Power of Branding – Why the West is rich, and the East remains poor?
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The western world is at the forefront of making brands. As you may know, when Coca-Cola was launched in 1876, Elephant House was also launched during the same time here in Sri Lanka, and undoubtedly having a better product than Coke, Elephant House could not get even closer to where Coke reached when Coke became the number 01 brand in 2015 according to the Interbrand Classification. There is no secret in this successful recipe. It’s all about creating and owning brands and outsourcing manufacturing to third-world countries which made the West so rich when it comes to certain brands. China is at the forefront of making products whilst the USA is at the forefront of making brands.
What is common about Apple, Nike, Addidas, and Walmart?
70% of Walmart products, 75% of Apple products, 46% of Nike, and 25% of Adidas products are all made in China. Even when China’s global image is in a shamble, these brands wouldn’t want to leave China. It will be interesting to see what keeps them coming back to China. Despite all negative news in the media FDIs to China have increased by 25% in 2022. This is when the West reports in their news that they pull out manufacturing from China. The total FDIs attracted by China in the year 2022 is approximately USD 75 billion which is almost equal to the size of the Sri Lankan economy. In 2022, responding to a survey conducted among the western companies operate in Chine, out of 372 respondents, 44% say that they have no impact from the policies of the Chinese government for which the response in the year 2021 was 30%, in other words, a 50% increase in the positive attitude towards China as their manufacturing partner.
What stops Western companies pulling out from China?
China is home to 1.41 billion people. As depicted in the picture the domestic demand in China is much greater than the demand created by many other countries combined. This makes perfect sense for any brand to have production placed in China as it opens a ready-market for their products/brands. At the same time, the massive labour pool in China can offer the lowest rates when it comes to salaries and wages. Even though China is accused of Child labour, Sweatshops etc which are not accepted by the Western world, leading brands’ hesitant to leave China could be due to the savings that they can make in terms of manufacturing costs when it comes to the supply of raw materials at the lowest possible price, cheap labour and may also be due to rigid laws in place which makes their 1.41 billion a disciplined nation. Unlike India and Sri Lanka, China has strict regulations and the whole nation is regulated well compared to certain other countries in the world.
What will happen in the future?
As it’s evident India is eyeing the success stories of China and they obviously are not happy with the fact that China has managed to retain all their FDIs which have come through the world’s leading brands. Needless to mention, the manufacturing learning curve China is on will make them an experienced nation in making all branded products for the whole world. This situation is quite similar to the situation Japan was in during the post-world war-ii era where they were copying products from the USA and Europe to get into manufacturing similar products. Today, China is known for copying the products from rest of the world. But tomorrow, China will come up with more and more own brands. India will probably take the seat of China and fill the vacuum in the market by accepting FDIs and getting into manufacturing. China is discouraging manufacturing today to protect their air quality and no sooner India gets to the state of where China is today, India too will face similar issues. As a tiny little island in the Indian Ocean, we Sri Lankans will also have to face many consequences of these changes that are going to take place in the future. We as a nation need to be proactive in creating brands of our own as a strategic move whilst negotiating with India on how we will be compensated for the air pollution that we stomach as their long-standing neighbours.
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