MBA Strategies in Action - Research Paper Example

Introduction Globalization and liberalization have urged companies to expand overseas but this has brought with it certain challenges. This requiresbuilding the right business strategy and it fundamentally revolves around being competitive. Every organisation adopts a different strategy suitable to its internal and external environment. International expansion is a strategic decision as environments differ in regions and countries and uniformity in strategy may or may not be successful. A global strategy treats the world as a single unified and homogenous market, while a localized approach takes into the account the local differences when formulating the strategy. Differences could be in culture, behaviour, political stability, local government regulations and customer needs. All of these factors pose a challenge because the objective of any strategy is to develop the core competencies for sustainable competitive advantage. While some argue that a global strategy enables synergies across variables other feel that localization is the key to success. While standardization reduces costs and gives the brand a globally recognize bale image adaptation becomes necessary because of the local differences between the buyers in different countries and regions (Solberg & Durrieu, 2008). When companies expand overseas, they are either ‘adapters’ – blending with the local environment or ‘innovators’ – introducing their home country practices into the host country (Ferner & Varul, 2000). This paper will draw upon the strengths and weaknesses of both these strategies and demonstrate that the strategy has to depend upon the product characteristics, the time of entry, the consumer characteristics and the brand reputation. Competitive advantage – theoretical perspectives The strategy to attain competitive advantage has been looked at differently by different researchers and academicians. While Porter’s several strategies including the generic strategies (cost differentiation, leadership and focus) are well known, Mintzberg et al (1998) offer another concept of strategy which is that it acts as a mediation force between the organization and the environment. Ansoff et al (1976) state that, amongst other things, responsiveness to the problems is what strategy is all about. Porter’s generic strategies emphasizes that only one strategy can be utilized at a time but researchers argue that a hybrid or a middle approach can be utilized to gain competitive advantage (Baack & Boggs, 2008). This suggests that an organization has to develop strategies and be prepared for changes depending upon the situation. Research suggests that only those companies have survived who have factorised the local flavour in their strategies. Coke is a prime example. This company is acclaimed to have the best brand image in the world. Its product is uniform all over the world. However the uniformity ends here. The promotion of Coke is strictly attuned to local environments. Since it is a brand that is associated with the common man, an icon is considered as essential as the common man looks to an icon to identify himself with as his aspired role model. It is found that Coke uses different celebrities as its brand ambassador in different countries. Its brand ambassador in the Middle East is the singer/actor Tamir Hosny and in India it is the cricketer Gautam Gambhir, thereby demonstrating that they are innovators. All positioning is directed to entice the consumer. The uniqueness appeals to the customer. But for this it must fulfill the customer’s needs or wants. Hence strategies are to be consumer oriented. Positioning demands some sacrifices. Organisations have to make choices in order to position themselves and positioning comes out of best set of activities suited to produce those results that satisfy the consumer. These activities have to be performed in a different way to produce unique results enabling the organisation to position itself or its products for a destined set of consumers. Local adaptation leads to competitive advantage A standardized marketing approach suggests that a similar product range with similar prices can be distributed through an identical distribution system while maintaining similar promotional programmes (Zou, Andrus, Norvell, 1997). This implies that markets and consumer behaviour is homogenous but local culture and values impact the needs and wants of the consumers. Advanced technology in information, communication and transportation have homogenized the markets and this has also resulted in higher quality products at cheaper costs. Standardization definitely results in cost savings, improved planning and distribution, and greater control across borders but this is not possible if firms want to succeed in their overseas expansion. Levi’s approach was a blend of standardization and local adaptation. According to Smith (2007) the adaptation strategy or the localized strategy is based on four major differences across nations – buyer behavior characteristics, socioeconomic condition, marketing infrastructure, and competitive environment. Levi’s jeans, supposed to be a product generally bought by the young consumers regardless of their cultural upbringing, faced the challenge of local adaptation. Levi’s faced challenges not just in marketing its products but also in areas like selection of the distribution channels, debt collection period and pricing. The distribution channels have to be adjusted according to local needs and conditions. The choices and number of retail outlets in developing countries are limited and hence the range of selling patterns cannot be deployed in poorer states. The distribution channels and strategy are influenced by