Globalization marketing - Essay Example

As markets open up, and become more Integrated, the pace of change accelerates, technology shrinks distances between arrests and reduces the scale advantages of large firms, new sources of competition emerge, and competitive pressures mount at all levels of the organization. Also, the threat of competition from companies In countries such as India, China, Malaysia, and Brazil Is on the rise, as their own domestic markets are opening up to foreign competition, stimulating greater awareness of International market opportunities and of the need to be internationally competitive. Impasses which previously focused on protected domestic markets are entering into markets in other countries, creating ewe sources of competition, often targeted to price-sensitive market segments. Not only is competition intensifying for all firms regardless of their degree of global market involvement, but the basis for competition is changing. Competition continues to be market-based and ultimately relies on delivering superior value to consumers.

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However, success in global markets depends on knowledge accumulation and deployment. Global marketing is a firm’s ability to market to almost all countries on the planet. With extensive reach, the need for a firm’s product or services is established. The global firm retains the capability, reach, knowledge, staff, skills, insights, and expertise to deliver value to customers worldwide.

The firm understands the requirement to service customers locally with global standard solutions or products, and localizes that product as required to maintain an optimal balance of cost, efficiency, customization and localization in a control-customization continuum to best meet local, national and global requirements to position itself against or with competitors, partners, alliances, substitutes and defend against new global and local market entrants per country, region or city.

The firm will price Its products appropriately worldwide, nationally and locally, and promote, deliver access and Information to its customers IM the most cost-effective way. The firm also needs to understand, research, measure and develop loyalty for Its brand and global brand equity (stay on brand) for the long term OVERVIEW The growing Importance of global marketing Is one aspect of a sweeping transformation that has profoundly affected the people and Industries of many nations during the past 160 years. Three decades ago, the phrase global marketing did not even exist.

Today savvy cuisines people utilize global marketing for the realization of their companies’ full commercial potential. However, there is another, even more critical reason why globalization is the transformation of formerly local or national industries into global ones. A global industry, as noted by Michael Porter, is one in which competitive advantage can be achieved by integrating and leveraging operations on a worldwide scale. An industry is global to the extent that a company’s position in the industry is interdependent with its industry position in other countries. The Importance of Global Marketing

The largest single marketing in the world in terms of national income is The United States, representing roughly 25 percent of the total world market for all products and services. U. S. Companies that wish to achieve maximum growth potential must “go global” because 75 percent of the world market potential is outside of their home country. Non-US companies have an even greater incentive to “go global;” their potential markets include the 300 million people in the US. For example: Japan is the second largest market on the planet (by dollar value), yet the market outside of Japan accounts for 85 percent of the world potential for

Japanese companies. Even though Germany is the largest single country market in Europe, 94 percent of the world market potential for German companies is outside of Germany. The companies that survive and prosper in the 21st Century will be global enterprises. Less fortunate companies will be absorbed by their more dynamic competitors – or simple cease to exist. A company marketing only within its national boundaries only has to consider domestic competition. Even if that competition includes companies from foreign markets, it still only has to focus on the competition that exists in its home market.

Products and services are developed for customers in the home market without thought of how the product or service could be used in other markets. All marketing decisions are made at headquarters. The biggest obstacle these marketers face is being blindsided by emerging global marketers. Because domestic marketers do not generally focus on the changes in the global marketplace, they may not be aware of a potential competitor who is a market leader on three continents until they simultaneously open 20 stores in the Northeastern U. S.

These marketers can be considered ethnocentric as they are most concerned with how they are perceived in heir home country. Not only do standard marketing approaches, strategies, tactics global operations and distribution, government relations, global human capital management and resource allocation, distributed technology development and management, global business logic, interfere and global competitiveness, exporting, joint ventures, foreign direct investments and global risk management. How the product is distributed is also a country-by-country decision influenced by how the competition is being offered to the target market.

Using Coca-Cola as an example again, not all cultures use vending machines. In the United States, beverages are sold by the pallet via warehouse stores. In India, this is not an option. Placement decisions must also consider the product’s position in the market place. For example, a high- end product would not want to be distributed via a “dollar store” in the United States. Conversely, a product promoted as the low-cost option in France would find limited success in a pricey boutique. Price will always vary from market to market.

