Specifics of Glocalization in McDonald's, IKEA, and Other Global Companies - Case Study Example

Glocalization of the of Table of Contents Introduction 3 Internationalization 3 Global branding 4 Internationalization and Localization (Glocalization) 5 Conclusion 11 References 12 Introduction Several well established firms have expanded their business operations in overseas locations. Internationalizing their business has given them access to new and larger customer base. However, international marketing comes with certain degree of challenges for the marketers. It has been evidenced that the social, cultural and behavioural aspects of the people vary across nations. Therefore the marketing activities of the firms should also differ in different host countries Czinkota (2009). This paper is based on the international marketing strategies. It covers on how different multinational firms have maintained a proper balance between maintaining an international brand and responding to the local culture. Various ways of achieving “glocalization” has been discussed in this paper with different corporate examples. Internationalization The process of internationalization allows a company to expand its business to other nations. The decision of overseas expansion can be triggered by various factors present in the market environment of the home country. The industry in which the company is currently operating may have reached a maturity stage and any further growth is not possible. In such cases the well established firms, in order to maintain its business sustainability, often seek out for foreign markets which have potential growth opportunities (Gilligan and Hird, 2008). Moreover, the high attractiveness of a particular industry often attracts a lot of new entrants as well as well established players. This as a result increases the competiveness of the industries and makes it quite challenging for the companies to survive. In order to avoid such steep competition, the firms often shift its business to another location where the level of competition is manageable. The companies always seek out for locations to internationalize based on the barrier to entry and the level of existing competition. If the barrier to entry is low and the industry have potential growth opportunities along with the low competition then the firms will most likely to expand their business in that region. Decision to internationalize their business also depends on organisational objectives. The firms which bear a massive expansion goal will try to expand its presence all across the world to increase its customer base and revenue generation (Young and Javalgi, 2010). There are several ways to internationalize a business or to enter in to a new foreign market. The mode of entry is highly imperative to the success of the firms. Roots (1994) discussed the entry in to the international market can be pursued by three main entry modes, which are Naive Rule, Pragmatic Rule and Strategy Rule. The naive rule states that the markets do not create any differentiation in their entry strategies and deploy the same strategies irrespective of the nation it is expanding in to. The pragmatic rule offers a flexible strategy that allows the marketers to change their entry strategy if it is not working or is not yielding the desired result. Thirdly and finally, the strategy rule is allows the marketers to get a clear insight about the new foreign market and analyse all the possible entry modes and then selecting the appropriate entry strategy based on their research (Adcock, 2010). The entry strategy bears great importance because it defines the marketing strategy or the positioning of the firm. At the same time it also defines the brand image of the company that is being perceived by the host country (Czinkota and Ronkainen, 2012). Global branding The firm which has decided to enter in to new foreign market place usually does that by one of the following mode of business, exporting, contract manufacturing, franchising and licensing. Among the four of the above stated methods the process of exporting, franchising and licensing involves communicating the brand of the company to the target end users. The success of the business expansion largely depends on how the host market is welcoming the new brand and its value proposition (Aaker, 2010). It is important for a company, irrespective of the target customers it is catering to, to create a proper brand awareness so that the customers are attracted to the new product offerings and choose them over the existing ones. The companies which cater to the mass market mostly depend on the value addition in terms of pricing. They compete with the local sellers in terms of pricing and try to convince the customers that their products are the best that they can get in the offered price. A premium image of their brand may not be necessary to attract the customers; just the brand recognition and brand awareness is enough. McDonald mostly caters to the mass market and it appeals to the customers by its product quality, highly standardized service quality and in store ambience. The brand image of McDonalds clearly carries these value addition factors and this is what the company is best known for. McDonalds has expanded its business in several countries and it carries the same global brand image, the image that attracts the customers inside the store. This particular brand image is constant all across the world. This has allowed the company to create a strong identity in a global perspective. The standardized service quality assures the customers that irrespective of the location of a McDonald store the consumer experience will still be the same. Likewise IKEA is best known for their assembling furniture and their product design which are offered at a lower price than fully assemble competing products offered by other players in the industry. Although the price of the products may slightly vary across nations due to change in exchange rate rates and varying operating costs, but the global brand image which creates a standardized perception of the company and its products still remains the same. Starbucks is another company which is present in more than a hundred countries, and yet it still carries the same global brand image. The company generally caters to the upper middle class if the society. The Starbucks’ products are slightly overpriced and the company is best known for a nice place to hangout with friends. Starbucks does not only