Monitoring my competitors show they build tons of external links. Many of these links consist of brand name anchor text.
Is building links with brand name anchor text OK for SEO?
Is it necessary to link to site with brand name anchor text?
Internal links throughout your site help Search Engines determine your site structure.
External links help determine legitamacy. Sites used to trade links with eachother and probably still do. Say your website is all about caring for pet dogs and you have a friend who runs a doggy daycare. The two of you trade links (let's coin the term "handshake links"). SEO practices are going to view your handshake link to have more value because it is relative to your content.
In relation to specific brand names. Your competitor is probably trying to rise up on rank for that specific search. So, every time someone searches for that "brand name", they want their website in the first page of results. There are a couple of reasons they would do this. One, they sell a comparable item and they are hoping to grab some of "name brands" customers. Or, they are a distributer for "name brands" products. Are external links good or bad?
Both. They can be good for your ranking if you have enough content depth to back up the link. If you have a few paragraphs and then add an outgoing external "brand name" link in a logical way, it will help you rank in searches for that "brand name". However, this is a case where a little will go a long way and too many will be wasted. SEO ranks have historically counted how many of this, how much of that. The number of your links should always be relative to the content of the page. Are the links themselves "necessary"?
Probably not. You could mention "brand name" (without linking to it) in your content and get the same umpf the link would provide. The thing about external links that your competitor is overlooking is that an _outgoing_external_link_ benefits the site that the link leads to far more than the site it comes from.