2015 Brand Finance Global 500: China comes of age in the branding world

During 2014, stock markets in Russia, Ukraine, Eastern Europe and Africa suffered, while China, Philippines and other Asian markets rebounded strongly.

Meanwhile, the United States and the United Kingdom maintained strong stock market performances, driven by quantitative easing, successful austerity measures, low inflation and interest rates and effective economic growth policies, which they have been vigorously pursuing since 2009.

Overall, the value of all quoted companies on 55 major stock markets worldwide hit $71 trillion, an 11% value increase on 2014. This set the stage for exciting increases in value among increasingly self-confident brands which have put the global crisis and economic downturn firmly behind them.

Figure 1: Fastest-rising stock markets

Figure 2: Fastest-falling stock markets

Figure 3: Global surge in enterprise values

Within this robust overall enterprise value growth, the performance of intangible asset values as a proportion of enterprise value remained stable at 53%. At the height of the last boom, this proportion reached 65% of total enterprise value, suggesting that intangible asset values still have some way to go in current market conditions before peaking.

The absolute numbers indicate that $3 trillion of net tangible asset investment occurred in 2014, while intangible asset values grew by $4 trillion. Corporate confidence – along with increased bank liquidity – fuelled investment in tangible assets, while growing shareholder confidence drove the rise in the intangible value of companies.

If the enterprise value to intangible asset value ratio returned to its 2007 peak, this would imply an increase of between 20% and 25% in global intangible asset value, or another $8 trillion to $9 trillion. Last year I suggested that if the recovery in asset values continued, total enterprise value would break the $80 trillion mark. Geopolitical disruption, notably in the Middle East and Russia, has held this back during 2014, but it may well rebound in 2015.

There has been a resurgence of initial public offering (IPO) and M&A activity in the United States and the United Kingdom. Sentiment is being driven by future prospects and potential intangible value accretion, indicating that despite various local political difficulties – mainly in the Middle East and Russia – global confidence has largely returned.

Banks are lending, investors are investing and in certain mature markets the asset booms of 2000 and 2007 are definitely back. Overall stock market values are now significantly higher than the pre-crisis year of 2007, apparently with the slack to grow further in 2015.

World’s most valuable brands

Against this positive macro-economic background, the aggregate brand value of the top 500 brands in the world rose by 4.7%, increasing by almost $200 billion to $4.567 trillion. The ranking of the top 10 brands remained largely stable, although one or two significant trends are beginning to appear among the top players.

Apple remains the world’s most valuable brand, followed by Samsung, which is one of only two non-US brands to be found in the top 10 most valuable brands in the world.

However, whereas in 2014 it appeared that Apple was flagging and that the surging Samsung brand might catch up with it, the former has reasserted its authority at the top of the table (see Table 1). Apple has achieved this by bringing new devices to market (eg, iPhone 6, iPad Air and Apple Watch), by maintaining its premium pricing and, above all, by breaking into the massive Chinese market, after striking a distribution deal with China Mobile.

As a result, Apple’s brand value has grown from $104 billion to $128 billion, a robust 23% rise. Meanwhile, Samsung, with its complex product range and lower price points, grew from $79 billion to only $82 billion, a 4% change. Tim Cook has convincingly demonstrated that Apple’s new product pipeline and brand can dominate despite Steve Jobs’ passing.

The top 10 (remains dominated by the United States and by technology brands, with Google, Microsoft and Verizon leading the pack. Within this peloton, GE dropped back from sixth to eighth place, while AT&T and Amazon have moved up to sixth and seventh places respectively.

However, US dominance of the top 10 brands is beginning to weaken. For the first time, IBM has dropped out of the Brand Finance top 10 most valuable brands in the world, to be replaced by China Mobile, which leapt from 13th to ninth place. Ironically, Lenovo, the Chinese technology brand that acquired IBM’s PC business in 2005, grew by 35% during 2014 (from $3.9 billion to $5.3 billion).

China Mobile’s brand value has increased by a staggering 50%, from $32 billion to $48 billion, in just one year. It is perhaps no coincidence that Apple’s partner in China has surged in value, benefiting from the strategic tie-up between the two brands. Across the whole Global 500 study, Chinese brands are forging ahead, but the outstandingly successful collaboration between an old-world and a new-world brand could be a harbinger of things to come in other industries.

Interestingly, Amazon ($56 billion) – the world’s mightiest online retail brand, which attracted controversy during 2014 because of its business and tax practices – has powered ahead of its bricks and mortar rival Walmart ($46 billion). Amazon’s brand value grew by 24%, while Walmart’s brand value grew by only 4%.

