Daring Brands in Demanding & Discriminating Developed markets

Indian brands need to work smarter, not just harder to become premium global brands.

There are several studies that show that developing market brands suffer from country of origin disadvantage or “liabilities of origin,” and these perceptions are very difficult to change quickly because of heuristics or mental shortcuts people take to make decisions. “When consumers are uncertain about product attributes, they rely on brand and country of origin perceptions to assess the product’s attribute levels and to increase confidence in its claims. The reduced uncertainty lowers information costs and the risk perceived by consumers, thus increasing customer value.” (Kumar and Steenkamp, 2013).

But Liabilities of Origin is only one dimension of the challenges faced by emerging market firms. According to Pant and Ramachandran (2012), developing country multi national companies (DMNCs) face three distinct challenges to cultural-cognitive legitimization: the liabilities of origin but also the liabilities of foreignness and the liability of advantage.

Liabilities of foreignness: the disadvantages borne in the host country by firms because of where they are NOT from. The firms are NOT local, but their specific nationality is less material.

Liabilities of origin: the disadvantages borne in the host country by firms because of where they ARE from. When a specific country conjures negative images or connotation.

Liability of advantage: Some emerging market firms possess unique advantages relative to their developed country counterparts. These could include mass production expertise, low-cost processes, and resources, or scrappy innovation or fast follower capabilities. These advantages are a double-edged sword: “Low-cost production by DMNCs in their home counties might get conflated with labels of cheap and shoddy quality in the minds of developed country customers because of a perceived trade-off between quality and cost.”

These liabilities make the bargaining power of even high quality, innovative, and socially conscious developing market firms very low when they try to compete in a global marketplace. They are squarely typecast as the low-cost vendor.

This is even true for knowledge-intensive industries like the software industry, as shown in a twenty-year study conducted by Pant and Ramachandran between 1984 and 2004. Even if they do offer more, they are expected to do so for less and cannot command a premium.

The current political and media landscape increases the risk of misunderstanding and misinformation about developing markets and their firms. As decision-makers in developed market firms are bombarded with America First, Brexit, or Made in Bharat propaganda, the psychological distance or “otherness” of international brands increases the liabilities of foreignness. In this environment of great information asymmetry, premium quality foreign firms will lose out to low quality, low-cost foreign firms. This will further exacerbate the liability of foreignness and perpetuate the myth of cheap and low quality from developing markets like India.

How does an Indian brand striving to be a premium player in a global market deal with the double punch of liability of origin and advantage problems? Although one solution is to build a brand through differentiation and market positioning, branding alone will not solve the legitimacy challenge.

Pant and Ramachandran prescribe several actions DMNCs can take to overcome the legitimacy issues:

Reassurance: Face to face interaction by working side by side on-site with the client, hiring managers of Indian or Chinese origin, high profile anchor clients, listing on the New York Stock exchange are examples of subjective evidence that create familiarization and endorsement.

Measurement: Industry certifications like the European ISO 9001 standard or the American CMM (Capability Maturity Model).

Co-option: If DMNCs can convince their clients to enter into longer-term commitments with them, e.g. by offering clients dedicated resources in the form of an offshore development center. This gives the customers a sense of ownership and strengthens their relationship as a partner vs. a vendor.

Collective Action: Industry associations like NASSCOM but also global consulting companies like McKinsey and Gartner play crucial roles in helping position DMNCs positively with developed market clients.

Validation: Industries go through moments of transformation like Y2K, which can change perceptions for good. The central role Indian software firms played in remediation the fall out of Y2K left a lasting influence on their credibility.

Indian firms will have to engage all of these actions both at the firm level but also with their peers. Their boards will have to take a long term view to survive the battle with low cost, low quality domestic competition both also methodically work through the five steps to overcome the legitimacy challenge. If they are successful, they pave the way for others. Based on LinkedIn research, we have seen that US companies are more open to working with an Indian tech vendor if they have previously had experience with one.

There are no shortcuts to building a successful global premium brand. If a company wants to compete on the world stage based on high quality and command a premium, it has to do the work. It has to build a great company but also make sure people know about it.

This is an abstract of an article I originally wrote for the ISB Center for Business Markets Blog. Many thanks to Professor Ramachandran and Professor DVR Sheshadri for their guidance on the topic.

Sources:

Ghemawat, P. and Altman, S. “Tata Consultancy Services: Selling Certainty” Company Case Study, 2011.

Kostova, Tatiana, and Srilata Zaheer. “Organizational legitimacy under conditions of complexity: The case of the multinational enterprise.” Academy of Management Review 24, no. 1 (1999): 64-81.

Kumar, Nirmalya, and Jan-Benedict EM Steenkamp. Brand breakout: How emerging market brands will go global. Springer, 2013.

Ramachandran J. and Pant, Anirvan. “The liabilities of origin: An emerging economy perspective on the costs of doing business abroad.” In the past, present, and future of international business & management, pp. 231-265. Emerald Group Publishing Limited, 2010.

Pant, Anirvan and Ramachandran, J. “Legitimacy beyond borders: Indian software services firms in the United States, 1984 to 2004.” Global Strategy Journal 2, no. 3 (2012): 224-243.

Rau, Raghavendra. Short introduction to corporate finance. Cambridge University Press, 2016.

Verlegh, Peeter WJ, and Steenkamp, Jan-Benedict E.M. “A review and meta-analysis of country-of-origin research.” Journal of economic psychology 20, no. 5 (1999): 521-546.