Cos’ Love Affair With Old Brands

IN THE silly season, scandal sheets always have one story to fall back upon – men marrying older women. Many examples involving famous personalities are routinely quoted – Ashton Kutcher marrying his 15-year-senior Demi Moore, Antonio Banderas marrying Melanie Griffith, Tim Robbins with Susan Sarandon. But none of these rags is able to provide any conclusive sociological theory for this. For sure, there are many hypotheses floating around, but none of them is definitive or convincing.

Equally complex is the motive behind scores of companies buying old, faded brands. Anchor recently bought out the old and forgotten oral care brand Forhans from John Oaks Remedies for an undisclosed sum. The acquisition has raised many questions in the marketing world. Why? Does the Forhans brand have any residual recall value? Will it be relaunched with different bells and whistles? How will Anchor make sure that Forhans does not cannibalise sales of its own flagship brands? What strategic gains can Anchor expect to gain from Forhans? It might be useful to recall that Geoffrey Manners originally owned Forhans. The company was subsequently merged with pharma company Wyeth Lederle. Wishing to concentrate on pharma, Wyeth sold Forhans to John Oaks Remedies for a song (Rs 2.5 crore).

Some clues could probably be found in Colgate’s strategy with Cibaca, a veteran brand it bought over from Ciba Geigy in 1994. Colgate initially positioned the brand at a low price point, hoping that first time users would graduate into the organised oral care category through Cibaca.

However, despite the fierce competition in the segment – especially from well-entrenched brands like Babool, Ajanta, Anchor – Colgate was able to create some waves with Cibaca. This helped Colgate consolidate its leadership position in the Rs 2,500-crore oral care market.

But, then not all companies buy old brands to gain market share. Some buy competing brands to kill them off and eliminate any future threat to their flagships. For instance, Unilever bought over International Best Foods and as a result of that Hindustan Lever in India inherited some old brands, such as Brown & Polson. However, for reasons well known to senior Lever managers, Brown & Polson was given an unceremonial burial in India, though the brand probably still exists in some Asian markets. Incidentally, does anybody remember Dipy’s, a brand originally owned by Herbertsons, part of the Vijay Mallya empire? The same group sold off Kissan to Levers in the early 1990s.

Again some companies buy aged brands because they want to use it to spearhead their entry into other, unconquered markets. Take the example of Godrej buying little-known British FMCG company Keyline Brands Ltd for its well-known brands Erasmic and Cuticura. However, Chennai-based Cholayil Pharma, better known as the Medimix group, holds the rights for Cuticura talcum powder in the Indian market. Also, Erasmic – whose current portfolio of shaving creams, foams and aftershave lotions will be introduced first to the Indian market — was better known in the past for its shaving blades.

This time the brands were probably not the main attraction; Keyline’s established distribution channels in the overseas markets certainly were. So, while Godrej will be able to market some of its brands overseas (hair powder dyes and Fairglow soap initially), Keyline’s Erasmic brand will be re-introduced to the Indian market. What about Cuticura? Godrej’s solution: market it to the expat Indian population in the West Asian markets, where the company already has a distribution channel.

Remember, some companies also buy old brands because they probably believe that reviving them could be simpler, or more cost-effective, than launching new, greenfield brands. There is this story of how beverages giant Allied Domecq sold off its brand Plymouth Gin for a song. However, the buyer -– believed to be an employee of brand consulting firm Interbrand — was apparently able to turn around Plymouth around in a year, leaving many red faces at the Allied Domecq HQ. Today there are many specialist consultants in the market – especially in the US — who make a living from buying ‘ghost’ brands, reviving them and then selling them back to mainstream marketing companies.

There are also some who buy old and ancient brands, in the manner of collectors who like accumulating antiques. Subhash Chandra’s (of Zee fame) acquisition of East India Company for just one sterling pound probably falls into that category. But, then, for every brand that receives a new kiss of life, there are many more that are allowed to quietly pass into the night of product cycles.

Lessons for Maya & Co

Here’s a quiz question.

What’s the difference between a political party and a joint stock company? The logical, and common, answer is: lots. Both are structured differently, have different aims, mission statements, leadership structure, stakeholder involvement. The list can be expanded endlessly. But, that’s what is visible only on the surface. Increasingly, the distance seems to be shrinking, especially with politics becoming so competitive and political parties being forced to focus on core competencies.

Also, Mayawati’s “rainbow coalition” experiment in Uttar Pradesh seems to suggest a further convergence between the two organisational structures. Why her? According to elections observers and political experts, she used a caste combo that not only appealed to voters sick with identity politics but also capitalised on the anti-incumbency wave against the ruling Mulayam Singh government. This coalition itself constitutes a promise that she will now be duty-bound to deliver — an undertaking to put an end to identity politics and the beginning of inclusive development, irrespective of caste.

