International marketing strategy

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Evaluation of standardization/adaptation of distribution strategy in the context of international strategic marketing. Introduction The study is based on the evaluation standardization/adaptation of distribution strategy in the context of international

Transcript of International marketing strategy

Evaluation of standardization/adaptation of distribution strategy

in the context of international strategic marketing.

Introduction

The study is based on the evaluation standardization/adaptation

of distribution strategy in the context of international

marketing strategy. There has been a debate for a long time

regarding international marketing strategies, which has two

perspectives one which says that a global standardization will

help to maximize the returns and reduce the costs by implementing

a single marketing strategy and a standardized marketing mix

which will have an advantage of economies of scale, as well as

create a global image of the company. And the other according to

the international school of thought which supports the idea of

adaptation so as to have a unique dimension to fit the local

market. This debate started as early as 1961(Vrontis et al. 2003)

Elinder (1961) taking into account the thought with regard to

worldwide advertising. Further Buzzell (1968) widened the

argument by saying that it applicable to the entire marketing mix

and not only advertising alone. It also studies the various

international distribution strategies available for foreign

markets for business and consumer goods as the distribution for

both this is not similar.

Standardization

Followers of the idea of standardisation indicate that in the

past, dissimilarities among countries have guided a MNC to

consider and design its marketing plans according to each

country. But, in recent times the circumstances has changed, and

the experiences of a rising number of MNC recommend that there is

good possible gains to if the firms consider standardization as

the marketing mix elements. This is supported by Levitt (1983),

according to him the term global standardization has become

widely accepted as well managed firms have moved from

customization to global standardization as they prove to be

reliable, advanced, functional and low-priced. It is also said

that standardization has been by the forces of technology like

new methods of communication travel and transport along with the

development of information technology.

Standardization and international marketing

Standardization is defined as the extent to which companies

apply standards marketing-mix variables across international

markets( Schilke O et al 2009). A standardized marketing

practice, alternatively, refers that a common tool is used in the

development or execution of a company’s marketing plan which is

applied in its international operation. (Henry 2005). The

exponents of standardization perspective view globalization

trends as the driving force of greater market similarity due to

new technological uniformity, and greater convergence of customer

needs, preferences and tastes. It is also said that

standardization is facilitated further by the advancement of

international communication channels, the growth of global

markets and the development of the internet. It is considered

that such an approach will help in considerable economies of

scale, in the field of production and marketing as well as adding

value to the customer, a consistent corporate or brand image

across various nations along with reduced management complexity

as well as better control and coordination of the international

operations (Theodosiou et al 2002). The total standardization

outlook considers the market conditions as growingly similar

across nations, supporting the standardization of marketing

functions. Levitt(1983) argues that technological development

has overcome cultural differences among the countries and hence

standardization is the preferred choice of companies to gain

economies of scale as well as time to market and a worldwide

standard company image. ( Schilke, O. et al 2009).

Standardisation is only advisable when is has a positive effect

to performance. The overlap of cultures, similarity in the

demand, reduced trade barriers, and technological development are

enabling various international companies to sell standardized

goods using standardized marketing programs (Zou & Cavusgil,

2002). It has been observed that standardization cannot take

place without centralization of marketing

decisions.Centralisation is considered as very important to

implement standard marketing programme. Also the companies which

are involved in standardization by centralizing the marketing

system need to transfer more marketing know-how as compared to

those involved in decentralized adaptation.

Standardization of distribution

According to the research done by Henry and Chung 2005 in the

European Union which was an investigation of cross market

standardization strategies. When standardization method is

implemented in the cross market situation, an significant factor

is certainly the use of a standardized distribution strategy,

such as an matching agent structure for all the nations in which

they operate. Next, this study is probably to be correlated to

the similarity of distribution infrastructure across the European

Union countries. Past research suggested that a standardized

strategy is easier to be applied when the countries have a

similar kind of infrastructure. As suggested by this study

standardization of distribution strategy can be implemented only

if the countries have a similar infrastructure.

