One of my erudite colleagues, in iconoclastic mood, remarked in a meeting last week that just maybe Richard Branson’s Virgin is a chimera.
He expanded along the lines that it is a fanciful conception based on untested fundamental value, that if you look below the surface all you find is a hotchpotch of diversified activities from an airline to financial services with the same name slapped on them and that, should Branson fall out of a balloon one day – heaven forfend – the company would not long outlast him.
That’s one view. Another is that brand value is one of the few things that really matters in business in the age of globalisation. This issue should take its rightful place at centre stage in the corporate theatre now that there are so many apparent contradictions in what we glibly call the global market.
It used to be said that when Wall Street sneezed, London caught a cold. Today, Hang Seng flu gives Wall Street tremors that make London fall out of bed (although there are fundamental characteristics of the Hong Kong stock exchange that are not shared by the Western markets).
Cross-border takeover bids, such as Reed Elsevier’s 20bn merger with Wolters Kluwer of Holland (MW October 23), can total 90bn in a week, yet the British Government can be thrown into turmoil because Chancellor Gordon Brown appears to be at odds with his spin-quack, Charlie Whelan, over the timing of UK entry into a single European currency.
Brown is busy this week quelling uncertainty over his line and its spin by confirming that Britain is preparing to join after the next general election. He has been under intense pressure from British business this past week to disavow Whelan’s spin that the Government will categorically rule out sterling’s membership of a single currency for the lifetime of this parliament.
It seems quite absurd to me that, on the one hand, British businesses are buying up or merging with large continental European corporations while, on the other, they are being denied the chance to deal across European markets in a single currency.
And the contradictions don’t stop there. Home Secretary Jack Straw is happily publishing a bill to incorporate the European Convention on Human Rights into British law. This may widely be assumed to have little or nothing to do with the business community, but I gather that its impact could be significant, enabling foreign companies to litigate under a fresh set of laws in the British courts. Furthermore, a wide range of British corporate cases could be brought before the European Court of Human Rights in Strasbourg, including restraints on advertising, breaches of contract, illegal share trading, takeover bids and competition law.
Again, I find it remarkable that a European country can adopt a common standard in human rights that regulates some of the most important aspects of company behaviour, while denying its companies access to something as prosaic as a common European currency.
As said previously, it is companies, not politicians, that will establish a single European market and the currency in which it transacts its business. I now want to suggest that it is those companies’ brands, currently the weapons in international corporate warfare, that will become the ploughshares of a new single market with a single currency. It is, if you like, the duty of the mega-brands to iron out the crinkles of contradiction that I have outlined and which do so much to confound the pan-European business process.
It is right to test the validity of the brand orthodoxy, as my colleague did with the Virgin marque. I have a feeling that companies will all too easily have us believe that their brands are a valuable balance-sheet asset gauged by one of the spurious methodologies for brand valuation. IBM, for example, was given a negative brand worth by one of these methodologies in the US in 1994, but was valued at $18.5bn two years later.
Having said that, while brand value may present a problem in its measurement, its existence is not in doubt. Anyone who suggests that all brand-value calculations are a chimera need only look for contradiction to Warren Buffett who, I was disappointed to discover, was not a fast-food joint for rabbits but a major US investor.
In 1988, Buffett invested $1bn in Coca-Cola at a time when many thought the cola market was saturated. That stake is worth $12bn today. A recent report from Citibank and Interbrand showed that 68 strongly branded companies, such as British Airways, Cadbury Schweppes and Unilever, have consistently outperformed the FT-SE 350 index during the past 15 years.
We have witnessed companies that have threatened to withdraw manufacturing investment from Britain if it shuns membership of a single currency. But my point is that the real power – or, at least, another power – may lie in the hands of the international brands.
I propose that the marketers of international mega-brands, for which Europe represents a patchwork of expensive and complex currency conversions, should boycott those countries that withhold their membership from European Monetary Union. Let’s see how long Britain could last without a Coke or a Reebok or a Ford. No stranger to politics, Branson could join in, demonstrating that there is real power in his brand, not just hot air in his balloon.