It is a widely accepted notion that world is indeed flat. Economic boundaries are being demolished. Companies are no longer constrained to their national markets. Internet has become a great leveler of field between companies and customers. Price has yet again taken central stage. And brands are under increasing threats from private labels.

Given such a connected world, how can companies maintain their underlying brand identity in face of worldwide external shocks such as the current global recession? Should brands practice consistency or continually adapt?

Before answering those questions, take a look at one of the world's iconic brands - Starbucks. Starbucks is almost single handedly responsible for creating the concept of a third place between home and work where people can relax, enjoy a cup of coffee and experience the inviting ambience.

Since its founding days in the early 90s, Starbucks has strived to build its brand identity on offering customers a relaxing and enjoyable experience. In addition, Starbucks has also built its brand on things that tend to be out of the box, by consistently defying the conventional wisdom.

When companies were aggressively advertising, Starbucks decided not to advertise. When cost cutting was the dominant paradigm of the industry, Starbucks chose to emphasize non-routine procedures to create excitement among the baristas instead of streamlining procedures to minimize cost. Unlike most other companies, Starbucks made its employees its partners, by offering them stock options and health insurance.

As against rigorous customer surveys Starbucks chose casual and informal chats with customers to gather their overall mood. All these clever strategies have enabled Starbucks to build one of the most iconic brands that has continued to resonate with customers across the world for more than fifteen years. That was until the economic conditions started worsening.

Since early 2008, Starbucks has been forced to bite the dust and succumb to the aftermaths of the recession. Founder Howard Schultz returned as the CEO. Cost cutting and efficiency was made the guiding strategy. More than 800 Starbucks stores were closed in the US alone. For the first time Starbucks invested more than US$200 million in advertising. And for the first time in its history, Starbucks started price campaigns in select stores to lure customers away from other price competitors such as McDonald's and Dunkin Donuts.

These events beg the obvious question. Given such fundamental changes in the macro environment, should iconic brands like Starbucks stay true to their strategic brand vision or continually adapt to regain competitive advantage?

Regaining lost glory and recapturing global brand leadership should be a two-pronged strategy. Iconic brands should strategically manage the dual process of continuous innovation on the one hand and reinforce their guiding strategic brand vision.

Innovation drives strong brands
Innovation is a fundamental building block of iconic brands. Leading brands create their corporate strategies with an inherent strategic element encompassing innovation. Such innovation is not limited to bringing new products to markets, but is expanded to innovation in communication (with customers and other stakeholders) and innovation in implementing cost-cutting and efficiency enhancing strategies. Such continuous innovation serves dual purposes.

First, innovation enables iconic brands to refine and redefine their cores in line with the changing needs. Second, innovation allows iconic brands to continually adapt to the changing needs of customers, thereby protecting its competitive advantage.

Innovation should be practiced along with an organization wide brand vision, which acts as the strategic blueprint of the brand's path. Such strategic vision should not only delineate the boundaries of the brand but also should chart out the possible strategies of the brand in order to attain and maintain brand leadership. Commitment to such brand vision allows companies in tough situations to chart out different strategies (such as either cost cutting or enhancing value proposition) but will ensure that the brand does not deviate from its strategic charter. As innovation prepares the brand to adapt to changing circumstances, brand vision can guide the brand not to stray away from the core brand promises and dilute the core brand identity.

Iconic brands can effectively regain their brand leadership by implementing this dual strategy. Starbucks has already begun on this path. It is innovating in reaching its customers and enhancing efficiency but maintaining consistency in its core brand promise of providing an enjoyable experience.

The changing global economic environment has challenged many global iconic brands. This dual pronged strategy can not only help these brand protect their brand leadership but can also create a sustainable path to ensuring long term competitive advantage.

A quick look at the major media outlets, be they newspapers, magazines, websites, professional conferences or consulting engagements, highlights the global obsession with emerging markets. The rather large bloc of countries in South America, Eastern Europe, and Asia make up the loosely coined term emerging markets. Despite the geographic separation of these clusters of countries they share some very dominant and distinguishing characteristics.

Most of these countries were either socialist economies or controlled capitalist economies. They were closed from the global economy for a long time. All these countries are also characterized by substantial population levels, improvements in physical, intellectual and financial capital. Many of these countries have opened their economies to foreign direct investment and thereby taken a step towards a fuller integration with the global economy. As such, emerging economies seem very similar on many important dimensions.

