chapter 1 • Introduction to Global Marketing in India
chaPter 1 • Introduction to Global Marketing in India, China, and elsewhere, the growing ranks of middle-class consumers have more money to spend than in the past. at the same time, slow growth in industrialized countries has compelled management to look abroad for opportunities in nations or regions with high rates of growth.
Second, economic growth has reduced resistance that might otherwise have developed in response to the entry of foreign firms into domestic economies. When a country such as China is experiencing rapid economic growth, policymakers are likely to look more favorably on outsiders. a growing country means growing markets; there is often plenty of opportunity for everyone. It is thus possible for a “foreign” company to enter a domestic economy and establish itself without threatening the existence of local firms. the latter can ultimately be strengthened by the new com- petitive environment. Without economic growth, however, global enterprises may take business away from domestic ones. Domestic businesses are more likely to seek governmental intervention to protect their local positions if markets are not growing. Predictably, the recent economic crisis creates new pressure on policymakers in emerging markets to protect domestic markets.
the worldwide movement toward free markets, deregulation, and privatization is a third driving force. the trend toward privatization is opening up formerly closed markets; tremendous opportunities are being created as a result. In their book, Daniel Yergin and Joseph Stanislaw described these trends as follows:
It is the greatest sale in the history of the world. Governments are getting out of businesses by disposing of what amounts to trillions of dollars of assets. everything is going—from steel plants and phone companies and electric utilities to airlines and railroads to hotels, restaurants, and nightclubs. It is happening not only in the former Soviet Union, eastern europe, and China but also in Western europe, asia, Latin america, and africa—and in the United States.54
For example, when a nation’s telephone company is a state monopoly, the government can require it to buy equipment and services from national companies. an independent company that needs to maximize shareholder value has the freedom to seek vendors that offer the best overall value proposition, regardless of nationality. Privatization of telephone systems around the world created significant opportunities for telecommunications equipment suppliers such as Sweden’s
54Daniel Yergin and Joseph Stanislaw, The Commanding Heights (new York: Simon & Schuster, 1998), p. 13.
Exhibit 1-9 With annual sales of $26 billion, Moline, Illinois–based Deere & Company is the world’s leading manufacturer of farm equipment. The company also produces equipment for the construction, forestry, and lawn care industries. Deere has benefited from booming worldwide demand for agricultural commodities; demand for tractors has been especially strong in Brazil, China, India, and other emerg- ing markets. Source: Courtesy of John Deere.
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48 Part 1 • IntroductIon
ericsson; alcatel-Lucent, a Franco-american company; and Canada-based nortel networks. after years of growth, however, most telecom suppliers experienced slower growth as customers cut spending in the face of the global recession. In 2009, nortel networks filed for bankruptcy; it auctioned thousands of patents to an alliance of companies including apple and Microsoft.
Leverage a global company possesses the unique opportunity to develop leverage. In the context of global marketing, leverage means some type of advantage that a company enjoys by virtue of the fact that it has experience in more than one country. Leverage allows a company to conserve resources when pursuing opportunities in new geographical markets. In other words, leverage enables a company to expend less time, less effort, and/or less money. Four important types of leverage are experience transfers, scale economies, resource utilization, and global strategy.
ExPERIEnCE TRAnSFERS a global company can leverage its experience in any market in the world. It can draw upon management practices, strategies, products, advertising appeals, or sales or promotional ideas that have been market tested in one country or region and apply them in other comparable markets. For example, Whirlpool has considerable experience in the United States dealing with powerful retail buyers such as Sears and Best Buy. the majority of european appliance retailers have plans to establish their own cross-border “power” retailing systems; as former Whirlpool Ceo David Whitwam explained, “When power retailers take hold in europe, we will be ready for it. the skills we’ve developed here are directly transferable.”56
Chevron is another example of a global company that gains leverage through experience transfers. as H. F. Iskander, general manager of Chevron’s Kuwait office, explains:
Chevron is pumping oil in different locations all over the world. there is no problem we have not confronted and solved somewhere. there isn’t a rock we haven’t drilled through. We centralize all that knowledge at our headquarters, analyze it, sort it out, and that enables us to solve any oil-drilling problem anywhere. as a developing country you may have a national oil company that has been pumping your own oil for 20 years. But we tell them, “Look, you have 20 years of experience, but there’s no diversity. It is just one year of knowledge 20 times over.” When you are operating in a multitude of countries, like Chev- ron, you see a multitude of different problems and you have to come up with a multitude of solutions. You have to, or you won’t be in business. all those solutions are then stored in Chevron’s corporate memory. the key to our business now is to tap that memory, and bring out the solution that we used to solve a problem in nigeria in order to solve the same problem in China or Kuwait.57
SCALE EConoMIES the global company can take advantage of its greater manufacturing volume to obtain traditional scale advantages within a single factory. also, finished products can be man- ufactured by combining components manufactured in scale-efficient plants in different countries. Japan’s giant Matsushita electric Company is a classic example of global marketing in action; it achieved scale economies by exporting VCrs, televisions, and other consumer electronics prod- ucts throughout the world from world-scale factories in Japan. the importance of manufacturing scale has diminished somewhat as companies implement flexible manufacturing techniques and invest in factories outside the home country. However, scale economies were a cornerstone of Japanese success in the 1970s and 1980s.
