While strategists and marketers face similar problems, they approach them from different perspectives. Strategists talk about centralization versus decentralization;
marketers about standardization versus adaptation. Strategists are concerned about the distribution of responsibilities, power and control in networked multinational companies. For example, which decisions should be made at headquarters, regional headquarters or subsidiaries in domestic markets? Where should value-adding activities be located? Similarly, marketers must consider which elements of the marketing mix they can standardize. For example, which aspects of the infamous 4Ps (product, price, promotion and place) can be standardized and which need to be adapted? Should the market be segmented in the same way in all markets? While the perspectives between strategy and marketing differ, the underlying dilemma is the same. Companies are faced with contradictory forces, namely the need for global rationalization versus the need for local responsiveness.
1.4.1 Forces for Global Integration and Coordination
During the past few decades, managers have had strong internal and external incentives to integrate and coordinate their operations globally instead of managing them on a local-for-local basis. Since the 1950s, global trade has gone through a steady liberalization process with the average tariffs for manufactured goods falling from 40 % to below 4 %.26The WTO has reached more than 150 members and now represents 95 % of the current world trade.27This has stimulated many companies to manufacture on a global scale and sell their products in various locations around the globe.
25Graham (1998).
26Love and Lattimore (2009).
27The World Trade Organization (2012).
Producers in industries ranging from automobiles, PCs, aircraft and apparel have taken a decisive step in this direction. The demise of time, geographic and regu-latory boundaries, sometimes also referred to as the “death of distance,”28 has further encouraged firms to globalize their supply chains. The declining costs of freight over the past decades, as well as the inexpensive access to instant commu-nication across the globe facilitated the integration and coordination of global operations, leading to scale economies.
Even traditionally local rather than global businesses have gone in search of scale economies. China’s state-owned company Haier, for example, has expanded abroad, and is now the world’s number one in overall sales of white goods.29At the same time, the increasing cost of R&D and shortening product life cycles require global volumes to amortize investments more quickly. Additionally, the pressure to make businesses more efficient has guided managers towards product rationaliza-tion, the standardization of parts design and the specialization of manufacturing operations. For instance, the BMW 3-Series components are produced in as many as nine different countries.30 Standardization and specialization can lower operating costs, while effective coordination can exploit a company’s best product and marketing ideas. The resulting scale efficiencies enable companies to offer customers quality goods at lower prices than those offered by the competition.31 Acknowledging this, even managers of companies that lacked external pressures to globalize are choosing to transform their organizations to reap the benefits of standardization and specialization.
Lastly, a controversial hypothesis developed by Theodor Levitt32proposes that national customer demands and tastes have converged. Starting from this premise, the key to success becomes the companies’ ability to produce and sell the same products and services everywhere. In this context, they must learn to operate as if the world were one large market—ignoring superficial regional differences.
While considerable convergence in consumer tastes can undoubtedly be observed, there are deeply rooted cultural differences that prevent total convergence.
Together with persistent differences in other environmental factors, such as legal forces, the opportunities to sell the same products and services everywhere remain limited.
1.4.2 Forces for Local Responsiveness
As compelling as the forces for global integration and coordination may be, managers should not overlook the drivers for local adaptation and responsiveness.
28Cairncross (1997).
29Bloomberg (2015).
30Cole (2014).
31Hout et al. (1982).
32Levitt (1983).
It is true that increasingly effective transportation and communication networks have reduced geographic and time distance; but cultural, administrative and eco-nomic distance remains and significantly influences the way multinationals conduct their global operations.33 Cultural distance, reflecting differences in language, religious beliefs, social norms, working and living habits, has a major impact on what companies should or should not do in a particular region. Cultural attributes are strongly related to consumer choices and preferences for specific products and product features, contradicting Levitt’s “one global market” theory. Religion, for example, frequently determines food choices and creates a demand for Kosher or Halal certified food.34Even large multinational companies often underestimate the impact of culture on business or fail to fully comprehend cultural differences. For example, Danone, the world’s largest yoghurt producer, decided to suspend pro-duction at its Shanghai plant, a move food analysts in Beijing ascribed to the company’s failure to understand local consumers’ tastes and to compete with domestic players on pricing.35 These are also problems for Nestle´, which is also closing one of its three ice-cream factories in China. Similarly, Barclays Bank underestimated the cultural aspect in its Indian business and had to withdraw its $1 billion retail business from the country.36
However, there are also successful examples of companies which responded appropriately to the local environment. Tesco, known as Homeplus in South Korea, acknowledged that people spend a significant part of their day commuting and that they do not have much time for traditional shopping in a supermarket. Conse-quently, it created a virtual store in the subway where commuters, using their smart phones, can order their groceries from of a virtual shelf (life-size pictures of goods with square QR-codes) and get them delivered at home.
Additionally, multinationals have to deal with renewed ethnocentrism among consumers. The perceived high-end status of foreign brands in emerging markets from Eastern Europe to Asia is diminishing.37 As local brands improve their quality, they gain new and returning national customers. Taken collectively, the scope for a worldwide standardization of the marketing mix is limited. Interest-ingly, technological advances enable and support adaptation. In this context, a study by McKinsey and Company shows that executives expect increased product and service customization to be among the most important global forces shaping the next few years.38
33Ghemawat (2001).
34Schlegelmilch et al. (2015).
35Waldmeir and Lucas (2001).
36Lamont and Fontanella-Khan (2001).
37Stoebe (2013).
38Dye and Stephenson (2010).