ACFTA’s impact on branding

Domestic or local brands can expect future competition at the very least from regional brands, in an ACFTA environment. For example, the Philippines’ San Miguel Pale Pilsen is likely to have a face-off with Singha beer from Thailand, Tsing tao from China, Bia Ha Noi of Vietnam, Phnom Penh beer of Cambodia, among others either in the local market or in the competitors market.

MANILA, Philippines–In November 2002, 10 member nations of the Asean region including Brunei, Myanmar, Cambodia, Indonesia, Laos, Malaysia, Philippines, Singapore, Thailand, Vietnam and the People’s Republic of China signed a landmark trade bloc agreement known as the China-Asean Free Trade Area agreement, popularly known as the ACFTA.

The ACFTA agreement is meant to lower tariffs or taxes and duties, to zero slapped on products manufactured, produced, supplied and distributed among ACFTA member countries.  All ACFTA products require at least a 40-percent local content sourced from one ACFTA member country or several ACFTA members.

Why ACFTA?

The aim of ACFTA is to make the Asean region, along with China, a preferred source of manufactured goods for regions outside of ACFTA and among member nations.

With zero tariff between member nations, businessmen located in an ACFTA country have, among others, the benefit of one, a bigger pool of supply of manufactured goods and raw materials to choose from among eleven ACFTA member nations; two, a bigger base of expert labor; three, more consumers as one member country can export its goods free of tariff to another member nation thus expanding potential consumer base from a domestic market of possibly five million to nearly two billion consumers including China; four, greater product efficiency and exports brought about by shared technology, raw material inputs and greater competitiveness among ACFTA nations.

The downside

The Asean free trade area (AFTA) agreement began in 1992 among six member nations of the Asean i.e. Brunei, Indonesia, Malaysia, Philippines, Singapore and Thailand and later expanded to Vietnam, Laos, Myanmar and Cambodia from 1995 to 1999.

The tax mechanism called the CEPT scheme or Common Effective Preferential Tariff aimed to increase the Asean’s competitive advantage in production by eliminating tariffs (0 taxes) and non-tariff barriers to attract more direct investments to the region, possibly making the region even a strong contender to mega-China’s production base. However, in 2002, China forged collaboration with the AFTA, hence the Asean China Free Trade Area agreement. With the collaboration, the ACFTA becomes the largest free trade area in terms of population and the third largest in terms of nominal GDP after the US and the United Kingdom.

While foreign direct investments and potential consumer base have always been the main drivers in the original AFTA signed in 1992 and the newer ACFTA agreement signed in 2002, this presupposes that a country’s business environment, local companies and brands have improved their standards of excellence from the time of origin of the agreement from 1992 to full implementation in 2015 with a good 23 years of preparation.

For local businesses, this means investments in technology, manufacturing sourcing and production, building a customer mind-set and branding. For government, this means investments in infrastructure, low cost efficiency in utilities including electricity and ICT (information and communications technology), transportation, education and building labor efficiency.

Branding and ACFTA

The Marketing Science Institute defines a brand as the set of associations and behaviors on the part of the brand’s customers, channel members and the parent corporation that permits the brand to earn greater volume or greater margins than it could do without the brand name and that gives the brand a strong, sustainable and differentiable advantage over competitors.

In an ACFTA environment, the potential consumer base of nearly two billion becomes both a carrot and a stick. Because of the influx of consumer goods among ACFTA member nations and the region’s attractiveness to foreign direct investments resulting from the trade bloc agreement, there is an expected high level of competitiveness.

It is likely that commodity products have lesser chances to compete in an ACFTA environment. Consumers will be deluged with so many products and services and will likely consume only products and services they are familiar with. Only brands, not commodities, have associations familiar to consumers.

Merits of branding

A strong brand comes naturally into the consideration set of potential consumers who may be new or trial consumers or regular users of the category. Domestic or local brands can expect future competition at the very least from regional brands, in an ACFTA environment.

For example, the Philippines’ San Miguel Pale Pilsen is likely to have a face-off with Singha beer from Thailand, Tsing tao from China, Bia Ha Noi of Vietnam, Phnom Penh beer of Cambodia, among others either in the local market or in the competitors market.

Based on a World Health Organization report, Vietnam is regarded as the fastest-growing beer market while three Asean countries, namely, Laos, Philippines and Vietnam beat the Russians when it comes to bingeing on beer at least once a week. Bingeing means consuming six standard beer drinks in one sitting. This insightful data is likely to attract foreign trade nationals and should be enough to muster competition.

Brands require a sustainable strategy

Entrepreneurs or businessmen new to branding often fall prey to creative advertising that seemingly is expected to catch consumers’ attention or create impact, never mind if the impact is short-lived, forgettable, undesirable and is unrelated to the category.

Successful brands, on the other hand, have a long-term, sustainable strategy that through the years build on the advertising and communications content from one material to the next.

Nike’s brand strategy of tapping champion celebrities, not at the prime but at the budding stage of their career, is a high risk and long-term investment that has proven to be sustainable as these celebrities become one with Nike during their most productive years. These celebrities’ favorable associations help make the Nike brand almost infallible.

EO-Executive Optical’s comedic but empathetic presentation of real life poor eyesight situations and how the store brand saves the day is likewise a sustainable brand strategy.

Another example is The Generics Pharmacy (TGP) store brand’s sustained reputation as a source of safe and efficacious generics medicines through credible endorsements by reputable individuals and organizations like Governor Vilma Santos, Kuya Kim Atienza, a collaborative human clinical trial study for TGP Paracetamol by De La Salle Health Sciences Institute and medical doctors supporting the prevalent use of effective generics medicines.

Brands provide differentiation and confidence in purchase decision.  With hyper-competitiveness and the influx of commodities and brands in any trade market, consumers need to be assured of their purchase. Having a reason why they need to buy a particular product and/or brand over the rest of available products in the market is a sure way to close a transaction.  Everest Aircondition is not just one ordinary commodity airconditioner. It has healthy air filters that provide not only fresh, cool air in a heated environment but assures moms and household decision makers of a safe and protected environment from bacteria, germs and viruses.

Brands add leverage even among retail landlords.  Gone are the days and times when retail landlords were running after tenants, happy to have tenants pay their monthly dues. Tenants, back then, relied on mall owners for marketing and brand activities to generate foot traffic. Gone, too, are the days when tenants had a stronger relationship with their retail landlords. Today, most retail landlords demand their store tenants or shelf products to become brands themselves, simply a case of shape up or ship out. This is because even retail landlords are in competition with other malls in other ACFTA countries. Much heralded is the soon to open H&M in the Philippines, with its first location at the SM Megamall. After all, H&M, a global retailer brand, has 3,200 stores in 54 countries and has yet to open locally. With its opening of several soon-to-follow outlets in the country, Filipinos, who are shopaholics, have no real reason to go out of the country since H&M promises to be faithful to its business concept and brand strategy of “fashion and quality at the best price.” Thus, retail landlords updating their malls are at a vantage point of keeping their foot traffic. Even OFWs have no real reason to buy products and services abroad when they can buy local and global brands in the Philippines with their families.

Brands take time to build. Those who have started many decades back like Jollibee, Goldilocks, San Miguel Pale Pilsen, Bench, etc. may be challenged at this time but they are at a vantage point where they can continue to reinforce their brand. Sadly, those who have not taken the big step despite a simpler business environment back then are faced with extremely challenging times. Those who intend to take the big step now, may still do so, but must have the guts, vision and the pocket power to fight.

(De Asis is the author of the best selling Color Folders in The Mind: A Branding Story available in National Bookstore and Powerbooks. Email at [email protected].)