sell coffee, but it also sells a unique experience, which is reflected in the warm customer interaction, in store ambience and other value added services such as free wifi. This particular image that the consumers hold in their minds is the constantly same throughout the world (Kumar and Siddharthan, 2013). The global brand image is what these companies leverage on to increase its brand awareness in the host countries. If somehow these perceptions change among the customers, then these firms are most likely to lose their identity and mostly their competitive advantage. Losing the brand value will leave them with nothing to differentiate themselves from rest of rival companies. Thus it is imperative for the firms to maintain its global brand image to the extent that their identity remains intact and the customers all around the world bear the same perceived value. Internationalization and Localization (Glocalization) As discussed in the previous section, every multinational firm needs to maintain a certain degree of globalized brand image, which stays unchanged across all of its business operations. However, as discussed by () the market environment varies greatly across different countries, which as a result leads to change in customers’ needs, their disposable income, their individual preferences, etc. Thus it makes it quite challenging to deploy the same marketing mix strategy in all the host countries, so there is no “one thumb rule” that can be used for a successful internationalization. The entry modes discussed by Roots (1994) clearly states that the strategy rule applied by the companies have recorded the maximum success rate. Thus it can be stated that the firms which design their international marketing strategies based on the through research on the cultural background and the consumer behavioural trends is most likely to succeed in their ventures. According to Hofstede (2010) the cultural background of country varies largely on the grounds of the psychological and behavioural patterns. The author devised six dimensions on which the cultural background can be assessed and the firms can successfully deploy their marketing strategies which are compatible with the existing cultural background. Hofstede’s (2010) cultural dimension clearly suggests that the likely hood of the consumers’ preference towards a particular product is largely dependent on the cultural background of the customer. Thus it becomes vital for the multinational firms to make certain changes in their marketing strategies and their marketing mix to ensure a successful market development. In order to do so, the companies need to incorporate certain localizing factors in their brand image, so that it becomes compatible for the cultural practices of the country. The cross cultural management approach clearly states that the companies need to create certain changes in their existing market strategies so that the value proposition is easily accepted by the new customers. Failing to adapt to the cultural difference will lead to incompatibility with the cultural practices, thereby leading to brand rejection (Chetty and Campbell-Hunt, 2004). This can be justified by the example of IKEA. In 1986 IKEA, a Swedish furniture company, entered in Japan. The company offered assembled furniture. The furniture designs were also quite different than what is popular in Japan. The company did not make any changes in its products design and decided to launch them in Japan, hoping that the value proposition which has been popular in the rest of the world will also be popular in Japan. However, the company failed miserably; the Japanese customers were not comfortable in assembling their own furniture. Moreover, the furniture designs were not complementary to the internal design of the Japanese houses. In 2006, IKEA had its comeback and this time they have successfully made their market survey (Stolba, 2009). They have realised that the current product designs are not compatible for the Japanese lifestyle. Keeping this in mind the company made the necessary changes in the product line up and created a line of furniture which attracted the Japanese customers. Thus it can be stated that the studying the consumer behaviour before launching a new product is essential for ensuring its success (Roudometof, 2005). From the above study it can be evidenced that there must be a striking balance between standardization and adaptation. This gives rise to the concept of “glocalization”, which is a hybrid concept of globalization and localization. In order to create customer preference the firms need to think global and act local. This can be clearly demonstrated by the example of McDonalds and its expansion in India. In India McDonald has gained significantly good market share by despite of the steep competition in the industry. The company has successfully realized that the consumption pattern of food is quite different in India as compared to that of its home country. In India the consumption of beef is almost negligible due to religious constraints. Moreover, more around 50 percent of the population is vegetarian. These factors are quite contrasting in terms of the product offering of McDonalds (Kaur, 2012). All the food items of McDonalds are for the non vegetarians and most of the products are made out of beef. Clearly this product portfolio is not supposed to work in India. The franchisee partners of McDonalds decided to change the menu items by replacing the beef items with chicken items. This as a result attracted the customers in large numbers. Moreover, the company also introduced a new product line up for the vegetarian customers, which in turn further increased the customer base and the revenue generation of the company. McDonald realised that the food habit of the Indians are slightly different from that of the Americans. The Indian customers are more inclined in having a meal rather than having a fast food. While keeping this in mind the company launched a new low priced burger made of smashed potato and spices, which was named as “aloo tikki”. The launch of “aloo tikki” became a big hit and the market share of McDonalds in India crossed all records (Kaur, 2012). Although McDonald drastically changed the product offering of the company and started to offer completely different food items, but it has still maintained certain degree of standardization so that the company does not lose its brand identity. It has maintained the high quality service offering, standardized