Unit N.05 – Approaches to Global Competition

What you’ll learn to do: describe common approaches used by organizations to compete successfully on a global scale

Most of the basic principles for effective marketing apply equally well to domestic and global marketing activity. However, globalization introduces a number of challenges that are unique to operating simultaneously in different countries and global markets. What is the best way to enter a global market? When should you adjust a product’s features to customize it to consumer needs in a different global market? How do you manage the costs and complexities of product promotion when it must take place in different locations, with different languages, cultural sensitivities and consumer expectations? What considerations should go into product pricing, when a good is offered in different markets using different currencies and exchange rates?

While this next section doesn’t attempt to answer all of these questions definitively, it explains common strategies and approaches used by multinational corporations and their marketing teams to navigate these and many other challenges posed by global marketing.

The specific things you’ll learn in this section include:

• Discuss common strategies businesses use to enter global markets
• Explain the pros and cons of global standardization theory with regard to product marketing and marketing communications
• Explain how the basic principles of marketing apply to global marketing

Choosing a Global Entry Strategy

Firms typically approach international marketing cautiously. They must analyze the market opportunity as well as their internal capabilities to determine which approach will be the best fit. Often businesses start with a lower-risk strategy and progress to other strategies involving additional investment and risk and additional opportunity after they have proven initial success. The most common market entry strategies are outlined below.

Exporting

Exporting means sending goods produced in one country to sell them in another country. Exporting is a low-risk strategy that businesses find attractive for several reasons. First, mature products in a domestic market might find new growth opportunities overseas. Second, some firms find it less risky and more profitable to export existing products, instead of developing new ones. Third, firms that face seasonal domestic demand might choose to market their offerings abroad to balance out seasonal demand in their revenue streams. Finally, some firms might export because there is less competition overseas. Smaller firms often choose exporting over other strategies because it offers a degree of control over risk, cost, and resource commitment. Smaller firms often only export in response to an unsolicited overseas order, which is also perceived as low risk.

Licensing and Franchising

Under a licensing agreement, a firm (licensor) provides a product to a foreign firm (licensee) by granting that firm the right to use the licensor’s manufacturing process, brand name, patents, or sales knowledge, in return for payment. Since its debut in the late 1970s, Star Wars remains the most lucrative source of licensing in the entertainment business and has generated more than $42 billion from the sale of licensed merchandise. The licensee obtains a competitive advantage in this arrangement, while the licensor obtains inexpensive access to a new market. Scarce capital, import restrictions, or government restrictions often make this the only way a firm can market internationally. This method does contain some risks. It’s typically the least profitable method for entering a foreign market, and it entails a long-term commitment. Furthermore, if a licensee fails to successfully reproduce a licensed product, or if the licensee markets licensed products ineffectively, it could tarnish the original product’s brand image.

A longer-term and more comprehensive way to access the global market is through franchising. Under the terms of a franchise agreement, a party (franchisee) acquires access to the knowledge, processes, and trademarks of a business (the franchisor) in order to sell a product or service under the business’s (franchise’s) name. In exchange for the franchise, the franchisee usually pays the franchisor both initial and annual fees. Holiday Inn, Hertz Car Rental, and McDonald’s have all expanded into foreign markets through franchising.

Joint Ventures

A joint venture is a partnership between a domestic and foreign firm. Both partners invest money, share ownership, and share control of the venture. Typically the foreign partner provides expertise about the new market, business connections and networks, and access to other in-country elements of business like real-estate and regulatory compliance. Joint ventures require a greater commitment from firms than other methods, because they are riskier and less flexible. Joint ventures may afford tax advantages in many countries, particularly where foreign-owned businesses are taxed at higher rates than locally owned businesses. Some countries require all business ventures to be at least partially owned by domestic business partners. Joint ventures may also span multiple countries. This is most common when business partners team up to conduct business in a world region.

