Assalamualaikum Warahmatullahi Wabarakatuh
Good morning to all of you.
Beta bersyukur ke hadrat Ilahi kerana dengan izin dari Nya juga Beta dapat berangkat untuk menzahirkan titah utama di National Mark and Brand Entrepreneur Conference.
- Let me share with you some observations about what I see as general trends in the current global business environment before briefly turning to the business of brand development. These will necessarily be macro in nature and I will leave it to you all, the experts, to debate and fill in the details.
Global business environment
- Against the backdrop of rapid globalisation and until the full onset of the global financial crisis late last year, there was a decade of frenetic merger and acquisition activity. These involved not only hedge funds, private equity and sovereign wealth funds which bought and sold businesses for huge profits – and occasionally huge losses as well. Included also were companies positioning themselves for rapid expansion on the world stage.
- In contrast to the past, not all the merger and acquisition activities were among Western multinational giants. A number were from high-growth developing countries, such as India and China, who invested huge sums on a cross-border basis to graduate from being national to global players. Japan had done much the same in the 1980s onwards when it made landmark investments in the US property and entertainment industries. Thus we witnessed strategic ownership exchanging hands in, among others, steel, automobiles, computers, telecommunications and a range of consumer and consumer electronic products. At the same time, investors from advanced countries were also racing to position themselves to benefit from the superior growth prospects of the large developing economies.
- In short, with abundant access to capital in the period leading up to the global economic crisis, cash-rich corporations were able to acquire portfolios of leading products and services. As a result, there was a noticeable concentration of ownership in many industrial and consumer sectors. In a growing number of sectors, the number of corporations has become fewer even as the number of products and brands has proliferated. One example is the media industry. A small number of corporations control most of the newspapers, television stations, cable and satellite networks and film studios. The same is also true of other industries such as automobiles, computers, software and telecommunications: fewer owners, more brands.
- The billions paid for these companies bought far more than just production capacity. Many products are now globally and competitively supplied. Production is no longer the topmost priority. Instead, intangibles such as technology, design capabilities, distribution channels, market share and brand image are of paramount concern. For many consumer and industrial products, everything other than essential elements of the value chain, can be made and serviced in low-cost countries. Even luxury goods bearing the labels of famous Italian, French and German companies are now made substantially in developing countries by outsourcing firms.
- These developments have been well captured by New York Times journalist, Thomas Friedman, in his writings. He has argued that powerful political, technological and economic forces have removed – or flattened – the differences between industrialised and developing economies to create a global competitive marketplace. Popularising business terms such as outsourcing, offshoring, open sourcing, insourcing and supply chaining, Friedman describes a world where some countries are benefiting enormously from the rapid convergence and integration of these forces through the digital economy and political changes.
- New additional skill sets are called for in the brave new business world of today. The chairman of one of the world’s largest logistics and outsourcing companies, Dr Victor Fung, building on Friedman’s analysis, terms one of the most important competencies needed to compete in today’s world as ‘network orchestration’. Network orchestration is the superior organisation and management of the elements in the supply chain to meet the requirements of the consumer. According to Fung, a company’s strengths no longer lie in the ownership of fixed assets but in the control and empowerment of networks. It is no longer just companies competing against companies, but entire supply chain networks against supply chain networks.
- I think that few people can dispute the fact that world markets today are flatter than ever before. One has only to look at the way that businesses today are run and how production and distribution networks are organised to see that this is no pipe dream of the future. It is a reality of the present. The business landscape has changed markedly and irrevocably so. Nevertheless, we have to agree with those who say that while the world is getting flatter, it is still less than perfectly flat. Economies are still not borderless, neither are business transactions seamless. What is more, there are opposing forces that seek a less flat economic landscape for a variety of reasons.
- Governments are among those at the forefront of the efforts to protect, legitimately or otherwise, the interests of businesses and people. In the present global environment, where jobs and wealth are under grave threat, the instinct to turn to protectionism as a primeval response is a very real one. There might appear to be nothing wrong with promoting demand for one’s own goods or workers, but if this is practiced by every country, we will end up with nothing less than a global trade war on our hands. Even worse, there are those who wish to turn back the hands of time to when there was no loss of jobs through outsourcing. They would promote only those economic activities that take place within their nation’s borders and not those outside them.
- It is my fervent hope that good sense will prevail and that these will prove to be transitory phenomena. The world economy will certainly be poorer if there are short-sighted attempts to interrupt the global supply chains that have so carefully been constructed. In the end, it is consumers and businesses that will bear the heavy costs of any steps we take backwards. Short of massive transformational changes, the number of jobs saved may not be large and, even if so, may not be permanent. This is not to say that the effects of globalisation do not have to be managed. As with everything else, there is a certain amount of organisation and rules that have to be in place to ensure smooth functioning.
