This article originally appeared in my regular column at Forbes.com:
A prominent trademark attorney in Salt Lake City, Nicholas D. Wells, provided me with some interesting information recently about the power of brands. Economists can argue about when China’s GDP will surpass the U.S. But for marketing types, Wells points out, the clearest indication of China’s growing economic power is not its raw GDP or import figures. It is the strength of the brands Chinese companies are building.
Developing countries follow a pattern, Wells says. They start out making products for others who outsource to take advantage of low-cost labor. Those products are branded with the names of the outsourcing companies. Familiar names like Reebok and Apple move their production from place to place to benefit from low costs: First Korea and Singapore, then China; now Vietnam.
When Reebok makes a shoe in Vietnam for $1 and sells it for $75, for example, the difference in value can nearly entirely be summed up as the “brand.” Customers pay for the perceived value of the intellectual property Reebok has created. People don’t want shoes; they want Reeboks. Or Nikes or Pumas or Adidas.
For companies like Apple, part of their value is created by technology (think patents). But even for these companies, much of the perceived value is the brand. (Remember, patents last 20 years, but brands last forever.)
Commodities must compete on price. Strong brands yield higher profits. Those profits, when reinvested, create new technologies, new products, and higher standards of living in the countries where the brands are owned.
Korea is no longer a capital of low-cost labor. Now it’s the capital of Samsung and Hyundai. The profits from selling Samsung-branded smartphones and tablets and microwaves stay in Korea, where they lead to new technologies, new products, and higher standards of living.
For several decades, China’s billion-plus population was a premier source of cheap labor. Now that’s changing. Why? It’s simple — because China is developing its own brands. Chinese companies reap higher profits, keep them in-country, and use them to create higher levels of technological innovation, education, industrial productivity, and economic power.
In every economy, this pattern starts with the major infrastructure players. Major brands like China Mobile, Baidu, Wu Liang Ye, Suning, Pingan, and Bank of China are each valued at billions of dollars, yet most Americans have never heard of them. But the next stage of this pattern continues as a huge number of smaller businesses develop loyal customer followings based on their brands and eventually become market leaders. These small companies contribute to an economy’s strength and resilience.
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