Global Strategy of Business - Essay Example

International Business Introduction The term globalization has been used in a large number of contexts. Some describe the word at a geopolitical level to signify globalization of business as an economic evolution, while others use the word to mean globalization of a particular enterprise, which involves setting up an international branch of an organization. This implies that there are some widespread concepts of globalization, which have different meanings in separate contexts. One such concept is “global strategy” (Keegan, 1989). It can be argued, in context of international marketing, that global strategy of a company is closely related to corporate strategy that it adopts in order to guide allocation of resources and overall business strategies for realizing broader organizational goals. In past few decades, globalization has become the most dominant concept in international marketing (Kotler, 2009). Though this concept is still relevant, yet over past few years, it has been observed that, particularly in case of products involving taste and preferences of consumers, standardized or global strategy adopted by businesses has been less successful. Centralized decision making on part of the global companies had often led to situations, where they have lost connection with the customers. In order to rectify this situation, concept of localization in the business strategy of companies arose. This involved adapting policies of the companies so as to suit local demand and market conditions (Kotler, 2009). This paper chooses to concentrate on the global and the local strategy adopted by businesses to expand into international markets. The paper probes the issue that following a standard global strategy for companies operating across diverse geographies may not always lead to success and they might require improvising their policies for remaining successful. Globalization Strategy The article published by Levitt (1983) called “Globalization of Markets” had for the first time pointed out that companies have established a global market, which is particularly based on uniform products without much variation. This was the reason for which Levitt had propagated that there was no need for companies to customize products as per local customer preferences, given that world markets are heading to a convergence in the tastes. This is also economical from point of view of the company as production of standardized products lowers cost of production. Levitt had supported his view by highlighting empirical evidence from Coca-Cola, Pepsi and McDonald’s to prove his standpoint. Globalization as a marketing strategy refers to increase in standardization of the product to promote homogeneity (Levitt, 1983). The rationale behind doing this is integration of the marketing activities across all geographies of the world. This idea has worked perfectly for a large number of industries such as, that of banking and aviation. When a company decides to follow a global marketing strategy, it can do so by following wide-ranging options pertaining to advertising, branding, product and audience. The standardization of the products can be based on physical property, service or similarity in the function. Some of the products that follow this strategy very successfully include devices like, cameras, tyres for automobiles and batteries for electronic devices. For instance, it has been observed that Coca-Cola and Daimler Chrysler use a global branding strategy for selling Coke and Mercedes-Benz respectively. In this type of a global branding strategy, company uses the same logo or brand name across various geographies where it operates. This type of practice has also been found in case of financial services, which does not require drastic modification according to the local culture. Financial giants like, ING, HSBC and AXA, has also followed the same global branding strategy. Similarly, global advertising strategy refers to use of the same communication strategy across all cultures and locations (Kanter, 1994). This kind of a strategy may be accompanied by the global branding strategy or promoting different brands, but using the same communication strategy. For example, Intel Corporation is a company using this global advertising strategy. A global audience strategy, on the other hand, focuses on a group of global audience who may be consumers. The audience may be dispersed across continents, but they are connected by similar interests like, athletes who gather during Olympics. In order to formulate successful global strategies, management of the companies need to follow a proper global logic pattern. These global logics are very complex to grasp and vary widely across industries, but are applicable to businesses working in a competitive environment (Steger, Amann and Maznevski, 2007). The rationale behind following the globalization strategy is rooted in economics and marketing. Yip (1992) had identified that both market and cost factors drive the global strategy approach of a firm. The first one relates to the market drivers (including common needs of global customers and leading markets). The second one relates to the economies of scale that can be achieved from a globalized strategy (Yip, 1992). Keegan and Green (2000) had also found that globalization and following a global strategy may provide a firm with competitive advantage over its rivals. Other benefits of following a global strategy came from improved quality of the products and increased competitive leverage. It is for these reasons that companies are inclined towards changing their approach (Keegan and Green, 2000). The global strategy is most successful for high involvement or high technology products. This strategy works because in case of these products, audience or customers who are involved share common interest or language (Cavusgil and Zou, 1994). The promotional method for such products also follows a global communication strategy as the message does not require modification. This is because these products are already developed and provide best service in their respective fields, which are universally accepted owing to their superior quality. Same logic also holds for industrialized products as they are mainly marketed through global strategy. Though this practice