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Corporate Nov 26, 2012

Why Tatas, Infy have a hard time establishing brands abroad

By Vivek Kaul

Rohit Deshpand is the Sebastian S Kresge Professor of Marketing at Harvard Business School where he currently teaches in theOwner/President Management Programand in other executive education offerings.

He has also taught global branding, international marketing, and first year marketing in the MBA programme. In this interview to Vivek Kaul, he talks about the provenance paradox, as to how companies from emerging markets find it very difficult to establish their brands globally, even though they have both the human as well capital resources required for such an effort. Excerpts:

What is the provenance paradox?

I have been interested in looking at the marketing problems of companies from emerging nations. The background is my previous work profiling the most successful companies in the world and doing that I found that these successful companies came from the developed world.

So they came from the United States, they came from Europe and Japan and so on. The next phase was to identify who the next great multinationals are going to be. And my intuition was that they are not going to come from the developed world but from the developing world given that they are hungrier, they are more innovative, and many of them have huge domestic markets, which is how these other companies from the developed world that I studied got started. They had access to big domestic markets.

What happened next?

When I started doing that work the marketing challenge that I found was a branding one. These companies from emerging markets wanted to build global brands and for some reason had difficulty doing it. So if you look at any ranking of the top 50 or the top 25 global brands, the BRIC nations (Brazil, Russia, India and China) are conspicuously absent, which is surprising because countries like Brazil, China and India, and to some extent Russia, have significant resources they can expend. This includes human resources as well capital resources. So it doesn't seem to be a question of money.

The funny thing is that even in China they don't look up to Made in China. Firstpost.com

Expend on building a brand you mean?

Yes. Expend on building the brand. That's the barrier. It is not a question of ambition. It was a paradox and I couldn't understand it. These are aspirational, ambitious, well resourced companies that don't seem to be able to build global brands. Or at least not yet. One hypothesis, when I was initially presenting this work, was that people said that it takes a long time to build a global brand and that's why. And it turns out that if you look at the top brands there are some that have come up in the last five years. On the technology side, Facebook is a company that has built a global brand fairly recently. Google, has build a global brand in quick time.

Even a company like Apple which was down in the dumps...

Has risen to the top, number two, number three rank now. Excellent example. So it's not a question of time. There is something else going on. The other thing that I noticed was that there is a small area around Milan in Italy that has a bunch of them and they all happen to be in fashion-Armani, Versace and so on. And so I came to the provenance paradox. Why is it that when you say Made in Brazil or Made in India or Made in China people somehow discount? Is this soft racism? And that is one possibility. The fact that something is coming from China or from India, makes people say that it is just not good enough.

Even in India we don't look up upon something that says Made in China...

The funny thing is that even in China they don't look up to Made in China. You want to hear a story?

Yes...

I was talking to the person who runs the Asian operations for Prada. She was telling me that they are running short of artisans in Italy who can work with leather, silk and so on, to make purses. They have lost a generation of young people in Italy who have gone to work in factories. She said that the place we find them is in China. They have retained these skills and they are cheap. The problem is, if it is a Prada bag or Prada shoes that says Made in China, not only will they not buy it in Europe, the women don't buy them in China as well. So extremely affluent women in China will not buy Made in China. So yes this provenance paradox is a real problem and it's a problem within the countries itself.

Can you give us some examples of the provenance paradox?

One of the first ones I encountered was Caf Columbia, which is a social enterprise of the federation of national coffee growers in Columbia. The coffee growers have small plots of land. So they formed a federation to help them market the product because they did not have the resources to market the product. These guys realised very quickly that they have a problem because they wanted to export and Columbia is seen as the exporter of the other "cash" crop. So in a country like the US, which is the largest coffee consuming market in the world, they couldn't get any real penetration.

What did they do?

They hired an advertising agency on Madison Avenue to create an advertising campaign around this fictitious coffee grower from Columbia called Juan Valdez who took great care of the coffee beans and picked up the best ones as he wandered through the hills. People developed a tremendous affection for this character and which passed onto the brand. They built something called 100 percent Columbian Coffee which is the brand. They had the country of origin in the name of the brand. And it's an ingredient brand, meaning, that they don't sell to retailers directly. They sold it to Nestle, who would put it into their Nescafe brand of coffee and said Nescafe 100% Columbian.

Any other example?

Let me give you another example that is very different. Corona beer. Does Corona sell here?

Yes.

