses in emerging Asia have vaulting ambition.  But they will find it difficult to succeed in “going global” without a strong brand identity. Chinalco and CNOOC from China were rebuffed in their attempts to buy assets in Australia and the US partly because, in the absence of a clear identity of their own, they were viewed as merely extensions of the Chinese government. Indian Hotels Company was rejected in its attempt to associate more closely with Orient Express Hotels, in which it was the largest shareholder, because management worried that association with an Indian business would diminish the value of its own brand. Indian automakers found similar resistance when they announced plans to acquire Jaguar from Ford.

Branding strategy, as practised in the West, is not well understood in Asia. While the benefits of brands–both to customers and companies–are easy to grasp, the science of creating and managing them is far from straightforward. In emerging Asia, that science is a work in progress. According to leading branding consultants in the region, many companies regard brands as their reward for building a successful business. They often confuse branding with advertising. But a brand is more than just a name or a logo, and while marketing is an important part of branding, it is only one part. Companies need to think about quality, design, style and all other aspects of a customer experience that together make up the brand. Most importantly, they need to think about what will differentiate them from the competition.

The transition to managing a branded business demands major changes in corporate thinking, organisation and staffing. Historically, companies in Asia have competed on price, trying to be the cheapest at what they do. They have operated with a trading mentality, pursuing numerous, often short-term opportunities. Building a brand requires changing this behaviour. For a start, it requires a longer-term, more focused approach. Just as important, brands must be managed from the very top. Too often in Asia, branding is considered something to be delegated to a junior team. Building and guarding a brand requires specific expertise–and companies will need to obtain this, if necessary externally. LG Electronics, for example, in 2007 hired its first ever chief marketing officer and first ever C-level executive from outside South Korea.

To build successful brands, emerging multinationals will need to increase significantly their investments in R&D, marketing and design. This will require overcoming their traditional aversion to investment in intangible assets as opposed to plant and property. Among the toughest challenges for companies trying to make the transition to branded goods is fostering innovation. Many Asian firms have relied on copying what other businesses do. But truly great brands lead the field with their own innovation.

The experience of Japanese and South Korean firms shows that quality and safety are crucial to brand success. Many lessons can be drawn from the rise of Japanese and South Korean brands. Paramount is the need for product quality and reliability. While it is often necessary for emerging multinationals to start off by competing on price as a “low-end” brand (as, indeed, many Japanese and Korean firms did), this strategy is not sustainable over the long term. Iconic Japanese firms realised this from the outset. In the 1950s, Sony’s goal was to “become the company most known for changing the worldwide poor-quality image of Japanese products.” Its long-term mission was that in 50 years, “… our brand name will be as well known as any in the world . . . and will signify innovation and quality.”

Asian brands must recognize both the positive and negative aspects of their origin and heritage. One of the biggest challenges facing Asia’s emerging multinationals is the “country of origin effect”, whereby Asian brands are perceived as inferior because they come from an emerging market. In the case of China, the recent string of product scandals involving products such as milk powder has made the problem worse. Branding experts believe this is a temporary problem. But it is one that will need to be considered carefully in devising branding strategy. This is perhaps doubly true for brands acquired abroad. The Tata brand is one of the best-known in India and one of the best regarded. But although it has made headlines for its high-profile global acquisitions, Tata has wisely decided to avoid any thought of rebranding these assets.  “Tata means nothing to Mrs Robinson in Bedfordshire, but Tetley means a great deal,” says R Gopalakrishnan, executive director of Tata Sons. Instead, the conglomerate has launched a more subtle campaign to win foreign friends, bringing young graduates from Europe and America’s leading universities to India to see Tata’s much-admired CSR programmes at work.

Brand and deliver: Emerging Asia’s new corporate imperative is available free of charge here