Nirmalya Kumar and Jan-Benedict E.M. Steenkamp
Brand Breakout: How Emerging Market Brands Will Go Global
(Palgrave Macmillan, 2013)
Seung Ho Park, Nan Zhou, and Gerardo R. Ungson
Rough Diamonds: The Four Traits of Successful Breakout Firms in BRIC Countries
Christopher M. Schroeder
Startup Rising: The Entrepreneurial Revolution Remaking the Middle East
(Palgrave Macmillan, 2013)
As Nobel prize–winning economist A. Michael Spence pointed out in his book The Next Convergence: The Future of Economic Growth in a Multispeed World (Farrar, Straus and Giroux)—selected by strategy+business as one of the best business books of 2011—we are living in the middle of a century-long journey during which the rest of the world will catch up with the developed economies of the West. By the time that journey is over, around 2050 or so, perhaps 75 percent of the world’s population will live in developed economies, as opposed to a mere 15 percent today.
Spence explains this convergence primarily from the elevated but limited perspective of nations: macroeconomic policy, institutions, technology, culture, geography, and political systems. Country-level policies are undoubtedly important, but ultimately it is the individual firms within nations that will become the actual engines of economic convergence. In the words of Paul Krugman, another Nobel laureate, nations don’t compete; companies do.
This year’s best business books on globalization examine the rise of the emerging market companies that will drive the process of economic convergence and will also compete head-to-head against established multinational corporations (MNCs) from the United States, Europe, and other developed economies.
Brand Breakouts Ahead
The first wave of multinationals from emerging markets have already arrived on the global scene. In fact, several companies, including China’s Sinopec, India’s Reliance, and Brazil’s Vale, have earned spots on the Fortune Global 500. But these pioneers are typically large state-owned enterprises in foundational industries, such as financial services and telecommunications. In their new book, Brand Breakout: How Emerging Market Brands Will Go Global, Nirmalya Kumar and Jan-Benedict E.M. Steenkamp, professors at London Business School and the University of North Carolina’s Kenan-Flagler Business School, respectively, explain why that’s the case. According to the authors, the pioneers are thriving so far because of their preferential access to capital, resources, and large, fast-growing domestic markets, not because they possess strong brands, technology, or other firm-specific advantages. For example, no Chinese or Indian names appear on Interbrand’s 2012 list of the top 100 global brands, and few Western consumers can spontaneously identify a Chinese or Indian brand.
This may be good news for established consumer-facing companies from developed nations, but Kumar and Steenkamp believe the current situation is unlikely to last for long. No emerging market has evolved into a developed one without spawning at least a few global brands along the way. The ability of emerging market companies to build powerful brands and migrate upmarket and overseas is crucial for the upgrading of the economy as a whole. Kumar and Steenkamp refer to this process as brand breakout and describe eight pathways that emerging market companies can pursue to launch their global products and services.
Some routes are strategic and involve repositioning the entire firm, whereas others are much more tactical. For example, the highly strategic “Asian Tortoise Route” requires establishing a beachhead niche in a developed market by selling a decent product at a very low price, and then, in an upward spiral of interlocking steps, increasing product quality and price until the brand achieves a dominant market presence across the entire price/quality range. This approach was, of course, pioneered by a group of now global Japanese firms, including Sony and Toyota, and later adopted by a host of South Korean and Chinese firms, including Hyundai, Samsung, and, more recently, Haier. The “Business to Consumer Route” is similarly strategic. On this path, the emerging market firm first enters the industry as a business-to-business contract manufacturer for global retailers (such as H&M or Walmart) or consumer brands (such as Apple or Nike). Then, it enters an adjacent product category or a higher value-added business with its own consumer products. Witness how China’s Galanz went from being an OEM to being a branded player in microwave ovens.