It’s here that she should look at some similar structures existing in the corporate world. In fact, to belabour the same point, politics may have something to learn from business. This newspaper has carried articles in the past about how political parties have a lot to learn from businesses, especially when it comes to handling succession planning, given that most political parties now resemble family-run enterprises. The only exception to this probably is the CPI(M). But to get back to Mayawati and her political party Bahujan Samaj Party (BSP). Her resounding victory in the UP Assembly polls now puts her squarely in a position that will require her to fulfil the glimmer of hope that she so tantalisingly displayed. Look at the challenges that she faces and the similarities with the corporate world.

First cut: Like a company draws up a strategy — which includes product, production, marketing, sales, distribution, finance — for delivering value to shareholders, Mayawati also has an umbrella agenda in place: A coalition of upper and lower castes. But it’s still not a strategy. There’s no clear, well-defined path that shows how the coalition will be achieved in its entirety. She needs to articulate a strategy that goes way beyond finding ministerial berths for upper caste representatives.

Second Stage: She now needs to put a team in place that will deliver the nuts and bolts of the strategy. She has an able Number Two who has helped bring in the votes. He has to now build a team of lieutenants who will be able to figure out what needs to be done to translate the over-arching agenda into a political reality. Only a dedicated team, with credibility at the grassroots level, will be able to make the connection between the back-rooms at party HQ and UP’s arid fields.

Third Tier: Most brilliant strategies flounder because of poor execution. Mayawati’s entire credibility quotient is currently very high and she must make sure she utilises this honeymoon period to make real, effective and sustainable changes on the ground. UP has become the dump heap in terms of development indices — it is at the bottom of the table in almost every category. If she manages to bring in some improvement, the dividends will be enormous. Therefore, key to her success will be effective execution, which also includes zero victimisation of OBCs or the other intermediate castes.

Fourth Principle: The BSP, like a smart marketing company, has understood the need for realignment of strategy and repositioning of its products. And while a good corporate always uses a combination of intuition and market research, Mayawati used only her innate sense and gut feel for analysis. All the opinion polls (supposedly scientific) — commissioned by TV channels — were wide off the mark. Mayawati has to be able to take the repositioning to its logical conclusion for her “rainbow coalition” to make any tangible sense. It’s not enough to just win this one election.

Finally, like all corporate organisations have to look after all their stakeholders, BSP also has to focus on the well-being and welfare of all its constituents.

Good Biz, Poor Governance

IT WAS a characteristic Kolkata winter morning and all of Corporate India was taking an unusually keen interest in a meeting of shareholders convened by a typical boxwallah company. Fittingly, it was taking place in a city, and in a company, deeply imbued with the country’s corporate history. A parvenu, self-styled business tycoon called Manu Chhabria was threatening to take over one of the country’s prestigious corporate institutions called Shaw Wallace and the incumbent management was not giving up without a fight.

This was 1986 and, as a breed, corporate raiders were fairly new to the country. The board had convened an extra-ordinary general meeting to decide the company’s fate and the balance rested with directors nominated by the financial institutions. They did the most astounding thing. On the prompting of their bosses in Delhi, they suddenly changed their tune and voted in favour of the raider, upsetting not only bookies’ calculations but also peace of mind enjoyed by Indian corporate chieftains so far.

Institutional directors were appointed to boards of companies that borrowed money from these financial institutions and their sole objective was to act as custodians of public funds. In reality, they usually sat as mute witnesses to various acts of corporate malfeasance and misgovernance, stirring only when they received directions from the government. And, the government officials routinely used these directors as pawns in a complex game of favouritism and cronyism.

There are thousands of examples where the board has jettisoned the interests of minority shareholders in favour of interlopers. In one company, after initially supporting a raider, the institutional nominee directors suddenly changed their spots when the government changed at the Centre. Why? Because the new government was not particularly fond of this raider. In yet another company, an MNC this time, the institutional directors sat tight while the local management turned the company into their personal fiefdom and even ignored the majority shareholders. This time a misplaced sense of nationalism obscured all sense of corporate governance.

How much of that has changed? On the surface, regulator Securities and Exchanges Board of India has been chipping away at the edges to bring in greater levels of corporate governance through something called Clause 49. Essentially, this is part of the agreement that every company has to sign with stock exchanges while listing its shares. This requires every listed company to appoint a minimum number of independent directors on the board. The understanding is that since they are independent, they are not beholden to any member of the management and would thus keep an eagle eye on the proceedings.

