Monday, December 26, 2005

Brand Finance, interview in Bworld

This weeks Businessworld (26/12) has an interview with Haigh and Krishnan of Brand Finance, a UK based independent brand valuation consultancy.

Some nuggets:

Why are Indian brands not able to make the leap globally? What do they need?
David Haigh: Take the case of Indian tea. Indian tea companies should go and buy one of the posh English tea brands. Not Tetley (which was bought by the Tatas) because it is not posh and it is what workers and builders drink. Tatas must be targeting the mass segment, which is why it must have bought Tetley. But there are lots of smaller brands like Whittard, Jacksons of Piccadilly and so on that Indian companies can acquire...

Unni Krishnan: Think of what is happening with Hindustan Lever Limited (HLL). In the last two-three years, Levers has gone through some of this self-fulfilling prophecy. They bought Quality and merged it with Walls. It is in a bad state. They bought Modern foods, saying that it will be the biggest foods business. They bought Tasty Bite, which again is not doing too well. So, they've bought all these brands at a significant value and haven't been able to extract full value out of them...

Is that because of the pressure of quarter-to-quarter profits?
U: Absolutely. One has only a certain pool of resources to invest in these brands. You might be destroying a value-creating brand and under investing in it. Later, somebody else picks it up and extracts the value. And that's what happened with the tea business. When Levers cut all these high-performing local jewels, there was an immediate mushrooming of local brands. If you go to Gujarat, Maharashtra or Punjab, you'll see many local brands like Wagh Bakri, Sapat and Marvel respectively. Ten years back, all these guys were consuming either Red Label, Taj Mahal or some local Unilever brand. The moment they cut these brands, they just gave the entire tea industry an open field. So, from a 65 per cent share in the branded tea business, they have reached 26 per cent.

D: Five years from now, they will think these local brands are great and pick them all up...

Why don't we have strong international brands, especially in sectors we are strong in, say, IT?
U: i-flex has a powerful brand, Flexcube, which has been continuously rated as a top-selling banking solutions brand for the last five years. There is nothing else in this area. Infosys, one of India's most valuable brands, can't be protected legally since the high court in Karnataka came out with a judgement that the Infosys name is generic to the category. There is a guy in Chennai who uses the Infosys name along with his company. Now Infosys has gone to the Supreme Court. This goes back to the fundamental question of where the value of the business lies.

Infy CEO Nandan Nilekani might say that they have a global delivery model. If you tear it apart, we have cost arbitrage and good quality IQ people. But can it be sustained for the next five years? If a Flexcube is valued very high, it is because i-flex has a brand, a defendable IP and that's why Oracle bought it for a huge sum. The key question is: are Indian IT companies developing intangibles, or are they trading on cost arbitrage?...

For some great reading, read the whole piece...

4 comments:

JamesBright said...

Very nice post.
Best wishes for an excellent new year.

Neelakantan said...

Thanks and wish you the same!

Anonymous said...

Neelakantana!!
happy new year. I see that your blog is doing well. All the best.
best
satya

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