US: Corporations in Dire States

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Americans are used to resentment of their global dominance. Since the war on Iraq, however, this hostility has begun to hit them where it hurts: in corporate balance sheets. David Usborne reports on the backlash being felt in the boardrooms everywhere from McDonald's and Nike to Microsoft and Coca-Cola.

It has not taken long for Americans to realise that the triumphal appearance by President George Bush aboard an aircraft-carrier after the toppling of Saddam Hussein was somewhat premature. Barely a day goes by now without news of another soldier falling to the bullets of hidden snipers. Little attention has been paid, however, to another consequence of the campaign in Iraq. Call it corporate collateral damage. And the victim is Brand America.

True, boycotts of American products were popping up around the globe even before the war started. Coca-Cola, McDonald's and Budweiser were among the most visible and frequently targeted companies. There were even some small-scale terrorist attacks, including a bomb-blast at an Istanbul McDonald's on 15 April. But most of these actions have either had limited local impact or have started to peter out.

The much bigger worry inside boardrooms, from New York to Atlanta and Chicago, has been this: will the unpopularity abroad of George Bush's America -- whether we are talking his attack on Iraq or his inaction on global warming -- impact on the fundamental appeal of their brands in global markets? And if so, how badly?

Even having to ask the question has been hard. For decades, going back to the Second World War, when British women were clamouring for nylons, Made-in-America has sold, in part, because of what the country has represented - above all, prosperity and capitalist freedom. A pair of Nike trainers coul-d signify dollar-wealth to an Asian slum-dweller. A black-market pair of Levi 501s symbolised protest in Eastern Europe before the fall of the Berlin Wall.

"People in China and Taiwan, and even Europe, go to McDonald's not because they love the food, but because they want to have the American experience," notes Shih-Fen Chen, a professor of international marketing at Brandeis University, in Massachusetts.

But what if American products have started to stand for something else? Such as bullying imperialism or intolerance of the rest of the world's problems? Would it be time to suggest to the makers of Marlboro that they tone down their American heritage when selling their cigarettes abroad? Would that spell the end of those big-sky advertisements with open roads and square-jawed guys in cowboy hats?

This is indeed what corporate America has been asking itself, and now it may have the first inkling of an answer. According to a report just completed by the New York consulting firm RoperASW, the value of America's favourite brands abroad is showing unmistakable signs of slippage. For now, at least, it is just possible that selling a product inextricably linked with Uncle Sam and the Stars and Stripes may be more of a liability than a boon.

The report, originally prepared for the corporate clients of RoperASW but acquired this week by Newsweek magazine, is based on hour-long interviews with 30,000 consumers in 30 major economies around the world. The responses were processed to assess a measure of "brand-power" for the best-known multinationals, both American and non-American.

Of the top 10 global US-based firms, only one saw an increase in its brand-power compared with a year earlier. All of the others were either unchanged, which is bad enough, or in negative territory. This is the fifth year that the same survey has been carried out. And 2003 is the first time that American companies have seen their brand-power starting to sink. By contrast, the survey shows gains for the best-known non-US brands.

"It's an early-warning sign," comments Tom Miller, the managing director of RoperASW. "We're seeing a shift in the balance of brand-power." And he notes that while the effect of the brand erosion may yet only have a marginal effect on sales, even that could spell bad news for the companies: "Losing just one percentage point of sales is increasingly a big deal."

For Noreena Hertz, whose landmark book, The Silent Takeover, has become a set text for many in the anti-globalisation debate, the souring of consumer sentiment shows how a new politically and economically aware generation around the world understands that voting with their wallets can make a difference. Dr Hertz, associate director of the Centre for International Business and Management at Cambridge University, believes that the war in Iraq has only served to crystallise pre-war trends in consumer behaviour towards American and British companies. "It's just an extension of the phenomenon that we've already seen of people voting with their wallets on a number of political issues," she says. "Surveys showed last year that 27 per cent of British consumers didn't buy a product for an ethical reason, and 29 per cent didn't buy one for an environmental reason. In the same way, people will factor in a guilt by association, so companies need to realise that the environments in which they are operating - and playing a part in shaping - can have an impact on their bottom line.

