Power of the Home Grown Brand

This issue onwards, there will be questions raised at the end of this column on some of the areas discussed. Responses are invited from readers and the best ones will be published in the next issue of BOSS.

In the 90s, when the winds of liberalization were sweeping India and there was an awakening from the long socialistic hibernation, its doors had been opened to a large number of foreign brands in almost every product category – from soaps and shampoos to electronics, from automobiles to food products and from telecommunications to entertainment. Indian industry, not surprisingly was deeply disturbed. All those years of protectionism and subsidies had forced consumers to expect and accept substandard products. With the opening of the economy Indian manufacturers and marketers were afraid that Indian consumers would be seduced away by the spanking new and much desired foreign brands.

Should they have lost any sleep? Before you go on, think about the question and also reasons why they should or should not have worried themselves about the entry of foreign brands.

It did spur local industry to clean up their act and soon, reengineering, greater efficiency and productivity became buzz words. The result was cheaper, better products for the consumer. Sure the foreign brands had all the spit and polish. However, they were made for consumers in developed markets with cost structures that made them affordable only to a small proportion of affluent consumers in India. This made business models of foreign companies infeasible and their products did not appeal to the Emerging Markets whose requirements and tastes were quite different. However, these companies had deep pockets and they could afford large marketing and advertising budgets.

All this while local industry was improving the quality of their offerings while appealing to the local taste and culture. Most importantly, their products were competitive on price, and they knew better than to ‘overservice’ the market, a lesson foreign brands had yet to learn. Kellogg’s was insisting on pristine packaging that developed markets were used to. This made the MRP out of reach for local consumers. MTV was insisting on airing only foreign bands and western music that got them a miniscule audience.

Other changes were also happening in India. Smaller cities and towns saw the growth of industry, organized retail was gaining a foothold, there was development of regional markets and media began to get fragmented. This helped smaller brands to emerge and grow. Regional markets and fragmented media brought down marketing and advertising costs allowing these brands to carve out niches for themselves. Global brands with their huge overheads and national marketing budgets could not compete with the improved quality and competitive prices of local brands.
There is no Chinese or Indian market. There is a market in Shanghai or in Beijing, there is a market in Mumbai or Chennai or in their local neighborhoods or in their rural counterparts. Markets across developing countries differ greatly. For example, markets on the east coast of China are far more affluent then those on western borders.

Almost all the top Latin American brands are local and include Mexico’s Bimbo bread, Cemex cement, Dos Equis beer and Big Cola; Peru’s Kola Real, and Turkey’s Kola Turk.

Of the top 500 brands in China based on advertising expenditures, 370 are local and six are in the top ten. Some other brands that are not in the top 10 nationally, have dominant positions in local markets. For example, Lafang, maker of hair care products has virtually no share in the big cities but has built its market in small towns. In India more than 1000 local competitors account for nearly 60 percent of packaged teas and there are more than 100 brands of watches and 65 brands of television. In cellular phones, Chinese companies such as TCL and Ningbo Bird surprisingly took the rural market from giants such as Nokia and Motorola. Since most of them use out-sourced components, they were competing not on technology but on the power of their local brands and dedicated retail networks.

As local brands grew from strength to strength, they nurtured dreams of going national. Those that managed to alter their business model to absorb greater overheads and bigger marketing costs did succeed. It did not always work and a lot of them fell by the wayside not able to garner enough volumes in a fight for market share in a bigger market. But a lot many did succeed.
The next step for them was to go global. Examples of Haier white goods and Lenovo PCs from China, and, LG and Samsung from Korea having made successful entry into the US market through Wal-Mart are now legendary. Similarly Bajaj two wheelers and Mahindra’s Scorpio, Tata Indica are all examples of Indian brands that are now in global markets. All these brands can compete on price and also have been tested in the most rugged road conditions of India.

Are there any local brands in your markets that have the potential of becoming national brands and then move on to become global brands. What will it take them to make this transition in terms of resources, processes, people and time?
Do write in with your views.

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