The advertising for Corona doesn't mention the country of origin, which is Mexico, at all. In fact what they do is they play off this whole lifestyle theme of vacation on the beach. The creative strategy for their advertising is sun, fun, beach, and vacation in a bottle. They have been extremely successful with it. People project themselves into those ads. The beach doesn't have to be in Cancun (a seaside city with beaches, situated in Mexico). It could be in Riviera. It could be in Kerala. It could be anywhere in the world. But they built a successful brand by not saying anything about the provenance (i.e. the country of origin) and it is intentional. That's what they wanted to do. They did not want to be clubbed with other Mexican beers which tend to be cheap. These guys price premium and they price the same level as Heineken in the US. And Heineken had been the number one imported beer brand in the US for fifty years since prohibition. They overtook them.

Any other example?

The third one is a case study that I have just finished and which I am teaching for the first time here tomorrow. It's on Infosys. I knew that they had built a global technology brand but they had spent hardly anything on marketing or on advertising. In fact they don't spend any money on advertising. I said how is it possible? When I looked at their space there are other companies in that space which are spending a lot. Like their major competitors would be IBM and Accenture, for instance, and they are spending tonnes and tonnes of money. These guys don't spend.

So what do they do?

What they do is that they build personal relationships with their buyers, which is just amazing. They narrow-cast this thing down. They know their target market very well, which is really few companies. They know that there are five people who make purchase decisions within IT and they go after those people. Their information systems are just fantastic. They are serving clients who compete with each other on different floors of the same building. Just think about the security issues here. The amount of trust that they have engendered is absolutely fantastic. They build a trust mark and not a trademark.

Examples that you have given till now are on the positive side. Can you give us some examples on the negative side?

There are several companies that have had a really really hard time building a global brand. I have written a case study about the number one ultra premium vodka from Russia. It's called Russian Standard. They have not been successful in the US market. A product called Grey Goose, one of the successful vodkas in the US, comes from France. Then there is Absolut, which comes from Sweden.

There is a product called Chopin, which comes from Poland. They are all really good expensive vodkas but they don't come from Russia. So these guys said provenance is so important because people should know that vodka should be Russian. They are drinking French vodka. French champagne is okay. But French vodka? But Russian Standard has had a hard time. Americans are either not comfortable drinking a Russian product and still feel a little jingoistic about this. Or they don't care where the product comes from.

Any Indian examples?

The Tatas have been trying to build a global brand. The issue is that they have so many different companies and they all have different brands. Let me talk about Taj Hotels. In the US they have acquired three properties. They acquired the old Ritz-Carlton in Boston and rebadged it. They acquired The Campton House in San Francisco and rebadged it. So the two hotels became the Taj San Francisco and Taj Boston.

And they acquired The Pierre in Manhattan and it is still The Pierre because the co-op that owns it refused to allow the world Taj on it. So it's the Pierre, a Taj Hotel company, or something like that. And then it's a Tata company. So there are three brands. There is The Pierre, there is the Taj and it is to be called a Tata Enterprise, as the case is with all the Tata companies.

So they have got a problem then?

I remember talking to Ratan Tata once and he was talking about the acquisition of Tetley, a very huge Tata Tea enterprise. Should it be Tata Tetley or will that damage the Tetley brand? They acquired Land Rover and Jaguar and they have been in automotive for a very long time. Should they be badging it Tata Land Rover? From your face you have already expressed an opinion, which I think they share.

So they have had a problem building a global brand. When you grow by acquisition you acquire some brands that have their own equity. Do you impose your own brand on them or you connect it in some way? It's not that it cannot be done. Lenovo did it as an example of a Chinese brand because they moved out of Thinkpad which they used to make.

Since we have been talking about the Tatas, do you think the Tata Nano as and when it does manage to go abroad, will face the provenance paradox despite all the publicity that it got initially?

The Nano will certainly encounter the provenance paradox and it's a question of how they are going to get around it. Geely, which is one of the largest Chinese automobile companies, has had a hard time penetrating outside China . So what they did was that they bought Volvo, which is a very well known Swedish company and they now have dealerships that sells both Geely and Volvo. The hope is that by association people will associate Geely with quality which is what Volvo is all about. Volvo is known for safety, durability and quality. Whether it will work or not we don't know.

Something like yoga, which has been a very successful Indian export to the US. Why did that not encounter any rovenance paradox?

The story of yoga in the US goes back to Swami Vivekananda. He was the one who popularised India, Indian philosophy, Hinduism, eastern spirituality and a part of that was yoga. It had to do with meditation. It had to do with breathing. It was more of pranayam than the asanas. When he came to America he was so charismatic that he was a rockstar before they had a term like that. There would be audiences overflowing in Chicago, Los Angeles, New York, etc. They would come to his lectures. He would be wearing a saffron robe and a turban and he would talk about his stuff. For the intelligentsia and the affluent it became a kind of a chic thing to explore India. This is way before the Beatles came to India for Maharishi Yoga.

