International Marketing Strategies For Global Competitiveness

 

International Marketing Strategies For Global Competitiveness

ABSTRACT

Most of the firms are eyeing at the global marketplace to improve their competitiveness. Considerable controversy has

arisen in recent years, concerning the most appropriate strategy in international markets. Deciding how to deal with the

globalization of markets, poses tough issues and choices for managers and their firms. They must consider both –

external environmental forces and internal organizational factors, before they arrive at an international marketing

strategy.

The growing integration of international markets as well as the growth of competition on a worldwide scale

implies adoption of a global perspective in planning marketing strategy. The paper is divided into three parts. The first

part deals with the factors that enable the industry to globalize. The second part examines the concept of global

competitiveness and studies the factors leading to global competitiveness. Finally, in the third part, on the basis of the

points discussed in the two earlier parts, a general approach is suggested for the firms to achieve global competitiveness.

In this paper, ideas from available literature are integrated in a comprehensive conceptual framework in which

strategies can be formulated. The paper, further presents a basis for developing international marketing strategies

alongwith a comprehensive discussion on developing global competitiveness.

Introduction

Globalization can be defined generally as the growth of economic activity spanning politically defined national and

regional boundaries. It finds expression in the increased movement across the boundaries of goods and services, viz.

Trade and investment, and often of people via migration. It is driven by the actions of individual economic actors –

firms, banks, people – usually in the pursuit of profit and often spurred by the pressures of competition.

According to (1983), new commercial reality – the emergence of global markets have

come up because of advances in technology, communication, transport, etc. Those corporations geared to the new

reality, benefit from enormous economies of scale in production, distribution, marketing and management. By

translating those benefits into reduced world prices they can decimate competitors that still live in the disabling grip

of old assumptions about how the world works.

An industry does not globalize on its own and every industry cannot be a global one. There are certain

drivers which determine the potential for industry globalization.

Industry Globalization Drivers

There are four broad groups of industry globalization drivers – market, cost, Government and competition (Table-1

below). Together, these four sets of drivers cover all the major critical industry conditions that affect the potential

for globalization. Drivers are primarily uncontrollable by the worldwide business. Each industry has a level of

globalization potential that is determined by these external drivers.

Market Drivers Cost/ Economic drivers

•

Convergence of lifestyles & taste

•

Increased travel creating global consumer

•

Growth of global and regional channels

•

Establishment of world brands

•

Push to develop global advertising

•

Shortening product life cycle

•

Continuing push for economies of scale.

•

Accelerating technological innovation

•

Advances in transportation

•

Emergence of NIC

•

Increasing cost of product development

Government Drivers Competitive Drivers

•

Reduction of tariff barriers

•

Creation of trading blocs

•

Decline in role of government

•

Reduction in non-tariff barriers

•

Shift in open market economies

•

Increase in level of world trade

•

Increase in foreign acquires of corporation

•

Companies becoming globally centered

•

Increased formation of global strategic alliances

•

Globalization of financial markets

However, as mentioned earlier, every industry cannot be a global industry, and some have to adopt ‘multidomestic

strategy’. Table-2 lists five dimensions and their respective positions under pure multi-domestic strategy

and a pure global strategy. For each dimension, a multi-domestic strategy seeks to improve worldwide performance

by maximizing local competitive advantage, revenue or profits. On the other hand, a global strategy seeks to

maximize worldwide performance through sharing and integration.

Setting for Pure Global Strategy

Market Participation No particular pattern Significant share in major markets

Product offering Fully customized in each country Fully standardized world wide

Location of Value-added Activities All activities in each country Concentrated one activity in each

(different) country

Market Approach Local Worldwide uniform

Competitive Moves Stand-alone by country Integrated across country

Strategic Implications of Globalization

As pattern of international competition shifts towards globalization, there are many implications for strategy

formulation. In a global industry, functions of finance, marketing, business and Government relationship change

according to global configuration and co-ordination.

(a) International Alliances:

International alliance is another implication of globalization. International coalition, linking firms of the

same industry based in different countries have become an even more important part of global strategy.

(b) Organizational Challenges :

The need to configure and co-ordinate globally in complex ways creates some obvious organizational

challenges such as organizational structure, reporting hierarchies, communication linkages and reward

mechanisms.

