Brand Breakout - How Emerging Market Brands Will Go Global

World class marketing experts, Nirmalya Kumar and Jan-Benedict Steenkamp set out a cutting-edge plan for emerging market brands to achieve success in international markets. Brand Breakout outlines eight strategies - including the Asian tortoise route, from B2B to B2C, brand acquisition and leveraging cultural resources - that will take brands from domestic dominance to worldwide triumphominance cultural resources rand will go global.kground . For each strategic route, Kumar and Steenkamp examine the most effective implementation as well as identifying the problems that companies will face and how these can be overcome. Full of case studies from around the world including HTC, Tata Motors, Samsung, Lenovo, Pearl River Piano, Havaianas and Corona, the authors demonstrate that their strategies and underlying strategic brand-building principles are here to stay. Brand Breakout is not only a practical and enlightening guide for emerging market brands but crucial reading for Western companies who should not underestimate the challenge coming from these up-and-coming international businesses. By understanding their strategies and success factors, Western companies can plot their counter-strategies for this new business environment. In this engaging and illuminating book, Brand Breakout equips readers with the knowledge and techniques so that their brand can finally go global.

“Brand Breakout is a must-read, not only for

those who run local companies and brandsexpanding internationally, but for all of uswho compete against them in their own ter-ritories, and are compelled to win with globalbrands and strategies against a variety ofvery local realities.”

Juan Alanis, General Manager

The Estée Lauder Companies Inc., Mexico

“As two of the most well-known marketingscholars on emerging markets in the world,Nirmalya Kumar and Jan-Benedict Steen-kamp provide a definitive guideline for

emerging market brands here The eightroutes proposed in this book lay out a com-prehensive roadmap for those aspiring com-panies and countries to effectively enter

global markets, and will have a far-reachingimpact in the years to come It also providesgreat insights on the transition of the eco-nomic development mode of China A noveland thought-provoking masterpiece!”

Yubo Chen, Professor & Deputy

Chair

of Marketing, Tsinghua University

“Outstanding book It is fascinating and doubtedly a must-read piece for managers inboth Western and emerging market compan-ies It was eye-opening to see how Chineseand other emerging market firms are chan-ging from a clear focus on manufacturingand supply chain efficiencies to buildingbrand equities and allocating enough re-sources behind them This is our new com-petition It seems they now realize that thereal value of their companies is in their

un-brands And it is not until they fully hend this that the expansion of these brand

compre-equities can really take place; Corona fromMexico is a good example.”

Henry Gomez, Vice-President

Business

Development for Latin America, Pepsico

“Emerging market firms are still better at

manufacturing than branding Brand out provides CEOs with a timely and system-

Break-atic roadmap of recommendations to changethis.”

John Quelch, Professor, Harvard

Business School & Former

Dean of CEIBS (China Europe International

Business School)

“An encouraging and integral reading abouthow emerging markets companies could rap-idly expand the value of their offering It re-cognizes how crucial it becomes to unlockvalue through ‘the art’ of brand building withtangible and relevant principles Certainly,leveraging the full potential of the cross-

cultural diaspora strategy will be

fundament-al for brands determined to thrive in globfundament-almarkets An extraordinary book with price-less insights that every marketing managershould treasure.”

Leandro Berrone, Marketing VP

Cuauhtémoc Moctezuma, Part of the

Heinek-en Company

BRAND BREAKOUT HOW EMERGING

MARKET BRANDS WILL

GO GLOBAL

NIRMALYA KUMAR

JAN-BENEDICT

E.M STEENKAMP

© Nirmalya Kumar and Jan-BenedictE.M Steenkamp 2013

All rights reserved No reproduction,copy or transmission of this publicationmay be made without written

permission

No portion of this publication may bereproduced, copied or transmitted savewith written permission or in accord-ance with the provisions of the Copy-right, Designs and Patents Act 1988, orunder the terms of any licence permit-ting limited copying issued by the

Copyright Licensing Agency, SaffronHouse, 6–10 Kirby Street, LondonEC1N 8TS

Any person who does any unauthorizedact in relation to this publication may

be liable to criminal prosecution andcivil claims for damages

The authors have asserted their rights

to be identified as the authors of thiswork in accordance with the Copyright,Designs and Patents Act 1988