This was the late 19th century...

So this was how it got started. Now fast forward to the last 10 years or so. Yoga devotees in the US are largely women. It is seen as a form of exercise that is low body stress, very healthy, and more natural exercise than what had been popular before and, to some extent, still is, which is aerobics. Before that it was running. So yoga is seen as a better form of exercise than those and that is a big part of why yoga became popular. It does not anymore have a connection with Hinduism. And therefore not as much of a connection with India. So provenance has been disconnected from yoga.

And that has happened over a long time period of time?

It has happened over a long period of time but the popularity of yoga is relatively recent. It is now a $6 billion per year industry in the US. And it's a pyramid and only a few people at the top are doing very well. And there are lots of yoga teachers who are working out of a mall and who are eking out a living, but they don't make much money. An example of someone who has done really well is Bikram yoga.

I don't know if you know Bikram Choudhury. So he has this particular kind (of yoga). It has to be at a certain temperature. It is only 26 asanas. Then there is Tara Stiles. She is Deepak Chopra's yoga teacher. She doesn't say anything in Sanskrit. It is very new age. She uses social media a lot to communicate. So I think yoga been disconnected from provenance.

You write that Indian and Chinese firms that face the provenance paradox currently can learn a lot from the Japanese firms of the 1950s and the Koreans of the 1980s. Could you discuss that in some detail?

The Korean studied what the Japanese did and what the Japanese did was at the low end. You enter at the low end and come up with a really, really high quality product which doesn't break down. You offer it really cheap and nobody wants the low end because they are all busy moving up into the high end. They have got legacy investments so they got to charge higher prices. So you get in. You keep improving your brand and you gradually keep moving up. The Japanese moved up as high as the market would let them. So in the case of Toyota it was Lexus. In case Honda it was Acura and in case of Nissan it was Infiniti.

And the Koreans learnt from this?

The Korean car manufacturers watched that and they are now outsmarting the Japanese in many ways because they are coming in with the same low-end strategy but they are moving up faster. And they are moving up faster, so far at least, keeping the same brand. So Hyundai has been very successful. Kia has been very successful. The other examples from Korea are Samsung and LG in electronics. What they did is they looked at what Sony did and what Matsushita did and what Panasonic did and they are copying that strategy but going one step better. So the Japanese are in a little bit of disarray right now for a variety of reasons and the Koreans are overtaking them. Samsung is now taking away significant market share from Sony.

So how would it work in the context of let's say an Indian IT company like TCS?

We have already seen IT companies like Infosys, TCS and Wipro doing a very good job at the low end, which is basically what they were doing with call centre kind of work and business process redesign work. But moving up the chain is proving to be difficult.

So here you are not just moving up in price but you are moving up in the nature of the service being offered because now you are getting into strategic consulting work, which is the domain of IBM's or Accenture's consulting services. And that's become an issue. Also what has happened is a lot of these competitors like IBM and Accenture have said if it's a labour-cost advantage, let's invest in India and set up huge operations there.

Yes that is true

So IBM's largest employment is in India now. Accenture has huge investments here. And then what makes it even more serious for companies like Infosys and TCS is that many of their key clients have said that we will set up our own IT operations in India. And they call them captive. And they are saying that we don't have to worry about somebody else's security systems or value systems for that matter. We will train them. They are our employees. Fidelity, which is a very large financial services institution headquartered in Boston, has significant investment in India and they are planning to increase their headcount here. And a lot of that work was being done by Infosys.

So basically Indian IT companies cannot move up and are also being hit on the low end?

That's right. That is the big picture. All these strategies work for a while but then somebody figures it out. It is so dynamic and that's what makes it so exciting.

Can you tell us something about the course you are teaching in India?

It is a course that was designed at Harvard Business School to cover topics of ethics and corporate governance. These were topics that were not being covered in any significant way in our curriculum. And after some history of trying to cover them within mainstream subjects like marketing ethics, for instance, or financial ethics, we decided to come up with a full course.

It's a compulsory course?

It's a required first-year MBA course. It's taught not as ethics but it's taught as a leadership course. And so one of the frameworks that we use is what we call the three lenses of leadership. And the three lenses of leadership are financial lens, the obvious one, the legal lens and the ethical lens. And the notion is that in framing problems you want use all three lenses. Students like to come to a business school because they like to learn about the financial lens. They are really not thinking about the legal lens. And they don't even know how to formulate questions around the ethical lens. And that's what we talk about.

(Vivek Kaul is a writer. He can be reached at vivek.kaul@gmail.com)

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by Vivek Kaul

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