Price is affected by many variables: cost of product development (produced locally or imported), cost of ingredients, cost of delivery (transportation, tariffs, etc. ), and much more. Additionally, the product’s position in relation to the competition influences the ultimate profit margin. Whether this product is considered the high-end, expensive choice, the economical, low-cost choice, or something in-between helps determine the price point. Effective global advertising techniques do exist. The key is testing advertising ideas using a marketing research system proven to provide results that can be compared across countries.

The ability to identify which elements or moments of an ad are contributing to that success is how economies of scale are maximized. Market research measures such as Flow of Attention, Flow of Emotion and branding moments provide insights into what is working in an ad in any country because the measures are based on visual, not verbal, elements of the ad. CASE 1-2: McDonald’s Expands Globally Two brothers, Richard and Maurice McDonald founded McDonald’s in 1937. The brothers developed food processing and assembly line techniques at a tiny drive-in restaurant east of Pasadena, California.

In 1954, Ray Crock, a milk-shake mixer salesman, saw an opportunity in this market and negotiated a franchise deal giving him exclusive rights to franchise McDonald’s in the USA. Mr. Crock offered a McDonald’s franchise for $950 at a time when other franchising companies sold restaurant and ice-cream franchises for up to $50,000. Mr. Crock also took a service fee of 1. 9 per cent of sales for himself plus a royalty of 0. 5 per cent of sales went to the McDonald brothers. The McDonald’s brothers sold out for $2. 7 million in 1961. McDonald’s first international venture was in Canada, during 1967.

Shortly afterwards, George Cohn bought the license for McDonald’s in eastern Canada, opening his first restaurant in 1968. Cohn went on to build a network of 640 restaurants, making McDonald’s in Canada more lucrative than any of the other McDonald’s outside the USA. The key to the international success of McDonald’s has been the use of franchising. By franchising to local people, the delivery and interpretation of what might be seen as US brand culture are automatically translated by the local people in terms of both product and service.

McDonald’s now has over 20,000 restaurants in over 100 countries, and around 80 per cent are franchises. Globalization versus internationalization entity, marketing standardized products in the same way everywhere. Globalizes organizations employ standardized products, promotional campaigns, prices and strutting channels for all markets. Brand name, product characteristics, packaging and labeling are the easiest of the marketing mix variables to standardize. Globalization of markets requires total commitment to international marketing; it embodies the view that the world is a single market.

For example, Nikkei trainers, Levies’ jeans and Coca-Cola have all crossed global borders; however, even there, some tailoring of the message is visible. Internationalization involves customizing marketing strategies for different regions of the world according to cultural, regional ND national differences to serve specific target markets. In order to standardize the marketing mix, the strategy needs to group countries by social, cultural, technological, political and economic similarities. Omaha (1989) states that “large companies must become more global if they hope to compete.

They must change from companies that treat their foreign operations as secondary, to companies that view the entire world as a single borderless market”. Levity (1983) suggests that, as markets become increasingly similar and more global, the key to success lies in the ability to globalize. Cantata and Roentgen (1995) believe that multinational companies should have to find out how they must adjust an entire marketing strategy, including how they sell and distribute, in order to fit in with new market demands. Altering and adjusting the marketing mix determinants are essential and vital to suit local tastes, meet special needs and consumers’ non-identical requirements” (Cantata and Roentgen, 1995). However, Taylor (1991) supports the view that companies should use both internationalization and globalization elements to create a competitive advantage: it is important to heed the maxim “think global, act local”. The firm must ensure that its structure fits in with its international environment, while at the same time, have the internal flexibility required to implement its strategic goal (Taylor, 1991).

The debate between these two schools of thought is continuous and, as trade barriers throughout the world diminish and we move towards a single economy, more firms seem to be entering the international arena: Growing internationalization of tastes and buying patterns has made the development of global and regional brands more feasible (Doyle, 1994). As a result, organizations are experiencing a change in focus room developing into a global company over time to being a “born global”. Born global operate on a worldwide scale from birth rather than developing with the business.

