Mr. Geoffrey
Colvin |
Senior
Editor-at-Large, FORTUNE |
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Thank
you very much, and I appreciate it. My topic is…holding
a mirror to India…an outsider’s perspective…a
westerner’s perspective. I want to be clear that that
is exactly what it is. I am definitely not an expert on India.
I am some one who has been very fortunate in his life to have
the opportunity to see businesses of all kinds confronting the
challenges of our global info-based economy…and to see
companies dealing with these challenges…companies and
managers….dealing with them successfully and unsuccessfully.
I have had an opportunity to see what separates the winners
from the losers and so I am hoping that this perspective may
be relevant to you.
I brought today’s newspaper just because, as always it
contains headlines. I want to mention three headlines from today’s
paper, which I think will help in guiding this discussion. I
will talk a bit about what I think some of the issues are, and
then we will have some time for comments and questions. I am
hoping that you won’t be bashful about them. This is a
good opportunity to talk.
Headlines from today’s newspaper- number one: China economy
gains speed. China’s economy grew 10.2% in the first quarter
picking up from last year’s at breakneck pace. It seems
almost incredible that an economy of that size could grow at
that speed. It was 9.9% last year, 10.2% in this year’s
first quarter. It reminds all of us that in a global economy,
we are all facing competition from all quarters that we never
had to worry about before…and it is really formidable
substantial competition. We face it from where I come from and
are having a terrible time dealing with it. It affects every
one and there is no escape.
Second headline. 10% growth feasible for India says Rajan. He
is the Chief Economist of the International Monetary Fund. His
forecast is 10% growth is not over optimistic. It is totally
attainable. Down in the story he says the government needs to
work much harder in getting employment growth to pick up, adding
that strict labor laws and poor infrastructure were preventing
India from competing in labor intensive businesses such as textiles
and manufacturing.
Third headline. GM posts 6th straight loss. New earnings release
from General Motors, United States. In the most recent quarter,
they lost only 323 million dollars. This was good news because
in the same quarter last year their loss was 1.25 billion dollars.
So this is the kind of news that makes them happy in General
Motors these days. The point is who would have thought that
the great GM would have 6 straight quarters of huge financial
losses, and it would be on the brink of bankruptcy as it appears
to be…and yet that is the reality of a global economy…a
truly global economy. The predecessors of the current CEO did
not foresee and did not plan for it satisfactorily at all.
These headlines, I think, give us some idea of what the themes
are. I want to be clear about this. I am going to talk about…I,
as an outsider, perceive some of the strengths and weaknesses
in the Indian business culture to be, and I want to do it with
a particular focus on your topic in this Conference which is
building global brands out of India. I do have a particular
interest in brands. So I want to talk about that in particular.
I want to make sure that a few themes come through. First of
all, obviously, India will produce major global brands, and
that is not the question. The question is which companies will
do it and when they will be able to do it? I believe the answer
will depend in part on the evolution of Indian business culture
to the point where it can embrace the economic value of something
that is totally tangible as the brands that appeal to the global
markets…and a brand that connects to the global markets.
In a way they, for cultural reasons, may at first not seem totally
or comfortably India. The answer also depends on the development
of India’s consumer economy…not the consumer brands
are the only brands. Obviously, business-to-business brands
can be enormously powerful. But the consumer brands tend to
lead the way in the development of sophisticated brand identity.
In my opinion the development of the consumer economy will have
a huge influence on the development of the global brands out
of India.
Overall, strengths of Indian economy as perceived from the outside.
First and foremost the people and the their hunger for growth.
The hunger for economic growth and the hunger for personal growth.
This is overwhelmingly the great strength of this great economy
as perceived from the outside. I think it is clear, well known,
and talked about quite a lot. In addition, a part of this, an
important part is the educational system that is producing hundreds
of thousands, millions of graduates every year, who are well
qualified to participate in a knowledge-based, information-based
global economy. To the outsiders this is the huge part of the
appeal. In addition, this is a familiar theme, simply the fact
that it is a democracy with a legal system that is comprehensible
and relatively dependable to any one looking to do business
some place else…that is a huge advantage. As I say, it
is nothing new for me to cite that but I want to emphasize it.
It is really important.
On the other side of the ledger…the weaknesses. It isn’t
fashionable to say weaknesses any more. We are all supposed
to say opportunities for development or some thing like that.
Well, let us be frank. Weaknesses are words as perceived from
outside. Number one…the obvious one which the IMF person
mentioned- the infrastructure. This is a concern to any company
intending to do business in a big way in India. I don’t
want to dwell on it because this is a well known criticism.