Advantages of Standardization

According to standardization followers the standardization of the

product is very important. It is also seen that standardization

can be achieved in a range of value chain ahead of product

standardization. The benefits of standardization products in

supply and manufacturing are definite and have been researched

extensively. The same promotion can be used for distribution.

Economies of Scale

Stock control and distribution expenses are normally reduced as

lesser inventory is required.

R&D Costs

Standardization of distribution will reduce the cost of research

and development needed to adapt to that particular market.

Marketing economies

Standardization facilitates standardization of promotion ensuing

in saving on advertising. As firms use the same promotional

campaign to different markets there seems to be a substantial

savings therefore increasing the returns on marketing activities.

Global Consistency

It is due to economic globalization that the companies can sell

unified products on a worldwide basis. Marketers look at the

market becoming more homogenous for example the demand for jeans

and pop music is increasing day by day so the manufacturers can

look at fullfiling these demands by the same channels world-

wide . As due to the latest advancement in the field of

communication and information technology as well as

infrastructure development .

Global Manufacturing

If a company begins to develop and produce global goods from

world-wide production site then it is strongly said to have

standardized mechanism. Here not only can the company gain from

the economies of scale but also have the advantage of

particularly when there is a problem with one of the supply

issues the company can shift its attention to the other supply

location without facing any worries.

It can generate short term gains.

Disadvantages of Standardization

One of the disadvantages of standardization is that if there

raises a need for updating, all the nations in which they operate

will have to make the changes, which might require an effort from

the government on developing a new regulation or improvising the

existing ones.

Standardization looks at a perspective of reducing cost rather

than looking at maximizing the profits.

Consumer tastes and preferences play a very important role in the

developing the marketing strategies as according to Levitt

globalization will result in lower prices and better-quality

products and services and the customers will be attracted to the

low-priced goods and therefore not prefer local products. However

lower prices and heavy promotions does not guarantee market

penetration. If we look at the European Union which is considered

as homogenous still there exists customer differences and

variations. So the manufacturer needs to analyze the consumer and

the market coverage that he desires to have in line with the

marketing strategies and then plan his distribution strategy.

There is some disparities among the countries in terms of

standard of living, expertise and skills required in the specific

field. For instance markets with lower per capita income are most

likely to have reduced purchasing power. This means that the

distribution strategies will have to be altered according to the

particular market in line with the market realities.

Government rules and relations are made to protect the interest

of their economies and this may require modification of the

strategy. Monopoly laws and stronger channel members may compel

the company to alter their own policies and strategies the firms

will invariably have to follow the rules and regulations laid

down by the government making standardization impossible.

Adaptation

Adaptation is a major concept in international marketing and

readiness to accept is a critical attitude. Adaptation is

Flexibility

HumilityTolerance

essential in minor issues as well as major issues. Since smaller

issues lead to major ones.

Requisites for cultural adaptation.

The figure below shows the requisites for cultural adaptation.

Humility

Adjustability

Ability to integrate

Ability to command respect

Adaptation

Liking for others

Tolerance

Fairness

Curiosity

Knowledge of country

Adapted from Ghauri & Cateora. 2006, pg 99

Followers of the adaptation school of thought, who respond openly

to the sweeping and rather controversial nature of the argument

of standardization . It is said that globalization seems to be

as much an exaggeration as it is an philosophy and an analytical

concept (Ruigrok et al. 1995).

According to Lipman (1988) he says that global marketing not only

has cultural and other differences, but marketing a single

product in one way throughout can drive away customers, isolate

employees, and make a company unaware of the customers' needs.