First published 2013 by

PALGRAVE MACMILLAN

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im-Palgrave Macmillan in the US is a sion of St Martin’s Press LLC,175 FifthAvenue, New York, NY 10010

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aca-Palgrave® and Macmillan® are gistered trademarks in the United

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ISBN: 978–1–137–27661–2

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avail-Typeset by Aardvark Editorial Limited,Metfield, Suffolk

To MK – emerging market conception,

hopefully on the way

to becoming a global brand

NK

To my father – without whom I would never

have been

where I am now –and to Valarie – whose love ensures I am

happy where I am

JBS

Also by the Authors

Nirmalya Kumar and Jan-Benedict E M.Steenkamp,

Private Label Strategy: How to Meet the Store Brand Challenge

(Boston: Harvard Business School Press,2007)

mi-Rise of the Japanese automotiveglobal brands

Pioneered by Japanese, followed bySouth Korea

Key success factors for the Asian toise strategy

Haier and higher with the Asian toise strategy

Tor-Limits of the Asian Tortoise strategyManagerial takeaways

TWO The business to consumer route: leveraging B2B

Diaspora and reverse diaspora

Using the diaspora as a beachhead tobreakout

Dabur: from diaspora to mainstreamManagerial takeaways

FOUR The brand acquisition route: buying global brands from Western multinationals

The rationale for acquiring globalbrands

Retain or migrate?

Acquire and migrate

Acquire and retain

Managing acquisitions as a learningcapability

Managerial takeaways

FIVE The positive campaign route: overcoming negative country- of-origin associations

Overcoming country-of-origin

disadvantage

Nation/region-branding campaignsManagerial takeaways

SIX The cultural resources route: positioning on positive cultur-

SEVEN The natural resources

route: branding commodities

in four steps

Define the geographical region

Specify production standards

Authenticate ingredients and

processes

Take the brand international

The making of the Café de Colombiabrand

Managerial takeaways

EIGHT The national champions route: leveraging strong sup- port from the state

A brief history of national championsThe rationale for national championsThe limits of national championsWhen can national champions buildconsumer brands?

Emirates Airlines: global brand andnational champion

LIST OF FIGURES

1.1 Product–brand spectrum

2.1 Different global footprints

2.2 Contrasting the Asian Tortoise and B2Broutes

3.1 Modes of acculturation for the diaspora3.2 Key success factors leveraging the

diaspora

3.3 Diffusion of the brand in the hostcountry

4.1 Lenovo IBM ThinkPad migration

4.2 Complementary brand capabilities5.1 Country image of China and Japan

among US consumers

5.2 The role of country of origin in the sumer decision process

con-5.3 Quality perceptions of PCs in China

5.4

Intrinsic preferences for country of gin in the PC industry among Chineseconsumers

ori-5.5 Product–country match

6.1 A model for cultural branding

7.1 Branding natural resources

7.2 Three-year moving average prices ofthree types of Arabica coffee

8.1

C3 framework of factors determiningthe success of national champions as aglobal brand

LIST OF TABLES

I.1 Eight routes to global brands

1.1 Leading Asian brands, 2012

1.2 The tortoise strategy to build globalbrands

2.1 Strategic analysis of the key successfactors for three kinds of companies2.2 Financial models

4.1 Examples of recent acquisitions

4.2 Two approaches to M&As

5.1 Quality image of products made in ous countries or regions

vari-6.1 Semiotic analysis of Shanghai Tang6.2 Product and price analysis of Shanghai

Tang

6.3 Havaianas: brand association pre- andpost-1994

Asian Drama, a book about the dismal

fu-ture of a continent mired in a downwardspiral of population growth and poverty.Shortly after publication, its author, GunnarMyrdal, was awarded the 1974 Nobel Prizefor Economics Asian nations as well as thosefrom Africa and South America wereroutinely referred to as underdeveloped

countries, or the more derogatory “ThirdWorld.” The term “emerging markets” wasunknown Developed countries accountedfor more than 80 percent of world GDP andworld trade And any global brands likeCoca-Cola and Mercedes that existed wereexclusively from the West.

