DOES QUALITY GUARANTEE BRANDS?

Developing of contractual production can improve competitive ability of Belarusian consumer goods producers
Developing of contractual production can improve competitive
ability of Belarusian consumer goods producers.

Belarusian consumer market is rapidly improving its activities. For this it has all the required macroeconomic prerequisites at its disposal: economy is developing, real earnings of our population are growing and our citizens’ purchasing power is also increasing. At the moment the republic’s yearly retail turnover amounts to 20 billion dollars. The sum is substantial, isn’t it? And, conceptually, the figure should have had a favorable effect on the activities of our domestic manufacturers of consumer goods. However, the segment today is suffering from the so-called “growth illness”. The pace at which an average Belarusian approaches to the middle-class prosperity level as understood by European standards, not the Soviet ones, has proved too sudden. But the higher our prosperity is the more requirements a consumer specifies for goods purchased. Price ceases to be the decisive factor of competitive ability on the consumer market. Now the key role is assigned by a customer to the quality of goods, the reputation of a brand as well as to the appearance of goods and a manufacturer’s image… And to enjoy these “intangible” properties a consumer is ready to pay extra.

One can argue about advantages and disadvantages of foreign and domestic goods for a whole eternity. Such discussions are fruitless in principle. Our country produces a wide variety of decent quality goods which are respected both here and abroad. However, our storehouses are stuffed with goods characterized by low liquidity and to sell them out one has to involve administration resources. But the quality of imported goods is often quite arguable as well. And this concerns not only the CIS countries but also European manufacturers. Besides, the EC countries which are famous for their high standards and requirements cannot avoid juicy scandal in this connection as well. One of the latest “miraculous” stories happened to Italian cheese which as it appeared later was made of a substance with a rather suspicious origin. Nevertheless, it has been successfully sold on European markets for years.

In fact, the Belarusian consumers of today are less interested in the country of a product’s origin. Branding mentality is starting to prevail. A consumer’s purse is used to appraise a brand, not the geographical position of a manufacturer. It is precisely the brand that guarantees the quality of a product, its special taste and image.

By the way, first-rank positions on world consumer markets are occupied by multinational brands leading in their own segments. And the secret here lies not in the unique quality of the products they offer but the brand’s image components. Transnational corporations are able to accumulate considerable amounts of financial funds and invest in marketing and communication technologies. As a matter of fact, a lion’s share of Belarusian advertising market turnover comes from these large multinational brands’ activities. In our republic their marketing budgets are more or less comparable only to those of cellular communications operators and lottery organizers.

Sums spent on consumer goods promotion are less than just small. The maximum assigned to such marketing and advertising costs by the majority of domestic enterprises makes up 2–3 per cent of their total turnover which is rather scanty judging by the standards of developed countries. But there is nothing to be done about it. Since depreciation costs are 60–70 per cent the main priority in this situation is to modernize manufacturing process. And there is a certain progress achieved at our plants and factories in this respect. Though, it is quite often that our enterprises find themselves in a dead-end situation: new equipment and modern technologies allow to adopt a higher level of quality in manufacturing of goods which are also acceptable in terms of price but it does not result in an increased sales volume. The reason for this is quite simple: when on shop-windows these goods have to compete with brand products. As a result modernized manufacturing facilities are used only partially, projects’ payoff period are prolonged, so the economic efficiency and profitability is much lower than figures specified in a business plan… But, alas, the sore point here is exactly the establishment of quality branding.

Of course, domestic manufacturers enjoy governmental support all over the world. But in reality the idea of loading a market with domestic products exclusively cannot be regarded as feasible unless license and contractual production is developed enough. Employing this very strategy our tobacco industry has exceeded its planned figures of import replacement. Belarusian manufacturers have adopted contractual production of cigarettes under multinational trade marks. As a result, the share of foreign products on the tobacco market is minimized. Why then other consumer goods manufacturers try to compete with foreign companies and do not even attempt to establish mutually beneficial cooperation? In fact, it is obvious that utilizing foreign brands would allow domestic confectioners and manufacturers of household appliances to increase their output considerably… It can’t be that disgraceful to produce high-quality goods under a foreign trade mark whereas such a strategy could ensure better economic performance for many of our enterprises, reduce the volume of import and “grey” goods supplied to Belarusian markets…

The opinion of Eduard GRAMOVICH, Director of the British-American Tobacco Trading Company, is as follows: 

“Contractual and license-based production is profitable when an enterprise has some additional manufacturing facilities at its disposal. If they are 80–90 per cent loaded there is no need to produce goods under another trade mark. And if an enterprise uses only half of its facilities then some outside orders could reduce overhead costs and, consequently, lower the net cost of their own production, which will undoubtedly have a favorable effect on its price factor when competing with others on the market.

Basically, the development of this trade in Belarus has good perspectives. In every segment of consumer market there can be distinguished several transnational manufacturers which take world’s leading positions. And goods manufactured by these “golden jacks” are already represented in our republic’s market. I think that any of these world-wide corporations would gladly consider the prospect of strengthening their influence through contractual production. Everything depends on the terms they could offer for our markets.

Alexei Sviridenko
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