"Companies need to revise their political lobbying strategies in the wake of these kinds of findings. It is not enough for them to use their political clout to lobby for favours. They will increasingly need to take a position on political, as well as social and environmental issues in order that the consumer continues to support them."

Those US companies showing no change on the brand-power index are Coca-Cola and American Express. Each is about as closely tied to the United States as is possible to imagine. They have both been working hard, however, to ward off the rising tide of anti-Americanism. Coca-Cola has been forced to combat boycotts and protests in countries as diverse as Germany and Pakistan. In addition, it continues to deal with the press publicity surrounding Mecca-Cola, the latest Arab version of the soft drink that is being distributed by a Tunisian entrepreneur living in France who aims to tap anti-American sentiment in the Muslim community in Europe and the Middle East. The company, however, has a ready answer for those who would like to see it fall. Its operations abroad are overwhelmingly run by locally owned franchises. "These are local businesses run by local people," notes John Chandler, a spokesman for Coke. "Our opinion on boycotts is that, unfortunately, they do more harm to the people they are intended to support. Typically, if you're targeting a company or a brand in a given location, you are more likely to hurt the local communities and local employees than anyone else."

It is not just food and clothing companies that should be concerned. Even Microsoft has not escaped the change of mood. According to the survey, its brand-power index declined 18 per cent around the world in just a year. Only McDonald's did worse, dropping 21 per cent. Other losers include Nike, MTV, Disney and the Discovery Channel. Non-US brands that have grown in appeal range from BMW to Philips, Sony and Volkswagen.

Other elements of the RoperASW survey have bolstered the case for worry. For example, when it comes to ranking brand trust, three giants of the American scene, Yahoo!, MTV and Citibank, bumped all the way to the bottom. In Germany, where protests against the war in Iraq were especially potent, consumers appear to have been turning their back on American products in droves. Of those interviewed, 29 per cent said that they regularly used Nike products, down from 49 per cent the previous year. Those who said that they frequently ate at McDonald's, meanwhile, slumped from 43 per cent to 34 per cent.

Of course, the survey is not entirely scientific. Nike, for example, has already struck back, emphasising that its revenues in Europe skyrocketed 24 per cent in the three months ending 31 May. With numbers like that, they may not care about consultant-confected brand indexes. Meanwhile, McDonald's points out that other factors are hurting business abroad, quite unconnected with image, such as the Sars crisis in Asia and recession in Germany.

But marketing gurus are taking these kinds of indicators seriously. The advertising agency McCann-Erickson recently sent a memo to its US clients advising them to rethink their marketing approaches and, above all, to avoid trying to "wrap their brands" in the American flag, while trying to stress local roots in the markets for which they were aiming. The war, the agency said, risked "tarnishing the reputation of American culture and the mythic 'American Dream', which has long drawn consumers around the world to the United States to live, work or visit".

Others experts have also been sounding the alarm. Professor John Quelch, dean of the Harvard Business School, voiced his own concerns in a recent interview with the school's Working Knowledge periodical. "Never before have global concerns about American foreign policy so threatened to change consumer behaviour," he said. "We are not speaking here of the frivolous grandstanding associated with temporary boycotts by a student minority. We are witnessing the emergence of a consumer lifestyle with broad international appeal that is grounded in a rejection of American capitalism, American foreign policy and Brand America."

And it is not just American companies that should worry. The same fate could await the large multinationals of the only other country in the world that is most closely associated with America today and its foreign policy. That country, of course, is Britain. "In the past, companies were unabashed about using their American brands -- it was the gold standard," comments Eric Schwalm of Bain & Company, the global-business consultants in New York. But he goes on: "Building your base off a US or British brand may no longer be the best way to go."

The Bush administration considers itself to be business-friendly. Yet, it may have inadvertently soured the atmosphere around the globe for the very icons of American capitalism. These icons, from Coke to Nike to Levi's, may have only two choices. To underplay their American origins as far as possible. Or to wait for the President, or his policies, to change. "Who knows?" says Professor Shih-Fen Chen. "In three years, American brands could bounce back."

AMP Section Name:Globalization