(c) Government Relations:

In the globalized era, the selection of foreign market to enter and the mode of entry will, by and large,

depends on the negotiations with the foreign Government, and the ‘muscle power’ of the global firm can be

crucial in deciding the shift of power equilibrium. A global firm must ‘manage’ its relationship with the

foreign Government to its advantage. A shining example of what happens if it fails to do so is Enron in

India.

(c) Competition:

A global firm may be in a better position to compete with its global rival as it can augment its resources

globally.

These implications of globalization will lead companies to take care of these issues forcing them to formulate an

appropriate strategy to handle them.

Strategy for Global Competitiveness

The research carried out in the past reveals that competitiveness depends upon internal as well as external factors. It

also depends on the macro-environmental factors such as the policies of the home country Government (whether

favoring competition, support offered to the industries in terms of taxation, rebates and incentives, fiscal and credit

policies, etc.), the degree of consumerism in the home country, the nature of competition. However, there is lack of a

single model for measuring global competitiveness.

Competitiveness

Competitiveness depends upon internal as well as external factors. However, there is a lack of a single model for

measuring global competitiveness. Various scholars have done research on global competitiveness either on one or

only on a few functional based competitiveness parameters.

According to  (1997), the term competitiveness can be applied to firms, industries,

markets, and nations. The relationship between organizational competitiveness and market, industry, or national

competitiveness is not well understood. In fact, economists have not yet devised a formal definition or theory of

competitiveness. Neoclassical economists tend to associate competitiveness with external, market-based concepts

such as comparative advantage, market distortions and price.

(1997) have summarized the work done by scholars of industrial organization.

These scholars have cited internal determinants of efficiency and quality as aspects of competitiveness. Jusran

(1992), has suggested that competitive analysis must include: first, an evaluation of competitiveness of product

features; and second, an evaluation of the features of the process or internal operations used to produce the products

and the subsequent process yields. According to(1984), competitiveness is connected to the internal

operations of a firm and the technology used in those operations.  (1991), defines competitiveness as

the “Sustained ability to profitably gain and maintain market share”.

(1991), argue that an adequate definition of competitiveness must include place, product

and time.

According to (1997), competitiveness is the ability to produce goods and services

that meet or exceed quality expectations of the customer; deliver these goods or services at the time, place and price

required by the customer; deliver these goods or services in the form and quantity required by the customer.

However, a different viewpoint is presented by the scholars from area of strategic management.

 (1989) have developed an understanding as to why a few could overcome the problems

whereas the others could not. They reached following major conclusions that “by the mid-1980s, the forces of

global integration, local differentiation, and worldwide innovation had all become strong and none could be ignored.

To compete effectively, a company had to develop global competitiveness, multinational flexibility and worldwide

learning capability simultaneously.” Let’s elaborate each feature:

(a) Global Competitiveness:

To achieve global competitive advantage, cost and revenue have to be managed simultaneously; efficiency

and innovation are both important, since innovations can take place in different parts of the organization,

selective decisions have to be made instead of centralizing or decentralizing assets.

Certain resources and capabilities are best centralized within the home country operation, not only to

realise scale of economies, but also to protect certain core competencies and to provide necessary

supervision of corporate management, such as R&D activities.

Some resources may be decentralized, on a local basis, either because of small potential economies of scale

compared to the benefits of differentiation or because of the need to create flexibility and to avoid exclusive

dependence on a single facility.

The result is a complex configuration of assets and capabilities that are distributed; yet specialized. The

Figure-1 below shows this complex configuration.

Global competitiveness increasingly requires the simultaneous optimization of scale, scope, and factor cost

economies, along with the flexibility to cope with unforeseen changes in exchange rates, tastes, and

technologies.

(b) Multinational Flexibility

The real challenge today is not only to be responsive, but also to build the capability to remain responsive

as tastes, technologies, regulations, exchange rates, and relative prices change. Flexibility in sourcing,

pricing, product design, and overall strategies is now the key to maintaining differentiation.