Fast-forward 50 years The global nomic reality under which multinational cor-porations now operate has changed beyondthe wildest dreams of even the most optim-istic “Third World” policy-maker of the1960s The 1979 opening of China to theworld economy initiated a process that hasled to an accelerated convergence betweennations today In the intervening years, moreand more of the world has become integratedwith the global economy As examples, con-sider the collapse of the Soviet Union, the

eco-1991 economic reforms of India, the fall ofthe apartheid regime of South Africa, and theunfolding opening-up of Myanmar What

were previously underdeveloped countriesare now not only emerging markets, but thecentral focus of multinational corporations

in their quest for growth

Our own careers mirror the changing cus of multinational corporations and theirexecutives We met over 20 years ago in theUnited States Since then, we have collabor-ated on many different research, teaching,and consulting projects related to globalstrategy, marketing, and branding This bookoriginated, as have many of our projects,during a casual conversation over a bottle ofBordeaux It began with a question: whydon’t we observe global brands from emer-ging markets? This predictably led to an ar-gument on why this is so, with each of us try-ing to develop a stronger rationale for whatcurrently exists (or “best practice” in that allobserved global brands are from the de-veloped nations) But, as always, we did notstop there We began imagining “next

fo-practice” or what is to come Several theses were generated on how emergingmarket brands could go global The outcome

hypo-of that debate, with years hypo-of research vening, is this book

inter-The book was a journey of discovery for

us Our research led us to voraciously readbooks, cases, and articles about emergingmarket brands We made, individually aswell as a team, numerous trips to emergingmarkets in order to interview executives whoaspired to build global brands We observedcompanies and factories from Brazil to India,

to South Africa, and of course China We hadresearch associates and collaborators in theAmericas, Europe, and Asia to help us gatherdata, where and when we were unable to bethere We learnt about companies we hadnever heard of and observed green shoots ofglobal brands where there had once been ig-norance on our part

As was true for us, we realize that, for themoment, it is difficult for many Western con-sumers to spontaneously recall a consumerbrand by an emerging market company Let

us conduct a simple test: Have you heard ofHaier? What products does it sell? And, fi-nally, do you know what the brand standsfor? If the answer to any of these questions is

“No,” then this book is for you After all, with

$25 billion in revenues, Haier is one of thefew brands that can lay claim to being a glob-

al consumer brand from an emerging nomy Going ahead, in the spirit of nextpractice, we are convinced that we will wit-ness the rise of global brands from emergingmarkets Many will try, some will fail, and afortunate few will succeed Since fortune fa-vors the prepared mind, we develop eightdifferent routes that emerging marketbrands can take to global success

eco-It would be a folly, though, to assume thatthe book is intended for, or useful to, only

the executives and owners of emerging ket companies Previously, Western man-agers have been blindsided for first underes-timating the Japanese brands (e.g., Toyota,Sony, and Canon), and subsequently theKorean brands (e.g., Hyundai, LG, and Sam-sung), who swept aside supposedly invulner-able incumbents like Philips, General Mo-tors, Ford, and RCA They surely do not want

mar-to be blindsided a third time

Our first and deepest gratitude is to all themanagers who took time from their busyschedules to teach us about their firms,brands, and strategies Therefore, we start bythanking those who shared their uniqueexperience:

Ambarella Shanghai Co – Vivian Yang; das China – Richard Hu; ASD – AmandaChen, Carol, Lisa Du; Bright Food Group –Jun Jie Ge; China Huiyuan Juice Group –Zhen Tan; China Unicom – Hengyuan He;Chunlan – Bin Feng, Raymond Huang;Combi Group – Agrius Oleme; Costa Croci-ere Shanghai – Michael Shen; Dell China –Danny Ntui; Dabur – Sunil Duggal; DragonSourcing – Veronique Balla; Emirates