Leverage from scale economies is not limited to manufacturing. Just as a domestic com- pany can achieve economies in staffing by eliminating duplicate positions after an acquisition, a global company can achieve the same economies on a global scale by centralizing functional activities. the larger scale of the global company also creates opportunities to improve corporate staff competence and quality.
“If we were going to be world-class, we needed to pull together and leverage our global assets around the world to create a powerhouse ‘one Ford.’ It’s exactly why we are here.”55
—Alan Mulally, CEO, Ford Motor Company
56William C. taylor and alan M. Webber, Going Global: Four Entrepreneurs Map the New World Marketplace (new York: Penguin USa, 1996), p. 18.
55Bill Vlasic, “Ford’s Bet: It’s a Small World after all,” The New York Times (January 9, 2010), p. B1.
57thomas L. Friedman, The Lexus and the Olive Tree (new York: anchor Books, 2000), pp. 221–222.
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chaPter 1 • IntroductIon to Global MarketInG 49
RESouRCE uTILIzATIon a major strength of the global company is its ability to scan the entire world to identify people, money, and raw materials that will enable it to compete most effectively in world markets. For a global company, it is not problematic if the value of the “home” currency rises or falls dramatically, because there really is no such thing as a home currency. the world is full of currencies, and a global company seeks financial resources on the best available terms. In turn, it uses them where there is the greatest opportunity to serve a need at a profit.
GLoBAL STRATEGy the global company’s greatest single advantage can be its global strategy. a global strategy is built on an information system that scans the world business environment to identify opportunities, trends, threats, and resources. When opportunities are identified, the global company adheres to the three principles identified earlier: It leverages its skills and focuses its resources to create superior perceived value for customers and achieve competitive advantage. The global strategy is a design to create a winning offering on a global scale. this takes great discipline, much creativity, and constant effort. the reward is not just success, it’s survival. For example, French automaker renault operated for many years as a regional company. During that time, its primary struggle was a two-way race with Peugeot Citroën for dominance in the French auto industry. However, in an industry dominated by toyota and other global competitors, Chairman Louis Schweitzer had no choice but to formulate a global strategy. Initiatives include acquiring a majority stake in nissan Motor and romania’s Dacia. Schweitzer has also invested $1 billion in a plant in Brazil and is spending hundreds of millions of dollars in South Korea.58
a note of caution is in order: a global strategy is no guarantee of ongoing organizational success. Companies that cannot formulate or successfully implement a coherent global strategy may lose their independence. InBev’s acquisition of anheuser-Busch at the end of 2008 is a case in point. Some globalization strategies do not yield the expected results, as seen in the unraveling of the DaimlerChrysler merger and the failure of Deutsche Post’s DHL unit to penetrate the U.S. domestic package delivery market.
the severe downturn in the business environment in the early years of the twenty-first cen- tury wreaked havoc with strategic plans. this proved true for established global firms as well as newcomers from emerging markets that had only recently come to prominence on the world stage. For example, at Swiss-based aBB, Mexico’s Cemex, and UK supermarket chain tesco, the ambitious global visions of the respective chief executives were undermined by expensive strategic bets that did not pay off.59 although all three companies survived, they are smaller, more focused entities than they had been previously.
Restraining Forces Despite the impact of the driving forces identified previously, several restraining forces may slow a company’s efforts to engage in global marketing. In addition to the market differences discussed earlier, important restraining forces include management myopia, organizational culture, national controls, and opposition to globalization. as we have noted, however, in today’s world the driving forces predominate over the restraining forces. that is why the importance of global marketing is steadily growing.