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Why global brands now rise in the east

April 23, 2009 13:19 IST

Not long ago, Joanna Seddon, a marketing executive, lost a button on her Louis Feraud suit and looked for a store in New York or London at which to get it replaced.

Ms Seddon, an executive vice-president of Millward Brown, was out of luck: the late French designer's New York store on Madison Avenue had closed. She had to turn to China, where Feraud has 11 outlets. A brand made popular in the US in the 1980s by the soap operas Dallas and Dynasty had gone east.

The realigning of Louis Feraud from the US to China is an unusual story but it is becoming more common. As it does, our postwar assumption that the US is the place where most global consumer brands get launched before being spread around the world is being undermined.

This week, Porsche chose the Shanghai motor show to launch its Panamera four-door saloon, the fourth Porsche line after the 911, the Boxster/Cayman and the Cayenne (a US-oriented sports utility vehicle).

This time, there is no mistaking the Asian influence on Porsche's product development. The Panamera is a global model but its length - nearly as long as the stretched Series 5 that BMW made for China - tells the story. Rich car buyers in China prefer to be driven by chauffeurs.

The car industry is a leading indicator. The US slump has led to China turning into the world's largest car market this year, accentuating a long-term shift towards Asia.

China is a lone bright spot for General Motors, which has chronic problems in the US with devalued brands and sagging sales, and is attempting to shed Opel and Vauxhall in Europe. In China, not only Cadillac but even Buick, a dismal mid-market brand at home, have allure.

But it is not alone. The shift in consumer buying power towards emerging markets is not only giving Chinese brands a much better chance of breaking out of their domestic market but is also subtly altering how western companies develop and market global brands.

The US is still the biggest cauldron of product innovation, as it showed in the 20th century. Its single market, enthusiasm for free enterprise and liquid capital markets (it seems so long ago, doesn't it?) produced everything from personal computers to disposable nappies.

Despite its economic indisposition, the US shows little sign of faltering in new product launches - especially in technology. The first years of the century have brought Google, Apple's iPhone and the Amazon Kindle, to name just a few.

"It is still true that the US develops more products than any other country in the world," says Hal Sirkin, a partner of Boston Consulting Group. There is still no better launch-pad than Silicon Valley.

But the world of global business is changing in two ways.

One is that non-US companies have become more astute about achieving global scale. In theory, Motorola had enormous advantages in mobile phone manufacturing over Nokia, a Finnish company with a tiny domestic market. Nokia, however, was the winner.

The biggest reason was its success in becoming a low-cost manufacturer in Asia. It has what would have been an unthinkable profile for a global enterprise only a few years ago - revenues last year of Euro 5.9bn ($7.7bn, Pound 5.2bn) in China, Euro 3.7bn in India, Euro 2bn in Indonesia and only Euro 1.9bn in the US.

Companies from Japan and South Korea have caught up and overtaken the US in consumer electronics (and in cars) in the past couple of decades. Japan, despite its current electronics industry crisis, has produced brands such as Nintendo's Wii and DS, while Korea has LG and Samsung.

China and India are pushing on this door, with products including Haier air conditioners and the Tata Nano car. Mr Sirkin points to Goodbaby, the maker of pushchairs and nappies, and Johnson Electric, which produces electronic motors, as two emerging Chinese multinationals.

For the most part, Chinese companies are still jostling to catch up with US and European enterprises. But the fact that western brands dominate global markets does not fully capture what is going on. As Louis Feraud illustrates, there is another force at work.

This force is the growing influence of Asian and emerging market consumers on global products, even if they are owned by US and European companies. The Panamera's design is merely one example.

For a long time, global products have been - with varying degrees of subtlety - made in the image of what US consumers wanted, or dreamed. McDonald's turned a drive-through food joint into a place for Russians to hang out; Starbucks took an Italian espresso bar and stuffed it with comfy chairs and soft music.

But the US consumer's influence is waning - or being balanced. Procter & Gamble, the quintessential US consumer packaged goods company, now gains 30 per cent of sales from emerging markets and is launching products such Downy Single Rinse, a fabric softener, outside the US.

Even traditional American brands such as KFC, the fried chicken fast food chain, or European ones such as Nivea, the beauty line owned by German company Beiersdorf, are influenced by a shift in sales towards China and the rest of Asia.

Exactly what the western consumer will make of it when the influence of Asia becomes apparent in products other than games consoles, we shall find out. Marketers did such a fine job of selling the American way of life in recent decades that cigarettes are still associated with cowboys.

Now they must persuade us all that long Asian cars, not large American SUVs, are the best things to drive. I expect they will find a way.

Copyright: The Financial Times Limited 2009