Direct Investment

Multinational organizations may choose to engage in full-scale production and marketing abroad by directly investing in wholly-owned subsidiaries. As opposed to the previously mentioned methods of entry, this type of entry results in a company directly owning manufacturing or marketing subsidiaries overseas. This enables firms to compete more aggressively abroad, because they are literally “in” the marketplace. However, because the subsidiary is responsible for all the marketing activities in a foreign country, this method requires a much larger investment. It’s also a risky strategy because it requires a complete understanding of business conditions and customs in a foreign country.

U.S. Commercial Centers

These centers provides resources to promote the export of U.S. goods and services abroad. The commercial center does this by familiarizing U.S. firms with industries, markets, and customs in other countries. U.S. commercial centers provide the following services: business facilities; translation and clerical services; a commercial library with legal information; and assistance with contracts and export/import arrangements. They also facilitate contacts between buyers, seller, bankers, distributors, and governmental officials. These resources represent a low-risk way to gain information and familiarity about new overseas markets.

Trade Intermediaries

If a company lacks the resources or expertise to enter a foreign market, it can hire trade intermediaries, who possess the necessary the contacts and relationships in those markets. These entrepreneurial middlemen typically purchase U.S.-produced goods at a rate below a manufacturer’s best discount and then resell them in overseas markets.

Example: Toyota’s Progression into Global Business

Toyota Motors started out as a domestic marketer in Japan. Eventually it began exporting its cars to a few regional markets. As it saw greater success, Toyota became adept as a multinational marketer, and today is a true global marketer. Today Toyota operates manufacturing plants in foreign countries with local labor, using local ad agencies, and pursing marketing strategies that appeal to each country’s market segments and consumer needs. As Toyota progressed through each stage of global expansion, it revised its attitudes and approach to marketing and its underlying philosophy of business.

Global Marketing Strategies

U.S. firms choose to engage in international marketing for many reasons, the most attractive of which are market expansion and new profit opportunities. When a firm chooses to market internationally, it must decide whether to adjust its domestic marketing program—depending on how much centralized control a firm wishes to maintain over its marketing. If an organization wants to maintain strong centralized control and uniformity in its products and marketing activities, it is choosing a strategy called standardization. If an organization wants to adjust products, messaging, and marketing activities to fit the needs and preferences of local markets around the world, it is choosing a localization strategy. You’ll recall our earlier discussion of the unique flavors of Oreo cookies developed for the Chinese market: that’s an example of a localization strategy.

Global Standardization: The Argument for Standardized Marketing

To the extent that global consumers desire standardized products, companies can pursue a global standardization strategy. Using this approach, a product and the way in which it is marketed are largely uniform across the world, with little variation in the marketing mix from country to country. Advocates of standardization strategy argue that companies can achieve competitive advantage by offering the optimal combination of price, quality, and reliability with products that are identical in design and function throughout the world; they also claim that consumers will prefer this standardized product to a highly localized product that is also more expensive.

Standardization can translate into lower operating costs because there aren’t extra costs associated with developing and marketing unique products tailored to local market needs. It also expands the customer base receptive to a common global product. There is no need to adjust product features, naming, or other attributes for each new market, and marketing materials themselves can be repurposed across different world regions. Below are the primary benefits of a global standardization strategy:

• Marketers can use the same approach for developing, promoting, and delivering products and services worldwide, creating lower operating costs and economies of scale in product development and marketing
• The ability to develop and invest in a unified brand and/or company identity throughout the world, along with the opportunity to develop brand awareness and brand equity that give a competitive advantage
• Product lines that consist of a small number of global brands rather than a plethora of localized product brands and extensions, along with cost savings and improved efficiencies associated with managing a smaller total number of brands

Companies that pursue this approach assume that consumer needs are relatively homogenous around the world and that the same basic marketing mix will work across global markets. These organizations typically have a centralized approach to the marketing function and try to minimize the need for developing localized marketing strategies.