You have heard it all many times before. It has been cited very
often and talked about a lot.
Perhaps more provocatively, another worry is what about those
who are not participating in the tremendous economic story of
India? In other words, what about the hundreds of millions of
people who are not participating in this tremendous economic
growth? If such a large number of people are not participating,
will there eventually be some kind of political reaction that
could be sufficiently severe that the economy could become less
competitive in the global setting. Well, you are better able
to judge that phenomenon, but I can tell you that, to the outsiders,
it is a worry. I am not referring to the stories in the newspapers
the last couple of days about the idea of affirmative action
and quotas in private industry and so forth. That certainly
is the latest news about it. But more generally, the idea of
a lot of people in the society, if they are being left out of
progress, creates an unsustainable situation. To outsiders,
that is a worry…not an immediate crisis, but a worry to
be monitored.
Another point. Again, since my mandate was to be blunt, it is
sort of the opposite of the tremendous hunger for advancement
that I mentioned as one of the great strengths. I was just talking
earlier today with an executive in a major multi national company
that operates in a big way in India. He is a high executive
in an American company but he is an Indian, and he said “we
came here for costs…for low costs; we encountered, somewhat
to our surprise, very high quality, and then we encountered
to our surprise, tremendous innovation, and that is what we
are staying for.” Well, that is a huge strength. The worry
or weakness on the other side is that, some one I was talking
to recently, described as a mind set that remains colonial.
In other words, it is a generational thing in a large part,
but not entirely. A mind set that isn’t entrepreneurial,
isn’t energetic, and to some extent is still encountered.
I can tell you again from the point of view of an outsider this
is a worry that they monitor.
Even more, perhaps off the radar, but nonetheless real. It is
a paradox. As India becomes integrated in to the global economy
there is a certain amount of western influence that is necessary,
inevitable, and desirable. But the flip side of it is the downside
of the western influence…and I have to say that by simply
observing as an outsider, there is a worry of that happening.
What do I mean by the downside of the western influence? Well,
I mean, a lowering of standards…a lessening of hunger
for education…a lessening of the willingness to sacrifice
today for tomorrow. I am describing the problems of my own country,
and I write and speak about it a lot. These are tremendous problems
for the United States, and I think they are going to cause tremendous
trouble in the years ahead. We are lowering our standards, we
are much reducing our willingness to sacrifice today for tomorrow,
and it is a bad thing. Another concern is, as these influences
come here will they cause the same things to or at least begin
to happen in this economy?
Well, I want to focus also on the idea of brands, and how global
brands are going to come out of this economy? I think one of
the big challenges is changing business models. There is a hierarchy
of adding value, begins with simply producing commodities. This
is what all of mankind did for thousands and thousands of years.
It was the subsistence for life that all of the mankind in the
world did for thousands of year. Simply producing, to be alive
for today and tomorrow. About 500 years ago, we moved to the
next stage of value creation, next stage in the value hierarchy…which
is creating physical capital in order to produce what we need.
In other words, finally, we were able to save a little more
than what we need for consumption. We were able to produce physical
capital, in the way of tools, in the way of ships, in the way
of plans, factories. These things enable real wealth creation
for the first time. The next stage in the hierarchy is the creation
of intellectual capital, to permit the creation of differentiated
products. Of course, this is what persists to this day, and
allows all of us to create the wheel-wealth, the substantial
wealth that surround us now…whether that intellectual
capital is the formula for Coca Cola or the formula for the
pharmaceutical or any number of other things. It permits the
creation of differentiated products which create far more wealth
and fame. Here we reach then, the subject of brands. Arguably
the brand is the ultimate form of intellectual capital. It is
after all nothing more than a word, a word that can be worth
billions and billions of dollars. It is intellectual capital,
arguably at its highest stage of development, which is why brands
of course are attractive to pirates and people who want to steal
them. In these lists of most powerful brands, you often see
Coca Cola listed as number one…it is high up there. The
former Chief Executive of Coca Cola, Roberto Goizueta used to
say “if every physical asset that we own were destroyed
tomorrow, we could borrow all the money we need to rebuild it,
based on the value of brand”. In other words, for his
Company, every thing physical was, in a sense, secondary. The
value of the brand, the value of that word, was so great that
it over shadowed every thing else. It was more valuable than
any thing else the company owned.
When I say the challenge is creating new business models, what
I mean is, we all know that brands are valuable, but how many
companies have the courage to use a business model that is actually
based on the value of the brand? It takes courage because it
requires confronting the business value, the economic value
of, in the case of consumer brands, pure emotions - of love,
hope, joy or on the case of business-to-business brands, other
attributes - honesty, trust, values, purpose, all of which are
deeply emotional. How many people have the courage to build
a business that accepts the economic values of these things?