However, given the Indian gene pool’s legendary ingenuity, especially in the entrepreneurial space, many companies found ways to get around Clause 49 by appointing relatives and friends as independent directors. This has not escaped Sebi’s notice and some remedial action is expected soon. Indian companies probably drew their inspiration from a large number of US companies where CEOs regularly appointed their friends as directors. These directors, in turn, returned the favour by approving gargantuan pay packages — bonus, stock options and lavish retirement benefits — for the CEO. It is another matter that a number of those CEOs are cooling their heels behind prison walls today.

Well, for motivation, Indian companies need not look further than the government of India. At a time when Sebi is trying to hard-sell minimum standards of corporate governance in India Inc, the government is busy setting just the opposite example. The government recently got all the independent directors – including directors elected by minority shareholders – of public sector banks to step down and has appointed party workers and sundry loyalists in their place. These supposedly ‘independent’ directors include at least five secretaries of the All India Congress Committee, as well as many senior members from the All India Mahila Congress and Sewa Dal. For instance, one socialite-cum-Congress-sympathiser appointed to a PSU bank board has reportedly not attended a single board meeting; ironically, this person has even been appointed to two board-level committees — the special committee for large value frauds and the customer service committee. In another PSU bank board, a Congress leader from Madhya Pradesh has not spoken even once so far. On some other PSU bank boards, these party workers have been known to even canvass for loans.

This being the state of corporate governance, it’ll be a long time before Sebi can hope to implement even the barest minimum standards.

India Inc’s Litmus Test

CRACKLING PERFORMANCE, RECORD EARNINGS, and global footprints. Clearly, the Indian corporate sector has a lot to preen about. The past few years have been marvelous for top-rung companies. But, Corporate India now enters an uncertain phase and its performance will be under close scrutiny. If the soothsayers are to be believed, then the Indian economy might be in for a wee spell of economic gloom and despond. Hypotheses from optimists (including stockmarket analysts) contest this fiercely, but the consensus is there could be slightly tougher times ahead. And, this time — perhaps, more than ever before — the corporate sector’s endurance levels will be severely tested.

The betting is that the economy will continue to grow, but probably at a slower pace than the one experienced over the past 18 months. What will, however, hurt is this: prices of various products will be up and so will interest rates on a variety of consumer loans. A wide spectrum of consumables — especially, food items and other products of daily consumption — is already more expensive than, say, six months ago. A brutal increase in interest rates for a broad array of consumer product loans — such as cars and TV sets — has already slowed down sales of these items. People are also deferring plans to buy new homes.

So, how will the corporate sector respond when the juggernaut slows down? Will it increase prices till a low-cost competitor pulls the rug from under its feet or will it increase capacities to sell more? Many classical management and economic textbooks say that the best time to build capacities is during a downturn. The April edition of The McKinsey Quarterly has an article titled “Preparing For The Next Downturn” which looks at some of the practices adopted by companies that came up tops during the last recession.

The authors then distill a short list of common attributes that helped these companies prepare themselves and emerge as leaders during the dark days. These are: lower leverage on balance sheets, better control on operating costs, diversified product offerings as well as business geographies.

From the looks of it, India Inc’s creamy layer seems well in control of all the four parameters. Sure there will be some body-bag cases, but chances of survival for large parts of the corporate landscape seem pretty high.

Rule One requires that companies lower the leverage on their balance sheets during rough times. What this means is companies entering a slow-down with lower levels of debt have a better chance of surviving the slump than their peers and competitors. Fortunately, many Indian companies have already done this, thanks to a long-ish regime of low interest rates worldwide. Many Indian corporates took fresh loans at lower rates that they then used to repay the older and more expensive loans. Many when even a step further: they went to the market with an equity issue and used part of the proceeds to repay the entire loan. So, today large parts of India Inc looks squeaky clean.

There’s a corollary here. A clean balance sheet helps companies achieve greater financial flexibility. Especially, when during a slowdown the leaders are looking for acquisitions and lenders (typically banks) get extra cautious about lending. According to the McKinsey article, which is based on a survey of some 1300 US companies, the better performers clearly spent more on both capital expenditure as well as M&As during both lean times as well as boom periods. And, it was cleaner balance sheets that really afforded them this enhanced agility.

Corporate India seems to be well on track with the other three parameters as well. It used the intervening period to improve the productivity and efficiency of its manufacturing and service processes. What helped in addition was competition from global imports and products. Many companies also score well on the diversification of product offerings and business geographies — Tata Steel, pharma companies and the auto component sector have developed a global footprint over the past few years.

There’s one dark cloud though: how will the banking sector tackle the imminent slowdown? If the corporate sector has been able to emerge stronger, more resilient from the past few years, there might be a lesson in it for even the banking sector - a dose of globalisation could actually turn out to be a live-saver.