However, there is no room for complacency at Amazon. It is now threatened by its Chinese rival Alibaba, which clocked up the largest IPO of all time in 2014. The Alibaba Group now has a significantly higher enterprise value than Amazon, but runs a multi-brand strategy, meaning that the monolithic Amazon brand ($56 billion) remains ahead of the Alibaba brand ($11.4 billion). Alibaba Group’s business-to-business (B2B) portal is branded Alibaba, while it also operates various other brands including Taobao, China’s largest consumer-to-consumer portal. Can Amazon resist the development of a monolithic Alibaba brand worldwide, funded by $25 billion of new capital from the IPO?

The biggest individual winners are again to be found in the telecoms and hi-tech industries, with Apple increasing its brand value by $24 billion in 2014. Facebook defied its critics by increasing its brand value by $14.4 billion, closely followed by AT&T ($13.4 billion) and Amazon ($11 billion).

One of the noteworthy trends this year is the charge of Chinese brands led by China Mobile, which grew its brand value by $16 billion alone. It was joined in the top 20 winners by seven other Chinese brands, which collectively grew their brand value by an impressive $38 billion: Baidu ($8.2 billion), China Construction Bank ($7.5 billion), Alibaba ($5.7 billion), Agricultural Bank of China ($5 billion), ICBC ($4.6 billion), Sinopec ($3.8 billion) and Bank of China ($3.7 billion). Chinese brands are finally flexing their muscles on the world stage.

This year, brands losing value come from an eclectic mix of sectors, including technology, telecoms, conglomerates, auto, banking and retail. Each suffering brand has its own story, but if there is a consistent theme it is that old-world brands are losing out at the hands of upstart new brands, particularly from the Internet and Asia.

The biggest individual loser (at $6.6 billion) was Tesco, which replaced its chief executive, retreated from its imperial ambitions abroad, was battered in its UK home market by price discounters and internet players, and lost its reputation with stakeholders on brand relevance, quality of service issues and a massive accounting scandal. Warren Buffett, who had invested heavily in Tesco, humiliated the supermarket giant by admitting he had made a huge mistake and selling his shares.

Walmart, which in past years appeared to be in Tesco’s sights, increased its brand value from $44.7 billion to $46.7 billion. It may be an old-fashioned bricks and clicks retailer, but over a 10-year period it has made itself relevant to a new generation. Meanwhile, Target – another large US retailer – fell from $18.1 billion to $15.4 billion. The big question in global retail is whether the old model of retail stores will be decimated by online retailers such as Amazon and Alibaba, or whether they can find a new modus operandi including bricks and clicks. The jury is still out on that one.

Other US retail brands with old-fashioned concepts and business models which came under pressure in 2014 were McDonald’s, whose brand value dropped from $26 billion to $22 billion. Despite a concerted campaign to reinvent its product, service and brand proposition over the last decade, the US approach to fast food appears to be losing traction worldwide. Burgers and colas are increasingly being replaced by healthier and more localised food and drink choices.

Avon is another US mass market brand that is struggling to find relevance in a new world order. While the mass luxury L’Oreal brand increased its appeal to global, particularly Asian, mass affluent consumers (increasing its brand value from $10.8 billion to $12.5 billion), the Avon brand, with a business model and brand proposition stuck in 1950s America, saw its value fall from $6.4 billion to $3.9 billion – a 39% drop. In B2B and durable goods, US brands also suffered. IBM ignominiously dropped out of the top 10 brands and lost $6.1 billion in brand value. It was joined by GE, which lost $4.5 billion in brand value; and General Motors, which lost $2.5 billion.

It seems that the madmen of Madison Avenue – who created a wide range of iconic US cultural brands in the 1950s and 1960s, which went on to dominate the world for decades – are finally in retreat. Even the Mad Men TV phenomenon has reached the end of its run.

Another former powerhouse brand nation is also in retreat under the onslaught of challenger brands. While Chinese and Korean brands continued to thrive in 2014, many once-mighty Japanese brands are declining. Hitachi, Toshiba, Sony, Mitsubishi, Nissan and MUFG collectively lost $24.3 billion in brand value. A flat Japanese economy and vibrant new challenger brands in Asia have taken their toll on the once-unstoppable Japanese.

The final trend apparent in the table of brand losers (Table 3) this year is the pressure on brands which largely rely on old Europe for their base. BNP Paribas, Deutsche Bank, Phillips, SAP, Vivendi, Vodafone and Daimler – all major players in EU markets – collectively lost $22 billion in brand value.

World’s most powerful brands

While the primary focus of the Brand Finance Global 500 is a ranking based on the absolute value of brands, each brand in the table is accorded a brand strength rating, expressed on a scale from D (very weak) to AAA+ (very strong). The rating process is based on a wide variety of benchmarked data covering inputs, intermediate and output measures across all key stakeholder groups in the specific sector in which the brands operate. Brands are rated against their sector peers and the relative results produce a rating which is relevant to their competitive position within their own sector.

