International marketing framework
MNEs willing to market overseas have four options to consider. They can sell the same domestic product overseas (standardisation);they can adapt their product to the different countries and regions where they operate (adaptation); existing products/services can be extended or re-developed to meet the specific needs and regulations in a country or region (glocalisation); and/or the product variations present in different countries can be integrated and used as a basis for developing a brand that will then be sold into many if not most overseas markets (global branding). Note that these strategies are not necessarily mutually exclusive, in the sense that some MNEs may apply certain approaches in one market and a different one elsewhere. Conversely, other MNEs may follow the same downstream strategy in all of the markets where they operate worldwide. As with other kinds of strategic choices, it is this diversity that makes MNEs’ international marketing calculations so interesting to explore.
Standardisation vs adaptation
One of the most impactful decisions that a company must make when entering a foreign market is related to the degree of similarity between their international marketing strategy and the domestic one. All aspects of international marketing strategy are concerned with this daunting
International downstream operations 105 decision whether product, promotion, distribution, and pricing (see “International marketing mix”). Neither is perfect under all circumstances, however, meaning that decisions in this area inevitably involve trade-offs.
When MNEs adopt a standardisation approach, their international marketing strategy is similar to the one implemented domestically. Examples here might include computer and other electronics companies whose key factor of success is technical, and who therefore only make minimal changes to their products when seeking to penetrate a foreign market. The main advantages of this approach are its low cost, relative facility, and, above all, the economies of scale it permits. Existing corporate functions (e.g. research & development) can be replicated without the additional expense of developing a new market entry approach. Another advantage is that existing marketing operations (e.g. advertising, promotion, etc.) can be implemented quickly in overseas markets.
By contrast, the adaptation approach means that international marketing strategies used in foreign markets are different from those deployed in the company’s home market. Frequent examples of this approach are found in the food sector, possibly due to the fact that food preferences are deeply entrenched in societies worldwide — with numerous cases of MNEs attempting to introduce a new foodstuff to a foreign market and failing there, only to return a few years later with a successfully adapted problem. The problem is that adaptation typically requires higher initial costs than does standardisation, because of the need to open up new production lines but also due to the need to staff the downstream function with staff well-versed in the particularities of the local market. These disadvantages then need to be judged against the potential higher sales in the target foreign market as the MNE accounts for the specific tastes and needs of local customers.
Striking the right balance
MNEs often find a compromise between adaptation and standardisation, called glocalisation. This strategy involves standardising when possible and adapting when necessary to meet the needs of consumersin a foreign market. For many companies this is downstream equivalent of the upstream “deferred differentiation’’ strategy referred to in Chapter 8 — and also tantamount to the compromise “transactional” strategy (see Chapter 7) that numerous MNEs apply in a bid to combine the advantages of both the global and the local approaches — being, as a subset of the standardisation-adaptation debate, one of the key decisions that any international business practitioner will have to make.
Glocalisation as an international downstream consideration includes the debate about which particular aspects of a product or service’s marketing mixed should be globalised or localised. This can be the product itself and/or its pricing and/or its advertising. The first thing to note at this level is the possibility of standardising or else adapting certain aspects of an item in some countries but different ones in other countries. The issue then becomes who makes the decisions at this level, raising questions as to the location within the MNE where power has been vested — and to the cultural and other worldviews of the individuals exercising this power. The normal balance sees people empowered at the local subsidiary level emphasising the particularities of the market where they find themselves but displaying less acumen about global downstream strategies — with headquarters marketing managers possessing the opposite strengths and weaknesses.
Global branding and the associated risks
A combination of product and market factors may explain why MNEs opt for standardisation or adaptation. The BrandZ Top Global Brands list provides some insights into which types of products/services seem to require minimal adaptation yet benefit from maximum recognition and visibility at a global level. In recent years, companies such as Amazon, Apple, Google, Microsoft and Visa — but also Chinese brands such as Alibaba (retail) and Tencent (technology) — have come at the top of the list. The lesson that can be derived from this is that technology — along with a few luxury brands (such as Louis Vuitton and Chanel) — transfers most easily across borders, The potential explanation for the relative ease with which these kinds of products travel is that they are modern and therefore less deeply embedded in the cultures and preferences that societies developed separately back in the days when there was less global interconnection than is the case today.
Global branding strategies do have a notable downside, however, being the prevalence of counterfeits that damage the reputation and sales of the products affected. Counterfeits appear among all types of equipment/products, from defence equipment to prescription drugs
International downstream operations 107 and luxury goods (e.g. watches, bags, perfume). The value of the global market for counterfeits is enormous, accounting according to certain studies to tens of billions of dollars annually for luxury brands alone — with the total global value of fake merchandise being counted in the trillions. Counterfeiting is a long-standing and ever-growing issue in global trade. Government and MNEs are concerned by the adverse impact of such illicit activities on businesses and society — in part because counterfeiting can also threaten consumers (e.g. fake medicine), not to mention companies’ reputation. Despite the use of new technology, legal action and lobbying, MNEs often struggle to contain this problem, particularly in some of the emerging economies where future international market growth seems most promising.
Product Life Cycle
The Product Life Cycle (PLC) is a useful concept for managing products’ market introduction and is particularly relevant to international marketers deciding when to modify their cross-border strategies. PLC represents the sales and profits of a new product over its lifetime in one specific market (Figure 9.1). Its value as a construct in international business lies in the way any one product can be at a different stage of its PLC in one country as opposed to another.
Based on PLC reasoning, international marketers are constantly looking for foreign markets — preferably mass ones — where their products may be in a growth stage, therefore justifying initial investment as the item hits its prime. By contrast, because product prices decline
Figure 9.1 The Product Life Cycle.
during a market’s maturity phase (due to the rise of local and/or global competition), this is often taken as a signal that it is time to abandon it. Indeed, where the maturing market is a company’s home country, this is often the initial impetus for it to go abroad, i.e. become an MNE, in the hope of finding a foreign market where their product can be more attractive to and relevant for local consumers. Examples include telephone companies taking stocks of outdated models and selling them in less affluent markets where the lower price is a more important sales argument that having the absolutely latest technology. Managing different PLCs in different national markets is a key aspect of most MNEs’ international downstream decision-making.