has been found to be successful in case of certain companies, yet global business strategies are not always successful. One of the most important logic that works behind this idea is that product standardization often leads to development of products, which does not have ability to satisfy all customers. This can be explained with the help of an experience of Proctor & Gamble, which was observed when the multinational had introduced a detergent called Cheer Laundry in the Japanese market. The company did not modify its U.S. product or make any sort of changes in the marketing message. As a result, the company suffered formidable losses in the Japanese market. From this experience, two lessons were learned. Firstly, Japanese local practice was to use fabric softener along with detergents that resulted in inefficient frothing when used; and secondly, it was also common among Japanese individuals to use cold bath water to wash their clothes, which rendered marketing message of the detergent irrelevant to the masses. The adaptation of the product along with marketing message had subsequently resulted in increase in sales of the company (Rugman, 2002). Though there are examples suggesting that standardization has been a successful approach, yet there is considerable amount of academic literature supported by empirical evidence, which indicates that this approach is not always valid. In a research made by Grune (1989), it was pointed out that multinational approach followed by an organization differs from the global one (Grune, 1989). Multinational companies operate through independent strategies in the markets where they operate. Subsidiaries working under them have autonomy in their operations and each of the subsidiary functions as a separate profit centre or in other words, with a decentralized strategy (Katrak, 1983). Localization Strategy In the contemporary times, it has been observed that marketers need to take into account the way in which their brand is accepted in the local market. When multinational advertisers began to face challenges in marketing and promoting their products effectively across the world markets, it was realized that adaptation strategies are required in order to become successful (Kotler, 2009). Existing academic literature upholds a number of reasons for firms to adapt their strategies according to the local conditions. For instance, in the research of Jeannet and Hennessey (1992), it was established that market characteristics, legal restrictions, conditions of the industry and marketing institutions are diverse across continents for which global strategies often fail to work (Jeannet and Hennessey, 1992). Porter (1986) had suggested that in certain global strategies undertaken by organizations, marketing should play the part of customizing the product, rather than standardizing to fit into the overall strategic position (Porter, 1986). The framework developed by Schiffman and Karuk (2009) is useful to understand ways in which a company can transform its policy from global to local (Schiffman and Kanuk, 2009). Figure 1: Strategies in Business (Source: Schiffman and Kanuk, 2009) The above chart shows that standardization can be done either in terms of product or communication strategy. Consumer markets are particularly the ones where standardization is almost coming to an end. It has been observed that consumers are becoming more diverse, in terms of wealth, lifestyle, ethnicity and values. It is now strongly argued that the concept of standardization in business is leading to a situation of homogenization of products, which is reducing innovation, thereby causing problems in the supply chain. The concept of localization is to improve market share of a company by focusing on customers belonging exclusively to a regional market (Rigby and Vishwanath, 2006). This is also effective for competing with the local products directly. Various researchers like, Kotler, Vedler and Fisher, have supported this approach. This strategy is also enhances responsiveness of the local markets by concentrating on local needs. In this regard, it is noted that especially in case of consumer products, adaptation is a more relevant strategy. Consumer non-durable goods are the ones, which require maximum adaptation techniques compared to consumer durables. This is true because whenever taste and preference of the customers are involved, local factors need to be considered by companies (Chakravarty and Perlmutter, 1985). Though this approach has been acclaimed in the recent times, yet it is not free of disadvantages, which make it difficult to follow in reality. For instance, localization strategies tend to increase cost of production of the organization due to duplication of effort. This strategy can, therefore, be applicable in those industries where the concept of cost reduction is not a major issue. A major disadvantage in this approach is that subsidiaries may become too independent. If they become too independent, then it will be difficult to coordinate the strategies at a corporate level. For example, it was observed in case of Unilever that when it had planned to introduce a detergent in Europe, its 17 independent subsidiaries had created problems as each of them wanted to exercise power autonomously. It took four years for the company to convince the subsidiaries into accepting the corporate strategy (Peng, 2008). Another major disadvantage of following the localization strategy is that there may be disputes such as, strikes of labour unions and unrest in industrial regions, which may hamper performance of the organization on a whole. If products become too customized, then there is an inherent problem of transferring technological skills from the home country to that particular market. There are also problems of reverse innovation, which may result from excessive localization strategy (Govindarajan and Trimble, 2012). This is a process where designs of multinational organizations are copied by the local producers and subsequently sold in western markets. Owing to such major difficulties of the localization strategy, excessive localization can prove to be highly unfavourable. “Glocal Strategy” In order to solve this ongoing debate between globalisation and localisation, the concept of “glocalization” has emerged in international