Distributed, specialized

resources and capabilities

Large flows of components,

products, resources, people

and information among

interdependent units

Complex process of coordination and cooperation in an

environment of shared decision making

(c) World-wide Learning

The pressure of competition has led companies to develop an ability to sense emerging trends, to develop

creative responses, and to diffuse their innovations worldwide. This has certainly been the case in the

telecommunications industry. Learning is also rapidly becoming the central game in consumer electronics

and is emerging as a key competitive capability in branded package goods. Centrally designed products

and processes still play an important global role, but innovations are created by the subsidiaries as well.

Porter’s Global Strategy: Configuration and Co-ordination of Organizational Resources

According to  (1986), “Competitive advantage is a function of either providing comparable buyer value more

efficiently than competitors (low cost), or performing activities at comparable cost but in unique ways that create

more buyer value than competitors and, hence, command a premium price”.

A global strategy can be defined as one in “which a firm seeks to gain competitive advantage from its

international presence through either a concentrated configuration, co-ordinating among dispersed activities or

both”.

In the above definition, configuration refers to firm’s activities worldwide, where each activity in the value

chain is performed in different places; whereas co-ordination refers to the way similar or linked activities performed

in different countries, are co-ordinated with each other.

A firm has a choice of options in both configuration and co-ordination. Configuration options range from

concentrated performing of an activity in one location and serving the world from it, for example, one R&D lab, one

large plant – to dispersed, that is performing the activity in every country. In the extreme case, each country would

have a complete value chain.

Co-ordination potentially allows the sharing and accumulation of know-how and expertise among dispersed

activities. A firm co-ordinating internationally may also receive early warning of industry changes by spotting them

in one or two leading countries before they become broadly apparent in other countries. So, they can transfer the

knowledge to guide other activities elsewhere. Co-ordination may also allow a firm to respond to shifting

comparative advantage, where movements in exchange rates and factor costs are significant and hard to forecast.

Managing Time as a Competitive Advantage

According to  (1991), time is the next source of competitive advantage. He argues that like

competition itself, competitive advantage is a constantly moving target. The key is not to get stuck with a single

simple notion of its source of advantage. The best competitors know how to keep moving and always stay on the

cutting edge. He states that time is the determinant factor to become competitive. The way companies manage time

– in the area of production, development and marketing –represent the most powerful new sources of competitive

advantage. In fact, as a strategic weapon, time is equivalent of money, productivity, quality even innovation. For

example, in 1980s, managing time has enabled top Japanese companies not only to reduce their cost but also to offer

broad product lines, cover more market segments, and upgrade the technological sophistication of their products.

These companies were time-based competitors.

Global Competitiveness

What drives companies to become globally competitive? Is it vision or ambition that will bring global

competitiveness? As mentioned by  (1989), leading global companies of the last two decades

invariably began with ambitions that were out of proportion to their resources and capabilities. They created an

obsession with winning at all levels of the organization and then sustained that obsession over 10 to 20 years’ quest

for global leadership. The desire of a company to achieve global competitiveness together with technology,

innovation, quality, productivity, efficiency, etc. will bring global competitiveness.

A company’s desire to achieve global competitiveness is communicated through vision. Hence,

communication vision and strategy implementations are the next steps.

 (1991) emphasize the fact that the strategic process is more important than the

repositioning of the strategy. According to them, there is too much attention on the strategic repositioning of the

organization and “Writers representing this strategic emphasis are  (1980 and 1985); (1986);

(1985);  (1988); and  (1987) : theirs is an emphasis on content, direction and repositioning rather than

process. Yet, a critical factor in the successful repositioning is the internal capability of the organization, generated

appropriately chosen change and human resource strategies”.

Strategy formulation and strategy implementation can be best described with two words: ‘What’ and ‘How’.

As Kogut and Bownan discuss “The ‘how’ and ‘what’ are linked …… what a company wants to be capable of doing,

depends on how it does things”. It has happened too often in the past that an attractive idea has turned out to be a

nightmare in the implementation process.

In international competition, companies compete with global strategies, involving not only in trade but also

in foreign investment. A nation must provide a favorable home base for companies that compete internationally.

