The Strategic Role of International Marketing - Term Paper Example

[your teacher’s of the I. Introduction It has been argued that the adoption of a uniform strategy across the globe enables a company to benefit from a range of potential synergies that can provide it with competitive advantage. Others, however, have argued that adapting strategy to fit idiosyncratic national market characteristics is key to a companys success in these markets. The purpose of this paper is to explore the two strategies by looking at their relative strengths and weaknesses. The two schools of thought in terms of global product strategies and operating in international markets are analyzed, and their differences discussed. Lastly, by weighing the relative advantages and disadvantages, a suggested change of thinking is offered for the recommendation. II. Body A. Standardization versus adaptation Over the years, global and multinational companies are faced with the choice between standardization and adaptation when it comes to their strategy in different markets. While standardization has been the cornerstone of globalization over the years, it has also been argued that companies that tailor their strategy to their individual country markets have more chances of local success. According to Loyka, “the globalization of markets is the principal driving force behind the need for global product standardization theory (2003).” The two strategies certainly have their own advantages and their own drawbacks. Therefore, assessing these relative strengths and weaknesses is important when considering entering other international markets and joining the global competition. B. To standardize 1. Advantages Johansson in his book “Global Marketing has identified the advantages of standardization, which according to him includes the following: “cost reduction, improved quality, enhanced customer preference, and existence of global customers, and the emergence of global customer segments (2000, 367-368).” As according to Loyka: “While standardization of product design, packaging and promotional material offers important economies to multinational marketers (Buzzell, 1968), little hard evidence is available on the potential benefits arising from a more coherent international image, more rapid international diffusion of products and ideas, and greater coordination and control (Walters, 1986). The gains from standardization range from cost savings and more consistent dealings with customers, to better planning and exploitation of ideas with universal appeal (Buzzell, 1968) (Loyka 2003).” Cost reduction. As companies find their local markets saturated, companies look for opportunities in the international markets. The liberalization of trade in many countries has made companies to consider expanding into other markets outside its own country. As the company finds another market where it can offer its current products without modifying them, hence a standardized offer, the increase in volume and will bring economies of scale in its operations. As volume increases, the average cost for a company decreases that it is able to enjoy more profits from this international expansion. This increasing profit due to cost reduction has been the major driving force of globalization (Loyka 2003). Improved quality. When a company’s capabilities are small due to smaller resources and smaller markets, additional huge investments in order to substantially improve the quality of its product are usually not pursued because the cost cannot be justified by the small local market. By catering to larger markets, the cost is dispersed among a larger number of customers. While the company needs to cater to a great number of people, standardization of its product will minimize its cost and make the large improvements in quality a priority among its investments. Due to this, products that are standardizes tend to have better quality as the company can direct its efforts to product development and improvement. Enhanced customer preference. Standardized products offer the same products with the same level of quality in markets other than its local market. Thus, when this level of quality has satisfied a consumer and the company gains the consumer’s loyalty, the customer is likely to buy the company’s products even in a different country. As according to Johansson, “positive experiences with a product in one country naturally encourage a consumer to buy the same brand elsewhere (2000, 367).” Thus, standardized products enhance or create a stronger preference among customers, if they deliver well according to a customer’s expectation. According to Loyka, “[…] argued that if a product met the needs of enough people to make a market, the product can be considered in any country, as long as it is communicated in the idiom of the people to whom it is addressed (Loyka 2003).” Global customers. According to Levitt in his article in the Harvard Business Review, “Different cultural preferences, national tastes and standards, and different business institutions are vestiges of the past. […] The world’s needs and desired have been irrevocably homogenized. This makes the multinational corporation obsolete and the global corporation absolute […] instead of adapting to superficial and even entrenched differences within and between nations, the global corporation will seek sensibly to force suitably standardized products and practices on the entire globe (Levitt 1983, 92-107).” Levitt’s idea of a homogenized market can be attributable to the existence of global customers who demand the uniform level of quality and product offerings from companies. The demand for this standardized product creates global customers. Global segments. As the company’s operations grow and the number of customers it serves increases, segments for this bigger global market emerge (Johansson 2000, 368). This is another benefit of offering standardized products. As the global segments appear, the company can better spot the most profitable segments which it can aim to cater in terms of its standardized products. 