Adding value to Malaysia’s commodities & making the move from original equipment manufacturer (OEM) to original brand manufacturer (OBM)

This morning, I read with interest Sarawak Deputy Chief Minister Datuk Amar Douglas Uggah’s comments about the price of pepper.

You can read the full article here but the crux of it is that he’s talking about the dramatic price drop and appears upset (rightly so) that the solution offered by the Primary Industries Ministry and the Malaysian Pepper Board (MPB) was to plant more pepper.

He said that he had asked for the Federal government to provide subsidies for pepper farmers but no allocation was included in the Federal budget so the State government would have to provide the bail out instead.

Unfortunately the Minister’s solution isn’t right either. Sure, it may assuage the farmers in the short term but in the long term, the problem will return every time the price drops.

And with pepper production rising in many countries, the price is likely to remain depressed which means the farmers will require more handouts next year.

Black pepper sold as a commodity only RM8,820 per ton

This leads to a dependence on the government because farmers will grow used to being bailed out. This is not effective use taxpayer’s hard earned cash and will slow the state growth, let alone build a globally competitive industry or for that matter a self sufficient industry.

Mature economies look to add value to their commodities. So that when the price of the main ingredient fluctuates, they have a buffer. One potentially lucrative way of adding this value is building global brands.

Sarawak Pepper is acknowledged as the best in the world and 90% of Malaysia’s pepper comes from Sarawak yet it is basically sold as Malaysia Pepper. Sarawak pepper still has some existing brand equity but it is rapidly being eroded.

Black pepper ‘brand’ sold at Kuching airport RM41,950 per ton

The commodity business is a zero sum game. It’s like the Original Equipment Manufacturing (OEM) business, whereby firms manufacture equipment for other firms who then use their branding skills to sell the product at a premium.

This has proved to be a popular business model in Malaysia but as the country is now finding out the hard way, you can make money in the short term, but in the long term OEM is little more than a commodity business with very low margins and little growth potential.

But the biggest drawback is that there is always a competitor somewhere who can produce the same thing as you at a cheaper price and who can get it to market quicker.

Because the only relationship is a contract based on a cheap price, customers have few qualms about moving to those competing companies or countries offering cheaper deals.

We’re already seeing how Malaysian commodities such as Palm Oil, Rubber, Timber and Pepper, as well as OEM, especially in the electronics sector are finding it ever harder to compete in the face of competition from aggressive challenger economies such as Vietnam, Indonesia and Myanmar.

Black pepper sold as a European brand in a Malaysia supermarket RM379,000 per ton

The time has come to start adding value to the commodity and OEM sectors in Malaysia. Companies in more mature Asian markets, such as Japan and Korea saw the lack of a future in competing on price.

In the late 1990s, when Eric Kim was executive vice president of global marketing at Samsung, he saw the writing on the wall, “We were nobody. We were down at the commodity level.” Samsung understood that they had to make the move from OEM to Original Brand manufacturer (OBM) and make it fast.

Moving from a commodity grower or Original Equipment manufacturer to a grower of ingredients for a global brand or becoming an Original Brand manufacturer (OBM) has huge benefits not only for the company but the country as well.

Today, Korea is admired and Samsung is imprinted on consumer DNA as one of the world’s leading brands. In flat-panel screens, Samsung is the market leader. In smart phones, Samsung sold 300 million units in 2017, compared to Apple’s 200 million.

Huawei, Haier, LG Electronics, BenQ, Lenovo and other firms have accomplished what many Malaysian firms need to do – make the jump from OEM (original equipment manufacturer) to OBM (original brand manufacturer).

The motivations are clear. Brands are more profitable. According to one report, the world’s top 100 consumer goods and retail companies generated sales of US$3.6 trillion recently and profits of US$228 billion.

Meanwhile, the top 100 OEMs in the Asia Pacific region that supplied products to those top 100 companies reported a relatively meagre US$85bil in sales, with total profits of US$4bil in the same year.