In 2015 the number of Global 500 brands in each rating category is as follows.

It is exceptionally hard to achieve any of the AAA ratings and the bulk of brands in our study only manage AA status.

After careful consideration, we have determined that Ferrari – the world’s most powerful brand for the last two years running – has been overtaken by Lego, a new entrant to our study this year. In fact, as a result of poor on-track performance, uncertainty over its model range, extension strategy, corporate ownership changes and management dislocation, Ferrari has dropped from first to eighth strongest brand in the world. Lego has revitalised an apparently moribund conventional toy category and successfully launched itself into film and new media. They say that there are 86 Lego bricks for every person on the planet. Every parent has experienced the pain of treading on them in bare feet and trying to fix broken Lego models. Now they cannot even turn on a television without Lego popping up. The success of the Lego movie and effective marketing communications has made it a genuine breakthrough brand.

Lego is closely followed by Red Bull, which is a dominant player both in the energy drinks sector and increasingly in F1 and extreme sports. It is a vibrant brand, constantly pushing the boundaries to excite consumers and fans.

In the B2B space we have determined that once again PwC and McKinsey are the standout brands worldwide. They give businesspeople a level of reassurance and an aspirational glow which powers high business volume and pricing.

Brand finance brand ratings are equivalent to credit ratings, but for brands, and are used to determine the level of future revenue growth and risk which is factored into our brand valuations. Brand Finance has conducted such brand ratings continuously since 1996 and they are now widely used by investors as an indicator of future or potential brand and business value. In the case of Coca-Cola or Disney, a high brand rating underpins high existing consumer brand value. In the case of Hermès or Rolex, a high brand rating reflects dominance of a niche luxury category. In the case of Google or Red Bull, it predicts high future demand growth. In the case of PwC and McKinsey, it reflects dominance in a highly competitive professional business.

Conclusion

It is increasingly recognised that intangible assets are the main drivers of economic value growth, at a company, industry and country level. Intangible assets are truly the wealth of nations. As a result of this growing recognition, many countries are developing policies to create, maintain and protect value-enhancing intellectual property. None is more active in this than China.

President Xi Jinping of China, speaking at the 18th National Congress of the Communist Party of China in November 2012, stated that in future he wanted Chinese products to be created in China, not just made in China. He wanted Chinese companies to focus on quality rather than price. Finally, he made it clear that he wanted China to produce brands, not just products. His seminal speech led to a huge upsurge in brand-related activity in China.

The most obvious manifestation of this newfound zeal is Chinese sponsorship of ISO Technical Committee 289 on Brand Evaluation. A previous ISO technical committee, reporting in 2010, created the ISO 10668 standard for monetary brand valuation. The new technical committee takes this one stage further into the area of brand evaluation and best practice brand management.

The first meeting of TC 289 was convened in Beijing on September 25 and 26 2014 – I was privileged to chair the UK delegation. The committee concluded that, due to its leading role in all aspects of brand creation, management, measurement and valuation, it would meet next in London on June 9 and 10 2015.

We are currently planning the agenda for that event. Given the rapid growth of Chinese brands, the rapid growth of the Chinese economy and its leader’s strong support for brands, the June meeting will be important. Additions to membership or the work programme of the UK shadow committee from readers of World Trademark Review are warmly welcomed. Brand practitioners who would like to get involved can contact me at [email protected].

Everyone in China now recognises the importance of brands to their economy. Chinese tourists are huge buyers of high-quality brands, Chinese companies are both buying and developing great brands and the Chinese government is now fully behind all aspects of brand creation. As with many things in China, when they decide that something is important and should be done thoroughly, they do not prevaricate.

While many companies in the developed world – often dominated by accountants, engineers or actuaries – have still to accept the central importance of brands in a modern business or economy, and usually penny pinch on them, Chinese business has now been mandated to get out there and invest in all areas of branding.

There is no doubt that 10 years from now, a large number of the brands in our annual study will be either home-grown Chinese brands or foreign brands now owned by Chinese companies and investors. Strong and valuable brands are drivers of economic growth and recovery. China is putting its money where its mouth is.

A couple of simple facts illustrate the point. At the last count, China had 1.5 million millionaires and 250 billionaires out of a population of 1.4 billion people – that is 19% of all people in the world today. The number of millionaires and billionaires increases rapidly every year. These people are increasingly the most brand-aware people in the world. They are increasingly buying brands in the shops, acquiring brands in the market, floating their own brands on world stock markets and creating processes and standards to increase the value of their investments. Everyone involved in the branding industry should applaud this.