The case for a standardization strategy was made by Harvard marketing professor Theodore Levitt in his 1983 article “The Globalization of Markets.” He argued that technology and worldwide communications have helped trigger the emergence of global consumer markets that are receptive to single, standardized global products. According to Levitt, adopting a standardized global strategy provides a competitive advantage in cost and effectiveness.

Localization: The Argument for Localized Marketing

Global Segmentation Strategies

Closely related to the issue of standardization vs. localization is the question of global segmentation strategy. How marketers segment and market to consumers in global markets is inextricably tied to whether products and marketing are uniform across multiple world regions or whether they are localized to individual countries, regions, or markets.

Global marketers use the same principles and processes outlined in the Segmentation and Targeting module to evaluate where there is greater potential and market opportunity for their products and services. They work to answer the same set of fundamental questions that domestic marketers do, using the broader world as their frame of reference:

1. To whom should I be marketing?
2. Why them?
3. How can I reach them most effectively?

To develop a segmentation and targeting strategy, global marketers may use the common segmentation approaches employed by domestic marketers but with an eye on how these characteristics shape consumers within and beyond national boundaries and world regions. These characteristics include the following:

• Demographics: Gender, age distribution, ethnicity, income, socioeconomic status, family size
• Geography: Geographic location, world region, climate, urban/suburban/rural orientation
• Psychographics: Lifestyle, attitudes, social class
• Behavioral: Purchasing occasions, user status, brand loyalty, readiness to buy and other behavioral patterns that drive consumer decisions
• Decision maker: Who makes buying decisions for which types of goods and services? Who influences these decisions?

Additionally, global marketers also consider the following factors in segmentation and targeting:

• Culture: The interplay between language, religion, education, values, identity, history, and traditions
• Economic status: Stage of economic development, wealthy vs. poor nations, employment, GDP
• Social environment: Conditions and operational stability for business, government, politics, the legal system, health care, education, and other societal support structures

A naive view of global marketing assumes that all consumers within a country or world region are homogenous and can be reached effectively through a uniform approach targeting the entire geographic area. In fact, just as in the U.S., not all consumers within a country or region are the same. While they have some things in common, they also have different characteristics, needs, and preferences that drive their purchasing decisions. It is important to recognize these differences and evaluate what they represent in terms of potential market segments and growth opportunities.

When considering global marketing opportunities, it’s also important for marketers to look for characteristics, interests, needs, and buying behaviors they can use to define segments that transcend national boundaries. For example, some marketing targets a “global youth” segment comprised of young people from around the world who are educated, technologically connected, follow global trends in music and culture, and seek opportunities for travel and cultural exchange.

Because global marketing and expansion carry inherent risk, global segmentation and targeting decisions should also reflect the following factors:

• Market size and growth potential: What is the customer base and revenue potential today? How might this change in the future?
• Competition:  What competitors and alternatives exist in the market? How crowded is the competitive field? Who are the current players, what is their market position, and what would it take to displace them?
• Compatibility: Are the new market and target segments well aligned with the organization’s goals, plans, and strategies? How much of a stretch is it to capture this new market? Does the potential gain justify the added risk, cost, and complexity?

 

Few would disagree that fast-food chain McDonald’s is a master of global marketing. As you watch this video, look for ways that McDonald’s has blended elements of global standardization strategy with localization strategy to penetrate global markets and offer products that align perfectly with local appetites and preferences.

Read a transcript for the video about McDonald’s “Glocalization” here.

The Marketing Mix in Global Marketing

The same marketing principles that lead to marketing success in domestic marketing can also apply to global marketing. With the rapidly growing force of globalization, the distinction between marketing within an organization’s home country and marketing within external markets is disappearing very quickly. With this in mind, organizations are modifying their marketing strategies to meet the challenges of the global marketplace while trying to sustain their competitiveness within home markets. These changes have also prompted brands to customize their global marketing mix for different markets, based on local languages, needs, wants, and values.

The four Ps of marketing—product, price, placement, and promotion—are all affected as a company moves through the different phases to become and maintain dominance as a global company.