Supporters of adaptation believe that global marketing is

thrilling as it combines the science and art of business with

other disciplines like anthropology, economics, geography,

cultural studies and history. Researchers also think that

adaptation is crucial as a result of numerous constraints. It is

also said that people in various countries speak a variety of

languages as well as have different rules and regulations which

differ according to the countries. Also there are additional

factors for instance economic conditions, climatic conditions,

topography, race, political stability, and occupations. Amongst

these main constraints the most complex to measure, is the

cultural differences entrenched in history, religion, education,

attitudes, values , manners and customs, aesthetics along with

differences in purchasing power, use conditions, commercial

infrastructure, laws and regulations, culture and traditions,

taste, wants and needs, political legal economical systems,

technological development . (Demetris Vrontis 2003). According to

the adaptation approach it is said that, in spite of increasing

globalization tendencies, differences between nations are still

too huge, therefore necessitating the adjustment of the company’s

marketing strategy to the distinctive circumstances of each of

the foreign market. It is also stated that in fact the final

objective of the company is not cost cutting through

standardization, instead it is long-term profitability by gaining

higher sales accrued from proper exploitation of the various

consumer needs across international markets. It is also

considered that standardization is a marketing myopia looking at

simplifying the as well as opposing the marketing concepts.

(Theodosiou, M. 2002). Adaptation are determined mainly by issues

developed in the course of competitive advantage and resource

assessment.(Rugman, A and Brewer ,T.L. 2003. pg 320).

Adaptation in distribution Strategy

Adaptation need not merely be a defensive approach. Firms that

adapt supply chains during the time of modifying their strategies

are often successful in launching new products or entering into

new markets.( Harvard Business Review, Oct 2004). As discussed

earlier distribution is one of the most difficult out of all the

marketing mix to have standardization .Hence standardization

approach to global marketing strategy might not be suitable to

distribution strategy in overseas market, as it is very important

that global marketers recognize the distribution patterns and

structures in those markets. For this a comparative marketing

analysis needs to be carried out. Distribution is probably highly

adapted to different conditions in various countries like Africa,

Asia and Latin America as the government regulations and plus the

local consumers act as a barrier to the standardization of

distribution. Some distribution adaptation is often a necessity.

Suspicion and privacy can limit the effectiveness of implementing

the best possible and efficient distribution methods for example

Avon had to develop other distribution strategies instead of

door-to-door and other direct selling methods in Thailand and

Japan. Discounting retailing may not be successful in countries

where there seem to be a lot of middlemen managing small volume

of goods. A traditional distribution strategy may prove to be

inefficient but it might maximizes the use of cheap labor leaving

no idle resources. A producer must bear in mind that due to

adaptation a particular kind of retailer may not work in the same

way as in all the countries. For example a US supermarket

emphasized a smaller gross margin whereas its foreign counterpart

might have a comparatively high gross margin emphasizing

specialty goods and imported products to a high degree. As a

particular distribution strategy proven helpful in one country

may not work in the other and need to be refined according to

that country. (Onkvisit,S and Shaw, J.J. 2004, pg 361)

Difference across the world in distribution

structure and in their accessibility as well as coverage of

various types of distribution channel often makes adaptation the

only possible solution for distribution strategy in the local

market. Identifying and encouraging the channel members for

efficient distribution is of critical importance to the company

specially in the developing countries. Differences in the

customer buying pattern along with desired services, government

rules and regulations or intervention of the government in the

distribution channel along with managing the competitor. All

these needs to be considered while developing the distribution

strategy in international markets.(Douglas, S.P et al 1995 pg

235)

The various aspects while considering the distribution strategy

is discussed below:

Distribution Patterns(Ghauri and Cateora 2006, pg 366.)

International markets need to have a general awareness of the

patterns of distribution that are present in the international

market place. The firms trading in the international market are

forced to by the structure of the marketplace to use some

middleman in the distribution channel.It is misleading to

consider that the channel distribution in the foreign market is

similar to the distribution in the local market.

General Patterns

It is almost very difficult to generalize the distribution

channel pattern among various countries. It as difficult as

generalizing the behavior of the people. Marketing practices

within the European Union itself prove to be different. Hence it

is considered wise not to generalize any international market in

terms of distribution.