The home base ( 1986 calls it as Global Platforms) is the nation in which the essential competitive advantages

of the companies are created and sustained. According to the a country is the desirable platform in an industry

if it provides an environment yielding firms domiciled in that country an advantage in competing globally in that

particular industries. Porter has identified two determinants of a good global platform in an industry. The first is

comparative advantage, or the factor endowment of the country as a sight to perform particular activities in that

industry. Today, simple factors such as low-cost unskilled labor and natural resources are increasingly less important

to global competition compare to complex factors such as skilled scientific and technical personnel and advanced

infrastructure. The second factor is the characteristics of the countries’ demand. Local demand conditions provide

two potentially powerful sources of competitive advantages to a global competitor. The first is first – mover

advantages in perceiving and implementing the appropriate global strategy. Pressing local needs, particularly

peculiar ones, lead firms to embark early to solve local problems and gain proprietary know-how. This is then

translated into scale and learning advantages as firms move early compete globally. The other potential benefit of

local demand conditions is a base load of demand for product varieties that will be sought after in international

markets.

Apart from the two factors identified by Porter, the third determinant for a global platform is the support

lent by the government of the country where the headquarter of the company is situated in. The government can

support a firm by offering incentives, having low tax-structure or encouraging internationalization of it’s activities

by offering various subsidies/ incentives.

Effective strategies start from what the company is distinctively good at, not from what it would like to be

good at, and is adaptive and opportunistic in exploiting what is distinctive in these capabilities. Strategies should be

adaptive and opportunistic. Planning should start with an assessment of the firms’ distinctive capabilities. Building

distinctive capabilities is a task of exceptional difficulty because if it were not, the capability would soon cease to be

distinctive. It is easier to identify distinctive capabilities than to create them. Strategy begins with an understanding

of what these distinctive capabilities are.

A capability can only be distinctive if it is derived from a characteristic which other firms lack, yet it is not

enough for that characteristic to be distinctive. It is necessary also for it to be sustainable and appropriable. A

distinctive capability is sustainable only if it persists over time. A distinctive capability is appropriable only if it

exclusively or principally benefits the company which holds it ( 1993).

From Capabilities to Competitive Advantages

A distinctive capability becomes a competitive advantage when it is applied in an industry and brought to a market.

The market and industry have both, product and geographic dimensions. Sometimes, the choice of market follows

immediately from the nature of a distinctive capability. An innovation usually, suggests its own market.

Some firms have distinctive capabilities based on their architecture and the same architecture advantage

can often been employed in a wide range of industries and markets.

Reputations are another distinctive capability. They are created in specific markets. A reputation

necessarily relates to a product or a group of products. It is bounded geographically too.

Many reputations are very local in nature. For instance, a doctor or a good retail store. But an increasing

number of producers of manufactured goods like Coca Cola, IBM, Sony, etc. have established reputations

worldwide and branding has enabled international reputations to be created and exploited.

A firm can only enjoy a competitive advantage relative to another firm in the same industry. A competitive

advantage is a feature of a particular market. The value of a competitive advantage will depend on the strength of

the firm’s distinctive capability, the size of the market and the overall profitability of the industry. If there is an

excess capacity in the industry – as in automobiles – then even the last competitive advantage may not yield

substantial profits. Profits come not only from distinctive capabilities but from possession of strategic assets –

competitive advantages which arise from the structure of the market rather than from the specific attributes of firms

within that market.

The theme of this research is based on the premise that the competition is dynamic and evolving; it

attempts to seek answers to questions like – Why some companies based in some countries are more competitive

than others?

Business Forms and Competitiveness: New Age Organizations

(1997) used a metaphor to describe the complexity of environment and to develop strategies : “Anthills

are marvelous things. With elaborate labyrinths of tunnels, layouts reflecting their occupants’ social hierarchies,

chambers dedicated to specific functions and carefully cited entrances and exits. Yet, who is the engineer? Where

is the blueprint?”

There is no layout, of course. Rather, the community of ants is an example of a complex adaptive system

(CAS). A CAS has three features:

 They are open, dynamic systems

 They are made up of interacting agents

 Complex adaptive systems exhibit emergence and self-organization

Moving from CAS, number of economists started to say that economies are CASs. Although this work is

still in its infancy, there is enough evidence to suggest what the key features could be: “First the new economics will

be based on a realistic model of cognitive behaviour. Second, the new economics will see agents as interacting with

one another in a dynamic web of relationships. Third, markets will be viewed as inherently dynamic rather than

static systems”. It seems promising regarding the fact that “traditional economics has never been able to explain

innovation and growth” (1997).