A pepper brand in Europe selling at RM581,000 per metric ton, compared with RM8,800 in Sarawak

Making the move to OBM will also help with Malaysia’s bold attempts to move the country up the value chain to developed status. Other advantages include greater national employment and influence, increased opportunities for strategic alliances and leverage to open new markets.

Compared to the brutally competitive world of OEM, OBMs also have greater control over their destiny. How many Malaysian OEM’s have folded in the last 10 years after a major customer has sought lower costs elsewhere?

What happens to Sarawak’s pepper farmers if the Koreans and Japanese confectionary manufacturers source from Vietnam?

The good news is that thanks to long-established relationships with such major Western brands as Motorola, Dell, Texas Instruments, Ralph Lauren, Airbus, Tommy Hilfiger, Marks & Spencer and many more, Malaysian OEMs have the manufacturing, logistical and quality control potential required to compete in world markets.

But more Malaysian firms have to take the plunge otherwise they will lose out. And the government needs to focus not on bailing out farmers but showing them how to build brands that can conquer the world.

However, making the jump from commodity producer, the global branding dominance or from OEM to OBM is not as simple as spending millions on advertising.

A USA brand of pepper that could be from Sarawak sells at RM251,000 per metric ton, compared with RM8,820 in Malaysia as a commodity

It requires a substantial commitment of time and resources to establish channel relationships and share-of-mind in target markets. And the move is not without risk. Remember when Acer tried to breach the US market but had to withdraw, wasting an investment of almost $10 billion.

Key success factors include:

Change government & corporate thinking: Although Asian consumers are the most brand-conscious in the world, Asian Ministers and business owners devote much more time to advertising and discounting than branding.

Branding is seen as a cost, not an investment, and branding initiatives don’t get much further than billboards, TV commercials and annual sales (4 times a year).

Think long-term: There is no quick fix. It took Samsung five years to move from commodity to brand. Five years is a minimum, although specialty B2B markets may only require three.

Understand branding: Many Asian leaders believe that a new logo, large discounts and heavy advertising is branding. Actually, branding requires the ability to develop emotional and experiential as well as economic relationships with customers.

Ensure execution: Quality is a given. But is the distribution broad enough to support a national branding campaign? Where do consumers call for support? Are staff trained to deal with unhappy customers? How are returns handled?

Commit the resources: Consumer branding doesn’t come cheap. In 2016, Samsung spent US$10 billion on marketing its brand and products to consumers all over the world.

Bertolli, the global Virgin Olive Oil brand regularly spends US$10 million on advertising in the USA where its brand holds a dominant share (37%) of all the olive oil consumed in America and a market worth over US$1 billion. You do the maths.

Start with niche markets: Haier tried to break into the US market using a traditional advertising campaign. After a fortune in advertising driven branding was wasted, they carried out a brand audit as recommended by Fusionbrand.

After the audit, Haier spotted a gap in the hospitality and student markets and started selling small refrigerators to college students and hotels in the US. Now it sells all types of white goods, and in 2017 paid US$5.6 billion for GE Appliances.

Understand targeting and segmentation: The mass market is dead. Now there are as many markets as there are satellite TV channels, ranging from Chinese, Malay, English to Islamic. As a result, one-size-fits-all branding campaigns will not work.

Learn from failure: Honda’s first effort to export motorcycles to the U.S. ended in failure when Americans didn’t like the design. It carried out a brand audit, incorporated the feedback and successfully re-entered the U.S. market.

Invest in design and innovation: Copying existing products is a ‘strategy’ destined to failure as it faces pricing and branding obstacles. We all know how Apple became the biggest company in the world but it didn’t invent the smartphone or for that matter the tablet. But it made them good through innovation and design.

Malaysia is at a monumental cross roads. It has to move from grower and exporter of commodities and from OEM to producer of some of the world’s greatest brands.

