COMPETING IN THE NEXT MILLENIUM:
CHALLENGES FACING INTERNATIONAL MARKETERS
Susan P. Douglas*
Stern School of Business
New York University
and
C. Samuel Craig
Stern School of Business
New York University
* contact author
44 West 4th St., MEC 7-67
New York, NY 10012-1126
Tel: (212) 998-0418
Fax: (212) 995-4221
e-mail: sdouglas@stern.nyu.edu
COMPETING IN THE NEXT MILLENIUM:
CHALLENGES FACING INTERNATIONAL MARKETERS
Introduction
As the 21st century approaches, powerful forces are transforming markets and
dramatically changing ways of doing business. Increased movement of people, goods and organizations across borders
have resulted in the emergence of global market segments and the growth of globally integrated markets. Advances
in communications and information systems technology have shrunk distances, linking markets through flows of information,
images and ideas across markets. These trends facilitate the management of operations on a global scale and accelerate
the need to deal effectively with global competition. As a result, firms need to adapt and rethink strategies to
respond to these globalizing forces, charting direction for future growth, realigning operations in the light of
emerging market and competitor dynamics.
In the past, research relating to international marketing has tended to focus
on initial market entry decisions and the need for adaptation of various elements of the marketing mix to differing
market conditions (Jain 1989). This provided an appropriate focus for firms in the initial stages of involvement
in international markets, those determining which country markets to enter and how to modify their tactics in local
markets. However, as markets become increasingly integrated and interlinked, management needs to chart direction
for future growth relative to world markets as a whole rather than on a country-by-country basis.
The dramatic changes in the global marketing environment that are opening
up new opportunities as well as ways of operating in these markets have implications for how managers approach
development of marketing strategy. In particular, they imply the need to adopt a radically new perspective to strategy
development in a rapidly globalizing, highly competitive, and technologically sophisticated context (Craig and
Douglas 1996). How should management respond to these challenges? How should the firm position itself for the next
millenium? The authors have identified five areas of particular relevance to the marketing manager seeking to meet
the challenges of global markets in the 21st century. The following discussion of each area is designed to identify
critical issues and provoke thought as to how the firm can best prepare to compete in the new millenium.
Looking Beyond Marketing Strategy
Development and assessment of marketing strategy needs to be predicated on
a broader view of the components that underlie marketing strategy. International marketing strategy must encompass
not only the outward manifestations of the marketing mix, but more broadly the factors within the firm and its
environment that shape marketing strategy. Marketing strategy does not exist in isolation but is highly interdependent
with strategies relative to sourcing raw materials and components, as well as licensing technology and acquiring
other skills (Douglas and Craig 1986). Marketing strategy is also conditioned by the complexity of establishing
and coordinating production, distributing products and linking point-of-sale to production across multiple countries.
In developing its marketing strategy, the firm must consider how far key aspects are both contingent upon and integrated
with other functions or activities of the firm.
In entering international markets, the firm has to consider not only which
countries offer the most attractive opportunities for its product and services, but also how to enter the market
and what are the costs and likely risks of operating in that market. This requires a detailed examination of macro-economic
factors such as political and economic stability, foreign exchange risk, labor, management and other resource costs
as well as the nature of the marketing infrastructure in making entry decisions. Decisions relating to how to enter
a market should consider factors such as the availability of potential partners and collaborators at different
stages of the value chain, as well as government policy and attitudes towards foreign investment. Similarly, in
making decisions relating to expansion in international markets, the firm needs to consider the extent to which
markets are becoming integrated as a result of flows of goods and services across borders, government initiatives
towards economic integration, as well as the linking of distribution and communication infrastructures and organizational
networks.
Marketing strategies also have to be co-ordinated or integrated with sourcing
strategies as well as production, management and logistical systems. Increased efficiency of transportation and
communication networks coupled with greater awareness and sensitivity to cost and efficiency differences between
countries and regions have generated pressures for the growth of global sourcing and procurement. This in turn
generates forces to co-ordinate operations at subsequent levels of the value chain across countries and regions.
In the case of production and logistics, numerous synergies may be achieved through the integration and co-ordination
of operations worldwide.