Middlemen Services

Service attitudes of people differ sharply at the retailer level

as well as wholesalers level from country to country, in terms of

their functioning like promoting or in terms of various other

services. So in this case the manufacturer has to modulate his

efforts in accordance to the efforts put in by the middle man.

Line Breath

Every country has a specific pattern relative to the breath of

line carried by the wholesaler as well as the retailer.The

distribution system to some nations seems to be qualified by the

middleman who transmit or can get everything.In other cases every

middleman seems to be a expert dealing merely in extremely narrow

lines. Government policies in some nations limit the breath of

line that can be conceded by the middleman as well as licensing

requirements to carry particular merchandise are common.

Costs and Margins

Costs and middleman margins differ widely from country to

country, depending on the intensity of competition,

efficiencies ,services offered, scale of inefficiencies, factors

like geographic and turnover in comparison to the market

size,tradition and few other basic determinants. Like in India

there seems to be a tough competition in urban market as

compared to the rural market in terms of costs and margins.

Channel length

There seems to be a correlation between the level of economic

development and the length of the distribution channel. In many

countries distribution channel seems to be shorter for industrial

products and expensive consumer goods as compared to low-cost

products. Based on this the length of the channel may vary making

it longer or shorter.

Non-existent channel

One of the things that the firm may learn about the international

marketing channel pattern is that in a lot of countries,

sufficient market coverage by a simple distribution channel is

almost impossible. In many cases suitable mediums do not exist,

as various different distribution channels are needed to reach

out to the diverse segments of the market.

Blocked Channels.

Global markets may be blocked from using the distribution channel

of their choice. Channel blockage can happen on the account of

the already existing competitors in the market who would prevent

the distribution through the association of the middle man it

also may result in the restriction of the alternatives available

to the producer. Hence through the combination of association and

competition a manufacturer may be prohibited from the

marketplace.

Power and competition

Distribution power tends to focus in countries where a small

number of large wholesalers distribute to a huge number of small

middlemen. Big wholesalers normally finance middlemen. The strong

loyalty they command from their customers makes them to

successfully block existing distribution channels and compel an

outsider to depend on less efficient and expensive distribution.

Customer Shopping Pattern

Customer shopping preferences and patterns vary significantly

from one country to the other and are considered as a major

factor for developing the distribution strategy. Particularly

factors like population, customer mobility, and want for service,

are considered important elements in constructing the nature and

spatial design of retail distribution. For instance in US people

normally have an access to a car by which they can travel a bit

far for shopping to large shopping malls hence in this case the

firm should be looking at the parking availability before

choosing a store. These customers are likely to shop in bulk and

not very frequently so the distribution should be planned

accordingly. Unlike in some countries the consumers shop

frequently and in small quantities like in Japan where the

housewives shop for food daily or may be twice a day. Hence based

on this pattern of the consumer’s buying the distribution

strategy needs to planned whether it should follow a fragment

distribution pattern or a bulk distribution pattern.

Competitors Distribution strategy

The firm also needs to think about the competitors distribution

while designing its own distribution strategy. For instance if

the competitor has already capture the primary line

distribution and the other firm is left with the option of using

the second line of distribution which might be less efficient and

turn out to be more expensive. As these kind of channel members

may not be able to deliver the level of service and promotion

desired by the company. Preventive measures taken by the

competitors can hamper the entry of the company in the market by

blocking the access to the distribution channel. For example

Quaker oats faced a problem in its finding a place in the shelves

of the retailer due to Kelloggs a pioneer in breakfast cereals.

Hence to overcome this problem it had to partner up with Nestle

making a joint venture to gain access to the international

markets.

Government regulations

Government rules and regulation play a vital role in designing

the distribution strategy and may necessitate the required

adaptation of distribution policy. As these policies may be

designed to protect the smaller retailers. This is considered as

a important policy and has been proved to be crucial for the

firms survival. The government may directly intervene in the

distribution by setting up government controlled monopolies. For

example in Japan the location of the stores is widespread.

