Despite local demand, Chinese and other emerging market firms have not established their own brands. Instead they have often tried a short cut, purchasing western brands. The main problem for the emerging markets is learning the art of protecting their local brands
The growth of emerging markets is having an enormous impact on everything. However, marketing and brand management in these markets can be a bit of a challenge. This is true for both multinational companies attempting to sell into these markets as well as for emerging market companies competing with them and attempting to expand internationally.
One of the most interesting examples are brand named luxury goods. The sales of these products grew 13% in 2010 to $228 billion and another 10% in 2011 to $252 billion, renewing the growth trajectory that started in 2007 when sales hit a previous record of $224 billion. As with all things concerning emerging markets, sales in China have led the way. Sales of branded personal luxury items purchased by Chinese globally add up to a whopping $52 billion. This is 80% of the $63 billion in sales of the largest market, the United States.
But China is not alone in its tastes for brand names. Latin Americans led by Mexicans and Brazilians are raiding the posh stores of New York, Milan and Paris with reckless abandon. Local markets are growing, as well. Sales in Brazil grew 50% from $2 billion in 2009 to $3 billion in 2011. Sales grew in the same period by 12% in the Middle East and by 25% in Korea.
But catering to these markets often means adapting to local tastes, which are often quite different than in Europe or the US. For example Chinese women’s taste for whisky and sports cars is higher. In China, Maserati sells 30% of its cars to women, while in the west women buy only 2% to 5%. In contrast, Chinese men purchase more far more grooming products including face creams than in older markets. They also are large consumers of luxury bags. Coach sells $1.7 billion worth of leather bags in China, 45% to men compared with 15% globally.
Despite the local demand, Chinese and other emerging market firms have not, with a few exceptions, established their own brands. Instead they have often tried a short cut, purchasing western brands. This process has even been sanctioned by the Chinese government.
But government encouragement does not necessarily mean success for the Chinese any more than it did for their Japanese predecessors who did the same thing 30 years ago. The computer firm, Lenovo Group, purchased IBM’s personal computer business in 2004. Lenovo now sells computers under its own brand and the only thing left of the IBM brand is the name ThinkPad. The problems with the IBM brand have not stopped the Chinese from buying others. The Chinese car company Geely bought Volvo last year and a Chinese bulldozer manufacturer bought the Italian luxury yacht maker Ferretti, owner of the legendary Riva boat brand. Not to be outdone, one of India’s largest industrial group, Tata, purchased the famous British tea company Tetley and more recently Jaguar Land Rover.
Still marketing success has proven elusive even on their home turf. Chinese car companies have been unable to pry the more lucrative parts of their own market away from VW and General Motors. The foreign-branded cars are seen as more reliable, stylish and a better value than their Chinese competitors. This leaves the Chinese car makers with the low end of the markets where competition is only on price and margins are razor thin.
Emerging market governments are all ambitious to make their mark in the world and have no problem supporting their locals. In China this means reviving a bit of socialist history with the Mao era Red Flag limousine. Like its Soviet counterpart the Zil, it was originally produced for the communist leadership in 1958. But it fell out of favour with the Chinese leadership who preferred the more polished Audi, which dominates 30% of the market. Discontinued in 2010, it is now back as the first choice of the upper echelons of the party.
But the main problem for China and other emerging markets in learning the art of marketing is the protection of the brands themselves. The Chinese governments, usually local governments in trying to protect home grown industries, have been ruthless in slandering foreign brands. Luxury brands including Hermès, Hugo Boss and Tommy Hilfiger Chanel, Armani, Christian Dior, Zara and Burberry have been attacked as substandard. Wal-Mart in Chongqing found itself the scapegoat for high pork prices, while Coke, Heinz, Procter & Gamble General Mills, Lipton Teas, Colgate-Palmolive all have been accused of selling adulterated products.
Besides slander, the Chinese are notorious for intellectual property violations and trademark infringement. This consistent disregard for property rights was supposed to damage multinational firms, but the real losers are in China, for without these basic protections, the locals can only hope to produce basic commodities and leave the more profitable higher end to foreigners.