The concept of “think global, act local” has become the business phrase of the twentieth century and increasingly topical when looking at the debate between internationalization and globalization. Crossing borders, both physically and electronically, is becoming increasingly vital for even the smallest businesses to remain competitive. The marketing mix McCarthy (1975) formulated the concept of the ups – product, price, promotion, and lace marketing mix. For many years these have been used as the principal foundation on which a marketing plan is based.

However, with particular attention being paid to services marketing in recent years, theorists have identified additional variables which could be added to the ups. Field and Gilligan (1996) recognized the following variables as an integral part of the marketing mix – process, physical, and 1 . (1) Product – features, quality, quantity. 2. (2) Place – location, number of outlets. 3. (3) Price – strategy, determinants, levels. 4. (4) Promotion – advertising, sales promotion, public relations. . (5) People – quantity, quality, training, promotion. 6. 6) Process – blueprinting, automation, control procedures. 7. (7) Physical – cleanliness, d©core, ambiance of the service. Product One of the aims of McDonald’s is to create a standardized set of items that taste the same whether in Singapore, Spain or South Africa. McDonald’s learned that, although there are substantial cost savings through standardization, being able to adapt to an environment ensures success. Therefore the concept of “think global, act local” has been clearly adopted by McDonald’s. Adaptation is required for many reasons including consumer tastes/preferences and laws/customs.

There are many situations where McDonald’s adapted the product because of religious laws and customs in a country. For example, in Israel, after initial protests, Big Macs are served without cheese in several outlets, thereby permitting the separation of meat and dairy products required of kosher restaurants. McDonald’s restaurants in India serve Vegetable Nuggets and a mutton-based Maharaja Mac (Big Mac). Such innovations are necessary in a country where Hindus do not eat beef, Muslims do not eat pork, and Gains (among others) do not eat meat of any type.

In Malaysia and Singapore, McDonald’s underwent rigorous inspections by Muslim clerics to ensure ritual cleanliness; the chain was rewarded with a hall (“clean”, “acceptable”) certificate, indicating the total absence of pork products. Quality Quality Assurance teams are responsible for monitoring the quality of McDonald’s food products, both in the restaurants and at suppliers at all stages of production. This involves a continuous round of visits, inspections and audits, announced and unannounced, to all production facilities, distribution centers and restaurants.

Visits even extend to secondary suppliers such as farms, to monitor crops growing in the lied or to inspect seeds prior to planting. Every supplier manufactures to very tight specifications, which detail the exact quantity and quality of raw ingredients and the dimensions of the finished product. The specifications also stipulate extensive checking procedures. In addition to studying all production run records which are sent to McDonald’s by suppliers, McDonald’s regularly take samples of stock at distribution centers to ensure that they conform to specifications.

The quality controls continue when the food arrives at restaurants. No delivery is accepted until a series of quality and safety checks is completed. All restaurant staff receive comprehensive training in food safety and hygiene and food preparation procedures. This is a global practice and is one of the distinguishing features of McDonald’s as a fast-food restaurant. Place McDonald’s currently has over 24,500 restaurants in 116 countries across the world. McDonald’s continues to focus on managing capital outlays more effectively through prudent and strategic expansion.

In 1998, the company added 1,668 restaurants system-wide (whether operated by the company, franchisee or Joint venture), compared with 2,110 in 1997 and 2,642 in 1996. In 1999, McDonald’s expected to add primarily in locations outside the USA. McDonald’s realizes the potential for growth in international markets and plans to benefit from lessons that they learned in the USA. For example, they used to add 300-400 restaurants a year, every year, in the USA regardless of circumstances. It was a strategy that created a gap between them and the competition.

However, they realism looking back that they could have built even more restaurants at a time when competition was not so great. This would have meant that a lot of those “other” restaurants could have been McDonald’s. They have applied this lesson to their rapidly growing international business, especially in markets where competition is not so strong. For example, McDonald’s added 41 5 restaurants in Japan, accounting for 25 per cent of system-wide restaurant additions in 1998. Longer-term, markets like China, Italy and Mexico are expected to represent a growing proportion of restaurant additions.

