Defense of Globalization

Defense of Globalization

28 Part 1 • IntroductIon

must expend to learn about or seek out the product.9 Companies that use price as a competitive weapon may scour the globe to ensure an ample supply of low-wage labor or access to cheap raw materials. Companies can also reduce prices if costs are low because of process efficiencies in manufacturing or because of economies of scale associated with high production volumes.

recall the definition of a market: people or organizations that are both able and willing to buy. In order to achieve market success, a product or brand must measure up to a threshold of acceptable quality and be consistent with buyer behavior, expectations, and preferences. If a company is able to offer a combination of superior product, distribution, or promotion benefits and lower prices than the competition’s, it should enjoy an extremely advantageous position. toyota, nissan, and other Japanese automakers made significant gains in the american market in the 1980s by creating a superior value proposition: they offered cars with higher quality, bet- ter mileage, and lower prices than those made by General Motors, Ford, and Chrysler. today, the auto industry is shifting its attention to emerging markets such as India and africa. renault and its rivals are racing to offer middle-class consumers a new value proposition: high-quality vehicles that sell for the equivalent of $10,000 or less. on the heels of renault’s success with the Dacia Logan come the $2,500 nano from India’s tata Motors and a $3,000 Datsun from nissan (see Case 11-1).

achieving success in global marketing often requires persistence and patience. Following World War II, some of Japan’s initial auto exports were market failures. In the late 1960s, for example, Subaru of america began importing the Subaru 360 automobile and selling it for $1,297. after Consumer Reports judged the 360 to be unacceptable, sales ground to a halt. Similarly, the Yugo automobile achieved a modest level of U.S. sales in the 1980s (despite a “don’t buy” rating from a consumer magazine) because its sticker price of $3,999 made it the cheapest new car available. Low quality was the primary reason for the market failure of both the Subaru 360 and the Yugo.10 the Subaru story does have a happy ending, however, due in no small measure to the company’s decades-long efforts to improve its vehicles. In fact, in 2012 Consumer Reports put Subaru at the top of its quality rankings, surpassing Mazda, toyota, Honda, and nissan.11 History has not been so kind to the Yugo, however; it ended up on Time magazine’s list of the “50 Worst Cars of all time.”

even some of the world’s biggest, most successful companies stumble while pursuing global opportunities. Walmart’s recent exit from the German market was due, in part, to the fact that German shoppers could find lower prices at stores known as “hard discounters.” In addition, many German consumers prefer to go to several small shops rather than seek out the conve- nience of a single, “all-in-one” store located outside a town center. Likewise, United Kingdom (UK)–based tesco’s attempts to enter the U.S. market with its Fresh & easy stores failed, in part, because U.S. consumers were unfamiliar with the private-label goods that make up much of the merchandise stock (see Case 12-2).

Competitive Advantage, Globalization, and Global Industries When a company succeeds in creating more value for customers than its competitors do, that company is said to enjoy competitive advantage in an industry.12 Competitive advantage is measured relative to rivals in a given industry. For example, your local laundromat is in a local industry; its competitors are local. In a national industry, competitors are national. In a global industry—consumer electronics, apparel, automobiles, steel, pharmaceuticals, furniture, and dozens of other sectors—the competition is, likewise, global (and, in many industries, local as well). Global marketing is essential if a company competes in a global industry or one that is globalizing.

9With certain categories of differentiated goods, including designer clothing and other luxury products, higher price is often associated with increased value. 10the history of the Subaru 360 is documented in randall rothman, Where the Suckers Moon: The Life and Death of an Advertising Campaign (new York: Vintage Books, 1994), p. 4. 11“Who Makes the Best Cars?” Consumer Reports (april 2012), pp. 14–18. 12Jay Barney notes that “a firm is said to have a competitive advantage when it is implementing a value-creating strat- egy not simultaneously being implemented by any current or potential competitors.” See Jay Barney, “Firm resources and Sustained Competitive advantage,” Journal of Management 17, no. 1 (1991), p. 102.

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chaPter 1 • IntroductIon to Global MarketInG 29

the transformation of formerly local or national industries into global ones is part of a broader economic process of globalization, which Jagdish Bhagwati defines as follows:

economic globalization constitutes integration of national economies into the international economy through trade, direct foreign investment (by corporations and multinationals), short-term capital flows, international flows of workers and humanity generally, and flows of technology.13

From a marketing point of view, globalization presents companies with tantalizing opportunities—and challenges—as executives decide whether to offer their products and services everywhere. at the same time, globalization presents companies with unprecedented opportuni- ties to reconfigure themselves; as John Micklethwait and adrian Wooldridge put it, the same global bazaar that allows consumers to buy the best that the world can offer also allows produc- ers to find the best partners.14 For example, globalization is presenting significant marketing opportunities for professional sports organizations such as the national Basketball association, the national Football League, and Major League Soccer (exhibit 1-2). as Major League Soccer commissioner Don Garber noted, “In the global culture the universal language is soccer. that’s the sweet spot. If it weren’t for the shrinking world caused by globalization, we wouldn’t have the opportunity we have today.”15

Is there more to a global industry than simply “global competition”? Definitely. as defined by management guru Michael Porter, a global industry is one in which compet- itive advantage can be achieved by integrating and leveraging operations on a worldwide scale. Put another way, an industry is global to the extent that a company’s industry posi- tion in one country is interdependent with its industry position in other countries. Indicators of globalization include the ratio of cross-border trade to total worldwide production, the ratio of cross-border investment to total capital investment, and the proportion of industry revenue generated by companies that compete in all key world regions.16 one way to deter- mine the degree of globalization in an industry sector is to calculate the ratio of the annual

13Jagdish Bhagwati, In Defense of Globalization (new York: oxford University Press, 2004), p. 3.

