Brand value: Countries or companies?

Fifty years ago, Japanese brands were a strict no-no. Cheap stuff, everyone sniffed. Especially the British.

Twenty years ago they were to die for. Sony, Sanyo, Sansui…

But five years ago they were again in the dog-house. And today, though they may be losing out somewhat in the electronics war, they are back again. Quality standards of Japan are so incredibly high that they just cannot be ignored.

Much the same thing has happened with Korean brands too – from being cheap me-toos, they have become guarantors of reasonable quality.

On the other hand, European brands – except for a few luxury goods that women waste money on – are no longer sought after. Ditto for US brands, except Apple.

As to British brands? Duh? Barring Scotch whiskey, when was the last time you bought anything that said it had been made in the UK?

Stolper-Samuelson Theorem

This raises a fundamental question: Is it countries that guarantee a brand or companies? How would a British company located in Japan compare with a Japanese company located in Britain?

Would the British company gain and the Japanese company lose? Or would it be the other way round?

I am not sure but the answer could perhaps be found by tweaking the famous Stolper-Samuelson Theorem, which turned 70 last year. It says that under certain conditions completely free trade between countries will lead to a complete equalisation of the returns to land, labour and capital.

But in reality, trade is not completely free because land is completely immobile; labour is mobile in a very limited way; and though capital is more mobile than labour, it is still not completely free because all countries impose restrictions on the movement of capital.

In general, economists believe that this is bad policy because it traps inefficiencies within the border of each country. Free trade would allow those inefficiencies to be eliminated.

The technical term is distortions. They come in all shapes and sizes.

Tweak it

But this is where my little tweak to the Stolper-Samuelson theorem comes in: If inefficiencies can be trapped, Sirjees, so can efficiencies, no? Just think about it.

If, for example, everyone knows that European and British workers are lazy, combative and incompetent, it is a company's brand that will get diluted if it invests there? Made In England? No thanks.

Ask Ratan Tata. Or Atul Punj. Both have suffered at the hands of British unions.

And I suggest that this is where the brand value of countries, rather than just companies, is more important. A top-class company in a third-rate country will soon lose its sheen.

So the trick must be to protect your efficiencies because that is what creates your comparative advantage and brand value.

This is what has happened to Japan. It has preserved its work ethic and developed its own technology.

A rose by any other name?

But what if, say, Tata were to move Rover to Japan? An Indian company, owning a British brand, manufacturing in Japan. Now how would that play out?

Would the positive attributes of being based in Japan outweigh the negative attributes that a British brand owned by an Indian company has acquired?

If it did, it would suggest that it is countries where a brand is produced that matter, and not – contrary to what marketers would have us believe – the brand value of the company itself.

FDI patterns need to be studied to isolate the negative effects of a bad-brand country such as India.

A Mercedes made in India? Would you buy it? Only if you had money but no taste.

(T.C.A. Srinivasa-Raghavan is Senior Associate Editor, The Hindu Business Line)

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