the cultural norms of a country (Vrontis & Vronti, 2004). Online shopping is common in the developed countries which is not popular in African and in many Asian countries. In Japan they had to accept the debt collection period as six months while it is much shorter in the US. Pricing too is an important strategic decision because in countries like Africa, haggling over pricing is common. Levi’s had to make adaptation even in the product mix because of the differences in culture (SD, 2005). In the Islamic countries women do not wear tight-fitting clothes while the Japanese prefer tighter jeans and the Far East Asian market demands much shorter inside leg measurements. Not only the size, there are differences in colour preferences also across nations. The promotional strategy too has to be altered because in the USA and Europe jeans are considered to be casual and rebellious wear while in Russia they are considered to be sophisticated. Product positioning in each country hence differs because in Spain it is considered a fashion item because of the high prices. Thus, a uniform strategy across the globe can result in synergies but it is not feasible given the differences across nations. Levi’s had to be adapters to sustain competition. They had to position their product as well to suit the customer in each country. When a company sets a standard universal price for a product that is sold globally many synergies are created in terms of similarities in promotions and marketing efforts. This has been well explained by Hollensen (2001). He stated that selling one standard product or set of standard products that are also sold in the Home market help in saving money on market research and product development. However this impedes local marketing efforts by having well designed Promotion Policies that fail to cater to local cultural requirements and satisfy the local customers of that market. By addressing local issues with international Products the image of the company can be stabilised which will serve the eventual cause of competitive advantage. Although standardization brings in homogeneity across markets as well as customer satisfaction and cost savings in many ways, it has been argued that it also causes loss of economies of scale and offers a low-cost competitive position in the global market (Cavusgil et al., 1993). However this is a very simplistic view and as explained elsewhere an adaptive view of pricing which takes local factors into account is more practical (Wind 1986). Competitive advantage through service In emerging economies, there is a high level of political and economic risk. Demand is uncertain, resources such as human, financial or other resources are scarce, and there is unstable capital flows and high rate of interest. Due to all these factors gaining competitive advantage in emerging economies requires adapting to the local factors. Wal-Mart is well known for having special relationships with its suppliers due to its size and has the world’s most efficient distribution system in the United States. However, they too had to alter their strategy in emerging markets such as South America. In emerging markets Wal-Mart has no price advantage, no distribution advantage and no special relationships to maintain. The retailer has to focus on customer service to remain competitive and sustain competition. In South America they allow customers to return products if they decide that they do not need it or want the product. Wal-Mart’s strategy in South America has been altered to suit the local requirements rather than duplicate the practices of USA (Baack & Boggs, 2008). While Wal-Mart enjoys cost-leadership strategy in its home market, they had to abandon that strategy in South America and focus on high quality service to create competitive advantage. Competitive advantage through customization The traditional marketing concepts relying on the 7Ps of Boom and Bitner (1981), 4Cs of Achrol and Kotler (1999) and 30Rs of Gummesson (1996), are no longer producing the results that were expected of them. In internationalization marketing strategies have to be customized according to cultural, regional and national differences. Like coke, McDonalds also wanted to standardize the items that taste the same whether in Singapore, Spain or South Africa (Vignali, 2001). McDonalds could have had substantial cost savings had they been able to adopt this strategy but they realized that they had to adapt to local tastes and customer needs. Instead they adopted the principle of ‘think global, act local’. Big Macs are served without cheese in several outlets in Israel, and in India they serve vegetable McNuggets and a mutton-based Maharaja Mac. They had to bring about these changes because within India itself Hindus do not eat beef, Muslims do not eat pork and Jains do not eat meat at all. This conforms to Guerini’s (2006) contention that in a borderless economy, differences within a country will surpass difference between countries. Many times more similarities between different consumer groups can be found in different countries than between consumers within the country. Even the promotional element in the international marketing mix has to be adjusted as per individual country requirements. Simply translating into local language does not suffice. Various macro economic factors have to be taken into account which includes the government controls, the media availability, economic differences, local distributors, tastes and attitudes and availability of agency (Vignali, 2001a). Kellogg tried to promote its products under one brand name having a globally standardized image but they had to give each product a domestic name. When they renamed the Coco Pops into Choco Krispies, feedback