Dr. Pramod Paliwal
Associate Professor, Marketing Area - Pacific Institute of Management
Renny Teresa Cyrric
Scholar - Pacific Institute of Management
Branding Issues for MNCs in India

• Emerging markets like India constitute major growth opportunities in the evolving economic order.
  In a liberalized global business regime, the potential of markets like India has already affected an accent in the approach of MNCs, which now customarily highlight emerging market investments even when communicating with shareholders.
  Traditionally, India has always featured in the strategic plans of the multinationals globally.
  European and American MNCs were among the first ones to enter the Indian market and gain a sound foothold here.
  MNCs in recent times have exhibited the tendency to grow inorganically - through M&As - since that is a fast track route to enter markets, with a host of facilitators existing.
  But as an exponent of strategic marketing comments like "It will be more important in the future for companies to own markets than factories." And the only way to own markets is to own dominant brands. A brand can be timeless. Hence the issues of brand acquisition by MNCs - through M&As - and ultimately brand value creation, are of extreme importance.
  Marketing Guru Dr. Jagdish N Sheth feels that the US policy for instance, will henceforth be driven by a perception that the inevitable and swift development of China as a future 'superpower' needs to be countered by getting as close as possible to India. This will lead to large American companies aligning with Indian companies.
  Business strategists too have always emphasised the significance of 'Brand Value,' while confronted with the subject area of M&A as a strategy to pursue growth objectives.
  The opportunity for exploiting common use of a well-known brand name among others is a significant pointer towards the existence of 'strategic fit', whenever exploring the case for related diversification strategies. Similarly germane are the aspects of a company's brand name and reputation in the context of these virtues being transferable to other businesses (vide M&As) arising from cross-business strategic fits along the value chain.
  A 'Profit Impact of Market Share' study showed a strong interaction between, among other things, brand rank and profitability. The evidence shows that it is difficult to make profits unless the company has one of the three leading brands. The framework, further assessing strategic potential of businesses, assigns an important rating to brands constituting competitive strength of a firm.
  Total Research Corporation's EquiTrend study shows that firms experiencing the largest gains in brand equity saw their ROI average 30 per cent, those with the largest losses in brand equity saw their ROI average a negative 10 per cent (Petromilli et al, 2002).

  Au Pair
  The success of a venture by the MNC floating in tested waters is dependent on a multitude of factors. The extent of awareness of the acquired brand is the key in any success script. The marriage of an Indian brand with an MNC will be a hit love story if, and only if, the MNC is able to rouse the interest in the offering as an international brand with better standards than its local counterparts.
  There have been cases where MNCs wanting to enter the Indian market, acquired companies with successful brands. In the quest for wanting scale, merger partners were identified; whose products and brands more or less complemented their line of businesses.
  The example in this regard would be the buying of Modern Foods by HLL. Analysts say Modern Foods fits into HLL's major thrust in the area of foods. The company's branded atta business (under the Annapurna brand) has been showing a handsome growth. In this context, Modern Foods has a strategic fit with the HLL's business plans. There are direct-buying synergies in the area of wheat procurement, which ensures that maida (wheat flour), the main raw material for bread, is made available at the desired quality and at the most competitive prices to the company.
  HLL has been trying to synergise the Modern Foods brand with its other brands at regional levels. In New Delhi for instance, Modern buns were promoted along with Kwality Walls ice cream and Taj Mahal tea.
  Gillette: Gillette having identified oral care as one of the faster growing categories and thus, acquired the old Parle brand, Prudent. The objective here was the acquisition of a brand in the popular segment to extend the Gillette Oral Care franchise. Gillette also wanted to acquire a vehicle to extend the franchise to a larger universe of outlets and to enter the rural market, largely untouched hitherto. Also, Gillette wanted to synergize with Oral B worldwide, which has a two-brand strategy.
  However the challenges facing Gillette were manifold. Prudent had fairly high brand awareness, but carried some negative perceptions. Faced with these challenges, Gillette revamped the entire product range, changed the packaging completely, making it much more contemporary, rationalized price points and put in place a well thought-out sales strategy, backing it up with powerful trade and consumer promotion. The results were phenomenal. A dead brand was revived. The Prudent brand turnover doubled! Prior to acquisition, the turnover was roughly Rs. 20 crore and one year post-acquisition it was Rs. 45 crore! But the icing on the cake was that the flagship brand Oral B grew too.
  But there have also been cases of overlapping and unrelated brand acquisitions.
  Duracell, one of the MNC Gillette's brands, undertook the acquisition of Geep, an Indian player in the non-alkaline batteries segment in 1998. Gillette needed a plank in the low price segment, rural market as also the non-alkaline segment.
  But after acquisition its turnover reduced from Rs. 150 crore to Rs 100 crore in one year.
  Gillette ended up with huge trade outstanding. Margins on the business continued to be low and all re-launches failed.
  Gillette did not perhaps access the market of Geep correctly. Geep had limited equity outside of Uttar Pradesh and Madhya Pradesh, which contributed to half of the total volumes.
  Gillette was unable to manage the wholesaler dynamics - this was not an area of core competence for the company. Brand/displays/technology, which were Gillette's core competence, were irrelevant in this industry.
  Brand misfits, thus, are a result of limited market and straying competencies and hence a brand loses its sheen.
  Since most M&A activity is also focused on achieving bottom-line growth, businesses must give a serious thinking to the issues of brand equity pertaining to potential acquisition.
  The absence of an integrated approach may result into acquisitions adding to brand proliferation and market confusion. However, if brand strategies are brought into discussion before deals are finalised, M&A strategies can fill the gaps and expand the relevance and reach of brand portfolios.
  MNCs are required to undertake a holistic approach while acquiring brands and must attempt to understand relationships between brands across portfolio, where fits and disconnects may exist so that they could be better leveraged to create more value to the organisation.
  MNCs have other compelling reasons to look forward to brand acquisitions in emerging markets like India. This arises out of the poignant need to address the peculiarities of the Indian market. The recent MNC performance data pertaining to India corroborate this statement. According to AC Nielson figures between June 2002 and February 2003, leading brands of MNCs like HLL, Cadbury and Britannia have witnessed erosion in their market shares in value and volume terms.
  This may reflect not only consumer characteristics, such as affinity for local brands et al, as in the case of Rasna - a brand which despite several challenges from the multinationals, has maintained its grip over the Indian soft drinks concentrate market with a whopping 90 percent share. With global brand premiums vulnerable, MNCs may want to develop local brands, typically through acquisition, to position along with global brands in their overall product portfolios.
  In the recent past there have been disasters where MNCs, trying to launch brands in India without understanding the relevance of the brand in an Indian market, had to recoil. In cases where MNCs wanted to continue with their international brands, they are adapting to appeal to Indian tastes and deliver the value that the customer seeks. Kellog's and McDonald's are good examples. MNCs that have an understanding of the ground realities, the heterogeneity of the Indian market, and the tastes and preferences of the Indian customer have a distinct edge.
  

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