Global Marketing Mix: Product Plus Promotion

For multinational corporations (MNCs), the interplay between product and promotion is important because it can enable a company to make minor adjustments to a single product and its promotion strategy rather than totally revamping the product and promotion for different markets. Coca-Cola is a strong example of this principle. The beverage brand uses two formulas (one with sugar and one with corn syrup) for all markets. The product packaging in every country incorporates Coca-Cola’s contour bottle design and signature ribbon in some shape or form. However, the bottle can also include the country’s native language and appear in identical sizes as other beverage bottles or cans in that country’s market.

Before launching promotional programs, global companies must first define their target markets and determine the products that will resonate most with those consumers and businesses. This research can help inform marketing leaders about what course to take—localization versus standardization strategy—as they learn more about the target market’s receptivity to their goods and services. In addition to pinpointing which price point and distribution channels would best serve a country’s markets, global marketers must decide whether and how to customize their products. Product introductions are also important. Promotional tactics for global audiences can range from television commercials to social-media marketing on Facebook or YouTube. It is the job of global marketers to create and place promotional efforts in settings where local consumers will be most receptive to receiving and acting on those messages. Consumers in each target market have different media habits and preferences, and understanding these behaviors is important for selecting the right promotional mix.

After product research, development, and creation, promotion is generally the largest line item in a global company’s marketing budget. Using integrated marketing communications can significantly increase efficiency and reduce promotional costs, as messages across multiple channels reinforce and amplify one another. For organizations that pursue a standardized approach to promoting products and building brands, promotion is the crucial component of the mix that enables a global company to send the same message worldwide using relevant, engaging, and cost-effective techniques.

While a standardized global promotion strategy enables global brands to engage in uniform marketing practices and promote a consistent brand and image, marketers must also be prepared for the challenge of responding to differences in consumer response to marketing mix elements. Marketers must also fend off the full spectrum of local and global competitors, using promotional strategies, branding, and product development to full competitive effect.

Global Marketing Mix: Promotion

Before a company decides to become global, it must consider social, cultural, economic, political, competitive, and other factors relative to the global expansion it is considering. Creating a worldwide marketing plan is no simple task. It is virtually impossible for a company to communicate one identical message in a unified voice to global markets unless a company holds the same position against its competition in all markets (e.g., market leader, low cost, etc.). This is rarely the case, so most global companies must be open to some level of localization and be nimble enough to adapt to changing local market trends, tastes, and needs.

Global marketers must balance four potentially competing business objectives when developing worldwide advertising: 1) building a brand while speaking with one voice, 2) developing economies of scale in the creative process, 3) maximizing local effectiveness of advertisements, and 4) increasing the company’s speed of implementation. Global marketers can use several approaches when executing global promotional programs: exporting executions, producing local executions, and importing ideas that travel.

To successfully implement these approaches, marketers must ensure that their promotional campaigns take into account how consumer behavior is shaped by internal conditions (e.g., demographics, knowledge, attitude, beliefs) and external influences (e.g., culture, ethnicity, family, lifestyle) in local markets. Areas for attention include:

• Language: Language differences are crucial in global marketing. There are nearly 3,000 languages in the world. Language differences have caused many problems for marketers in designing advertising campaigns and product labels. As discussed in this course’s discussion on naming, language can be problematic in the global naming process, with numerous examples of brand names that work well in some languages but have offensive or unfortunate meanings in other languages. Even countries that use the same language have words with different meanings. Consider the British terms “flat” (apartment in U.S. English), “pants” (underwear in U.S. English), and “lift” (elevator in U.S. English). Marketing messaging and materials could easily go wrong if they are not adjusted to fit in-country dialect and usage. Language becomes even more significant if a country’s population speaks several languages. An additional language consideration for marketers is literacy rates. Depending on the target audience and market, literacy may be a significant issue. Some countries, primarily less-developed countries, still have low literacy rates, such as Afghanistan with just 38 percent adult literacy in 2015, and Haiti with 61 percent. India, with its burgeoning economy, reported a literacy rate of 72 percent in 2015. In many countries, literacy rates can differ widely between men and women in many countries, too.
• Colors: Colors may have different meanings in different cultures. This highlights the importance of careful testing of packaging and other visual elements intended for global audiences. For example, green is a sacred color in the Muslim faith, and it is not considered appropriate for packaging and branding purposes in Middle Eastern countries. In Japan, black and white are colors of mourning and should be avoided on product packaging. Purple is associated with death in some Hispanic nations.
• Values: An individual’s values arise from his or her education, moral or religious beliefs and are learned through experiences. For example, as a consumer market, Americans place a very high value on material well-being and are much more likely to purchase status symbols than people in India. Chinese consumers highly value the sense of honor, dignity, and pride, and in some situations they will pay price premiums to “save face” by spending what is perceived to be an appropriate amount to preserve their honor.
• Business norms: The norms of conducting business also vary from one country to the next. In France, for example, wholesalers do not like to promote products. They are mainly interested in supplying retailers with the products they need.
• Religious beliefs and holidays: In addition to affecting their values, a person’s religious beliefs can affect shopping patterns and products purchased. In the United States and other Christian nations, the Christmas holiday season is a major sales period. In China, the Chinese New Year brings out the shoppers. In India, a string of Hindu festivals including Dussehra and Diwali mark a holiday season that extends over multiple months.

Many other factors, including a country’s political or legal environment, economic status, and technological environment, can impact a brand’s promotional mix. Companies should monitor dynamics in their target markets and be ready to quickly respond and adapt to consumer needs and preferences.

Recommendations for Adjusting the Promotional Mix

When launching global advertising, public relations, or sales campaigns, global companies test promotional ideas using marketing research systems that provide results comparable across countries. These systems help marketers achieve economies of scale in marketing communications, since they reveal which messaging or creative elements contribute to a product’s market success. Marketing-research measures of nonverbal factors such as flow of attention, flow of emotion, and branding moments can provide insight into what is working in an advertisement or other marketing communication piece across multiple countries and languages.

The same recommendations about how to research and understand a target market in domestic settings apply to global settings. Marketing research is essential for marketers to build their understanding of which promotional tactics will be successful in any country or region. Informed experimentation and trial and error are also good teachers. Once marketers and brand managers discover what works (and what doesn’t) in the promotional mix, they can import this knowledge to infuse creative ideas into other markets. Likewise, companies can use this intelligence to modify various elements in their promotional mix that are receiving minimal or unfavorable response from global audiences.

Global Marketing Mix: Place (Distribution)

Although other elements of the marketing mix are often more visible during the marketing process, place, or distribution, is essential in getting the product distributed to customers. Placement determines the channels used to distribute a product across different countries, taking in factors such as competition and they way similar brands are being offered to the target market. Regardless of its size or visibility, a global brand must adjust its country strategies to take into account placement and distribution in the marketing mix.

Global marketing presents more challenges around distribution, compared to domestic or local marketing. Consequently, brands competing in the global marketplace often conduct extensive research to accurately define the market, as well as the environments where consumers will find, buy, and use the product. A country’s transportation and economic infrastructure, customs, marketplace conditions, and the competitive landscape can all factor into strategic decisions around distribution.  For example, not all cultures use or have access to vending machines to distribute beverages. In the United States, beverages are sold by the pallet via warehouse stores. But warehouse stores do not exist in all markets.

Placement decisions must also consider the product’s positioning in the marketplace. A global luxury brand would not want to be distributed via a discount chain in the United States. Conversely, low-end shoemakers would likely be ignored by shoppers browsing in an Italian boutique store. Global marketers must also consider how their products will be distributed across the different shopping venues unique to a particular country or market. Customizing these placement strategies for national and local markets while retaining a strong and consistent brand image can help companies gain significant competitive advantages.

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