Although many economies such as Brazil, Dubai, Turkey, and Bulgaria are aggressively developing their economies, it is usually Asia that manages to capture the global attention. Although at first glance such obsession can be waved aside as yet another media frenzy by a curious onlooker, a deeper analysis of the hard facts presents the tremendous evolution happening in the most important of all these emerging markets - Asia.

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It is a well accepted fact within the corporate world that one of the most valuable corporate assets is the brand a company owns. As such, companies strive very hard to create brands that resonate with customers. For any brand to resonate with customers, it has to tell a compelling story, and offer value to customers that go beyond tangible features. It sounds too simple to be true.

Hyundai Motor Company has found out just this the hard way. Hyundai has been struggling with its brand for long now. When Hyundai cars were introduced in the US market, it had no prior brand value. To make matters worse, its quality was highly questionable. But realizing this, the brand made amends to the quality. Quality improved gradually to a level where it was rated much better than Honda and Toyota's quality by various consumer reports. Its quality lagged behind only that of Lexus and Porsche.

Consumer Reports included two of Hyundai's models in the top five "Most Impressive" models among the 2007 models. Riding this confidence wave, Hyundai introduced many high models such as the US$30,000 Azera sedan, and the Veracruz SUV, and the upscale US$35,000 sedan Genesis. But the company was in for a rude awakening as reports showed that only 23% of all new-car buyers even considered a Hyundai model as against 65% for Toyota's cars and more than 50% for Honda's cars.

The financial numbers are also not very impressive. Last year the company's earnings fell 34%, to US$1.6 billion and the operating profits fell from 9% three years ago to a meager 4.5% last year. The market signals and sales figure have been so disappointing that the company has revised its original goal of selling one million cars by 2010 to selling just 700,000 cars by 2010. What has gone wrong for Hyundai?

It has been often argued that in purchasing a car, which is of high value and hence a more rational purchase, quality and functionality are the most important factors apart from design and brand. Hyundai seems to have managed the three factors of quality, functionality and design.

But it has fallen short on the brand front. Recently Hyundai threw open its multi million dollar advertising account open to attract the best talents in the industry to create a new story for the Hyundai brand. This is yet another testimony to the fact that a strong brand identity and associations are the most important factors that can attract customers.

In addition to such proactive measures to enhance its brand appeal, Hyundai is also actively pursuing innovation on two fronts simultaneously. On the product innovation side, Hyundai will be the first automaker in the world to make LPG (liquid petroleum gas) hybrid cars to be sold US$16,200. Such innovation has tremendously helped the brand to be at the forefront of customers' awareness scales.

On the customer innovation side, Hyundai has been very aggressively courting customers through new type of assurances and promotions. One of the widely noted promotions was Hyundai's guarantee to sell gas at US$1.49 a gallon for one year to those customers who purchased a Hyundai car. An even more popular and strategically brilliant move was to offer an assurance to customers that they can just walk away from their car loans without any negative repercussions on their credit ratings in case they lost their jobs.

Such strategic brand moves have started to show some positive results. As against a mere 3.1% market share in the US, Hyundai's US market share has increased to 4.3% during the first six months of 2009. Furthermore, its shares have jumped to 84.2% at the end of the second quarter of 2009 from 74.4% for the same period the previous year. Overall so far, against the Kospi Index's 27% raise, Hyundai's stock has increased 92% so far in the year 2009.

As can be seen, in a relatively short span of time, Hyundai brand has experienced highs and lows. It will be interesting to watch how the newly gained success in constructing a new brand story can be sustained by Hyundai amidst harsh economic conditions.

One of the most visible corporate activities is mergers and acquisitions. Acquiring another company has long been touted as one of the most popular avenues for corporate growth and also has been documented as one of the most challenging.

M&A activity has become such a staple corporate activity over the last few decades that hardly its spurs any major interest. But when Lenovo acquired IBM's PC division it created major global news. This was a special case where an up and coming Chinese computer maker made huge strides by acquiring a global icon.

This acquisition created news for many reasons. This was one of the first high profile acquisitions by a Chinese company on the global landscape. By this acquisition Lenovo became the third largest computer maker in the world. Because of the IBM brand name, Lenovo was expected to make great strides within the US and the broader Western market. Business observers and analysts talked about how a Chinese company would successfully morph into a global brand with power and respect. This was three years ago.