Government may also come up with distribution monopolies for

products like as alcohol, tea, tobacco and salt. (Douglas, S.P

1995 pg 237)

International distribution channel

A distribution channel connects the producer of then goods with

the consumers. Decisions concerning distribution channels are of

great importance to the manufacturers. Companies can implement

strategic distribution systems that will help the firms to

analyze the present distribution system and then choose the

distribution system which will be appropriate for the firm.

Nature Of international distribution

Distribution Channel for business goods

Indirect Channels Home country channel members

Manufacturer of business goods

Domestic Purchasing

Piggyback Operations

Export Houses

Trading Companies

Direct Channels Foreign country channel members

Manufacturers Agent

Industrial distribution

Company-owned sales force

Business Buyers

Adapted from Doole, I and Lowe,R 2004 pg 337

Indirect Channels Home country channel members

Manufacturer of consumer goods

Domestic Purchasing

Piggyback Operations

Export Houses Trading Companies

Indirect Channels Home country channel members

Direct Channels Foreign country channel members

Internet WholesalersMail Order

Agents

Retailers

Customers

Adapted from Doole, I and Lowe,R 2004 pg 337

Indirect and direct Channels

One of the major decisions that the international marketer has to

make is the selection of the intermediaries for international

market is, whether the product be distributed directly or

indirectly. Indirectly would mean using the outside sales agents

or distributors or whether the company should employ its own

sales force or company owned distribution channels in the foreign

country. Using an indirect channel would mean that the company

will have very less or no control over the distribution as well

as no interaction with the customers as it is non-integrated.

Whereas on the other hand direct distribution has a better

control and is well integrated but at the same time brings

responsibility, commitment and possible risks. Direct

distribution is also dependent on the type of product if the

channel needs high level of service before and after the sales.

Indirect channel distribution conversely requires reduced

investment in terms of both capital and management time. An

independent channel of distribution allows the foreign firm to

get the benefits of a specialist distributor in a overseas market

like economies of scale. The figure above shows the distribution

channels for business goods and consumers goods which showsa both

indirect and direct channel of distribution. For selecting

apporopriate channel members the company has to numerous factors

like 11 c model as suggested by Czinkota and Ronkainen (2004).

Advantages Of Adaptation

Adaptation is an feasible way of tapping the foreign market.

Following the adaptation strategy the company can get close

to the consumers by accepting the country’s, culture,

tradition following the rules and regulations of the country

and adapting to the conditions of the market and working

woith the local people and for the local people will help

the company to achieve its objective of maximizing the

profits and becoming successful in the market.

Adaptation is long term oriented and looks at maximizing

the profts rather than reducing the costs.

Adaptation honors all the intermediaries and change its

distribution strategy so as to fit the requirements of the

international markets.

Adaptation in product and also value chain will offer

considerable economies of scope as well as advantage in

marketing and distribution for instance a company that dealt

in catalog sales should find an alternative way of

distribution channel if the local postal service is

ineffective or dishonest. Having faced such a situation in

Mexico a retail catalog firm had changed its product

distribution channel by using a network of school teachers.

Conducting such a change might prove to be expensive but the

company needs to justify these costs to the benefits

incurred by the company.

Disadvantages

Adaptation is very complex when compared it to

standardization.

Adaptation is a long term perspective and can be time

consuming and costly as the market needs to be studied and

researched properly before implementing the new strategy.

Adaptation reduces the control of the operations as it might

incorporate decentralization which might be costly and

requires the management to look into the matter regularly.

Implementing the new strategy might be risky as the firm

will not have any experience regarding the new methods of

distribution and would need time to get adapted to it as

well as a change in one of the factors will affect the

relative factor in coordination with it hence the firm

should be very cautious about the opportunity cost as well

as the variable cost.

New ways of promotion needs to be incorporated which would

need time investment from the management.

