Is the World Falling Out of Love with US Brands?

Joseph Nye, the Harvard academic who coined the phrase "soft power" to describe indirect US influence in the world, likes to recall the dining deliberations of a family in India to explain what he means.

Asked what attracts them to McDonald's, the middle-class parent she cites suggest something more seductive than a Chicken Maharaja Mac and fries cooked in vegetable fat. They say they want to take the children out "for a slice of America".

When burgers can stir such emotional aspirations, it is no accident that 64 of the most valuable 100 global brands, as measured by Interbrand, are owned by US companies. For more than half a century, the US and its products have stood for progress, glamour and freedom in the minds of consumers around the world.

But Mr Nye sees a growing challenge for US companies in the attitudes of people such as John McInally, a Scottish management consultant living in Brussels, whose boycott of US products goes as far as asking that his four-year-old son not be given Coca-Cola at birthday parties.

"I used to have a lot of respect for America; now there is mostly fear," says Mr McInally. "You feel pretty powerless, but the one thing you can do is stop buying American products."

There is little doubt that there are more Mr McInallys in the world today than there were before Abu Ghraib and Guantanamo Bay became household names. Poll after poll has shown that allegations of human rights abuses and the failure to find weapons of mass destruction in Iraq have tarnished the international reputation of the US.

But geopolitics is easily left behind when shoppers get to the till. Those activists who express their anger at the US through conscious boycotts of its companies remain a small minority.

The bigger question worrying the business world is whether the opinion poll data point to a more subtle tarnishing of US brands in the minds of millions of ordinary consumers. If the American dream played such an important role in the growth of iconic US brands, what happens if significant numbers of consumers begin to think of the US as a bit of a nightmare?

Mr Nye, a former dean of Harvard's Kennedy School of Government and assistant secretary of defence in the Clinton administration, is one of many who are certain of the connection.

"US brands have benefited from a sense that it is fashionable, chic and modern to be American," he says. "The other side of that coin is when US policies become unpopular, there is a cost."

This kind of unconscious brand association is the lifeblood of the marketing industry, and those taking the threat most seriously tend to reside on Madison Avenue, home of New York advertising.

Keith Reinhard, chairman of DDB Worldwide, an agency that counts McDonald's and Budweiser as clients, is leading Business for Diplomatic Action, a coalition of advertising executives and public relations consultants who want to fix brand America's problem.

"That slice [of America] no longer looks so attractive," says Mr Reinhard. "Foreigners are transferring anger at the US government to anger at the US and anger at US business."

Others question whether politics is affecting consumer behaviour. Why, they ask, are more companies not reporting it? Could it be the era of one-size-fits-all global brands, rather than US dominance of consumer markets, that is coming to an end?

Earl Taylor, chief marketing officer of the Marketing Science Institute, a US think-tank, is typical of the sceptics. "Consumers are able to compartmentalise the brands of a country from its foreign policy," he says. "If there was a simple relationship between US brands and foreign policy we would have seen it decades ago."

Until recently, US companies have either tended to agree or stayed out of the argument.

But there is growing evidence that this is a problem they cannot afford to ignore. In European markets such as Germany and France many iconic US names - Coca-Cola, Marlboro, McDonald's, Wal-Mart, Disney, Gap - have reported weak or falling sales, though each blames other local factors.

Corporate America is not admitting to an image problem just yet, but some companies are at least beginning to talk about it. McDonald's, for example, recently agreed to join the board of Business for Diplomatic Action. It is also expected to co-host a seminar in March at Hamburger University, its management training centre, to discuss how US companies can be better "world citizens".

John McNeel, an advertising executive at TBWA Worldwide, says the restaurant group's concern comes as no surprise: "McDonald's is a very vulnerable brand in this context - not only is it closely associated with America but they have fixed assets all over the world."

PepsiCo, the soft drinks group, also recently joined Business for Diplomatic Action in sponsoring a travel guide for US college students, which aims to help curb the image of the "ugly American" abroad.