At the same time, marketing strategies play a key role in unleashing potential
for increased efficiencies and integration of upstream activities across markets (Porter 1986). While to some degree
mediated by the spread of modular production and mass-customization techniques, standardization of products or
product lines across countries will, for example, create opportunities for cost efficiencies through integration
of production at a global or regional level.
Beyond Countries as Strategic Planning Units
Adoption of a broader perspective means that the country is no longer the
appropriate unit for planning strategy. While still a key political entity and relevant for the purposes of secondary
data collection, businesses need to plan strategy and organize operations relative to the configuration of market
areas. As people, goods and organizations move freely across national borders and communications and physical distribution
systems link markets, the relevant market area is no longer synonymous with national boundaries (Craig and Douglas
1998). Rather, differences or similarities in customer tastes and preferences, customer networks that span the
world or the existence of global customers, define market areas.
In some industries, cost and market drivers as well as government forces are
resulting in industry globalization and integration. Industries such as aircraft, industrial electronics, or business
computers are characterized by a relatively limited number of buyers who have the same preferences and purchase
criteria. Consequently, the relevant strategic unit is global in scope. In other industries such as trucks and
automobiles, manufacturers are designing and marketing products on a regional basis, making the relevant planning
unit a geographic region.
In yet other industries, firms target global market segments, i.e. customers
in different countries with similar needs and interests. In this case the firm needs to define its competitive
position relative to the specific needs and interests of these customers and organize operations so as to deliver
superior customer value relative to both local and global competitors. Often this will entail integrating operations
at different stages of the value chain across national boundaries. Production, for example, may be located so as
to take advantage of cost differences associated with alternative locations. At the same time, vertical linkages
between production points and customers need to be established to supply and service global customers, transcending
national boundaries.
As a result, the relevant strategic or organizational unit may vary depending
on the level of activities in the value chain. Increasingly, technological advances imply that geographically dispersed
operations can be linked, reducing the role of proximity as a determinant of organizational form. Rather new and
complex forms are emerging linking operations horizontally and vertically across geographic borders to provide
efficiency, flexibility as well as quick and localized customer responsiveness (Bartlett and Ghoshal).
Effective Transfer of Capabilities and Experience
As market integration proceeds apace, a critical issue is the extent to which
the firm can leverage skills, capabilities or experience developed in relation to one market into others. Where
capabilities are grounded in unique location-specific skills, e.g. low labor costs or management skills, only limited
transfer of capabilities is feasible. Firm-specific assets and capabilities, such as brand equity, merchandising
or brand management skills are typically more easily leveraged or transferred, though this depends on the nature
of the targeted market segment and the degree of similarity between markets.
Where the firm targets the same segment worldwide or a globally integrated
market, it is likely to be able to leverage its distinctive capabilities directly. Bodyshop and Benneton, for example,
target the same segment in one case, environmentally concerned customers, and in the other, young adults worldwide.
In the case of Bodyshop, the same green stores, with their mounds of brightly colored shampoos and soaps, are to
be found in all countries. Consequently, they are able to pursue the same marketing strategy in all markets, leveraging
their distinctive image worldwide, and utilizing the same capabilities and skills to target this segment. Similarly,
where the firm targets customers with global operations, as for example, banks and other financial organizations,
it should be able to develop capabilities and resource bases to supply and service customer operations worldwide.
In many cases, however, customer needs and interests as well as the nature
of competition and the market infrastructure differ from one country or region to another. Consequently, the firm
needs to fit its domestic positional advantage to each market in order to be successful. In order to take advantage
of different competitive positions and local capabilities in multiple markets worldwide, the firm needs to develop
cross-positional linkages, leveraging position and capabilities in one market to build or support its position
in another market (Craig and Douglas 1998). Ideas and assets at different levels of the value chain can be transferred
or leveraged across geographic boundaries. For example, ideas for new products, packaging or advertising copy can
be leveraged across countries or geographic markets, and adapted or reformulated for local market conditions. For
example, P&G has transferred formulations for environmentally friendly detergents and packaging such as phosphate
free detergents and refill pouches for fabric softener developed in the German market to other markets, including
the U.S.
Similarly, marketing and management skills or experience in dealing with a
specific type of market environment or competitor can also be transferred from one country or region to another.