Although this strategy is an example of globalization, it is still clearly a “global” focus as McDonald’s can now share ideas, best practices and human resources across borders, thus further enhancing its nominative advantage and strengthening its leadership position. Price McDonald’s has realized that, despite the cost savings inherent in standardization, success can often be attributed to being able to adapt to a specific environment. This is indeed the case with its implementation of its pricing strategy, which is one of localization rather than globalization.

Illustrates the comparative Big Mac prices (flagship brand of McDonald’s) from around the world. It succeeds in highlighting the point that McDonald’s has had to come up with different pricing strategies for different countries. More importantly, rather than Just having a different pricing policy for the Big Mac in these listed countries, McDonald’s has had to select the right price for the right market. The highest comparative price for the Big Mac is that of our own country, the I-J, but why is that the case? How does McDonald’s come to its pricing decision?

Pricing decisions For each country, there is a rigorous pricing process that is used to determine the price for that particular market. The process, as described by Vaginal et al. (1999), is listed below: 1. (1) selecting the price objective; 2. 2) determining demand; 3. (3) estimating costs; 4. (4) analyzing competitors’ costs, prices and offers; 5. (5) selecting a pricing method; and 6. (6) selecting a final price. The process above sets out the basic framework that allows McDonald’s to set localized pricing. McDonald’s overall pricing objective is to increase market share.

In each country, they look at the demand for their product as a barometer for setting price. In the USA, for example, a Big Mac with fries costs the equivalent of a Chicago office worker’s earnings during 14 minutes. However, elsewhere, a meal like this is received as a luxury, as opposed to a normal product, and would cost a lot more relative to earnings. In Nigeria, for example, a corresponding meal would represent 11 hours 23 minutes of work for someone living in Lagos. Thus, depending upon the perception of price by the consumer, then will the price of the McDonald’s product be determined.

Therefore, it is possible to conclude that, by looking at other competitors Delhi, India, McDonald’s was looking at market penetration in October 1996, and set price through looking at Nirvana’s, a local food chain. They used this local example as a deadline to what the Indian would perceive as an acceptable price and hence what they should charge. A comparative survey of prices was carried out in Hong Kong in June 1994 and demonstrated that McDonald’s in price is equal to or cheaper than its competitors in the fast food sector.

The remarkable thing is, however, that not only is McDonald’s competitive in the fast food sector but its prices remain competitive with those of other food purveyors. In Hong Kong, for example, an average meal” is less than half the price of a simple noodles meal! A new McDonald’s opens somewhere in the world every eight hours. Two thirds of the 1,200 to 1,500 new restaurants which the company opens annually are outside the USA. The firm has more than a million employees, and estimates that the figure will double in the next few years.

Before entering a country for the first time the human resource department has a list of questions that must be answered. These include: What are the labor laws? Would McDonald’s be able to establish part-time and flexible work schedules? Is there a maximum number of hours an employee can work? McDonald’s then adapts to each individual situation, therefore one could describe the process as “global”. The company is strongly committed to staffing locally and promoting from within. This means that McDonald’s has managers who understand both the corporate and the local cultures.

The emphasis when recruiting is that the applicants are customer-focused; the right attitude is seen as more important than technical ability. The company believes that the best way to stand out from the crowd is to satisfy all of the customers, all of the time. This is emphasized in recruitment advertising and continues in preliminary screening; this is standard the world over and another clear example of a globalization strategy. There is a hamburger university in Illinois, USA. The main course is in advanced operations; this is designed for managers, assistant managers and prospective franchisees.

It provides training in 22 languages, although the course teaches a standard practice to be used in restaurants worldwide, and teaching is adapted to suit the needs of overseas students. There are additional training centers in Munich, Tokyo, Sydney, London and mainland China. The training centers teach managers such details as the temperature at which hamburgers should be cooked and how to inspect restaurant facilities to ensure that quality standards are met. Managers are also taught how to give performance reviews, how to listen and what to do if a person becomes defensive.

Managers, in turn, pass the details on to their staff. Within the restaurant structure in the I-J there are three main levels of recruitment at McDonald’s – hourly paid employees, Junior business managers and business management trainees. The management development programmer is for recruits who are at least 21 and who have some management experience. It offers a direct route into management following an intensive and structured training programmer. Training in business management begins with an intensive training course which teaches the basics of restaurant operation.