The Deputy Chief Minister of Sarawak could save the tax payer a lot of money, make the Sarawak farmers very rich and do his government a big favour. Not by giving hand outs to farmers. But by helping them make Sarawak pepper a global brand.

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Marcus Osborne is CEO of Fusionbrand, Asia’s leading data driven brand consultancy headquartered in Kuala Lumpur.

Is this another Malaysia Airlines branding fail?

Back in August 2014, as part of its ill conceived attempt to move on from the twin tragedies of earlier in the year, Malaysia Airlines launched a contest called “My Ultimate Bucket List” which Time magazine said was not such a good idea because a bucket list is made up of the things one wants to see or accomplish before dying.

Following the wave of criticism, the airline quickly apologized and the campaign was withdrawn but not before social medial let rip, with one Twitter user asking, “This is a sick, sick joke right? Marketing/PR needs to be fired.”

The focus at Malaysia Airlines has been an ambitious restructuring plan led by outgoing CEO Christoph Mueller who has cut unprofitable routes or offloaded them to competitors, slashed thousands of jobs, and brought in new management.

Is this the right image for Malaysia Airlines to use in its latest campaign?
Is this the right image for Malaysia Airlines to use in its latest campaign?

But throughout this process, the carrier has developed a reputation for poorly conceived communications. Last Saturday I was flying out of Kuching International Airport and saw this strange image above the entrance.

Maybe it’s me but my first thought was that the woman looked like an angel. Doesn’t her hat look like a halo? My next thought was of MH370 and the tagline although totally innocent suggested an announcement was imminent.

And if it isn’t an angel, what is she supposed to be? A butterfly? And what’s the campaign about? Is the world waiting for her? Will she ever arrive?

Whatever it is, I couldn’t help but think this was the beginning of another bucket list fiasco. Or am I over thinking it? Tell me what you think!

Is this the first glimpse of the new Malaysia Airlines brand?

Malaysia Airlines has spent hundreds of millions of dollars on advertising campaigns in an effort to convince us that it’s a top carrier and we’ll all have fun flying the airline etc. You can read one of my scathing attacks on the marketing department here and another one here.

Unsurprisingly this 1960s approach to building a brand didn’t work so they focussed instead on cutting costs wherever costs could be cut, without giving much thought to the effects of these cuts.

Most recently the carrier was ripped apart in the Malaysia media because it has stopped serving alcohol on any flight of less than three hours and not just in economy but in business class as well. What appeared to be most galling to the hundreds of consumers who commented on the ban was the fact that the airline had implemented the rule below the radar. Without apparently any formal announcement. Scores of furious business class travellers took to Facebook to air their frustrations and to swear never to fly the carrier again.

And then a few days later the CEO stepped down, nearly two years before the end of his lucrative contract. We’ll come back to that in another post. Because this post is a positive one.

This afternoon I received an email from Malaysia Airlines telling me my flight was delayed. Now I know a lot of you are going to ask what is the big deal but this is the first time, for as long as I can remember that MAS has emailed me to inform me that my flight was delayed.

Rebuilding the Malaysia Airlines brand, one baby step at a time.
Rebuilding the Malaysia Airlines brand, one baby step at a time.

It’s not perfect. For instance I would also like to have received a text notifying me of the delay because I might not have checked my email before leaving for the airport. And of course you’d think that after more than 20 years of being a customer, they could address me by my name but that doesn’t matter.

What matters is that rebuilding the reputation of the Malaysia Airlines brand will require a greater investment in improving experiences at every touch point than in advertising campaigns that are lost in the sea of noise. I’m not holding my breath, but I hope this is the first step in the rebranding process.

Communication is key to a successful Malaysia Airlines rebrand

Flying into Kuching this morning on Malaysia Airlines​ the haze was so bad the pilot aborted the landing and went around again. The same thing happened last week. The haze isn’t MAS MAB fault but it has a significant impact on its brand.

Last week, the pilot came on the PA and explained the problem, reassuring everyone with his confidence and authority. This time the flight deck was silent. So we the passengers are sitting there wondering why the landing was aborted.