One reason for the growing business interest in this kind of project is that market research increasingly proves the link between politics and brands.

Early signs of trouble appeared in a 2003 study of "power brands" by Roper, the market researcher, which showed popularity scores for leading US companies had slipped. NOP World found similar evidence suggesting that US companies were seen as less trustworthy and honest after the Iraq war.

The strongest evidence yet of a link between politics and consumer behaviour was supplied by Global Market Insite (GMI), an independent Seattle polling group, which surveyed 8,000 consumers in eight countries over several months in 2004. In December, one-fifth of the Europeans and Canadians in its sample said their anger over US foreign policy would deter them from buying US brands.

Of course, what people tell pollsters and what people do in the privacy of the shopping mall can be two entirely different things. But if even a fraction of these people act out their frustration, a significant potential market is lost.

Most interesting is work carried out by Research International, part of British media group WPP. Its study of Latin American consumers in 2003 supported the idea that you could hate the US but still support its brands. But a repeat of the study carried out this year had gloomier findings, particularly in Chile, Argentina, Brazil and Mexico."The news is not all bad for US brands but we have demonstrated that younger people in particular react to [US brands] more negatively," it said.

Tom Miller, formerly a pollster with NOP World, is one of many in the profession who feel it is only a matter of time before such attitudes begin to make a serious dent in business performance."Sales can be a lagging indicator, but no matter how you look at this, it's not good news," he says.

Not all brands are treated the same, of course. GMI's data [see scatter graph] show that companies such as Kodak, Kleenex, Visa and Gillette are simply not perceived as American. Users of Microsoft software might know its heritage but have few alternatives.

Technology companies also seem immune - as the worldwide success of Apple's iPod and the Chinese purchase of IBM's consumer PC business demonstrate.

But among those consumer companies perceived as American, and vulnerable to boycotts there is a remarkably consistent set of problems in the countries that have seen the biggest swing in public opinion. Coca-Cola, which makes 80 per cent of its profits outside North America, sold 16 per cent less beverages to Germans in the third quarter of 2004 than a year previously. McDonald's blamed falling German sales for virtually eliminating growth across Europe. And Altria sold 24.5 per cent fewer Marlboro cigarettes in France and 18.7 per cent fewer in Germany during the third quarter.

In each instance other factors play a role. The falling dollar will also mask problems by inflating repatriated profits and lowering the cost of exports.

Marlboro, for example, blames tax changes that encourage customers to trade down to cheaper brands. Coke says German bottling laws have a similar effect. But neither seems able to overcome such obstacles as well as it used to.

Some companies say they do not lose much sleep over political factors that are outside their control. "What could we do anyway?," asks one Altria executive. "Fly the French flag? Tell them it wasn't us that boycotted their wine?"

Most importantly, some European companies such as Unilever and Neste have experienced their own problems with weak consumer spending.

"It's too simplistic to say [that] what's happened in Europe is just a function of anti-Americanism", says John Quelch, a professor at Harvard Business School and a leading sceptic about the link between politics and consumer behaviour. "The economic downturn is particularly important in the case of global brands because consumers do not want to pay a premium price and will switch to local brands and private labels."

Yet it is not just discount brands that have been gaining at the expense of American rivals.

Swiss private banks claim to be winning savings business from US competitors such as Citigroup in the Middle East, France and Germany. Some rich individuals are said to be concerned at the unpredictability of US foreign policy and risk of asset seizures - a direct threat to the reputation of the US financial system for fairness.

Foreign airlines benefit from the fear of terrorist attacks on carriers with strong US associations. Air Canada says it has seen an upsurge in business passengers opting to fly via Canada rather than brave the notorious US visa system.Similar obstacles for overseas students erode US soft power by encouraging them to enrol at British or Canadian universities.

Even US hotels abroad now fear being seen as terrorist targets. Barry Sternlicht, executive chairman of Starwood - which owns Sheraton - was one of the first business leaders to speak out on anti-Americanism this year: "Our politicians must remember that our businesses are global and we rely heavily on trade and tourism."

