Dreaming with BRICS
LUXURY MARKETING IN BRIC COUNTRIES: WHEN FASHION AND FOREIGN POLICY CONVERGE
China’s import/export indexes show a 2% economic slowdown for the second quarter now, suggesting recession may definitely be headed their way. what does the global recession mean for luxury brands, once the bees knees in bric countries [brasil, russia, india, china]?
One reuters article suggests luxury brands are a tough sell in india, which lags behind its bric bretheren in luxury sales overall. the article suggests three reasons may be ” lack of quality retail space, high import duties on luxury goods, a cap on ownership in local units, excessive red tape and piracy,” as well as a cultural tendency to patronize local stores whose owners have direct personal relationships with consumers developed over time.
With the noteworthy exceptions of kira plastinina (16-year old retail fashion designer, and daughter of a russian billionaire), shahnaz husain (india’s cosmetics maven), and others, homegrown luxury brands within bric markets fare far better than their foreign counterparts – when analysed in proportion to their market presence (foreign luxury brands obviously more numerous). whether disadvantaged against local loyalties or other factors, luxury brands had better pay respects to cultural sensitivities to fare well in bric markets, particularly as the recession threatens to eat up what gains the past 5 years have afforded affluent consumers those markets.
Who can forget louis vuitton’s strategic decision not to display its mikhail gorbachyev ads in its russian campaign (despite the muted angst of expatriate russians living in london, where the ads were shown). stories of blunders are common, and certainly today’s luxury marketers must be savvy to foreign policy as much as product positioning. perhaps richemont had the best-executed luxury marketing strategy for emerging markets with its acquisition, shanghai teng: that is, the reverse migration strategy of beginning with an intriguing bric brand to export to the west.
Marketing should be a prominent concern at the feasibility stage when expansion into bric territories is likely, however execution is what’s most crucial. media buying may seem to be a tertiary concern, but advertising execution can be a make or break venture for brands on the brink of new market success. pitfalls, such as favouring english or western-language media, can mis-position brands and waste marketing budget at times when such pounds are particularly valuable: when the brand is either new to the market, or when the brand faces its first recession in a new market.
A media buying partner should be versed in foreign policy more than fashion: the latter the lifesblood of soft-touch design, the former more critical to gauging response and roi, particularly in new markets. knowledge of economic fluctuations, the geography of foreign markets, trends in the population, climate, vacation seasons, languages and cultural trends, and use of technology should come into play when planning one’s international marketing approach.
Infrastructure is a key determinant of economic growth potential, and thus plays a critical role in our longer-term brics’ projections. the brics have made some progress in improving the generally weak state of their infrastructure in recent years. however, the degree of progress varies significantly by both country and sector, and levels remain far behind developed country averages.
China and india have experienced the fastest infrastructure growth rates nearly across the board, albeit from low levels. brazil’s infrastructure is relatively underdeveloped and has not seen the same high growth rates. russia has much more advanced infrastructure in place than the others due to heavy investment during the soviet era, but much of this has begun to fall into disrepair due to insufficient investment in maintenance. in terms of specific sectors, the most rapid progress in all four of the brics has come in telecommunications, particularly in mobiles and internet.
In less than 40 years, china is likely to surpass the u.s. as the world's largest economy and, together with brazil, russia, and india -- a.k.a. the brics -- will overshadow the economic might of the seven leading industrialized nations of today. so says a goldman, sachs & co. report on these largest emerging economies released on oct. 1. the provocative conclusions, which initially stemmed from a demographic study, are already attracting wide interest. goldman's dominic wilson, who co-authored the report with fellow economist roopa purushothaman, spoke recently about the study with international finance editor chester dawson.what must go right to bear out your forecasts for the bric economies?
The main requirements are sound macroeconomic policies, reasonably open trade and domestic policies, relatively stable political systems, and political transitions that don't disrupt the growth process. if you compare the growth tracks that we're predicting [for the brics] to the growth asia's "tiger" economies have achieved, we're not asking for them to be miracle economies.what about supply shocks like the oil crises of the 1970s?
Higher oil prices are probably not critical. lots of events -- protectionism or misguided policy -- would be worse. if you look at, say, the history of a place like [south] korea, which was a very rapid development story, it managed to deal with the most severe kind of oil price shock.how is your study different from other bullish bric projections?
However “global” multinational media buyers claim to be, making use of many local offices can become a markedly dysfunctional execution process, because in the end, those least familiar with the global strategy (local offices) are given the greatest work in execution – inviting internal mismanagement and dysfunctional campaigns. this culture of decentralized media placement often works to the functional detriment of campaigns, and always involves increased costs as affiliate offices share in advertising commissions, meaning that costs are passed on to advertisers.
Rather than simply extrapolating current growth rates, we have something that captures the whole process of demographic change, capital accumulation, and diminishing returns with development. the other part of it that's distinctive is its explicit modeling of the impact of exchange rates on the spending power of these economies. the balance [of rising gross domestic product] is something like two-thirds from faster growth and one-third from rising currency [values]. so tying that exchange-rate development to that growth story helps give a more integrated picture.will the group of seven industrialized nations be sidelined?
In some ways, their relevance is already coming under question. we just had a g-7 meeting in dubai a few weeks ago in which one of the major topics was the flexibility of asian exchange rates, and in particular whether the chinese yuan should be either revalued or made more flexible. yet china was not at the table to discuss [it], and that raises some issues about how useful a forum that is.so is the u.s. in economic decline?
Although the relative importance of the u.s. declines quite considerably, it's still one of the two largest economies [with china] at the end of the period and still the richest economy. so it's not a story of dramatic decline of the u.s. because of its favorable demographics [such as a stable birth rate], it ends up looking a lot better than the other developed economies. and on an income per capita basis, really only russia will move into the income levels of the developed countries. so you'll have a situation where the largest economies of the world are no longer necessarily the richest countries.although india's growth rate is expected to beat china's, why won't its economy overtake the u.s.?
India certainly approaches the kind of levels of spending that you'll see in the u.s. and china, but it doesn't overtake them. if we ran the process out another couple of decades, the projections would imply that it would. india has the highest growth rate across this period and one that declines much less sharply than the others. but their starting point is really so far behind even a country like china that the time horizon we're talking about -- four or five decades -- just isn't long enough.what are the implications for investors from the rise of the brics?
The area that people get most excited about is the stage of very rapid penetration in consumer products. we've found the sweet spot is around $3,000 to $10,000 per-capita income levels. probably the first economy to hit those levels -- and fairly soon -- is russia. china will take a little bit longer, with the sweetest period beginning probably in about a decade.