(William Gamble is president of Emerging Market Strategies. An international lawyer and economist, he developed his theories beginning with his first hand experience and business dealings in the Russia starting in 1993. Mr Gamble holds two graduate law degrees. He was educated at Institute D'Etudes Politique, Trinity College, University of Miami School of Law, and University of Virginia Darden Graduate School of Business Administration. He was a member of the bar in three states, over four different federal courts and has spoken four languages. Mr Gamble can be contacted at [email protected] or [email protected]).
It was time to bid adieu to the garment industry and go west; to remember the desert and invite the snow! The 30th part of a series describing the unknown triumphs and travails of doing international business
My return from Muscat was welcomed by the staff as I had close relations with all of them. In fact, I may even say it immodestly that I could identify every single member of the 550 odd people in the factory by their name! Of course, Perera was doing a great job, but, somehow the staff members had developed a special affection for me, which I reciprocated.
However, it was not a victorious return, as, in the next few days, letters started arriving from Muscat about the problems they were facing in my absence. Apparently, Abdullah started coming down to the plant and started spending time with the coordinator, who, in turn would walk around the plant issuing conflicting work orders. Though orders on hand were small, the speed at which they were being executed left much to be desired, all because the coordinator was asking for some personal dresses to be made!
I was in touch with a couple of them, primarily Francisca and Ranjan, who were keeping me informed of the problems. I had left a note for payment of electricity and water bills because the cheques (mine, of course!) were in the custody of Abdullah, but when the payment was not made, someone had called for settling the same. In the afternoon, at tea break, the staff members had always received some snacks but these little considerations were missing when Abdullah took over.
Exactly one week after my departure, Abdullah came to Dubai for discussions with Zubair; though I did see him walking into our plant, I was not called in to participate, because he wanted to have a chat with Zubair on a one-to-one basis. However, he wanted me to return back and do the daily reporting to him so that the plant can work smoothly. Besides, he wanted Zubair to pump in more funds for efficient running of the plant.
Frankly, I do not know till today what really transpired in that meeting; but knowing Zubair, I knew that he was not going to invest more money on a venture on which we had no control, and with a partner who was whimsical and had not even invested a dime. If I may say so, the only investment he made was giving out his premises on an inflated rent to the company and on which we had further invested in the conversion process. It would only mean that we would be investing more good money against an unlikely, bad return and on which we had no control whatsoever! On a rough estimate, Zubair, being the financier lost a little more than half a million dollars, and I felt responsible for this loss.
I was very upset and bad about the whole affair. What a brilliant start we had and what we had landed in less than 18 months! Other units in Muscat were doing well and were really expanding, including my erstwhile company, Gulf Garments, which had shifted from Jebel Ali Free Zone and began its operations in Muscat.
In the office, it was an uneasy truce for me. We had several long-term orders on hand and we had continuous supplies and shipments. Occasionally, when we had the gap in the production capacity, we could pick up an order or two from the Free Zone companies and did contract jobs. Our staff had become very proficient in manufacturing a variety of jackets, in which our net realization was much higher than basic garments. Also, we were willing to do swap deals to keep our plant going in full swing.
JAGTA as the association was still in great demand, in terms of information and assistance to garment makers, whether they were members or not. I was keeping myself busy, but felt that if I continued, I would be an economic burden on the company. Meanwhile, Perera was also groomed well to handle many of the local problems, many through Vimala Sena—the able all rounder I had selected. I came to know through my grapevine that he had assured Zubair that he would have no problem if I was absent, as he had done the job well, in my absence in Muscat.
In fact, one day Zubair called me in to take a visit to Bahrain the next day, and gave me my ticket to meet a license holder there, who wanted someone to help him set up a factory. This person, let us call him Faisal, received me at the airport and took me straight to the site. He left me there for making a detailed assessment and collected me after about two hours. From there, we went to his office for a discussion and then on to a hotel (which was his) where I stayed for the night before my return back to Dubai.
During the discussions in the afternoon, I explained to him the possibilities and how I could get the plant into production in less than 100 days, provided he was able to arrange for purchasing the machinery and for getting visas for staff and wanted his clarification if Zubair was anyway partnering him in this venture. I wanted his confirmation about his financial contribution and assurance that we will have absolutely free hand in the operation; I confirmed that I was aware of the Bahraini law that first job preference was to be given to the local staff, before employing others.