Achieving Global Competitiveness

Many companies today are struggling to achieve a global competitiveness and a globally integrated organization

retains the capability for local flexibility and responsiveness. Organization provides the vehicle by which strategy

can be formulated and implemented. The nature of organization also affects the kind of strategy that can be

developed. This is particularly true of global strategy. Building the kind of company capable of formulating and

implementing total global strategy is not easy. The task is achievable if managers break it down into digestible

pieces and if they relate changes in organization to the specific changes needed in global strategy.

The following four factors affect a company’s ability to formulate and implement global strategy

(1988):

Organization structure comprises the reporting relationships in a business – the ‘boxes and lines’.

Management process comprises the activities such as planning and budgeting that make the business run.

People comprise the human resources of the worldwide business and include both managers and all other

employees.

Culture comprises the values and unwritten rules that guide behavior in a corporation.

These four factors are explained further in the Figure-2 below:

Market Factors

Economic Factors Environmental Factors

Competitive Factors

•

Homogeneous market needs

•

Global customers

•

Shortening product lifecycle

•

Transferable brands and advertising

•

Internationalizing distribution channels

•

Worldwide economies

of scale in

manufacturing or

distribution

•

Steep learning curve

•

Worldwide sourcing

efficiencies

•

Significant differences

in country costs

•

Rising product

development costs

•

Falling

transportation costs

•

Improving

communications

•

Government policies

•

Technology change

Potential for

Global

Strategy

•

Competitive interdependence

among countries

•

Global moves of competitor

•

Opportunity to preempt a

competitor’s global moves

Besides these, to become globally competitive, the company needs to focus on the following:

♦

Developing a marketing plan with universal appeal.

♦

Help employees understand the company’s global vision.

♦

Benchmark off mistakes that other have made in the past.

♦

Select the right partners for joint ventures overseas.

Managers responsible for marketing in a multinational enterprise must design appropriate marketing

programs for each national market. To some extent, each country must be treated as a separate marketplace because

each has it’s own currency, legal and political requirements, and methods of doing business. However, by coordinating

operations on a regional or global scale, multinationals can gain important competitive advantages. Fig.-3

above illustrates some of the major issues involved in the development of international marketing strategy for global

competitiveness.

Success in world competition turns on efficiency in production, distribution, marketing and management

and inevitably becomes focused on price. The most effective world competitors incorporate superior quality and

reliability into their cost structures. They sell in all national markets, the same kind of price, quality, reliability and

delivery for products that are globally identical with respect to design, function and even fashion

( May/June 1983).

The growing integration of international markets as well as the growth of competition on a worldwide scale

implies that adoption of a global perspective in planning marketing strategy. However, to conclude that this

mandates the adoption of a strategy of global standardization appears over-generalized. It ignores the inherent

complexity of operations in international markets and the formulation of strategy to penetrate these markets. While

global products and brands may be appropriate for certain market ad in targeting certain segments, adopting such an

approach as a universal strategy in relation to all markets may not be desirable and may lead to major strategic

blunders. Moreover, it implies a product orientation and a product-driven strategy, rather than a strategy based on a

systematic consumer behavior and market characteristics

3.

Summary

Global competitors must have the capacity to think and act in complex ways. They must understand and accept the

fact that this is an era of competition and only those who are competitive will remain in the race. They must,

therefore, design their strategies such that they manage the cost and revenue simultaneously. Due credit must be

given to efficiency and innovations.

Globally competitive firms would know how to manage their resources globally and how to strike a

balance between centralization and decentralization, so that they take advantages of both – economies of scale and

the benefits of differentiation and adaptation. They will have to learn to adopt combinations of these alternatives.

The key to success is a careful analysis of the obstacles to this approach. Both should be carefully

evaluated on the basis of company’s strength and the company’s competitive advantage in exploiting them before

arriving at an international marketing strategy.

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