Free Marketing Essays - The Widespread Phenomenon Of Globalisation Has Allowed Companies Worldwide To Finally Be Able To Operate In International Markets
Marketing Introduction
The widespread phenomenon of globalisation has allowed companies worldwide to finally be able to operate in international markets, more easily and more effectively. Globalisation has led to closer cooperation among world economies and to a high level of international trade activities. The world has become one global market place. Undoubtedly, the advent of internet technology has paved the way, during the past few years, for the growth of this phenomenon. Through the internet, consumers can readily access global information about products and services. However, globalisation has not only allowed for growth and improvement of international trading conditions but, also for increased interaction among different cultures and peoples. Businesses operating internationally have realised that, in order for them to be truly successful, they have to learn how to manage those cultural differences.
When an organisation plans to move its operations to a foreign country, it has to take both cultural and non-cultural factors into consideration. Both can, in fact, influence and impact the organisation's business development and success. Let's examine those factors.
Non-cultural factors include those factors and issues that are directly concerned with an organisation, such as: strategy development; the products or services the company will provide; geographical coverage; pricing strategies and its competitive environment. In other words, all those factors that are related to the company's general business direction and management.
Primarily, an organisation has to develop a suitable and sustainable strategy, when planning on starting international operations. A core strategy is of fundamental importance for further international strategy development: the organisation has to thoroughly define its business operations and set its parameters in order to be successful in the global market. A vital part of international strategy development is the so-called marketing mix or the 4 Ps, as they are more widely known. The marketing mix can be described as follows:
1. The product (or service) that the company will sell / provide.
2. The price the product will be sold at - selecting the most appropriate pricing strategy.
3. The place(s) in which the product will be sold, hence the geography / market selection; including the distribution channels through which the product will be made available to the market.
4. And lastly, the 4th P includes promotional activities such as, advertising; sales promotion, selling techniques etc.
After having established which kind of product or service the organisation will supply, the next step is to select the place/markets where the product will be sold. Of course, this step has to be preceded by some market research activity, to determine what the demand will be for a particular product, in specific foreign markets. The product's or service's characteristics will have to be profiled in such a way that will appeal to specific national tastes and requirements. People in various countries like different things and/or require different standards, and this factor should definitely be taken into account by the organisation in order to avoid any pitfalls. Penske Logistics, and American company that started its European operations in the late 1990s provide an example of this. They committed a judgment error. The concept they sought to introduce was, outsourcing of logistics services. It was the same offer the company applied in the US. The difference was that the European audience was not yet open to the concept of outsourcing, especially as far as logistics services were concerned. The traditional logistics management style was to work with a relatively large number of hauliers and every year the customer would negotiate lower transport tariffs. European companies / countries, with the exception of the UK and perhaps Germany to a certain extent, were alien to the idea of outsourcing one of their business functions to a third party. This concept later developed in Europe, as well. However, it did constitute a setback for the company at the beginning of its European operations.
Selecting international markets in which to sell and compete is of great strategic importance for an organisation, and usually not an easy task to carry out. There are various factors an organisation needs to consider when making this selection. For instance, the market potential has to be identified. As mentioned previously, the company has to assess the demand for a special product. Some of the questions it needs to address include the following: A) is there a gap in the market? B) Which product substitutes can be identified? C) What is the rate of substitution? D) What are the consumer tastes and behaviour? Other aspects, the firm should consider include: the level of competition within the chosen market; the local economic situation; any specific government legislation / regulations; import tariffs if applicable and the possible logistics set-up the company should adopt. More over, appropriate distribution channels should be put in place - to establish the best way to get the product to the consumer.
Basically, the organisation has to carry out a market audit. The overall marketing environment needs to be analysed, including the macro- and micro- environment. Tools and methods which can help the company assess the marketing environment comprise: Pest analysis to assess political, economic, sociocultural and technological factors of the environment. A SWOT analysis, to determine the firm's strengths and weaknesses and how they relate to the local market. And lastly, Porter's Five Forces analysis to assess the overall level of competition. In addition, the organisation needs to look at the cultural differences in terms of values, languages and mentality. Therefore, selecting one or more foreign markets in which to operate, is a very challenging and time-consuming task for an organisation.
The next step in the process, once a product / service has been developed or defined and the markets have been selected, is to devise an appropriate pricing strategy that will enable the company to enter the market and gain market share as fast as possible. There are four main types of pricing strategies an organisation could adopt when entering a new market or when introducing a new product. These comprise:
- Premium - if the product or service is special and unique, a company will charge a high price, to emphasize the unique characteristics of its product offer.