He said he would discuss the issue with Zubair, who would let me know on my return.
The next day, when Zubair and I had lunch, I summarized the visit. With our bad experience in Muscat, I did not want Zubair to burn his fingers again, unless the terms laid down by me were acceptable, which Zubair wholeheartedly agreed, but Faisal was only willing to give his ‘warehouse’ and nothing else. The project in Bahrain failed before it started! This was also a hint that I would be a burden if I continued with my aspirations with Finetex.
My departure from Finetex was now a open secret; I was a dead man walking in a plant that I had really shed my blood to build; but sometimes, one had to bite the bullet, whether one liked it or not! We kept our communication lines open, and I had spoken to Sundaram, whose unused building I had helped to convert into a full-fledged plant, which had grown to some 180 staff members. He was happy to take my help and assistance, and I started my work there, though I was frequenting the Free Zone office in Dubai.
In the next few months, we built one of the most comprehensive garment units in the country. Texpo plant was built with beautiful staff facilities and a canteen, with special independent two bedroom self-contained house for the manager; we even obtained a suitable job for Nayana’s husband, who joined her. The factory was well planned, which was completed in a record time of eight to nine months. There was no dearth of orders. In fact, one of the major work achievements was securing a large order for embroidered shirts (Walt Disney’s Jungle Book!) for supplies to Germany. This enabled me to acquire new knowledge on making shirts and blouses with embroidery, which came to my rescue later. This Ajman factory was self-contained with lots of moving space, where staff members could walk to the main factory in two minutes!
But my love for Finetex and the methodical way Free Zone worked in Dubai brought me back to zone. I returned back and joined the Palmon group to look after Wellworth, their plant making basic garments such as shirts, and stayed with them for another year and half.
Joining Wellworth, I travelled back to Colombo, and recruited some more staff to meet our requirements. In this plant, we had staff from India, Bangladesh, the Philippines and Sri Lanka. It was pleasant to be back in the Free Zone and we had a great time. On National Day of Sri Lanka (4th February), I addressed them in Sinhala and when the first opportunity came, it was in Bengali to the delight of our staff. The team work was fantastic with no troubles whatsoever.
It was almost towards the end of 1996 when we received our long-awaited call for a trip to the West. Our family decided to go west and seek our fortune there; to remember the desert and invite the snow!
(AK Ramdas has worked with the Engineering Export Promotion Council of the ministry of commerce and was associated with various committees of the Council. His international career took him to places like Beirut, Kuwait and Dubai at a time when these were small trading outposts. From being the advisor to exporters, he took over the mantle of a trader, travelled far and wide, and switched over to setting up garment factories and then worked in the US. He can be contacted at [email protected].)
India’s Income Tax department has collected documents related to sales and purchase made by Reebok during the last financial year and few others, including trade receipts processed by the company
New Delhi: The Income Tax department has begun scrutiny of financial documents and transactions of global sportswear manufacturer Reebok after its owner Adidas recently announced commercial irregularities in its India operations, reports PTI.
The I-T department has collected documents related to sales and purchase made by Reebok during the last financial year and few others, including trade receipts processed by the company.
"Certain government/regulatory bodies were seeking clarifications about Reebok India Company in regards to the announcement made on Monday (2nd May). We have shared the required details with them," the Adidas group said in a statement.
The I-T authorities, who visited the corporate office of Reebok in Gurgaon few days back to obtain certain documents, are also scrutinising TDS payments made by the company, sources said.
On 2nd May, German sportswear maker Adidas had said it found some commercial irregularities to the tune of 125 million euro in Reebok India. The details of the irregularities have not yet been disclosed.
Adidas is also in the process of restructuring Reebok India's business which might cost the company 70 million euro.
As a part of the restructuring the group might shut down one-third of its 900 Reebok stores in India.
"The implementation of new commercial initiatives and terms could result in a reduction of our Reebok franchise store base by about one-third, as we focus on maximising our future returns in the market," Adidas Group CEO Herbert Hainer had said earlier.
I-T sources said during the course of investigations, they may summon the officials and accountants of the firm for explaining transactions to them.