Standardization/ Adaptation

To overcome the above discussion, a new group of researchers

extend a contingency viewpoint on the standardization/adaptation

debate. In their opinion standardization and or adaptation must

not be seen in separation from each other, but as the two ends of

the similar continuum, where the scale of the firm’s marketing

plan can range between the two, whether to standardize or adapt

the marketing strategy with respect to the specific situation ,

and this ought to be the result of careful analysis and

evaluation of the related contingency factors existing in a

specific marketplace at a specific time; and also the suitability

of the selected level of approach. standardization/adaptation is

supposed to be assessed on the basis of its affect on the firms

performance in international markets (Quelch & Hoff, 1986;

Onkvisit & Shaw, 1987; Jain, 1989; Cavusgil & Zou, 1994).

Therefore, the challenge for the global firm is to decide which

specific strategy elements needs to be implemented so as get a

desired result based on standardization and adaptation at what

levels and under what conditions.

In recent times the challenge that firms are facing in the event

of becoming truly global players is to have a global competitive

advantage. This crucial success factor can be achieved by

offering added value to global consumers by giving them benefits

that are considerably superior to that offered in the market by

the competitors. Simultaneously the firms must assertively try to

gain cost efficiencies which in turn will facilitate the firms to

get better value for money than their competitors. In practice

companies these days manage these incompatible necessities by

applying strategies that are proper to their own situation, and

posing a balance between the various degrees of standardization

or adaptation of various elements of international marketing.

(Doole et al 2004 pg 189)

It has been seen that:

Marketing objectives and strategies are more easily

standardized than operational marketing decisions.

Amongst the marketing mix products can be easily

standardized, but promotion distribution and pricing are

difficult to standardize.

It is difficult to standardize the operational issues.

Criteria for standardization and adaptation Decisions

Nature of the Product.

Normally industrial products like medical equipment require less

adaptation as compare to consumer goods. Non-durables and FMCG

including food and drinks might see a heavy implementation of

adaptation as they are related to the taste and preference and

distribution strategy for such kind of products need larger

market coverage so the distribution needs to be altered according

to the market.

Market conditions

The needs of the market will be determined by the level of

economic development and cultural preferences, these factors will

determine whether the marketer should adhere to adaptation or no.

Like the need for transportation is global but the kind of

transportation available will depend on the economic conditions

and the infrastructure available .

Market Environment

A number of reasons in the overseas market can determine the

company’s decision to standardize or adapt the distribution

strategy. Like the climate in handling of the goods, the

competitive environment as well as the political and legal

issues.

Market development

It depends on the life cycle of the product as to what strategy

to adapt to like for example a product in a mature stage in one

country will need a different strategy as compare to a product in

its initial stage.

Infrastructure system

This refers to the particularly to the institutions and

functions which would support the marketers want to service the

customer. It will comprise of channel members, logistic

assistance like warehousing, transportation, advertising and

media available and financial agents. The availability of

inefficient intermediaries like retailers and other channel

members will hamper the need of after sales service. This will

lead to adapting to efficient ways of distribution strategies to

overcome this problem.

Cost-Benefit Analysis

The firm finally is accountable to the kind of strategies that it

has been implemented whether they are benefiting the company

because adaptation is done basically to increase the profits and

if this objective is not achieved then there is no point in

implementing adaptation.

Limitations of the study

There was not much literature review available specifically

targeting to the standardization and adaptation of the

distribution strategy, some of them were available but not

accessible to the author.

Some of the books referred for the study had been published

before 2000 as they were not available in the library.

There was a constant time constraint to carry out further

research.

The study was totally based on secondary research some quantities

study needs to be carried out to unveil the facts about

standardization and adaptation relating to distribution strategy.

Conclusion

This assignment covers the aspects of Standardization and

adaptation and the concept of standardization/adaptation with

respect to distribution strategy in the international marketing

perspective. It looks at the various researches done on

standardization and adaptation of the marketing mix specially

pertaining to the distribution strategy. It studies the scope

importance implication and of standardization and adaptation in

terms of distribution. It unveils the advantages and the

disadvantages of standardization and adaptation. As well as to

connect it to the study it briefly explains distribution in

international market and the various intermediaries within the

distribution channel.

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