A question! Could this represent a mind set problem in India?
How does the business culture value these things as opposed
to how it values tangible assets? Or as opposed to how it values
engineering, accounting, software, and other left-brained disciplines
that are so important?
I stress, this is a question, I ask it as a real question. I
don’t know the answer. You have much better sense of the
answer than I do. And secondly, it is not about the Indian culture
but it is a question about Indian business culture. To what
extent is it willing to embrace the value of these things? These
things that are at the heart of extremely successful brands.
This leads to a larger question…where does economic dominance
come from today? The conventional answer is that economic success
comes from advancement and success in science and technology…because
that is the way it has been for the past 300 years. Ever since
the scientific revolution of the 1600s really got going…those
places that could establish scientific dominance were also economically
dominant…whether it was Western Europe in the beginning,
later America, later Japan. Scientific and technological dominance
lead to economic dominance. Any economist, virtually any economist,
would tell you today that it is still the case.
There is a counter argument however…and I mention it because
it is definitely worth our consideration. As we all try to become
dominant in science and technology, as well focus on how many
engineering graduates we produce, this argument says that we
are fighting yesterday’s war. We are not looking to the
future. This argument says that science and technology are becoming
commoditized…that in fact, as China graduates 650,000
engineers per year, technological advancement becomes commoditized.
In fact the way economy adds value and creates wealth in the
future is through right brain activity…things that involve
creativity, imagination, and intuitiveness. Can this really
be so? There is an argument that it could be. One good example
of that would be this device - the iPod. Why is this, an example?
Things like this, MP3 players, have been around for years. The
MP3 players were around for years before the iPod was created.
They never did much, they never caught on…they never were
popular. This device does not represent a technological advance.
What they did was take existing technology, design it beautifully,
and create a very nice intuitive interface with the user. Somehow
one view’s it with coolness, and somehow this thing has
taken of beyond all imagination. It is powering the Apple computer
company, earnings are up 40% every quarter, and hundreds of
millions of dollars are profited. In the U.S., this device now
has 76% of the market for these portable MP3 players…and
the music that the Apple company sells online has 73% of the
total market for online music sales. In fact, it has 10% of
the market of music sales of any kind….totally revolutionalising
the industry. The point here is that it didn’t represent
new technology. What it represented was taking existing technology,
and being creative with it, designing some thing well, using
intuition, imagination, and creating a valued product.
I am not sure that this is going to be the case, but it is an
important argument that it can not be ignored. There are people
who say that in the United States, the cool degree for graduate
students to get now is no longer the MBA, the Master of Business
Administration, but the MFA the Master of Fine Arts, because
the young graduates want to do this kind of work in the future.
Well, that leads to another question…what is the value
of brands in today’s economy? Why are they important?
This is a crucial question. They are more important than ever
for 2 big reasons…one, we are in a world where everything
is becoming commoditized, Quality standards are rising. It is
possible for almost everyone to make some thing just like the
competitors product, if not today then tomorrow. I keep referring
to Coca Cola because the secret formula for Coca Cola was once
a great competitive asset. It isn’t any more. Technology
is now so good that any beverage maker of any size can manufacture
a product that is physically indistinguishable from Coca Cola,
that is from the consumer’s point of view, indistinguishable
from Coca Cola. In other words, any body can make it, but only
the Coca Cola Company can call that. The brand is where all
the value is, but at the same time, brands are increasingly
imperiled, they are increasingly in danger. Why? Because we
are in the internet era, where the brand depends on the reputation
of the whole company. It isn’t used to be this way. Consumers
never used to care where Nike made the shoes. Now they do care.
Now consumers care about the behavior of the whole corporation.
One mistake any where can imperil the brand, and so at just
the moment when these things have become more economically valuable
and important, they also have become more fragile, easier to
lose.
Where does brand power come from? I want to suggest an answer
I have found extremely powerful. This is based on work that
was done some time ago at Young and Rubicam Inc, an ad agency,
but it has been widely applied which I find very compelling.
Brand power, they found, comes from 4 attributes…and the
order of importance of these attributes really matters. Number
one-differentiation, number two-relevance, and in fact those
two are far more important than any thing else. Number three-knowledge,
how much people know about your brand or company, and number
four-esteem, how much do they like it. The reason this is important
to most of us, even to people who are in the business of brands,
marketing and so forth, instinctively ask as a first question,
how do you get people to like our brand? Esteem, it is number
four, it is the last thing. This is very counter-intuitive,
but I believe it is absolutely so. Number one, most important,
is differentiation. This above all, the brand has to be clearly
different from any competitor, and paired with it, a close number
two, is relevance. These things, above all, create brand power.
