Branding challenges for firms in Asia

Unlike during the industrial era when manufacturing excellence was the key to success, today’s business environment rewards companies that have valuable capabilities in design, marketing, distribution and service. As a result of this ‘value shift’, manufacturing has become a commoditised capability with low margins. Manufacturing has also moved to Asia and China has become the world’s factory.

In fact, China produces more than 70 per cent of the world’s toys, 60 per cent of bicycles, 50 per cent of shoes and microwave ovens, and one-third of television sets and air conditioners.

Why do so many Asian firms now find themselves stuck in a low-margin manufacturing game?

A key reason is that firms in this part of the world often have their roots in trading with a corresponding focus on high turnover and low margins.

This fosters a short-term sales-oriented mentality rather than a long-term brand-building mindset.

This helps to explain why, with the exception of Japan and Korea, many Asian firms do not focus sufficiently on long-term investments in research and development (R&D) or innovation. Instead, many firms pursue a much simpler contract manufacturing strategy.

In addition, there is also generally a lower willingness among Asian firms to invest in acquiring relevant marketing skills to become successful at branding.

However, Asian firms are increasingly aspiring to do more than just contract manufacturing and seeking to become brand owners like the Japanese and Koreans.

But they face uphill challenges. New branders find themselves competing on a sophisticated playing field that is less forgiving than the landscape in the 20th century, when the notion of branding as we know it was first introduced.

This means that Asian branders cannot afford a lengthy process of trial and error.

With customer expectations getting higher and product choices ever increasing, it takes a lot for Asian branders to get customers excited about a new product.

Firms also find that the overall customer experience, previously considered the domain of service firms, is very much relevant also to product companies.

Apple, for instance, excels in customer experience even though it is a product company rather than a service provider. Hence, Asian firms will need to consider the complete end-to-end customer experience rather than a more narrow set of product attributes.

But a number of Asian manufacturing firms are managing to overcome the challenges and become branded firms. Some begin by acquiring firms of repute to jumpstart their brands.

Lenovo acquired IBM’s personal computer division to enhance its brand name, Tata Motors acquired British automotive icons Jaguar and Land Rover, and Geely recently acquired Swedish Volvo from Ford.

Asian firms also look for suitable overseas partners and alliances to leverage their brand name and expertise.

While acquisitions and partnerships appear to provide a relatively quick-fix panacea, in the long run, Asian firms need to develop organically.

Strategy guru Michael Porter once commented that South-east Asian firms do not really have strategies and instead just focus on doing deals.

A more long-term approach is clearly needed to build long-lasting and valuable brands.

Additionally, the generally top-down managerial style of many Asian business leaders does not encourage ideas from lower echelons.

This hierarchical and opportunistic mindset has to change in favour of greater tolerance for dissent and more long-term strategic thinking.

Asian firms also need to instill in their employees that building a brand is the responsibility of all employees and not just the domain of a few employees in the marketing department.

Success is more likely if the brand is deeply embedded in the organisation and branding is seen as an ongoing change process rather than a quick-fix branding project.

Samsung did not transform from a contract manufacturer to a successful brand overnight but through substantial investments in R&D and market research to understand what customers want.

In fact, the success of branded Japanese and Korean companies illustrates that Asian firms can build powerful and valuable brands provided that sufficient time and resources are invested.

Andreas Birnik is Adjunct Assistant Professor of Strategy & Policy at NUS Business School. He specialises in international business, marketing and strategy. This commentary is based on an article published in ‘Business Horizons’ with Anna-Karin Birnik and Jagdish Sheth. – AsiaOne

Tags: Asia companies, branding