For example, McDonalds used expertise developed in Brazil in managing pricing in an inflationary environment to
develop pricing and sourcing strategies for their operations in Moscow. Equally, experience in developing marketing
and promotional tactics in different types of retail environments (e.g. in relation to highly fragmented distribution
structure or highly concentrated structures) can be exchanged.
Establishment of formal and informal mechanisms to transfer learning across
diverse markets can also provide the firm with a competitive advantage stemming from utilization of a broader and
richer base of experience and ideas. Global information systems or Intranets often play a key role in the transfer
of best practices (Bradley 1993). Formalized communication mechanisms to facilitate the reporting and dissemination
process can be established, or regular meetings of managers from different regions or country divisions held, in
order to stimulate and promote exchange of ideas. In some instances this may lead the firm to develop border-spanning
capabilities, i.e. capabilities in managing and co-ordinating activities that span national boundaries. These capabilities
enable the firm to take advantage of efficiencies and synergies associated with operating across markets, while
at the same time allowing for responsiveness to local market characteristics, competitive conditions and resource
availability.
Establishing a Global Branding Policy
The firms branding policy in international markets is another key issue in
crafting a strategy for global markets. Firms expanding in international markets have to consider whether to develop
a branding strategy explicitly in relation to international markets and if so what type of international brand
architecture is most appropriate given the firms organizational structure and administrative heritage. Management
has to decide whether to place emphasis on corporate, house or product level brands or some combination of these.
The balance between local, regional and global brands has to be determined as well as who should have custody for
an international brand. The individual or organization with responsibility for managing an international brand
has to ensure that the positioning of products sold under the brand name is consistent across different national
or regional markets as well as product lines. Consistency of positioning is critical to maintaining a strong, coherent
image and to avoid dilution of the brand name (Riesenbeck and Freeling 1993). The brand custodian should also be
responsible for sanctioning brand extensions to other products and lines to ensure consistency in its use and sustain
brand equity.
Whether or not the firm has an explicit international brand strategy depends
to a substantial degree on how a firm has expanded internationally and how its international operations are organized.
Some firms, such as Coca-Cola, Phillips and Nike have expanded through leveraging successful domestic "power"
brands internationally. Consequently in expanding further, they have to consider whether to develop local or regional
brands geared to specific regional or national preferences. For example, Coca-Cola uses the Coca-Cola name on its
colas worldwide, including variants such as Cherry Coke, Coke-Lite or Diet Coke. In addition, Coca-Cola has a number
of less known local brands such as Lilt, grapefruit and pineapple, and mango and orange in the U.K., and Cappy,
a fruit drink sold in Eastern Europe and Turkey.
Other firms such as Nestlé or Unilever have historically adopted country-centered strategies, building or
acquiring large portfolios of national brands. In some cases successful products are marketed in other countries
under different brand names or local brands and products are acquired resulting in a diverse assortment of brands
and products spread across different countries. Such companies have to decide how far to move towards greater harmonization
of brands and integration of their brand portfolios across countries, and if so, how to do it.
Escalating media costs, and increased communication and movement across national
boundaries generate pressures for co-ordination of branding strategies across markets. In some instances, use of
a corporate brand name or logo helps to provide a unifying image, enhancing position with the customer, and providing
greater leverage with the retailer. Nestlé, for example, has established an international branding tree
consisting of four levels (Parsons 1996): Worldwide corporate brands, such as Nestlé, Carnation and Buitoni;
strategic brands such as Kit-Kat, Polo, and After Eight; regional brands such as Mackintosh, Contadina or Stouffer;
and over 7,500 local brands available only in a single country. The strategic, regional and local brands are always
endorsed by a corporate level brand; the coffee and confectionery products by the Nestlé brand; milk-based
products by the Carnation brand, etc. to reinforce their global identity.
In addition to determining the structure of the international brand portfolio and the degree of integration across
countries, the firm has also to resolve custody issues. Who should have custody of an international brand and be
responsible for determining its positioning in national or regional markets, as well as ensuring the consistency
of brand positioning across countries? Procedures, tools and mechanisms to manage custody have to be established,
as well as guidelines to determine when and how brand extensions are permitted so as to avoid dilution of brand
image. In many respects, the issue of global branding and how the firm deals with it is becoming a lynchpin of
international marketing strategy.