Now, let us apply this to a couple of cases. Let us take an
extremely powerful brand by every measure, the Disney brand.
Is it differentiated? Totally! There is nothing like it! You
can’t think of any other company and say “oh, yeah,
they are just like this”. Is it relevant? It is incredibly
relevant. There are billions of kids in this world; there are
billions of families with kids, and those kids all love magic
and fun, and imagination. And that is what the brand name is
all about. It is utterly relevant all around the world. Is it
known? Yes! It is incredibly well known. Is it esteemed? Yes,
it is very highly esteemed. So it scores near the top on all
4 attributes. It is an incredibly powerful brand.
Now let us look at another one. That is almost there but not
yet quite. You may be surprised. Rolls Royce. Is it differentiated?
Yes. You would hardly say that there is anything that is like
Rolls Royce. Is it relevant? No! Completely not. Even to those
few people who are rich enough to buy a Rolls Royce, it isn’t
relevant to their lives. It is certainly isn’t relevant
to people who might aspire to buy Rolls Royce one day. The brand
does not like that. Is it known? Yes, it is quite well known.
Is it esteemed? Well, it is pretty well esteemed. But because
it is totally irrelevant to most of the people’s lives,
it isn’t actually a strong brand on these ratings, it
never shows up.
Next question. What is the nature of brand India? How does it
rate on these four criteria? I invite you to think about it
because you will know much better than I would. As we go through
them, what do you think? Differentiation? Pretty high. I would
think so looking at it as an outsider. Relevance? Not really,
not very high. I think that may be right. When I think about
these national brands, you know…what is brand Germany?
Probably precision, quality engineering, and I guess a lot of
people can relate to that. Lot of people around the world would
want that. Brand Italy is probably fashion, style; good food,
good living, and a lot of people would find that relevant. Brand
India? I am not sure. I would ask you because you would know
better than I do. But what would the attributes be and how relevant
would they be to the markets world wide? Perhaps we can talk
about this later in a few minutes. Is it no? Yes? Extremely
well known. Esteemed? Yes. I would say very highly esteemed.
So it does well on at least 3 of the 4 criteria. We might discuss
that later.
I am going to wrap up in a few seconds. As global brands come
out of India, one of the most important questions will be how
Indian should they be? How Indian must they be? Obviously there
are examples of both kinds. There are global brands where the
nationality is unknown and nobody cares. Right? Nokia phones
are number one around most of the world. I am sure that 99%
of consumers don’t know that it is a Finnish company,
and they don’t care. Nestle...who knows and who cares.
It is Swiss and I am convinced that most people don’t
know it is Swiss. On the other hand, sometimes, it is important.
Mercedes Benz-it is important that it is German. Gucci-it is
important that it is Italian. It has been my experience that
the best, most of the enduring brands are self-defined. They
are based on a word that has no meaning of its own; the company
is able to imbue it entirely with meaning, and they create that
brand identity entirely on their own. Dell computers. Dell happens
to be the name of the guy who founded it but it is lucky for
him that his name happens to be a short word, easy to pronounce
in every language, and it means nothing. It has a meaning in
English of course, but it is a word nobody actually uses, so
it is a terrific brand name. They are able to give it all its
meaning whatever meaning it may have. The best brands are like
that, in fact, going back a long ways, Kodak, a famous great
brand, is an entirely synthetic word. George Eastman who created
the company decided that he wanted a word that meant nothing
in any language, and as a result, he could create all the meaning
that word would ever have.
As I mentioned, I do think that the development of India’s
consumer economy would be key to its development of global brands.
They are not the only brands, but they lead the way in the development
of the branding ideas, sophisticated brand development. In my
country which is arguably the best at creating brand identities,
the economy is 2/3rd consumer related, about the highest proportion
any where in the world, and it is no accident that this is the
economy that has developed most of the strong consumer brands,
and as a result most of the strong business-to-business brands.
The development of the consumer economy turns out to be critical
to the development of the brands.
In sum, I want to say that the creation of the powerful global
Indian brands is an issue of mind set in business culture, not
capabilities. These are the questions. It is a challenge because
mind set and culture are often the hardest things to change.
It is also obviously a huge opportunity that some one is going
to take advantage of, and take advantage soon, and I am confident.
These are the points that I wanted to get across but we do have
some time now to engage in discussion, have comments, questions,
whatever you like. |
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