Adi-Airlines – Maurice Flanagan; Galanz – BruceChang, Daisy Gao; GongDong Midea Hold-ing Co – Marc Upton, Leon Hu; GuangzhouPearl River Piano Group – June Wang; Haier– James Leiss; Hongye – Yuexin Wei; HTC –Matthew Costello; Huawei – Hagen Fendler,Sandra Qian Xiao; Jaguar Land Rover –John Edwards; Lenovo – Chris Tang, FarmerFang, Helen Zhang, Johnson Jia, Lisa Liang,Mark McNeilly; Levi Strauss China – AaronBoey, Xiaojing He; Mahindra & Mahindra –Anand Mahindra; Pran Foods – Ahsan KhanChowdhury; Shanghai Jahwa United (Her-borist) – Zhuo (Joe) Wang, Aaron Ke;Shanghai Tang – Eric Tang; South ChinaTire and Rubber Co – Xiang Dong Fu, JianPing Feng, Melissa Ruan, Wei Hua Huang;Tata Motors – Ravi Kant; Xinxing PipesGroup – Charles Ekoko; ZTE – Maggie Cui,Jackie Jiang, Tony Tang, James Zheng.

Our trips to China to interview many ofthe executives named above would not have

been possible without the incredible osity of our hosts Ping Zhao and Yubo Chen

gener-at Tsinghua University (Beijing), Jiaxun(Justin) He at East China Normal University(Shanghai), and Lianxiong Jiang at Sun-YatSen University (Guangzhou) They went out

of their way not only to organize our views with the top executives of leadingChinese firms, but also to ensure that we didnot get lost in the process We are extremelyindebted to them for the countless hoursthey spent trying to explain China, its com-panies, and their strategies to us

inter-Special thanks to our colleagues SimonaBotti (London Business School), Steven M.Burgess (Nelson Mandela MetropolitanUniversity, South Africa), Bill Fisher (IMD),Yun He (Sun Yat-Sen Business School), An-gela Liu (Tsinghua University), Miguel AngelLopez Lomeli (ITESM, Mexico), PhanishPuranam (INSEAD Singapore), and NaufelVilcassim (London Business School) for

sharing their perspective on brands andemerging markets with us.

We gratefully acknowledge the insightfulcomments we received on earlier drafts fromMarnik Dekimpe, Anne Gro Gulla, CarlosSilva Lopes, Kathrine Mo, and especiallyKirsten Sandberg

We were fortunate to be supported by agreat team in the course of our research Aspecial thanks to Ada Wu, David Ern-sthausen, Donna Everett, Elizabeth Hajicek,Inga Katharina (Lili) Radziejewski, JenaVickery, Jiang Fan, Klien Deng, Runqi Xie,Sunita Sidhu, Suseela Yesudian, and Yuany-uan Cai Erin Mitchell did an outstanding jobdesigning the many figures and tables for thebook

The research costs for this book wereborne by the Centre for Marketing and theAditya Birla India Centre at London Busi-ness School and by the Massey Chair at theKenan-Flagler Business School We thank

Kumar Mangalam Birla and Knox Massey fortheir generosity in supporting our efforts.

In the last two decades, the world has nessed the most dramatic shift in its eco-nomic center of gravity since 1500AD About

wit-500 years ago, the center of economic ity started to shift decisively to the West –first Western Europe, and then the North At-lantic, which has dominated since What arenow called emerging markets began the chal-lenge to this status quo from December 1978,when the Chinese, under the leadership ofDeng Xiaoping, started a program of eco-nomic reforms ( ) It took some time be-fore the other major markets joined in.Between 1989 and 1994, India initiated itseconomic reform, Brazil launched its Plano

activ-Real, South Africa replaced its ally and economically isolated apartheid rulewith democratic government, Mexico signedthe North America Free Trade Agreement,and the Soviet Union collapsed Vast coun-tries and their populations opened to theglobal economy.

internation-These developments quickly had an pact In 1990, the emerging markets togetheraccounted for 20 percent of global output,versus 80 percent for the developed world

im-By 2010, the share of emerging markets haddoubled to 40 percent, and this share willlikely surpass that of developed countries be-fore the end of this decade Such a shift in re-lative economic weight is unprecedented in10,000 years of human history

Emerging markets are now driving a largeproportion of global economy and trade.They account for more than 75 percent ofmobile phone subscriptions, 75 percent ofsteel consumption, more than 50 percent of

motor vehicle sales, almost 50 percent of allretail sales, and 25 percent of financial assetsworldwide.1They also account for more than

50 percent of the gross domestic product(GDP) in purchasing parity terms, 75 percent

of the foreign exchange reserves, 50 percent

of inward foreign direct investments, andmore than 30 percent of the stock marketcapitalization They lag only in public sectordebt (less than 20 percent) – and they can dowithout that!