marketing. This approach tries to establish a balance between global and local strategies of firms. “Glocal” strategy is the one, which standardizes certain elements of production process and localizes the others. The introduction of the term, glocal strategy, can be directly linked to overall benefits that a firm gains from following the global strategy. At a strategic level, this is merely a global strategy that is essentially customized to acknowledge the need of local communities. The concept of glocal strategy goes beyond simple localization. It is a combination of global, multinational, international and local business strategies. An international strategy basically comes from localization, where the local strategy can be partially adopted beyond boundaries of the home country. On the other hand, multinational strategy is applied to a host of foreign markets by businesses. The international and multinational strategies also acknowledge the need of adaptation of global strategies to the local conditions. From the perspective of a manager, application of global strategy across the entire business units is easier than changing policies for the local market; yet challenges for doing so has been well documented. For most businesses operating across major geographies, it is presently a common consensus among scholars and managers that this approach provides one of the most effective ways for businesses to operate (Kanter and Dretler, 1998). Striking the perfect balance between two opposite extremes of standardization and localization is the main objective of this policy. The word, glocal, originates from a Japanese word “dochakuka” (Koepfler, 1989). Kotler is one of the many researchers who have documented benefits of using the glocal business strategies. Researchers have agreed that consumers feel more important when they realize that the strategies are particularly modified to satisfy them. From point of view of marketing, this provides a better balance between the strategic, tactitial and operative level. This strategy also has capability of raising the market share of firms. This strategy is tested because global organizations have been found to implement them and reap consequent benefits (Kotler, 2009). Glocal strategies have been practiced by a large number of organizations in order to become successful in global markets in terms of products, price, place and distribution. For instance, McDonald’s is one such company, which had initially followed a global strategy while expanding business in the global economy. Later, when it was observed that sales of the company were being negatively affected by this approach, the policies were modified accordingly. The company had modified its menu according to needs of the country such as, introduction of beer in the German market, wine in the French market, exclusion of beef and pork from the Indian market and so on and so forth. This had improved appeal of the company among global customers as well as improved sales (Svensson, 2001). “The Spar”, which is another company, has applied a glocal strategy through pricing. Products of this company are differently priced in the European markets so as to improve sales. The strategies of international food retail also reflect a glocal strategy. This was evidenced from its recent entry in the U.S. market under a different brand name, “Fresh & Easy Neighborhood Market”. In terms of distribution, it has been noticed that fashion brand, Louis Vuitton, had adapted to a different distribution technique in the Arab market. The bags are sold from stands in shopping malls in most of the outlets at U.A.E. This practice is, however, not followed in the European market. Nokia is another major company that has been following glocal business strategy as it was observed that it had developed keypads particularly for the Indian market that has higher pollution (Maynard and Tian, 2004). The strategies followed by these companies can be characterized by a term that has become common in the marketing literature -- “Think Global act Local policies”. It can be seen from the above examples that products are either modified partially or completely depending on their nature in an attempt to enhance their appeal. This strategy differs from the “think global act global” and “think local act local” strategies as companies operate under the same brand with slightly different message to sell the products. This concept involves standardizing certain core elements and localizing others. Conclusion The purpose of this paper was to analyze whether one single business strategy framed at headquarter of a company in one corner of the world can easily be imposed on all its subsidiaries operating across various geographies. In other words, it has been evaluated whether or not a strategy adopted by the company in a specific market can be easily applied in all its other markets. After completing the analysis, it appears that the answer is not simple. At best, it can be stated that nature of the product is extremely important to determine whether or not strategies adopted by the company will be successful. This paper has mainly analyzed three major strategies adopted by multinational organizations, namely global strategy, local strategy and glocal strategy. Following a global strategy can provide a firm with certain cost advantage factors and market advantage factors. Following a local strategy can also provide firms with certain advantages, where the most important one is proper understanding of local needs. Analysis of these strategies has revealed that each has its own advantages and disadvantages. It is noted that global strategies are very successful for certain business like, finance, high-tech products and industrialized products. On the other hand, local strategies are mostly popular for consumer goods where taste and preference of customers are involved. Consumer non-durables goods are the ones, which require maximum adaptation to suit cultural differences between nations. Then again, excessive localization is also disadvantageous as this increases cost of the company. In order to solve this dilemma, another strategy called glocal strategy, which is combination of local and global strategies, has become extremely common among organizations. 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