indicated that the children in UK preferred the old name. They had to revert back to Coco Pops. The marketing of services too requires local adaptation as in the case of The Great Wall Sheraton Hotel, Beijing. The ITT Sheraton has a global reputation for service excellence and quality but when they opened up in a joint venture in Beijing they had to take into account the local the environment, the language, the culture, the governmental bureaucracy, and how businesses maintain interpersonal relations (Mwaura, Sutton & Roberts, 1998). While they strictly adhere to the basic cultural values practiced in the USA such as economic achievement, maintaining a customer-centered approach and motivating people to achieve the productivity levels, without local adaptation they would not have been successful in China. Competitive advantage through innovation Strategies have to be changed amidst competition, demanding consumers, and amidst competitive suppliers. Under these circumstances, Porter’s diamond theory gains importance because close and interdependent relationships in the diamond play an important role in creating pressures on the firms to innovate and secure its position. Honda faced this in Vietnam when they confronted challenges from the Chinese motorcycle manufactures. The Chinese motorcycles available in Vietnam were very low priced – almost 1/3rd of the price of Honda’s motorcycles (Tiep, 2007). It also faced the pressure of the government policy in China. Faced with the environmental challenges in Vietnam, Honda having a strong brand reputation, decided to gain competitive advantage, through improved supplier relationships and customer satisfaction. Hence Honda decided to compete with the Chinese manufacturers and managed to gain competitive advantage through its strategy. Honda faced the challenge not just of gaining market share but also of preserving its brand reputation because many local manufacturers copied Honda’s models. While the other manufacturers were focusing on low cost products, Honda changed its policy in Vietnam when it recognized that consumers were dissatisfied with the low quality products. It introduced a new brand – Wave Alpha - for the local Vietnam market which was not available in its other markets. They focused on quality to gain competitive advantage and to gain the price benefit they outsourced production of non-core products to local suppliers while maintaining strict control to enforce quality. This strategy helped Honda to gain competitive advantage and consolidate its position in Vietnam through deploying and developing resources in the local country. Competitive advantage through customer satisfaction Global strategies and globalization are two different concepts, according to Schuh (2007). International marketing program standardization generally suggests using universal dimensions on the marketing mix elements such as the product, price, distribution and promotion program. However, even though a global culture can be perceived in most nations, this does not mean that consumers have the same taste and values. Global brands have to adapt to the local cultures. The automobile industry is the most globalized in the world. German car manufacturers, BMW and Mercedes, set up plants in USA and followed their regular strategy of hiring local people but they soon realized that the prestige of German luxury cars is based on the fact that they are built in Germany (SD, 2002). Hence the local consumers were not prepared to accept that cars produced locally would have the same quality. To retain its global position, its global brand reputation and gain sustained competitive advantage, Mercedes sent all its key workers for technical training to Germany. Toyota too harnesses on the local advantages for global competition. Under the Thainization philosophy, Toyota has been able to make people buy their products (Petison & Johri, 2006). Toyota applies this localization principle in all its ventures in international markets thereby managing to get the local market to buy Toyota products. Even in the US it projected that the Americans had researched, deigned and produced the cars themselves, when the consumers did not want a foreign car, and hence disseminated the ‘made in America’ message. Conclusion Thus a study of various products and services offered and marketed by multinationals in different markets have been studied. All of these suggest that local market adaptation is necessary to attain and sustain competitive position. Each strategy has its own advantages. For instance adaptation to local markets allows for faster penetration but it requires change in the strategy as Honda has to make major alterations in Vietnam. However, it introduces innovation in the process and enhances the efficiency of the company. Using the home market strategy may save on costs but the company continues to use the same mundane marketing mix. The adapter strategy forces it to be creative, introduce technological innovation, enhance customer service, understand the local culture, and deliver low-cost, valued added product or service to the demanding customer. The case is the same in every industry – from the auto industry to the food sector. Globalization does not imply that a firm can market or operate in the same way in every region or culture. Standardization may be possible to some extent but adaptation to the local characteristics is essential. References Achrol, R. S., & Kotler, P. (1999). Marketing in the Network Economy. Journal of Marketing, 63 (4), 146-163. Ansoff, H.I., Declerck, R.P., Hayes, R.L. (1976), From Strategic Planning to Strategic Management, John Wiley, New York, N.Y., Baack, D. W., & Boggs, D. J. 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