For many multinationals, the answer increasingly seems to be to downplay any US heritage or even a single global identity.

Neville Isdell, new chief executive of Coca-Cola, is typical of many business leaders who work hard to stress local credentials with sports sponsorship and customised advertising. "We are not an American brand," he says.

Starbucks, the coffee chain, has thrived by making more of its products' associations with the developing world than of its own Seattle heritage.

But Doug Holt, professor of marketing at the Said School of Business in Oxford, cautions against running away from historic roots entirely. "Local is not always better," he warns. "People assign value to brands that have succeeded globally; that's why multinational companies do so well."

If nothing else, the trend reveals a declining confidence in the aspirational pull of the US. Simon Anholt, author of Brand America, sums up how far the US has slipped from its pedestal: "The world's love affair with America isn't exactly over, but it has stopped being a blind and unquestioning kind of love."

'Cool would come from Tokyo rather than LA'

US brands face a new threat in Asia. But it has less to do with the policies of President George W. Bush than with the preferences of consumers such as Han Yue, a 21-year-old native of Shenyang, China, who has moved to Singapore to learn about the property business, writes Gary Silverman.

Shopping on Singapore's bustling Orchard Road, Ms Han makes clear that she looks to other Asian countries for her cultural cues. She is not hostile to US brands: some even strike her as "sexy". She just prefers fashions from Japan. "I think they are very cute," she says. "They look very young."

Ms Han's cultural sensibility is important. Marketing services executives see little evidence that the war in Iraq is provoking an overt backlash among Asian consumers. But they do see signs that some consumers are increasingly indifferent to US brands and are paying great attention to Asian trends and products.

"Japan is really what people are looking at for quality and relevance," says Andy Wilson, regional planning director in Asia-Pacific for the Ogilvy Mather advertising agency. "Cool would definitely come from Tokyo rather than Los Angeles."

The growing interest in Asian labels is a challenge for US brands, but not an insurmountable one. Across the street from Ms Han, a sign in the window of a Levi's st ore on Orchard Road proclaims that "iconic American jeanswear" can be found inside. If the image of the US has been tarnished, there is no sign of it on the rear ends of Singaporeans. Levi's commands 85 per cent of the country's premium jeans market, says Charles Wigley, strategic planning director for the BBH advertising agency in Asia.

Mr Wigley says that kind of market dominance is difficult in the west, where young trendsetters often abandon products because they are popular. By contrast, consumers in Asia still see brands as guarantors of reliability. "There is still a good deal of comfort and attraction in brands in Asia," says Linda Locke, regional creative director for the Leo Burnett advertising agency.

Also, US brands have done an artful job of blurring their ties to their home market. Last year, a survey by Leo Burnett in China, India, Korea, Indonesia and the Philippines found that 49 per cent of respondents saw Coca-Cola as a global brand. Only 31 per cent viewed it as American and 15 per cent considered it to be local.

Since the Iraq war, Ms Locke says, US brands have been trying to stress their ties to local producers and franchise owners. For example, McDonald's has been running advertisements celebrating the lives of people in Indonesia, the world's largest Muslim country.

Maurice Levy, chief executive of Publicis, the marketing services group, says he has yet to see "an important sign" that the Iraq war is seriously harming western brands in Asia. It is more a subject of debate between intellectuals than something that is hampering the development of these brands with consumers," he says.

The danger for US companies is that they will fail to appreciate the growing self-assurance of consumers in markets such as China or India. This increasing confidence could translate into a growing tendency to take offence at cultural slights.

This month, China banned a Nike advertisement that depicted US basketball star, LeBron James, defeating a kung fu master and other Chinese cultural icons in a video game-style battle.

China said the advertisement was offensive. Advertising executives suggested Nike erred by not letting the home side win. BBH got a better response with a Levi's advertisement that showed an Asian man facing down a street full of mean-looking westerners. "We have to be very careful about advertising in these countries," Mr Levy said. "We know cultural things are very touchy."