LOCAL ON A GLOBAL SCALE: Multinationals are seeking to hold onto success at a local level while enjoying the profitability offered by global brands

There is a very telling quote displayed in large letters in the

reception area of Unilever's Blackfriars office. The words, attributed

to the Anglo-Dutch FMCG giant's charismatic co-chairman, Niall

FitzGerald, describe Unilever as "a truly multi-local multinational",

and in so doing neatly encapsulate a dilemma confronting the company and

its main rivals.



On the one hand, leading consumer product manufacturers must make their

brands appeal at a local level. On the other, they are under pressure

from investors to create global brands because these are seen as

offering the greatest scope for growth and the most potential for big

margins.



"The mega brands have the ability of being much more profitable and

vibrant than the regional ones. This is a great incentive for firms such

as Unilever to create global properties," says Investec Henderson

Crosthwaite financial analyst David Lang.



But creating global properties isn't easy. There are relatively few

brands with truly global reach and the investment required to develop

and sustain them is enormous. Manufacturers have to make sure they

commit resources to the brands that offer the greatest likelihood of

success on the global stage, or else risk throwing their money away.



Part of the problem is that most of the big manufacturers have grown as

much by acquisition as they have organically. This has left them with

diverse brand portfolios, often containing numerous, comparatively small

local brands for each of their global power brands.



Many top executives in the FMCG sector have spent long hours agonising

over how to reconcile the global with the local in a manner that ensures

harmony and balance between the two.



Unilever, as has been well documented, has begun culling some of its

smaller, less profitable brands with the aim of reducing its portfolio

from 1600 to 400. Yet for large manufacturers, the decisions on which

brands should stay and which should go are often far from

straightforward.



At a time when economic and cultural imperialism is under the spotlight

and 'globalisation' is a dirty word for an impassioned minority, brand

owners must be careful not to offend local sensibilities.



Economies of scale



One person's sensible economies of scale and consistency, is another's

cultural homogenisation. In dec-iding what will stay and what must go,

brand owners need to tread very carefully.



"In my organisation, there just isn't enough depth of expertise to

service hundreds of local brands in such a way that they will survive in

a jungle populated by the biggest and the best," says Simon Clift,

Unilever president of marketing for home and personal care. "The brands

that will survive and prosper will be the ones that are really

differentiated and that have the scale and scope to meet fundamental and

enduring consumer needs."



He adds that the issue is not so much whether to globalise or localise,

rather that both are imperative. The hard part is in striking the right

balance.



"We have a concept that is best of global, best of local," says Nick

Shepherd, Kraft Foods vice-president category development

cheese/grocery, Europe. "We do not look to get rid of, sell or destroy

local brands for the sake of it. Just because it is a brand in only one

country, it does not mean it is for the chop. What we try to do is look

for scale in our brands and the way we market them, and that's

irrespective of whether they cross borders."



Scale is obviously essential in the case of a multinational

business.



Where is the financial benefit in having just a collection of local

brands scattered across territories?



All of these will bear head office costs. This is an unattractive

business proposition unless there are internationally shared

technologies and marketing synergies that make them worthwhile

investments.



"A lot of the focus here is to make sure we are not managing any

non-relevant costs," says Procter & Gamble household marketing director

Mark Brickhill. "If a business is not strong enough to survive in its

own right, we are better off divesting it."



By way of example, Brickhill picks German men's shower gel brand Cliff,

which was offloaded by P&G because it had little scope for international

expansion. Moreover, it did not fit in with the group's core

competencies or offer anything special in terms of product or packaging

development that could be applied to other brands.



By contrast, German toothpaste brand Blend-a-Med is being retained by

P&G. Although there is little likelihood of this ever becoming a global

power brand, Brickhill and his colleagues see international development

potential. This is because its formula development may lead to new

combinations that could be used in other P&G dental products.



Blend-a-Med is an example of a 'local jewel'. In the UK, HP Sauce,

Marmite, Irn Bru, Dairylea, Daz and Terry's Chocolate Orange qualify in

this category.



One of the interesting things about FMCG brands is many that are

international are often perceived as local by consumers. Shampoo brand

Head & Shoulders was brought to the UK from the US in the 60s by P&G.