- Penetration - prices are set low purposely, to facilitate the company's entry into the market and gain market share quickly. Once the product is known, the company will set a higher price.
- Economic pricing - this means that the company will keep charging very low prices for specific products.
- Skimming - firms that have a competitive advantage will set high prices which, eventually will fall because of new competitors entering the market.
The organisation will have to choose the one that best fits their product and overall strategy.
Promotion is a very important element of an organisation's strategy. A sound promotional and marketing strategy in general, will help the company increase their sales potential and eventually, achieve top sales revenues. Informing buyers about a company's products or services and making them 'product-aware' is fundamental. Promotion techniques can be classified as: advertising; public relations and personal selling. Advertising usually consists of media advertising i.e. television; radio; internet; newspapers and magazines. Personal selling involves activities such as telemarketing and customer presentations. Especially, when moving to a foreign country, this is a strategic aspect that should be planned and executed, in order to allow for a suitable company's / product's introduction into the new market. Needless to say, that it should be consistent with the local promotional strategies.
The above are fundamental factors that an organisation should be paying close attention to when developing an international strategy. We have seen, as in the case of Penske Logistics, how important it is to conduct thorough market research prior to a company moving to a foreign market. Simply because consumers' expectations regarding a certain product or service, tend to differ from country to country. This is indeed the case still, within the European Union itself. Nonetheless, evidence shows that a high number of companies still make costly strategic mistakes due to poor planning. Therefore, non-cultural factors can definitely have a negative effect on the organisation, if not properly thought out and executed.
However, my opinion is that cultural factors can have a greater impact on an organisation operating abroad, than non-cultural ones.
As described above, the advent of globalisation has lowered international barriers and more interaction among different cultures is as a consequence taking place. This aspect adds a new dimension to the way a company operates. A core strategy has to be implemented regardless, even if the company decides to operate only in the domestic market. But when an organisation decides to trade across the border, it has to face multi-faceted cultural systems and this factor adds to the difficulty of managing an internationally located business. As Fons Trompenaars states (1997), referring to the 'new breed of international managers':
They all know that in SBU, TQM (Total Quality Management) should reign, with products delivered JIT, where CFTS (Customer First Teams) distribute products with subject to MBO (Management By Objectives). If this is not done appropriately we need to BPR (business process reengineering).
Even with experienced international companies, many well-intended universal applications of management theory have turned out badly.
Trompenaars makes the following example: the employees' performance evaluation system, 'Management by Objectives' has failed in Southern European countries because as he writes: managers have not wanted to conform to the abstract nature of preconceived policy guidelines. Therefore, it can be argued that culture has a major impact on business.
Cultural differences comprise: languages; different social backgrounds and different mentalities. Some of the cultural aspects, which can provide help when comparing different societies, can be described as follows.
-Personal space: some societies value their personal space highly: someone should not come 'too close'. Other societies instead are more flexible and don't define how much space should separate them from another individual.
-Communication: obviously, a myriad of languages are spoken in the world. But communication involves body language as well, and each society ascribes a different meaning to each gesture.
-Time: punctuality for some societies is very important; other countries, on the contrary, 'make it a habit' of arriving late to meetings.
Ultimately, it is a matter of understanding what's behind each culture.
Let us consider two culturally different countries: the Netherlands and Japan. More precisely, a Dutch company that wants to move its business to Japan. Obviously there are major cultural differences between the two nations. The Dutch are generally easy-going and open-minded, whilst the Japanese are very traditional and rely on a hierarchical society system. The Dutch are renowned for their direct approach, their straightforwardness. They are not afraid of expressing their opinions on people and situations. Honesty is what they tend to appreciate. Being 'blunt' is what they like to advocate. On the other hand, they don't like excessive complements and praise, as they are not viewed to be 'sincere'. This way of thinking and behaving is can be clearly seen in the way the Dutch conduct business.
During business meetings they prefer to be presented with facts and statistics - empirical data - and do not wish to hear sentences like 'this product is the best on the market'. Before meetings or any other business encounter the Dutch do not tend to socialise - getting straight to the point is the best way to deal with Dutch businessmen. When closing a deal, business dinners are rather common. However, it's unusual to invite potential customers and business partners at 'home', as private and business lives are not mingled. The Dutch mentality requires specific planning ahead for all events. Last-minute invitations are not acceptable.