Challenges of branding
- Given the international business environment that has emerged, the challenges of branding are considerable. Let me take a moment to do a quick summary. Consumer markets are constantly shifting and changing. It is becoming essential to be in control or to be a part of supplier networks. These, however, are frequently disconnecting, reconfiguring and reconnecting in response to market changes. Global giant corporations control vast swaths of practically every component of the value chain. They do not need to own assets. They only need to be able to organise and orchestrate them. Added to this is the severe global economic downturn and, as if the collapse in demand were not enough, there is the spectre of inward-looking protectionism.
- The importance of branding, however, has not diminished in light of the global economic crisis. If anything, it has increased. With even blue-ribbon names having fallen victim to the crisis, there seems to be a clear need for companies to instil a sense of confidence and value in the products and services they offer. To a large extent, brands, as with the companies that own them, have appeared and disappeared with the business cycles. Some have failed to keep pace with consumer needs and wants and faded from the scene. Others have failed to innovate or just been overtaken by the competition. In the flatter and more competitive world that we now confront, brand development can be a major factor in almost every aspect of a company, from raising new capital to attracting the best brains.
- Brand building in this environment is certainly more difficult but it is not impossible. What is required is the ability to identify a particular market niche and then implement strategies that play to a company’s strengths while downplaying its weaknesses. Building a reputation or a positive association in specific areas will require consistent and concerted efforts over time. It would be nice to think that brand acceptance can be established in a short time but this is hardly ever the case. Brands are normally built over the long haul and through consistent and persistent actions. Given the considerable effort and expense to build brands and build them well, they should go beyond minimalist and low-level objectives.
- Good brands can significantly differentiate products, reduce transaction costs and attract consumer loyalty in ways that are both measurable and meaningful. They have considerable economic value, as the market value of companies that own them readily attests. In special cases, brands can even become synonymous with a generic product. An example of this is Xerox, which is a brand name that eventually became both a noun and a verb. Reputations such as these are hard to establish. Companies that do not seek to build brands well will either not derive significant returns or they may not derive benefit for very long.
- Malaysia has the advantage in that brand building is still in its relatively early stages. There is a lot of work that has to be done but there are plenty of lessons to guide us and, with the assistance of the government, resources that can be brought to bear. In my opinion, the first thing that must happen is that SMEs must appreciate the exact role that branding has to play. They cannot afford to just be concerned about short-term profitability and must be prepared to invest, even in modest ways, towards promoting their company’s brands. This is a precondition for going global and a great deal of thought has to be given to marketable brand names since the audience is primarily foreign.
- Second, Malaysian SMEs should be encouraged to adopt efficient supply chains. They must be assisted to “orchestrate” their purchasing, production and distribution networks in ways that are consistent with the building of sound brand equity. Third, SMEs have, by definition, limited resources to spend on brand development. Here, government assistance can be beneficial in giving SMEs the much-needed head-start in this direction. Fourth, SMEs need to have in place quality assurance and audit programmes. Many products have had their image wrecked by poor standards and performance, leading to loss of the substantial investments made. On this note, I am very happy that National Mark has been developed to confer an endorsement of quality and distinction to deserving products and services.
- While the government can assist SMEs in the ways I have mentioned, it must be remembered that brand-building is a private entrepreneurial activity, and the responsibility of the brand owner. Brand building is successful only when companies have a strong sense of purpose and a clear set of values established by their founders. The many stories of successful brands make this very clear. Remember the high-end luxury goods like Christian Dior’s couture and Isadore Sharp’s Four Seasons Hotels, and the mass consumer offerings like McDonalds and Pizza Hut, all started out as SMEs.
- Branding requires a great deal of commitment but its payoffs can be very substantial. It is useful not only to attract and retain customers but also managers and workers, bankers and investors. This is not the preserve of large multinationals, but something SMEs can also take a leaf from. One must, however, be prepared to go beyond theory and principles and struggle with the realities of building great brands. In this regard, I do hope that there will be plenty of discussion and practical advice at this conference.
- I commend the Ministry of International Trade and Industry, the SME Information and Advisory Centre and the Branding Association of Malaysia for their efforts in assisting SMEs in their branding efforts. I wish all parties ‘semoga berusaha dan berjaya’. May your partnership reap rich and long-term rewards for company and country!
Wabillahi taufik walhidayah
Wassalamualaikum Warahmatullahi Wabarakatuh.