The Hindu Business Line : Continuing the journey of growth

Most RDE-based companies have built their businesses on the basis of low costs and that remains a fundamental element of their success. However, as the report points out, they are beginning to go beyond cost-based competition by investing in R&Dand branding while also seeking to retain their cost advantages.

Having gained experience at the lower end of their markets, many challengers now aspire to develop or acquire capabilities that will allow them to enter the middle and higher-end segments.

Investing in R&D: The BCG 100 are in general only beginning the journey towards a sustained commitment to R&D. Anecdotal evidence, the report says, suggests that their overall R&D investment remains low, although it has been rising.

Developing brands and brand-building skills: Challengers are now starting to recognise the importance of brands. They are pursuing brand-building in two basic directions – acquisition and organic growth – through four brand strategies (see chart.)

Acquiring established local brands in other RDEs: This is the approach preferred by challengers that want quick access to brands already established in foreign markets and that prefer not to build those brands themselves.

For example, Mexico’s Grupo Bimbo, a food manufacturer, has acquired a range of strong brands both in its domestic market and abroad. The company has proved adept at growing these brands through marketing, sales and product extensions.

Acquiring established local brands in developed countries: Other challengers target developed countries as places in which to acquire existing local brands. For example, Coteminas (Brazil), a $1.6-billion textile company, acquired Springs, a US brand, and created Springs Global. It has been leveraging the high brand recognition of Springs in the US to market textile products for the home.

Acquiring established global brands: Tata Tea, in its year 2000 acquisition of the UK’s venerable Tetley brand, gained a brand with global recognition. Tata Tea had been seeking an opportunity to acquire Tetley since 1995, understanding the value that such a well-known brand would bring. It also understood the challenge it would have faced developing the Tata Tea brand to the same level of international recognition, even though Tata is the number one tea in India. The company’s current strategy, says the report, is to promote Tetley in developed markets and Tata Tea in emerging markets.

Taking local brands global: Brand development strategies are pursued by ambitious RDE-based challengers that have set branding at the core of their growth strategies and are looking to develop local RDE brands into world-class brands. Natura, a Brazil-based cosmetics company, is an example of a challenger seeking to develop its brand globally.

Another company also using a brand development strategy is Grupo Modelo, a Mexican beverage company that earned 29 per cent of its $5.2 billion in 2006 revenues from sales in overseas markets. The company sells five brands, the most famous of which is Corona, the leading imported beer in North America.

Brazilian food products company Sadia has so successfully established its brand in West Asia that Sadia has become a household word for a whole category of food products.

The report’s writers say that the earlier edition of the report generated immense interest around the world, especially among business leaders, taking them by surprise. Fortune magazine, the report says, quoted Jeff Immelt, GE’s CEO, as saying that GE had used the report to better understand which of the BCG 100 challengers were customers, suppliers or competitors, and what GE could do to move more companies into the first two groups while reducing those in the last. This report too could well be of interest as globalisation dynamics sweep across markets and industries and reshape the world’s economic landscape.

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