CHINA AS THE LEADING

EMERGING MARKET

From Asia to Latin America and Africa, nomies are growing briskly, and none somore than that of China China’s GDP is aslarge as that of the next four largest emer-ging economies combined (Brazil, India,Russia, and Mexico) China has overtakenJapan to become the world’s second-largest

eco-economy and is widely expected to surpassthat of the United States before this decadeends.

China has become the world’s factory; itmakes many of our best-loved products,from Apple iPhones to most of what one canbuy at a Disney store The “Made in China”label is ubiquitous in the West Distressed tofind so many Chinese made products amongher family’s 2004 Christmas gifts, an Amer-ican reporter decided to boycott Chinesegoods for a year Within a few months, herfour-year-old son launched a countercam-paign by declaring, “When we can buy Chinathings again, let’s never stop.”2The reporterconcluded, “After a year without China I cantell you this: You can still live without it, butit’s getting trickier and costlier by the day.And a decade from now I may not be braveenough to try it again.”2

“Made in China” has been driving nomic growth over the past three decades at

eco-a reco-ate unpeco-areco-alleled in humeco-an history.Between 1979 and 2012, China’s average an-nual GDP growth rate was almost 10 per-cent.3 Yet if you ask a person on the street inthe West to “name a Chinese brand,” you willdraw a blank Even though Western con-sumers are surrounded by Chinese products,these consumers have no awareness ofChinese brands.

A study of consumers in France, many, and the United Kingdom revealed lowspontaneous recall of any Chinese brand.4Chinese companies are painfully aware ofthis They feel that their country’s imagehandicaps them and presents an obstacle toselling their branded products to Westernconsumers In a J Walter Thompson study

Ger-of US and UK consumers, Chinese ies ranked near the bottom in consumer per-ceptions of quality, ethical behavior, and en-vironmental consciousness.5 And the Inter-brand 2012 list of the hundred “best global

compan-brands” did not include a single brand frommainland China.6

The absence of brands from China in theconsciousness of Western consumers begsthe question, “Can the Chinese develop con-sumer brands that will become popular inthe Western world?” One side argues thatthe poor perception of China with Westernconsumers and the lack of brand-buildingskills in Chinese companies doom any suchaspirations This side points to failures such

as the Chinese sportswear brand Li-Ning’shitherto futile attempt to crack the USmarket

On the other side, we advocate “brandbreakout.” We agree with Saatchi’s observa-tion that “we don’t see any reason whyChinese brands cannot have the same impact

in the US, as US brands have had in China.”7

We believe that, in the coming decade,Chinese brands will become increasinglyglobal and ubiquitous in the Western world

We base these beliefs on two fundamentalobservations, as described below.

CHINA IS BUILDING

WORLD-CLASS CAPABILITIES

As the factory of the world, China has ted in developing world-class manufacturingand engineering capabilities, albeit for for-eign brands It has laid a vast foundation toproduce global-quality goods exceptional for

inves-an emerging market, past or present But ina’s low-cost competitive advantage is erod-ing The financial crisis in the West has de-terred China from passing higher costs tocustomers, and fewer orders are comingfrom Europe The demographic changes inthe Chinese population coupled with increas-ing labor shortages have led to a quintupling

Ch-of wages in the last decade and diminishingmargins of late Emboldened workers de-mand better working conditions Midea, ahome appliances manufacturer, has had to

build extensive and costly housing and ational facilities in order to induce workers

recre-to come back after their annual leave Forthese reasons, former CEO of General Elec-tric Jack Welch recently argued, “China can

no longer rely on exports and low-cost duction for economic growth and must in-novate by building global brands.”8 Theheadline screamed, “China Must Create

pro-‘10,000 Apples,’ Welch Says.”9Turning theirproducts into globally recognized consumerbrands has become the “holy grail” forChinese firms.10

And why not? Historically, there is no precedent of a country evolving into a de- veloped economy without having some global brands emerge from it Consider

Japan When we were teenagers in the early1970s, “Made in Japan” equated to shoddyquality and poor workmanship One of theauthors recalls that he asked his father whythat person in the neighborhood was driving