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This chapter is from the book

CVA® and Economic Development

This book is about how CVA® can be used by organizations to improve their financial performance. CVA® also has implications for how economies are managed to increase Gross Domestic Product (GDP).

There continues to be substantial discussion regarding the economic futures of China and India. To the extent managers in either country are successful with their marketing and branding efforts to develop specialty products and services, the GDP of their country will increase far beyond what might be expected were they producing commodity-like products or services.36

In the most recent Business Week listing of the 100 most valuable brands in the world as estimated by Interbrand, there are 52 brands from the United States; 10 from Germany; 8 from France; 7 from Japan; 5 from Switzerland, 2 from Sweden, 2 from South Korea; 1 each from Finland and Spain; but none from China and none from India.37 Lenovo is thought by some to be the strongest Chinese global brand; with strong global potential, but, in 2007, their global brand awareness was estimated by Interbrand to be 59 percent—far below that of Sony (98 percent) and Samsung (96 percent).38

Both China and India have demonstrated substantial economic growth. However, their growth rates are especially astounding given that they have not included substantial branding success in world markets, although Indian companies seem to be more successful than Chinese companies in certain product categories (Table 1.2)

Table 1.2. Country preferences for selected products

Preferred Country

Product

China

India

Pet Food

22%

78%

Prescription Drugs

26%

74%

Toys

27%

73%

Makeup

30%

70%

Skincare Products

26%

74%

Source “China’s Recall Woes Bad for Wal-Mart,” Brandweek, September 10, 2007.

A study by a colleague shows that the efficiency of capital in China and India is similar to that of the US in heavy industries, but well below that of the US in consumer packaged industries.39 Most likely this comparison reflects the relative strengths of US marketing and branding efforts—especially in consumer packaged goods.

Many Chinese and Indian companies have exceptionally low costs. For example, Pearl River in China, the world’s leading producer of pianos, is known for very low costs. The challenge of companies that rely on low costs is to increase CVA® by building perceived value in the minds of their target customers.

Because of their low cost positions, price has often been a major weapon of many Chinese and Indian companies for acquiring customers. For example, from 2000 to 2003, local Chinese cell phone manufacturers such as Bird, Amoi, and Panda moved from a 0 percent market share to nearly 50 percent by cutting prices against Nokia, Motorola, and other international brands. Tata has produced an extraordinarily low-priced automobile. Unfortunately, low price strategies often foment price wars. Preoccupation with low prices can be a major distraction to building customer perceived value.

While they are in position to build their brands, Chinese and Indian companies especially need to be wary of the temptation to enter foreign markets by offering low prices. While such an approach may provide a quick market entry, there are long-term consequences—both to their own brands and to their country’s brands.40 If a company starts at a low price point, then it can take much longer to build a brand that connotes value to customers. Today Samsung and Hyundai are valuable brands; but when each entered the United States, they exploited low prices. It took many years of brand-building for Samsung to raise their customer perceived values to their deserved position and Hyundai, one of the top three on J.D. Powers and Associates’ automobile overall product quality list, continues their efforts to raise their perceived value to their actual value.41

Akio Morita, the founder of Sony, used to tell this story: One of the first very successful products of Sony was the transistor radio. Supposedly a department store in New York City told Mr. Morita that they wanted to order thousands for the holiday sales season. His reply was, “No.”

Akio Morita knew that at that point in time the reputation of the “Japan Brand” was low. If something broke, at that time people in the United States often said that, “It must have been made in Japan.” Morita knew that if he tried to produce the thousands of units the store wanted, the Sony quality control would falter—and the products would not represent the brand he was trying to build. So he said no to the large order the department store wanted, but agreed to furnish them the number of transistor radios he felt he could produce at a quality level of which he could be proud. How important was his decision? It was the foundation for the Sony brand in the US. Actions today determine the brand tomorrow.

If Chinese and Indian companies succeed with their marketing efforts to increase their perceived value, then the GDPs of both China and India will increase substantially—perhaps by 30 percent—even without increases in production capacity! The same observation can be made of most fast-developing economies.

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