Recently, says Brickhill, P&G tested some US Head & Shoulders

advertising on a British focus group to see whether it would work over

here. One consumer in the group said: "Isn't it nice to see a British

product doing so well in America."



For this reason, renaming of brands in an effort to achieve

international consistency can be a dangerous option. While Olay, Cif and

Snickers - previously Oil of Ulay, Jif and Marathon - show it can be

accomplished without alienating consumers at a local level, it is not a

step to be undertaken lightly.



In the case of Olay, says Brickhill, P&G saw an opportunity "to

eliminate a lot of complexity from the brand with no downside." But

there must be a compelling cost saving and marketing proposition to make

it worthwhile, he adds. Brickhill says there is no business he is

currently managing where he would want to do that.



Unilever's Clift adopts a similar stance. While he argues that the Cif

name change made sense, he would not re-name Lynx, which is called Axe

or Ego in other markets.



"It's important to show respect to consumers," he says. "Packaging will

tend to converge. But we don't need to change the Lynx brand name. The

real synergies come in shrewd equity management and real understand-ing

of the brand - not in changing the label."



The case of Coco Pops serves as a warning to many brand owners. As part

of a European alignment, Kellogg changed the name of its cereal brand to

Choco Krispies. Sales plummeted, consumers felt excluded and Kellogg had

to back-pedal.



With the support of ad agency Leo Burnett, Kellogg tried to make a

virtue out of its faux pas, staging a poll allowing consumers to vote on

whether or not they wanted the old name back, which they did.



Brand Finance chief executive David Haigh says he has worked with a lot

of companies that have been considering whether to scrap brands. These

companies tend to be driven by the perception that it will save

costs.



One of the factors in this, he feels, is that City analysts support the

argument that global brands offer higher margins and greater growth

potential. But there can be dangers in swallowing this line without

question.



"I don't think there is enough rigour going into looking at which brands

to kill and which ones to keep," says Haigh. "No one dares to say 'What

the City said to you is not true', that you may spend £1m

re-branding and lose 2% market share in the process."



Investec's Lang realises the appeal that global brands have for the

investment community. "I don't think global branding per se is the

critical factor. What's critical is value creation: margin, asset

turnover and growth. Global brands tend to be better able to deliver

that and may be more sustainable. But just because you have a global

brand doesn't mean you are a market darling."



The Value Engineers chairman Paul Walton feels that while large

companies are sometimes perceived to be more interested in well-edited

portfolios than looking at consumer need, the pendulum is swinging back

the other way.



Maintaining a balance



Interbrand director Andy Milligan agrees: "A lot of organisations often

have global and local strategies within the same company,"he says.



"Coca-Cola is a great example of that. There is Coke the brand, which is

specifically promoted as a worldwide product, but then in Japan Coke

owns a whole range of canned tea products that are very popular in that

market, but which it would not want to build globally."



Yet clearly the big-brand owners are becoming more global in their

outlook.



They either export best practice from local jewels to brands in other

markets, leverage technology or work to create global brands that either

trumpet their international status or cloak themselves in local

characteristics in each of their main territories.



Unilever's Seda shampoo brand has been a big success in South America.

This is positioned in the same way as Sunsilk in other markets. It makes

use of Unilever's global technology platform, even though the product

formulation of Seda in Brazil differs from that of Sunsilk in Thailand

because the standard hair types of these countries differ markedly.



"In the past it would have been pure coincidence if Sunsilk in Thailand

had had the same pack-aging as Seda in Brazil," says Clift.



"Now it is not. We have been working to leverage best practice across

the world."



This is what lies at the heart of globalisation. And it is why

multinationals will continue to treasure their local jewels as well as

nurture their global brands.



GLOBALISATION OF INVESTMENT



The push toward global brands is arguably being driven by international

investment in the major listed FMCG companies.



We have used Nestle as an example. It has about 200,000

shareholders.



No single shareholder owns more than 3% of the total share capital. The

following table provides a breakdown by nationality, showing percentage

of shareholders in Nestle by country (figures as of March 16, 2001).



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