2. Disadvantages Standardization also has certain disadvantages. According to Johansson, these disadvantages include the following: “off-target, lack of uniqueness, vulnerable to trade barriers, and strong local competitors (2000, 368).” Off-target. Standardization limits the ability of products’ offering to the market. Because the products are standardized, the differences in the attributes that consumers in various countries put emphasis on will not be exactly addressed by these products. Thus, there is a tendency for standardized products to be off-target as regards consumers’ preferences (Johansson 2000, 368). Lack of uniqueness. Another disadvantage of standardized products is the lack of uniqueness among its product offerings. Because products are not customizable, the products cannot be tailored according to individuals’ differences. According to Johansson, “if customization or exclusivity is one of the overriding purchase considerations, a standardized offering is by definition in a weak position (2000, 368).” Vulnerable to trade barriers. A company’s ability to market standardized product in a given market is dependent on trade regulations of the country where it intends to enter. Only when there is an open trade can companies enter the local markets and realize the scales benefit (Johansson 2000, 368). When there are trade barriers such as high quotas and tariffs, companies will then be forced to enter the market by investing in local manufacturing plants. This undermines the scale benefits that the corporation aims to reach by employing standardization. Thus, this vulnerability to trade barriers is a disadvantage of this strategy. Strong local competitors. As the company’s product offering is standardized, chances are huge that these products do not completely address the specific needs of the consumers in another market. When strong local competitors are more flexible, they can attack the standardized product by offering more customizable products tailored more specifically to the needs of the local customers. This relative inflexibility of the standardized products is a weakness of the strategy in the presence of strong local competitors. C. To adapt 1. Advantages At the other extreme, the global product adaptation strategy, talks about the need to adapt certain product to the preferences of the local markets. This is because of the increasing diversity and changing consumer preferences. When Levitt’s view of homogenization of markets is challenged, some strong supporters of adaptation have emerged, such as Porters: “Is Ted Levitt right about the globalization of markets? Yes. Does that mean that you standardize and homogenize the way you perform marketing in every country in the world throughout the marketing mix? Of course not (Porter 1992).” Some of the advantages of the adaptation strategy, as according to Akhter include the following: “[greater flexibility,] improved fit between products and consumers, and expanded penetration (MIIS.edu 2009).” Greater flexibility. One of the advantages of the adaptation strategy is greater flexibility to tailor the marketing mix to the changing preferences of consumers. Because a product is tailored on the differences of the national markets, the strategy enables a company to respond quickly to the dynamics of the market. By addressing the different needs of these consumers, it is said that chances of success would be greater. Marco Rivetti, Chairman of Gruppo GFT once said, “For GFT, globalization is not about standardization, it’s about a quantum increase in complexity. The more the company has penetrated global markets, the more sustaining its growth depends on responding to the myriad of local differences in its key markets around the world. To be global means to recognize the differences and be flexible enough to adapt to them (Howard 1991).” This major advantage is based on the argument that the world is not a homogeneous place in terms of taste and preferences of the people. The differences among cultures and norms are large factors which a company should consider in entering new markets and offering products. According to J. W. Eenhoom, Unilever’s Group Executive: “Unilever in most of its product groups still adheres to the adage ‘think global, act local’. Of course, we are re-evaluating our current portfolio with a view towards harmonization. And we feel that our core brands should all have an international dimension. But to enable a flexible response to market trends, still a lot has to be done locally. Unilever still uses the local market as its power base. For products with international potential, we have central guidelines as to how they should be marketed. However, local managers can still make modifications if they are consumer relevant (De Jonquieres 1991).” Improved fit between products and consumers. With the adaptation strategy, customization is a key practice in order to tailor the company’s offerings to consumers in the national market. By customizing the product offerings, the company gains a better edge in the local competition as it can compete by providing excellent benefits which are aimed to address consumers’ specific needs. “When it comes to product strategy, managing in a borderless world doesn’t mean managing by averages. It doesn’t mean that all tastes run together into one amorphous mass of universal appeal. And it doesn’t mean that the appeal of operating globally removes the obligation to localize products. The lure of a universal product is a false allure. The truth is more subtle. […] Managing effectively in this new borderless environment means paying attention to delivering value to customer—and to developing an equidistant view of who they are and what they want. Before anything else comes the need to see our customers clearly. They—and only they—can provide legitimate reasons for thinking global (Ohmae 1989, 155, 161).” Because companies learn more about their consumers in other markets first, they know what attributes the market will give emphasis on. Therefore, by utilizing an adaptation strategy, there is improved fit between products and consumers. This makes the success of company in the local market more possible. Expanded penetration. Another advantage of the adaptation strategy is the expanded penetration in the market. With an adaptation strategy, the company looks deeper at the attributes of the market. In contrast to standardization where not all the target market may be satisfied by the product offerings, adaptation strategy aims to ensure greater satisfaction by knowing these consumers’ more specific needs. “Being a truly global company means being an insider in the major markets around the world (De Jonquieres 1991).” Thus, adaptation strategy enables the company to gain larger market share and chance for greater success in the local market. 