On the other hand, the Japanese have established their society on a quite different set of values. The hierarchical system values the elderly, therefore respect is crucial in the Japanese society. The following are some of the values that form the Japanese 'belief system':
- The concept of 'harmony' or 'preserving harmony' is one of the fundamental values of Japanese culture. In business, this means that one should focus on maintaining good relationships with colleagues. Self-assertion is not promoted and in fact, the Japanese have an 'indirect way' of saying 'no'.
- Another important concept is 'saving face'; direct criticism is avoided in order to preserve someone's personal pride.
These concepts should always be remembered when doing business with the Japanese.
Overall, the Japanese prefer a more 'indirect speech', as opposed to expressing oneself in a direct manner. They tend to invite third parties, a go-between to carry out business negotiations. Again, they prefer a more 'indirect' way of doing business. They tend to socialise a little prior to business meetings. Business deals are usually closed while entertaining. Personal space is very important both to the Dutch and the Japanese. This is probably due to the fact that both the Netherlands and Japan are densely populated countries.
The Dutch, when moving to Japan have to be aware of Japanese cultural values. For instance, the 'beloved' straightforwardness and 'bluntness' of the Dutch and their 'get-straight-to-the-point' attitude is in stark contrast with the ceremonial ways of the Japanese, their preference for indirect ways of communication and 'saving face' concept. Consequently, it is recommendable that the Dutch refrain from making straightforward statements, and if possible, to avoid expressing their opinion directly - especially, if it's a negative one - in relation to saving face. A breach or disruption of this value system would certainly cause the termination of any future business cooperation, between the two parties. This can be quite difficult to achieve because language expressions vary, as well, allowing for misinterpretations, mistranslations and general misunderstandings. What sounds, in fact, disrespectful in one language might not be considered as 'offensive' at all, in another. It follows that a clear communication process has to be established between the two parties and this entails 'learning' about the local culture: what is valued by the society; customs and traditions; what is considered good behaviour and of course, the language! This, however, might not be enough as there's always some kind of 'underlying' language or code that cannot be openly expressed. As Trompenaars (1997) writes: the essence of culture is not what is visible on the surface. It is the shared ways groups of people understand and interpret the world.
Today's international business managers face a number of challenges and need to be equipped with the right knowledge and tools to be successful in the current, highly competitive business environment. Trompenaars (1997) also writes:
if business people want to gain understanding of and allegiance to their corporate goals, policies, products or services, wherever they are doing business, they must understand what those and other aspects of management mean in different culture.
Typically, Anglo-Saxon countries still seem to underestimate and neglect cultural differences - perhaps due to the global presence American companies have achieved. We have described only one example of a society not being able to adopt a specific management application. Unfortunately, many more examples exist and it is the managers' task to identify which management systems are most likely to be meet success in a specific country. The only way to achieve this is by studying cultural differences and interactions.
Ideally, when considering the marketing mix, the organisation should have already been educated on how to manage cultural differences. For instance, if a company is to undertake any promotional activity in a foreign country, it is necessary that it is aware of what is regarded as 'acceptable' by that society. For example, in Italy is perfectly fine to show a girl wearing 'tiny' underwear' on a billboard. In America, this would be against the norm.
Likewise, products and services need to be adapted to the local tastes and needs. An example is Coca-Cola - it does not taste the same in every country. In some countries is sweeter than in others. In Germany, consumers like 'sparkling apple juice'.
Additionally, prices have to be adapted to the local standards of living and economic situations. Not to mention the fact that each country 'values' a product in a different way.
To compete successfully in the global market, companies have to develop sustainable international strategies but most of all, they need to be aware of cultural differences that exist among countries and learn to manage them. Cultural factors have a greater impact n an organisation, than non-cultural factors and this is clearly demonstrated by the failed attempt to impose one management style on all - a distinct difference exists on how people view and regard management applications and theories.
Bibliography.
1- Trompenaars, F.; Hampden-Turner C. 1997. Riding the waves of culture: Understanding diversity in global Business. Publisher: The McGraw-Hill Companies. Second Edition
2- Yip G.S. 2003. Total global strategy. Published New Jersey Upper Saddle River: Prentice Hall.
3- Harris P. R. 1989. Managing Cultural Differences. Published Houston: Gulf Publishing Company, Book Division.
4- Source: www.marketingteacher.com
