International Marketing is an ‘umbrella’ subject. By this, I mean that international marketing is capable of touching upon a wide variety of topics in business. Not all of these topics can be examined in-depth, as we are forced to make choices, and focus only on those areas of research which have the most immediate practical applicability.
We’d like to structure the content in this section of our blog as if it was a consulting service provided to an entrepreneur or to the owner of an established business in order to assist himher in understanding the ‘untapped value’ residing within the international expansion.
- The first element to reflect upon pertains to the fact that the phenomenon of Globalization has ‘leveled the playing field’ putting SMEs (Small Medium Enterprises) as well as LSEs (Large-scale enterprises) in the same position, whereby their strategic approach to international growth, despite being contemplated from very different points of view, converges towards strikingly similar goals.
For as much as definitions matter, Globalisation is defined as ‘the growing interdependence of national economies’ – involving primarily customers, producers, suppliers and governments in different markets.
As discussed by John Naisbit (1994) in the book ‘The Global Paradox’, the more and more open the world economy becomes, the more small and mid-sized companies will dominate. We have moved from the concept of ‘economy of scale’ towards a completely different perspective whereby ‘bigger’ is often synonymous with inefficient. The success of the internationalization process will depend entirely on the success of the international marketing strategy, designed by SMEs and LSEs and will need to compensate for the incredibly expensive effort of time, money, and HR-focus which the implementation of an international strategy requires.
Our content, therefore, reflects the essential importance of the marketing plan formation, by addressing the five stages or decisional points which a company needs to address in order to maximize, the chances of success.
In this post, we are going to address the following topics:
- Comparing LSEs and SMEs
- Should a Company Internationalise?
- Identifying forces of global responsiveness
1. Comparing LSEs and SMEs
When it comes to international marketing, it is possible to compare and contrast the differences between LSEs and SMEs when it comes to 7 different items.
- Formation of Strategy
- Organizational behavior
- Taking advantage of Economies of Scale
- Use of Information Resources.
What we can take home from this comparison is that:
- An LSE is usually much more ‘ready’ in order to coordinate different typologies of resources and targeting them towards internationalization goals, however it may suffer from a more time-intensive decision-making process, which results from a hierarchical structure and high-risk aversion. The strategy will be following a ‘Logical Incrementalism Approach’. When an LSE commits to a plan, it has low flexibility, but it does inform its decision-making process with a wide variety of sources.
- An SME instead will be much more ‘unready’ in terms of financial or human resources available and it will be more likely to resort to outsourcing. The decision-making process will be much less structured (aka ‘Emergent Strategy’). The decision process will be mostly influenced by the owner’sentrepreneur’s charisma and will be likely to be much more risk-prone, however focusing on short-term gains. On the other hand, if circumstances change SMEs will be more likely to react adaptively to new market conditions. The information gathered to inform the marketing strategy however is likely to rely on internal sources and face-to-face communication.
In general, we can see that there despite a company’s best efforts to devise a highly focused, precise and coherent strategy, the development of international marketing plans needs to always account for factors of unpredictability. In the case of LSEs, the ‘planned’ strategies and the ‘incremental change’ approach will be based on a series of steps of goal setting, analysis, evaluation, selection and planning of implementation, to obtain long-term gains. This, however, can lead to a strategic ‘drift’ when the changes made to adapt to a shifting environment, are unable to follow the long-term direction initially conceived by the company.
In an SME instead, the strategic result is much more based on chance, as the end, the strategic result will be a mixture between the intended strategy and the emergent strategy.
However, SMEs have an ‘ace up their sleeve’ due to the fact that entrepreneurial decision-making can provide opportunities for more drastic changes. Decision making, therefore reflects an entrepreneur’s aptitude for change, resulting in a much wider ‘cone’ of possible outcomes.
LSEs will also be able to draw advantage from Economies of Scale, whereby accumulated volume in production will result in ‘experience curve effects’ increasing efficiency in production, marketing, etc. This will practically result in:
- Reduction of Operating Costs per unit and spreading of fixed costs over larger volumes.
- Pooling global purchasing power gives the opportunity to concentrate purchase power on suppliers, leading to discounts and lower transaction costs.
- Ability to specialize and build ‘centers of excellence’ focusing on particular products andor talents.
