Baidu Inc (ADR) Risk Factors: Brand Strength (BIDU)

Qatar Development Bank (QDB) recently took part in the 11th annual international network of small and medium enterprises forum (INSME 2015) in Cape Town, South Africa.These meetings, which were hosted in South Africa for the first time, focused on the theme “Technology and Innovation for Inclusive Growth”, where they discussed ways to develop local institutions by highlighting the important role of technology and innovation in raising the level of competitiveness of these institutions and enable them to achieve growth. It also sought to explain best global practices in supporting the SME sector.

Abdulaziz bin Nasser al-Khalifa, chief executive of QDB, gave a keynote speech, where he introduced some of the key mechanisms by which QDB offers support to SMEs. His presentation highlighted how these channels enhance and support the Qatar National Vision 2030.

“Supporting SMEs to grow and strengthen their businesses is a central focus of QDB, which is why it is so important that we attend these international events to hear firsthand the experiences and best practice taking place in the field of global SMEs,” he said.

At the meetings, Ibrahim al-Mannai, training and development manager at QDB was elected to join the board of the INSME until 2017.

“We are confident that our considerable and valuable experience can benefit all SMEs and SME service providers. Our goal is to provide the most innovative solutions to meet the many challenges faced in the SME sector, and encourage creative thinking among entrepreneurs and investors,” al-Mannai said.


Baidu (NASDAQ: BIDU  )  is the dominant Internet search company in China and has done a wonderful job of fighting off competitors both domestic and international on the way to becoming a $71 billion company by market cap. In China, Baidu must fend off local competitors such as Qihoo and Sohu. It’s also expanding its reach globally into other large markets such as Brazil — where it recently launched a Portuguese version of its search engine — where it will more directly face off with Google (NASDAQ: GOOG  )   (NASDAQ: GOOGL  ) , which currently owns 88% market share of global search.

Key to remaining strong at home and expanding abroad is for Baidu to make its brand more known and respected by Web users.

In the company’s latest annual report, management lists a handful of potential threats to the business. One stood out to me as being particularly difficult to solve. “Our business depends on a strong brand, and if we are not able to maintain and enhance our brand, our business and results of operations may be harmed.” Strong brands give a company pricing power. Brand powerhouse Coca-Cola, for instance, is able to deliver tremendous returns on equity because consumers are willing to pay significantly more for a Coke product than an otherwise similar product from a generic producer.

Strong brands also help ensure loyalty from consumers when presented with other options. In the United States “Googling” has become a verb meaning searching for information in a search engine. Even with other options such as Bing, Yahoo, and others, Google remains the dominant search engine in the United States. Google is responsible for about 64% of U.S. searches.

Measuring the power of a brand is not an exact science, but analysts at Forbes have put together a list of the 100 Most Valuable Brands in the world. Google, the company that Baidu is most often compared to, comes in at No. 3 with a “brand value” of $65.6 billion. Baidu doesn’t crack the top 100.

However, Baidu had about 56% percent market share in China as of late 2014 and has historically had very enviable margins. These margins have, after reaching a peak of 50.77% in June 2012, dipped all the way to 19.25% in March 2015. This dip has caused its margins to drop below that of Google, which currently boasts a profit margin of 20.78%. Expansion into other lines of business such as online video with Shanghai-based PPS, and a daily deals site called Nuomi, which are allowing Baidu to diversify its revenue streams, may have caused a short-term hit to margins and it remains to be seen what they hold for the future of the company.