When Brand Buying is not a Good Idea

I have written quite some articles on Brand value and brand building. Recently EE Times published an article on the danger of buying a brand name - BenQ purchased Siemens cell phone unit mainly for its brand name and paid dearly for it.

When Brand Buying is not a Good Idea

by Mike Clendenin

EE Times (09/29/2006 9:44 AM EDT)

TAIPEI, Taiwan — Taiwan's BenQ is learning some hard lessons following the failure of its BenQ-Siemens brand, but its vision to build a global brand remains intact.

When BenQ took over the troubled handset division of Siemens a year ago, it was losing about $1.5 million a day. Things were so bad that Siemens paid BenQ to take it off their hands.

But nothing is free. BenQ has paid dearly for the experience of trying to fast-track its global brand-building effort. During the last 12 months, it has ponied up about $760 million to keep the former Siemens unit alive. Eventually, enough was enough. BenQ Chairman K.Y. Lee pulled the plug, finally realizing that the Siemens unit could not help BenQ become a global player.

It was an expensive lesson in brand building, which many Asian manufacturers will note as they plan survival strategies. Squeezed by thinning margins in the ODM business, or in more mature products like PCs, some of the larger Asian companies are flirting with the idea of building brand names. Problem is, it's a long-term commitment, and many of these companies feel time is short.

That's pushed them to buy distressed assets of companies that already have brand names. China's Lenovo bought IBM's PC division, TCL partnered with Thomson and BenQ grabbed Siemens. These deals also come with co-branding arrangements, similar to what we see with Sony Ericsson.

Unlike Sony Ericsson, which was able to stanch losses and rebound with creative designs, the success of these three deals seems mostly based on severe cost cuts—a typical manufacturers' strategy.

But there are no short cuts to brand building. Brands are built on trust, and trust derives from quality and creativity, not cost cutting. A car salesman recently told me that a car can be three things—good, fast and cheap—but customers usually need to choose two of three.

BenQ will have to make similar choices if it wants to build a true brand. I suspect we haven't heard the last from Mr. Lee. He has a good vision and is a risk-taker. Hopefully, he will have the patience and peer support to keep BenQ on the path to a successful brand name.

It's the right course, but getting there won't be fast or cheap. However, if BenQ in it in for the long haul and everything that entails, then consumers will slowly realize that their products are worthy of the BenQ name.