Economies of Scope instead relate to a company’s ability to reuse a resource from one businesscountry in additional businessescountries. The challenge lies in a firm’s responsiveness to managing the tension between centralized coordination and local autonomy.
2. Should a Company Internationalise?
So far we’ve looked towards ‘internal factors’ that should be assessed in order to understand the company’s viewpoint towards internationalization. However, it’s important to consider that external factors are just as important. This is why we look at two elements:
- Industry Globalism, a company cannot influence the degree of an industry’s globalism, as this accounts for the degree of interdependency between markets, customers and suppliers, whereby an industry is usually dominated by few, large, powerful players. Examples are IT, entertainment, aircraft (Boeing and Airbus).
- Preparedness for Internationalisation, essentially describing a firm’s ability to carry out strategies in the international marketplace, or actual skills in international business operations. These may also account for a variety of cultural elements along with business elements.
The overlap between these 2 factors creates ‘Nine Strategic Windows’ for decision-making.
Let’s focus for a minute on this element of cultural preparedness. The importance of personal characteristics in this context cannot be understated. A businesses’ outlook on international opportunities is highly dependant on a person’s ideas and vision. This is described by the ERPG Framework.
- Ethnocentric. The home country is superior, and the ways of the home country should be exported in other locations. Highly centralized firms and low adaptation.
- Polycentric. (Multi domestic) Each country is unique and should be considered in its own context. Highly decentralized structures, low standardization.
- Regiocentric. A company addresses cultural differences in the context of different regions. A compromise between Ethnocentric and Polycentric.
- Geocentric. (Global) as the world is getting smaller, companies offer global products with local adaptation. This last element is also defined as Glocal.
These approaches, therefore, emphasize the distance between adaptation and standardization. This distance and contrast is at the heart of the definition of global marketing. ‘Global Marketing is defined as the firm’s commitment to coordinate its marketing activities across national boundaries in order to find and satisfy global customer needs better than the competition.’
A company, therefore, needs to:
- Develop a global marketing strategy, based on similarities and differences between markets.
- Exploit knowledge of the headquarters through worldwide diffusion and adaptation.
- Transfer knowledge and ‘best practices’ from any of its markets and use them in other international markets.
Glocalisation, therefore as presented in Figure 1.7 is the perfect ‘ideal balance’ between two opposing tensions where we have 6 distinct benefits:
- Global low-cost production and selling. (Benefit of Standardization)
- Global roll-out of conceptshigh speed. (Benefit of Standardization)
- Low complexity. (Benefit of Standardization)
- Culturally close to the customer. (Benefit of Adaptation)
- Flexible response to local consumer needs. (Benefit of Adaptation)
- Regional and local market penetration. (Benefit of Adaptation)
One of the key ingredients in creating a successful international marketing strategy is knowledge management. This is defined as the continuous learning from experiences, whereby what is learned in one county is immediately implemented in all locations. Think about this as a company that is able to constantly go through software updates, always perfecting processes, strategies and grounding its decision-making process on higher-quality information. A graph of this process is illustrated in 1.8.
To see how practically a company addresses the constant tension between standardization and adaptation, we can look at Persil, who kept the product the same but changed the communication strategy.
3. Identifying Forces of Global Responsiveness
Now we can better understand the claim presented at the beginning of this lesson. How is it that both LSEs and SMEs are drawn closer to each other when designing their international strategy? As shown in Figure 1.9 LSEs are reacting to a strong increase in the demands of the global consumer, asking for a much higher degree of market responsiveness. At the same time, SMEs have to react against the presence of many distinct forces of global integration that may lead them out of business unless they are able to stand up to the challenge of competing with the “giants”.
SMEs, therefore, address many more challenges due to new forces of ‘global coordination’ such as:
- Removal of trade barriers
- Global account costumers
- Relationship Management networks
- Standardized worldwide technology
- Worldwide markets
- Global village
- Worldwide communication
- Global cost drivers (outsourcing and offshoring)
LSEs on their end face forces of ‘market responsiveness’
- Cultural differences
These forces, therefore, create a byproduct which is deglobalization, the idea of moving away from globalization forces and considering each market unique with its own set of economy, culture, and religion.
As discussed in this post, both SMEs and MNEs need to approach international marketing strategy fully aware of the challenges that international competition presents. Both types of companies need to be aware of the benefits and limitations that each company size, structure, and goals bring to the full picture.