Exhibit 1-2 The National Football League (NFL) promotes American football globally. The NFL is focusing on a handful of key markets, includ- ing Canada, China, Germany, Japan, Mexico, and the United Kingdom. In fall 2010 guitar legend Jeff Beck performed “God Save the Queen” at Wembley Stadium in London prior to an NFL exhibition game between the San Francisco 49ers and the Denver Broncos. The final score: 49ers 24, Broncos 16. Sources: Michael Zagaris/Getty Images and James Starling/Alamy.

14John Micklethwait and adrian Wooldridge, A Future Perfect: The Challenge and Hidden Promise of Globalization (new York: Crown Publishers, 2000), p. xxvii. 15Grant Wahl, “Football vs. Fútbol,” Sports Illustrated (July 5, 2004), pp. 68–72. 16Vijay Govindarajan and anil Gupta, “Setting a Course for the new Global Landscape,” Financial Times—Mastering Global Business, part I (1998), p. 3.

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30 Part 1 • IntroductIon

value of global trade in the sector—including the value of components shipped to various countries during the production process—to the annual value of industry sales. In terms of these metrics, the consumer electronics, apparel, automobile, and steel industries are highly globalized.17

achieving competitive advantage in a global industry requires executives and managers to maintain a well-defined strategic focus. Focus is simply the concentration of attention on a core business or competence. the importance of focus for a global company is evident in the follow- ing comment by Helmut Maucher, former chairman of nestlé Sa:

nestlé is focused: We are food and beverages. We are not running bicycle shops. even in food we are not in all fields. there are certain areas we do not touch. For the time being we have no biscuits [cookies] in europe and the United States for competitive reasons, and no margarine. We have no soft drinks because I have said we either buy Coca-Cola or we leave it alone. this is focus.19

However, company management may choose to initiate a change in focus as part of an overall strategy shift. even Coca-Cola has been forced to sharpen its focus on its core bever- age brands. Following sluggish sales in 2000 and 2001, former chairman and chief executive Douglas Daft formed a new alliance with nestlé that jointly developed and marketed coffees and teas. Daft also set about the task of transforming Coca-Cola’s Minute Maid unit into a global division that markets a variety of juice brands worldwide. as Daft explained:

We’re a network of brands and businesses. You don’t just want to be a total beverage company. each brand has a different return on investment, is sold differently, drunk for different reasons, and has different managing structures. If you mix them all together, you lose the focus.20

examples abound of corporate executives addressing the issue of focus, often in response to changes in the global business environment. In recent years, Bertelsmann, Colgate, Danone, electrolux, Fiat, Ford, Fortune Brands, General Motors, Harley-Davidson, Henkel, LeGo, McDonald’s, royal Philips electronics, toshiba, and many other companies have stepped up efforts to sharpen their strategic focus on core businesses and brands. Specific actions can take a number of different forms besides alliances, including mergers, acquisitions, divestitures, and folding some businesses into other company divisions.21

Value, competitive advantage, and the focus required to achieve them are universal in their relevance, and they should guide marketing efforts in any part of the world. Global marketing requires attention to these issues on a worldwide basis and utilization of a business intelligence system capable of monitoring the globe for opportunities and threats. a fundamental premise of this book can be stated as follows: Companies that understand and engage in global marketing can offer more overall value to customers than companies that do not have that understanding. there are many who share this conviction. In the mid-1990s, for example, C. Samuel Craig and Susan P. Douglas noted:

Globalization is no longer an abstraction but a stark reality. . . . Choosing not to participate in global markets is no longer an option. all firms, regardless of their size, have to craft strategies in the broader context of world markets to anticipate, respond, and adapt to the changing configuration of these markets.22

“We believe a company can only think in one set of terms. If you are premium, you have to focus on it.”18

—Helmut Panke, former chairman, Bayerische Motoren Werke (BMW) AG

17Diana Farrell, “assessing Your Company’s Global Potential,” Harvard Business Review 82, no. 12 (December 2004), p. 85.

19elizabeth ashcroft, “nestlé and the twenty-First Century,” Harvard Business School Case 9-595-074, 1995. See also ernest Beck, “nestlé Feels Little Pressure to Make Big acquisitions,” The Wall Street Journal (June 22, 2000), p. B4.

18Scott Miller, “BMW Bucks Diversification to Focus on Luxury Models,” The Wall Street Journal (March 20, 2002), p. B4.

20Betsy McKay, “Coke’s ‘think Local’ Strategy Has Yet to Prove Itself,” The Wall Street Journal (March 1, 2001), p. B6. 21robert a. Guth, “How Japan’s toshiba Got Its Focus Back,” The Wall Street Journal (December 12, 2000), p. a6. 22C. Samuel Craig and Susan P. Douglas, “responding to the Challenges of Global Markets: Change, Complexity, Competition, and Conscience,” Columbia Journal of World Business 31, no. 4 (Winter 1996), pp. 6–18.

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