Dealing with Shifts in Power Relationships in Distribution Channels
Formulation of strategy and development of global brands is complicated by
the changes taking place throughout channels of distribution. The most fundamental change is a dramatic shift in
the balance of power from manufacturers to resellers further down the channel. In many industries, ranging from
consumer packaged goods to pharmaceuticals, increased concentration at the retail level means a loss of power or
at best a sharing of power by the manufacturer. Procter and Gamble historically had been able to dictate the terms
and conditions of sale. With the growth of large retailers such as Wal-Mart, P&G has had to work closely with
Wal-Mart to develop mutually beneficial programs tailored to Wal-Mart's needs.
As retailers expand more aggressively into international markets the same
type of changes that had been confined to country markets are beginning to occur on a much larger scale. As the
distribution infrastructure begins to span national borders and become integrated on a regional basis, manufacturers,
or "brand owners" need to find ways to counterbalance retailer power. This shift in power within markets
is illustrated by the large share that private label brands are capturing in supermarkets, particularly in the
U.K. As retailers expand their operation across national borders, the trend toward private label will have even
greater impact on the sales of established packaged goods. As a result, it becomes even more critical for brand
owners to maintain contact with, and build the relationship with, end users of their brand in order to retain control.
A countervailing trend to the shift in power in reseller-dominated channels
of distribution is that of disintermediation. This is the process where manufacturers by-pass resellers (intermediaries)
and deal directly with end customers. Much of this is made possible with the enhanced ability of the Internet to
provide a strong link between the manufacturer and its end customers. Technology facilitates the process of disintermediation,
enabling brand owners to achieve cost efficiencies and deliver superior customer value by reaching the consumer
directly. The success of Dell and Gateway selling PCs directly to individual consumers and businesses illustrates
vividly the power of a successful disintermediation strategy.
Technology also facilitates building links with dispersed end customers because
it overcomes the distance dependence of traditional forms of distribution. The spatial separation of markets that
tends to hinder the growth of traditional forms of retailing is less of a factor for resellers who incorporate
technology into their strategies. The complex logistics involved in supplying and servicing customers in distant
places are largely overcome or are less of a barrier for Internet-based retailers. Furthermore, Internet resellers
do not incur the cost of establishing a physical presence in each market. Consequently, the Internet is becoming
a factor in the sales of products and services beyond those which can be directly down loaded, such as software,
music and information products. In distribution channels where physical access to the product before purchase is
important, hybrid strategies have to be devised.
Conclusion
To compete successfully in the 21st century, firms need to meet the challenges
of a rapidly globalizing, highly competitive and technologically complex environment. These challenges become yet
more daunting with the accelerating pace of change and increasingly volatile and turbulent nature of global markets.
The complexity of the global market environment requires firms to look beyond
marketing activities to examine more broadly the context in which these activities take place. Management must
develop an understanding of how the broader environmental context impacts the success of its operations as well
as to how to respond to the challenges it presents. The focus of planning and executing marketing strategy must
shift from a narrow focus on individual country markets to a broader perspective that looks at world markets as
a whole and is responsive to the forces integrating regional and global markets. Underlying effective mastery of
these forces and implementation of a global integrated strategy is the firms ability to transfer skills and capabilities
from its operations in one part of the world to another.
A crucial element of the firms global marketing strategy is its approach
to international branding. The brand is the vehicle that enables the firm to leverage its position, achieve global
visibility and realize synergies in global markets. At the same time, strong brands provide the firm with a weapon
to combat the changes that are taking place in power relationships within distribution channels. With power increasingly
residing with resellers, manufacturers need to develop strong brands, so they avoid loss of control and chart their
own course through global markets. Alternatively, firms must find ways to effectively partner with resellers or
establish mechanisms to reach end customers directly.
Competition in the 21st century will be more intense and challenging than ever before. The dynamic changes that
are reshaping the international environment present opportunities for those able to adapt, but spell disaster for
those that continue to do business as usual. Firms that are only now beginning to deal with these issues will find
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