Without any information and aware of the carriers recent issues, we start asking ourselves, “Is there a problem with the aircraft?” or “Perhaps the airport is closed?” In that case, “Do we have enough fuel to go elsewhere?” “Are the pilot and co-pilot ill or even conscious?” An intimidating situation such as this one can have a negative effect on the brand. Yet at the same time, it can be part of the rebranding process.

It’s the little things that make or break a brand. Especially one that is already broken. A simple 30 second explanation was all that was needed to calm everyone down and earn a little bit of respect. Communication is a key part of branding. Successful brands have an emotional connection with consumers.

MAB has a credibility problem and that credibility problem needs to be fixed. One of the problems is the lack of an emotional connection. How can consumers connect with a brand that doesn’t communicate? If there is no connection the rebrand will fail. It certainly won’t be fixed with pressing the flesh, a new name, new livery, new advertising and a new logo.

It’ll be fixed by creating an emotional connection with customers and delivering economic, experiential and emotional value to those consumers.

Another example of how consumers are building destination brands

This interactive ‘heat map’ shows which tourist attraction at every destination around the world is photographed the most.

There are as many as 1,000 photographs in some countries with New York’s Guggenheim Museum the most photographed landmark in the world.

The most phtographed landmark in the world
The most phtographed landmark in the world

In Singapore the Merlion is the most photographed landmark whilst in Kuala Lumpur it is, rather unsurprisingly the Twin Towers. In Bangkok it’s the Wat Sraket Rajavaravihara and in Kuching it is the Sarawak river.

The Merlion, popular with tourists in Singapore
The Merlion, popular with tourists in Singapore

What does this site mean to the business of destination branding? Well primarily it will drive traffic away from tourism board sites and their carefully choreographed images to consumer sites and there peer to peer content.

Those destinations that continue to focus their funds on corporate driven strategies or groups of tactics instead of encouraging engagement across social sites and consumer generated content will lose business which in turn will lead to reduced revenue for the many businesses that benefit from tourism.

How to brand a destination to attract investors, the right businesses, talent and tourists

The destination branding rewards are high in terms of investment, jobs, development, tourism, exports, domestic and even international influence. But building destination brands is harder today than ever before. There are over 1,000 national and regional economic development agencies in South East Asia alone and the ongoing global economic crisis, political interference and a fragmented, tactical approach to a strategic initiative all help complicate the process.

It’s also hard because most destinations attempt to build their brands on a platform of familiar marketing and advertising campaigns that include one-size-fits-all positioning strategies driven by advertising in mass media, that do little more than add to the advertising clutter increasingly ignored by consumers. And more often than not, those campaigns are led by tourism.

Tourism maybe about to become the number one industry in the world, but did Indonesia’s 2008 tourism campaign and the tagline “Celebrating 100 years of nation’s (That is not a typo) awakening.” influence South Korea’s Hankook Tire when it was looking for a location for a US$1.2 billion tyre plant? Of course it didn’t.

Hankook Tire sought a good location close to transport hubs, a secure source of quality rubber, abundant and cheap labour and probably the opportunity of an early crack at Southeast Asia’s biggest economy.

Indonesia is on something of a roll at the moment and is expecting as much as US$10 billion of investment from South Korea alone over the next four years. And it’s not just Korean firms that are looking hard at the country.

The steel company Arcelor Mittal is currently considering a US$5 billion investment and China Investment Corp is rumoured to be considering an investment of as much as US$25 billion. A number of other deals are also in the works but although details a sketchy, one thing is for sure, none of them will be swayed by positioning statements or slick advertising campaigns featuring white sandy beaches, azure skies and crystal clear seas.

These companies will make their destination decisions, and this is particularly true of Indonesia but also applies to other Asian destinations, on political stability, a clearly defined long term plan to invest in railways, roads, power plants and distribution networks, ports, transportation and more as well as concerted attempts to tackle bureaucratic red tape, graft, and unfriendly labour laws.