Things have not gone exactly as expected for Lenovo. In spite of the mighty IBM brand name, Lenovo exports only 14% of its total shipment to the US as against Acer's 14% and Toshiba's 32%. Even though Lenovo is the market leader in China - the world's second largest computer market - with a 16.4% of the market, a recent report commented that Lenovo does not even come in the top 5 computer makers in the US market.

Further, Lenovo's home market of China accounts for 34% of Lenovo's sales and a whopping 71% of Lenovo's profits. Given such a showing, it is only natural that industry observers, competitors and consumer ask the question: Is Lenovo a Chinese brand or a global brand? What went wrong with Lenovo's plan to emerge as a power player in the global market?

There can be many answers to that question. But the three most important reasons are:

1. A highly lucrative yet competitive home market
2. Lack of brand equity in the consumer computer market
3. Negative effect of "China Brand Effect" in the Western markets

A highly lucrative yet competitive home market: China is one of those rare cases which offers the double whammy of a thriving and highly competitive domestic market along with offering an excellent base for exporting to the global market.

Being a Chinese company, Lenovo has guarded its home turf very aggressively. Lenovo is the market leader with 16.4% of the Chinese computer market. But given its ambition to expand beyond the home turf, it has had to focus increasingly on the US and other Western markets.

Such a division of resources and strategic focus has allowed competitors to inch closer to Lenovo in China. Compared to 2007, all competitors have increased their China market share in 2008. Dell increased its share from 7.2% to 9.1%, HP increased its share from 13.8% to 15.1%, and Acer has gone from 5.6% to 7.2% of the market. This in turn poses increasing challenges to Lenovo and its brand. Till date, it has not been able to effectively do two things at the same time - thwart competition at home and take market share from competitors in their home market - the United States.

Lack of brand equity in the consumer computer market: When Lenovo acquired IBM's PC division, its main aim was to leapfrog to become one of the largest computer companies in the world. Lenovo became the third largest computer company in the world, but not necessarily the biggest in the consumer market. IBM's traditional strength was in the business segment. IBM's Thinkpad laptops were the gold standard in business computers. But Lenovo did not restrict itself just to the business market.

Over the last three years it has made a very aggressive entry into the consumer computer market with two new Thinkpad models and the new line of Ideapads. But given the recessionary economic conditions in the US, this move has not yielded any credible results so far. Furthermore, for a company that is still learning the rules of the global brand game in the computer industry, Lenovo has bitten more than it can possibly chew. Entry into the very highly competitive US consumer computer market where DELL and HP have a near strangle hold, leveraging IBM's brand name in the business market, building equity for the Lenovo brand and guarding the home turf in China have all together put Lenovo under immense stress.

The China Brand Effect: As one of the recent articles in a leading US daily reported, for US consumers Lenovo (even after acquiring IBM’s PC division) is still a Chinese brand. Given the general perception of China, Chinese products, controversies about China's counterfeit markets (and products), the questionable quality of "Made in China" products and the overall macro socio political sentiment towards China have heavily impacted the perception of Lenovo among the US and other Western consumers.

This reflects the lack of Lenovo's efforts in building a strong brand. Even though Lenovo had a golden opportunity to capitalize on IBM's co-brand name for three years, it has turned out that Lenovo has not managed to create a strong brand image among the Western consumers. While sales in China grew by 18% during the first quarter of 2008 compared to 2007's first quarter, sales in the US increased only by a paltry 3%. Furthermore, Acer's acquisition of Gateway has catapulted Acer's position within the US market and Acer is inching closer to Lenovo.

Given these apparently insurmountable challenges Lenovo faces both at home and in the Western markets, it is not surprising that Lenovo is taking a beating of its stock. In spite of reporting sales of US$3.74 billion and revenues of US$140 million in the first quarter of 2008, Lenovo's stock is down by 14% for the year 2008 as against a 15% drop for Dell and an 11% drop for HP. The same saga has continued in 2009 as well. Lenovo reported sales of US$3.5 billion for the June 30 quarter. This sales number is down 17.9% for the same period in the previous year.

Furthermore, Lenovo posted a loss of US$16 million for the quarter as against a net profit of US$119 million for the same period in the previous year. With competitors chipping away at its market share in China, Lenovo will have to aggressively build its brand in the US and European markets in order to survive long term. The strategy has to be carried out by management.