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 / Third Quarter 2000 / Issue 20(originally published by Booz & Company)


China, Branding, and Other Studies of Value

China, branding, antitrust, layoffs, globalization, and inflation.

Private enterprise in China is flourishing, with about a million companies operating today. But an overseas entrepreneur must overcome formidable obstacles to create a successful enterprise or joint venture. It generally takes guanxi(connections) to make a business thrive. Many advisors suggest that cultivating a few key bureaucrats in Beijing will do the job. But economists David Ahlstrom and Steven S.Y. Lui, of the Chinese University of Hong Kong, and Garry D. Bruton, of Texas Christian University, suggest it's the provinces where the real decision-makers are.

China, they argue, should be thought of not as a unified economy, but as a market comparable to the European Union, with some centralization, but also with strong regional devolution. Fully half of Chinese government spending is done by the provinces, and provincial bureaucrats control most of the land. Other government officials are well known for demanding "fees" for protecting factories at night.

These bureaucrats, say the authors, can be dealt with in several ways. Some can be given shares in the new enterprise. Others can be hired as managers, if they can deliver connections. Another good idea is to hire the former village elder who judges local disputes. Even if he's retired, the elder is well respected and can cut through a great deal of red tape.

Charity also helps. The Chinese have long been impressed by people who help the unfortunate. Gifts of schools and community centers build a reputation with local people, especially government officials. One firm donated 100,000 textbooks for middle schools — and found its building permits speedily processed.

Selling Brand Management
Frederick E. Webster, Jr., "Understanding the Relationships Among Brands, Consumers, and Resellers," Journal of the Academy of Marketing Science, Sage Publications, Winter 2000.

For decades, companies have thought the best way to build brands was through "pull" — extensive national advertising designed to show consumers that their brands offered value beyond those of generic competitors. But with many value-minded consumers preferring off-price products, brand equity is on the decline. Successful brands, explains Frederick E. Webster, Jr., a management professor at Dartmouth's Tuck School, can't just pull consumers in — marketers also have to "push" them to retailers.

Many of the great 20th-century brands, including Ford Motor, Frigidaire, and Goodyear, were built through a combination of strong dealer support and intensive national advertising. Dealers stocked these brands and promoted them, because they knew manufacturers would offer strong support through advertising and reliable technical assistance.

But many companies implemented brand manager systems that sharply divided the advertising management from corporate sales force management. That division, Mr. Webster argues, makes less and less sense, since this system favors the consumer over the retailer. Successful enterprises, including Procter & Gamble and Intel, know that strong cultivation of retailers ensures that their brands are sold in a way most appealing to consumers.

A more effective strategy is to create field brand managers who have responsibility for both brand promotion and the regional sales force. "A strong brand without strong trade support is an impossibility," Mr. Webster writes, "as is a strong retailer relationship that is not supported by a brand valued by end-users."

Antitrust Law Before Microsoft
William E. Kovacic and Carl Shapiro, "Antitrust Policy: A Century of Economic and Legal Thinking," Journal of Economic Perspectives, American Economic Association, Winter 2000.

The recent Justice Department antitrust suit against Microsoft has some arguing that the federal government is returning to the "trust-busting" tactics of the past. But George Washington University law professor William E. Kovacic and University of California (Berkeley) economist Carl Shapiro suggest antitrust law has evolved a great deal since the Sherman Antitrust Act became law in 1890.

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