2. Disadvantages Like standardization, adaptation also poses some disadvantages. According to Johansson, the disadvantages of the adaptation strategy includes “scale benefits being hard to realize, and loss of control in terms of the company’s overall marketing effort (2000, 368).” Scale benefits hard to realize. Because marketing efforts are tailored in different national markets, the economies of scale are not realized as the costs structures will differ in each market. This results in huge investments in different markets, and the company’s inability to reap the benefits of efficiency that is offered by standardization. A company’s choice to utilize adaptation strategy entails certain investments in the international markets that would come with customization of marketing mix in other countries. When a company chooses to tailor product offerings specifically to the preferences of the consumers, significant costs such as major modification of the products, additional marketing research, additional costs in marketing communications are included. Because of this, the tradeoff between efficiency and effectiveness, in the sense that the company gets to fight in the best manner in the local markets exists. As according to Loyka in his article in the Journal of Leadership and Organizational Studies: “Product adaptations tend to be reactive, making it difficult for multinational companies to reap economies of scale in production and marketing, and coordinate their networks of activities on a global scale (Kotabe, 1998). Among the myths regarding global strategy is the assumption that it means integration across international operations, which causes a disassociation of product lines from their local context (Kanter & Dretler, 1998) (Loyka 2003).” Loss of control. With the adaptation strategy, companies customize products according to the attributes that are given more emphasis by consumers in the other markets. These attributes are usually the basis for the product’s positioning and product offering in the national markets. As companies customize their products in different markets, there is a tendency that the product will have different positioning in different markets. This loss of control in the marketing efforts may result in perceived conflicts in terms of the overall positioning of the product. As these conflicts result in blur in the overall positioning of the product, the conflicts can harm the reputation of the product if they are totally different. This loss of control as companies try to tailor their marketing efforts specifically to the preferences of consumers in different national markets is a major disadvantage of this strategy. III. Conclusion In terms of international expansion and catering to new markets, companies are usually faced with two choices as regards the schools of thought for global product strategies. On one hand, there is standardization which major advantage is the cost reduction through economies of scale, and on the other is the adaptation strategy, which major advantage is greater flexibility to cater to the rapidly changing preferences of consumers. Standardization offer advantages such as ‘cost reduction, improved quality, enhanced customer preference, and existence of global customers, and the emergence of global customer segments’. On the other hand, its disadvantages include ‘off-target, lack of uniqueness, vulnerable to trade barriers, and strong local competitors’. As standardization’s major premise is to avail of the economies of scale by the increase in production by expansion to international markets, efficiency is greatly emphasized, usually at the expense of not being able to provide benefits that could completely address the consumers’ needs in the local markets. Adaptation, on the other extreme is based on the major premise that national markets are very much different, and that product offerings should be tailored in order for the company to succeed. The adaptation strategy has advantages which include ‘greater flexibility, improved fit between products and consumers, and expanded penetration’. Its advantages, on the other hand include ‘scale benefits hard to realize and potential loss of control’. The two strategies are both extreme in dealing with global product strategies. But looking at the big picture, it can be seen that both strategies make sense in the modern market state. Standardization, on one hand offers economies of scale which is the cornerstone of a globalization, and is usually the impetus for a company to enter international markets. On the other hand, adaptation strategy argues that preferences of different national markets are important factors in determining the company’s success in the market place. As both can be true, the compromise between the two is usually better than following just one. On one hand, the scale benefits of standardization should be realized, but in order to compete more some things in the marketing mix have to be tailored to the preferences of the local market in order to gain better edge in the local competition. Works Cited Akhter, S. “Global Product Strategies.” Presented in Monterey Institute of International Studies. 2009. Accessed March 5, 2009 from De Jonquieres, G. “Unilever’s Food Operations.” Financial Times. October 28, 1991. Howard, R. “The Designer Organisation: Italy’s GFT Goes Global.” Harvard Business Review. September-October, 1991. Johansson, Johny K. Global Marketing Management. New York: McGraw Hill, 2000. Kotler, P., and Gary Armstrong. Principles of Marketing. 10th ed. New Jersey: Pearson Education, 2004. Levitt, T. “The Globalisation of Markets.” Harvard Business Review. April/May, 1983. pp. 92-107. Loyka, Jeffrey J and Thomas L. Power. “A Model of Factors that Influence Global Product Standardization.” Journal of Leadership and Organizational Studies. September 22, 2003. Ohmae, K. “Managing in a Borderless World.” Harvard Business Review. May-June, 1989. Porter, M. “The Strategic Role of International Marketing.” Global Marketing Management: Cases and Readings. Boston, MA: Harvard Business School, 1992. Read More