workflow for fast product delivery and customer friendly in store ambience which is the key feature of the McDonald brand. Thus McDonalds pose as a wonderful example of adopting “glocalization” strategy to yield desired results. For the services companies like HSBC, maintaining a brand identity is solely dependent on the service delivery process and quality. HSBC offers banking services which in most cases varies across the counties owing the difference in the economic structure and the regulatory standards. The company is compelled to follow the government regulations in terms of service offering, thus leaving no room for differentiation. However, the company has managed to maintain a global brand image through its customer service quality comparable financial products and good interaction between the customers and the service personnel. From a theoretical perspective, it can be stated that the companies willing to expand its business to overseas location usually do so by either following market development or diversification strategies. The Ansoff matrix clearly indicates that there are four quadrants based on which the firm can pursue its future ventures. Figure 1: Ansoff Matrix Source: (Kotler and Keller, 2011) The four quadrants of Ansoff matrix are described below. Market Development: This strategy allows the firm to enter in to a new market with the existing product portfolio. The firm tries to push the existing product in a new market hoping to gain their preference. Market penetration: This strategy involves pushing the existing products in the exiting market mostly by employing new marketing strategies or by following a new distribution channel. Product Development: The product development strategy allows the firms to create new product line to be introduced in the existing market. The company tries to gain market share and attract new customers by introducing innovative products and services. Diversification: The Diversification strategy allows the company to develop new products for the new market that it is planning to enter. Thus from the Ansoff matrix it can be clearly stated that the overseas expansion strategies can be conducted by following the diversification and market development strategies. Upon closer review on the examples of internationalization mentioned in the previous paragraphs, it is has been evidenced that “diversification” strategy is the most suitable internationalization strategy which has a high likelihood of success. This is mostly because this strategy allows the firms to develop products which are particularly tailored for the cultural background of the host country. While discussing about the culture of a particular nation and how it impacts the purchasing behaviour of the customers, the six dimensional cultural model of Hofstede (2010) have been explained below. The six dimensions of the cultural framework are the Power Distance, Individualism, Masculinity, Uncertainty Avoidance, Long Term Orientation and Indulgence. Power Distance: The power distance indicates that the presence of unequal distribution of power in the society. The nations with high power distance scores have more inequality in the society and the people accept the presence of steep hierarchical order and follow the authority without questioning them. On the other hand the low score of power distance is characterized by the presence of high intolerance towards inequality in power distribution and authoritative approach. The people prefer to work with their own freedom and like to make their own choices (The Hofstede Centre, 2015). Individualism: This dimension indicates the degree to which the people are self oriented. A high score of individualism suggests that the people are self cantered and they only care about themselves and their immediate family. This type of society is characterised by small social groups and loose bonding between the members of the social groups. On contrary the collectivist society which scores high in this dimension is characterized by large social groups, large families. The members of the society take care of each other and take responsibility for each other (The Hofstede Centre, 2015). Masculinity: Masculinity indicates the level of competiveness in the society and the degree to which the people are motivated towards achieving success. Masculine societies like to have a competitive environment where every individual is trying to overcome the other. They are highly self motivated and are always looking forward to achieve something new. Feminine societies are less competitive in nature and are satisfied with what they have achieved (The Hofstede Centre, 2015). Uncertainty Avoidance: High uncertainty avoidance suggests that the society perceives that the future can be controlled by carefully dealing with the present and following calculative approach. These societies have high tendency towards practical and deductive approach. Low uncertainty score indicates that the society lets go of things that cannot be controlled. The law system is flexible and people are less deductive (The Hofstede Centre, 2015). Long term orientation: This dimension indicates that the degree to which the society has it link with the past. Low score in this dimension indicates that the people are more conservative in nature and looks at change with scepticism. On the other hand the high score suggests that the people must be prepared for the future and they also welcome new changes in the society. Indulgence: High indulgence indicates that the society is ready to spend more on leisure activities. On the other hand a low score indicates they perceive leisure activities as a waste of time and money ((The Hofstede Centre, 2015). Conclusion Internationalization is adopted by firms who are seeking to expand its business in foreign land, in a hope that it will help the company to gain new customer base and increase its revenue generation. However, in order to successfully internationalize its business, it must first have a clear idea of the cultural background of the host country and the behavioural pattern of the consumers. This will allow the firms to make the necessary changes in their marketing strategy and their marketing mix so as to make them compatible with the socio-cultural structure of the host country. By striking a proper balance between the global branding and localized marketing strategies, the firms will be able to attract new customers. 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