The companies that have delivered the biggest increases in brand value over recent years operate as one brand everywhere on the planet.
While the total value of the world’s 100 most valuable global brands was $1.4 trillion in 2006, the global top 100 were worth a staggering $3.4 trillion in 2016, according to brand consultancy Millward Brown, for a compound annual growth rate of 8.8 percent year after year.
Few if any firm assets exhibit such a growth rate. This is just the tip of the iceberg. We find global brands in B2C and B2B industries, among large and small companies, hailing from high-income countries and, increasingly, emerging markets.
However, in the light of recent events such as Brexit and the election of Donald Trump, some executives are becoming worried. What is the future of global brands in a world witnessing heightened populism and protectionism? Will global brands continue to be valuable assets, to be nurtured and grown? My answer is a definitive yes.
For one, these same political developments have given rise to strong counter-voices advocating internationalism, cooperation, and inclusiveness. Let us not forget that nearly half of the British voters voted against Brexit, that prime minister Theresa May wants to make the UK a beacon of free trade, not a fortress, and that the majority of US voters did not vote for Trump.
Apart from swings in political sentiment, even more important, is the value that global brands create for their firms in different ways. In my research, I have observed five different ways by which global brands create value for their firms – customer, organizational, marketing, economic, and transnational innovation – the Comet factors.
The very fact that the brand is global adds lustre to the brand through associations of higher quality. Many people take global availability and acceptance as evidence that the brand is of high quality. They infer that a bad product could not succeed in the global marketplace.
Moreover, consumers (and B2B purchase managers) around the world prefer brands that have associated themselves (or have become associated) with a particular country of origin. While increased populism might turn some people to choose local brands, the overwhelming evidence is that many more people covet the prestige of Italian-made Gucci fashion products, the taste of French Haut-Médoc wine, the precision of German machinery, or the innovation offered by Japanese (and increasingly, Korean) electronics.
The rapid rollout of new products is among the most important organisational benefits of global brands. In the past, Unilever struggled to bring innovations quickly to the marketplace because of the time spent on local adaptation.
Nowadays, by focusing its innovations on fewer, bigger projects with global appeal, and sold under global brand names such as TRESemmé and Magnum ice cream, Unilever has increased rollout speed dramatically.
In 2005, Unilever had 5,000 new-product projects in its pipeline and could bring only eight (01.6%) of them to 10 or more countries within a year of their debut. In 2012, it had cut the pipeline to 600 with 90 of those (15%) rolled out globally within 12 months. That’s around 100-fold improvement in speed-to-global-market.
Marketing benefits associated with superior branding programs include media spillover (who hasn’t seen HSBC in foreign airports?), leveraging the best marketing ideas globally (MasterCard – how to market a credit card!), and pooling marketing resources across countries.
Global brands can offset the disadvantage of low local market shares by pooling marketing resources across countries, allowing them to associate with globally recognized celebrities (eg Pantene with Gisele Bundchen, H&M with Beyoncé, Nike with Cristiano Ronaldo, Cover Girl with Katy Perry, Breitling with John Travolta) and globally watched events such as the Figa World Cup, the Olympic Games, FIA Formula One racing, and Wimbledon.
None of those global celebrities and events have lost any of their appeal to the masses anywhere in the world.
Global brands benefit from the ability to reduce production and procurement costs by commanding larger volumes and outsourcing production to low-cost countries.
Outsourcing is the one area where global brands are most vulnerable as it is under heightened scrutiny right now. However, the heyday of outsourcing has been drawing to an end, regardless of current political trends.
The traditional globally optimised value chain built around outsourcing of low-cost manufacturing is rapidly becoming obsolete because of increased factory automation, flexible production, 3D printing, and the rapid adoption of digital technology in manufacturing.
According to McKinsey, scale curves are flattening, and the cost advantage of low-cost labour evaporates if you calculate the total cost of ownership of shipping goods around the world from a low-cost factory. Global companies like General Electric are leading the charge by building local capabilities inside a global footprint.
Transnational innovation involves the pooling of R&D globally to make better products and leveraging creative ideas from local subsidiaries globally – something at which L’Oréal excels.
Really new product ideas are scarce and R&D costs are exploding. Consider that the development of the five-blade Gillette fusion razor blade reputedly cost $500m, and the price tag to develop a new vehicle starts around $1bn (and up to $6bn)
Including the cost of failure, large pharmaceutical companies spend $5bn per new medicine that makes it to the market. Not even the huge U.S. market is big enough to recoup these costs and allow the firm to earn a decent ROI.
This puts companies in a bind as innovation is the lifeblood of companies. The solution is to go global. And why not? Everybody around the world, people crave new products and new technology.
Global brands will continue to be the main engine for corporate value creation in the future, even in these uncertain times. Many people trust global brands as a signal of quality, especially when they come from a country with a positive image for that category. (Who doesn’t love Italian shoes).
Moreover, global brands bring invaluable organisational, marketing, and innovation benefits. And when it comes to economic benefits, changes in digital and manufacturing technology are increasingly allowing for – perhaps even dictating – re-shoring without significant economic losses.
That does not mean that managing global brands is easy – but it never was – and it will be worth the effort, now more than ever.
Jan-Benedict Steenkamp is the C. Knox Massey distinguished professor and chairman of marketing at the University of North Carolina Kenan-Flagler Business School.
This article is based on his Steenkamp's book Global Brand Strategy: World-wise Marketing in the Age of Branding, published by Palgrave Macmillan.