Indonesia understands this and regional competitors would be wrong to ignore this sleeping giant. President Susilo recently instructed the relevant federal and state or regional authorities to speed up spending, particularly on infrastructure. Assurances from the central bank that it would not impose outright capital controls will do a lot more to convince potential investors than any expensive tagline or one-size-fits-all positioning statement.

Don’t get me wrong, tourism has an major role to play in the development of many destinations but an international one-size-fits-all positioning statement that attempts to speak to potential investors, tourists, talent and others from diverse parts of the world with one message is not the way forward.

So what can regions, states or cities do to build destination brands that will attract investors, businesses, talent and tourists?

Once the infrastructure is in place or the blueprint outlining the infrastructural development with timelines, responsibilities and milestones is determined, destinations must carry out research to identify channels, communities and influencers within those channels and communities and develop content that resonates with those influencers and those communities.

Prospects from different industries from different parts of the world have different requirements for value. Sarawak corridor of renewable energy (SCORE) on Borneo is targetting ten core industries. Those industries are as diverse as Aluminum, Aquaculture, Fishing, Glass, Timber and Tourism. Such diverse industries with their different requirements for value, will seek information from and be influenced by completely different environments.

Identifying those requirements is mission critical, without it destinations are guessing and the success of a destination brand should not rely on guesswork. So destinations must talk to prospects and customers from each segment. Find out what value they seek and determine if the destination can deliver that value.

To avoid wasting valuable resources on advertising and marketing that is lost in the clutter, it is important to determine what online communities they inhabit and who or what influences them. Also identify why investors chose the destination. And talk to lost customers and find out why they chose another destination over yours.

At the same time, internal brand research must identify what are the core brand values of the destination and how will they be communicated internally so that the whole organization is on brand and understands the role they play in the successful implementation of the brand. And it is critical that the core brand values are developed with customers in mind and not from the destinations point of view.

The analysis and data from this key research will form the foundations of the destination brand strategy. And only once the brand strategy is developed can the implementation begin. The implementation must not neglect citizens and their communities who will be impacted by the changes to their environments.

There will be positive and negative implications for communities and these must where possible be predicted and dealt with accordingly. If they cannot be predicted, they must be dealt with in a consistent, transparent and confident manner. It is important for destinations to understand from the outset that without citizen and other stakeholder buy in, the destination will not succeed.

Increasingly fragmented media, the Internet and an increase in leisure time activities make it harder to reach consumers via traditional media. Destinations must look past the traditional broadcast approach to generate interest in the destination.

One destination in South East Asia purchased a double page spread in the International Herald Tribune to market the destination. The feature was really well written, with top quality images and provided a comprehensive overview of the destination. But the feature made the common mistake of trying to tell everyone about everything.

This approach hopes that the advertisement or feature will be seen by the right people at the right time and that they will invest the time required to read through the substantial feature in the hope that there will be something relevant to them. The problem is that there are lots of competitors doing the same thing and moreover, how many senior executives are willing to invest time reading such articles?

This particular feature also made the mistake of not including any tracking tool to identify the number of responses. Any marketing efforts must include tools to measure their effectiveness because if you don’t track the effectiveness of your marketing efforts, how do you know which ones are working and which are not?

Communications must also take into account changes in consumer behaviour and look past the traditional media channels with an emphasis on the Internet and Social Media. And this will require a comprehensive change in the thinking of CEOs and others tasked with developing a destination brand as it requires ongoing engagement with consumers rather than a traditional broadcast approach.

To be successful, destination brands must now adapt to these emerging business and customer imperatives. Imperatives that include a special emphasis on the right research and the right data collection and analysis, effective customer, channel and employee communications, operational excellence, accountability, service and the ongoing ability to meet customer requirements.

The potential rewards are huge but the stakes too are high and with competition coming from all angles, destinations will only get one shot at building a successful destination brand.