Virtual Management of Global Marketing Relationships

CHERI SPEIER MICHAEL G. HARVEY JONATHAN PALMER

A mechanism for rapidly developing presence in the global marketplace is through forming relationships with other organizations in different countries. These joint ventures or strategic alliances have a number of benefits that accrue to the various partners in the relationship. The difficulty is how to manage these relationships effectively across cultures and differing organizational~management philosophies. What is recommended is the development of a virtual management perspective and five different types of virtual relationships are examined.

INTRODUCTION

n today's hypercompetitive, global marketplace, many organizations are forming marketing relationships in order to compete effectively. These relationships are conceived as a means to increase both the efficiency and effectiveness of those involved in these marketing relationship (Williamson, 1991; Gundlach, Achool, & Mentzer, 1995). Inter-organizational relationCheri Speier, Eli Broad Graduate School of Management, Michigan State University, East Lansing, M148824. <cspeier@pilot.msu.edu>. Michael G. Harvey. Puterbaugh Chair of American Free Enterprise, Michael F. Price College of Business, University of Oklahoma, Norman, OK 73019. <mharvey@ou.edu>. Jonathan Palmer, Robert H. Smith College of Business, University of Maryland, College Park, MD 20742. <jpalmer@rhsmith.umd.edu>.

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ships have become one of the most frequently used means of entering or expanding into the global marketplace. There are a number of reasons given for f o r m i n g these g l o b a l m a r k e t i n g arrangements, such as: 1. gaining access to new markets; 2. enhancing market position in existing markets; 3. augmenting existing product lines with relationship partner's products; 4. entering new market segments/ domains by allowing partners to selectively incorporate existing products into their lines; 5. accelerating the rate of international expansion; 6. reducing cost/risk of participating in international markets; and
Virtual Managementof Global Marketing Relationships 263

The second section illustrates five models of virtual organizations and the third section develops a virtual management perspective that is beneficial when attempting to manage global marketing relationships. lowering costs to gain/maintain competitive advantage (Varadarajan & Cunningham. Although virtual organizations have become a relatively widespread business approach to structuring business. Characteristics of virtual organizations are continuing to evolve. 1995). some characteristics that have been identified include (Goldman et al. it is anticipated that managing these and other types of interorganizational relationships effectively will become increasingly integral to managing global marketing operations. has enabled many global organizations to obtain significant advantages. decrease the risk of pursuing a new opportunity. The rationale for forming a virtual organization varies for the different entities involved in each relationship. the strategic alliance. 1992). workforce and market expertise advantages can be heightened through the use of the virtual organizational structure (Davidow & Malone. These business linkages enable organizations to more tightly coordinate the 264 Journal of World Business / 33(3) / 1998 transactions and activities across a value chain. Virtual organizations are able to generate new products more quickly. • . These new firms mirror the fluidity of the global markets. One type of interorganizational relationship. 1997. Therefore. Virtual organizations enable organizational and/or individual core competencies to be brought together when needed and disbanded when no longer required. & P r e i s s . However. creating and disbanding resources as dictated by the marketplace. 158). technical. 1997): a web of companies each contributing resources • virtually vertically integrated • linked through inter-enterprise business and production systems • aimed at reduced business cycle time • aimed at one-stop shopping. The first section of the paper briefly describe virtual organizations that can be used in a marketing context. N a g e l . increase "apparent" organizational size. the underlying concepts of linking competencies across business units or organizations have existed for some time. The final section of the paper describes implications of virtual management in global organizations THE VIRTUAL ORGANIZATION CONCEPT A virtual organization is "a collection of business units in which people and work processes from the business units interact intensively in order to perform work which benefits all" (Goldman. Global locational.. and decrease cycle times by relying on the core competencies of the membership. p. One primary rationale for creating virtual organizations has been the ability to bring key players from a variety of organizations together in order to pursue a specific global market opportunity..

and distributing the necessary information throughout the members of the virtual global marketing value chain in order to reduce transaction costs and increase value (Rayport & Sviokla. firms must have an economic incentive for participation. These models share common elements of coordination through the use of IT and communication technologies. or an attempt to foster innovation can drive these incentives. When performing global value chain analysis across virtual organizations that are bringing different core competencies together. A specific shared global partnership is likely to occur when several organizations wish to undertake a global marketing project.g. selecting. organizing. Hitt. these virtual global marketing value chain activities include gathering. 1995) and evolves from existing relationships that are strong between partnering organizations. As illustrated in Figure 1. Many of the physical activities that exist in a traditional marketing value chain (e. In this design. desire for performance enhancements. MODEL h Shared Partnership The first model is a shared global partnership with each partner bringing nearly equal amounts of commitment to the virtual organization. the focus on virtual global marketing value chain activities is much different than in a traditional physical value chain (see Figure 1). where the group of organizations. Strategic needs. and (2) adding value to existing activities in the value chain enhancing the overall value of the product or service.. the focus should be on the necessary sharing and integrating of information and learning capability. synthesizing. This shared partnership requires a compatibility of p a r t n e r g o a l s and v a l u e s (Dess. However. Five identifiable models of virtual global marketing organizations begin to emerge from the existing literature (see Figure 2). 1992). Rasheed. in aggregate. In addition to these interorganizational marketing relationships. & Priem. These relationships can be based on existing relationships among firms and often reflect prior competitive or cooperative interactions (Hill. tionships that exist in a variety of forms. and the performance of work across time and space.These characteristics are closely aligned with assessing all marketing activities across the entire global value chain in order to "virtually vertically integrate" across a "web of companies. such as reducing time to market. organizations form alliances or consortia to bring complementary marketing expertise together in meeting complex global Virtual Management of Global Marketing Relationships 265 VIRTUAL GLOBAL ORGANIZATIONAL MODELS Virtual global marketing organizations involve interorganizational rela- . McLaughlin. & Hoskisson. distribution) will also need to exist in a virtual global value chain. 1995)." It would appear that creating a virtual organization to generate a product or service more effectively can take one of two forms: (1) removing inefficient transaction costs from the value chain. possess the necessary skills and resources agree to work together for either the duration of the project or for some extended period.

The core global organization calls on advertising agencies. Harrigan. calling on satellite firm marketing capabilities as needed. This model is often found in co-located. Journalof WorldBusiness/ 33(3)/ 1998 . In many cases these are organizations based around similar industries located in different countries each providing marketing competency or expertise. where multiple firms share resources to develop new products or processes. from a variety of organizations to respond more effectively to market opportunities (Anderson & Narus. 1988). The work is often highly synchronized in the design and development stages. In this model. working in close coordination. spin-off situations. and Hewlett Packard on the d e v e l o p m e n t of the Internet programming language JAVA. Sun. 1990. wholesalers. retailers and the like. Economic incentives include the opportunity to share costs and risks while sharing resources likely to generate valuable output. 266 MODEL Ih Core/Satellite The second model reflects a core global organization maintaining relationships with satellite marketing organizations. 1992) and this firm typically defines the work synchronicity. They also create some interdependencies and provide an opportunity for cooperation between the marketing functions in these organizations. & Coleman. The shared partnership model is evident in the coalescing of expertise and sharing of risks among IBM. a core firm provides the impetus to form the global n e t w o r k of o r g a n i z a t i o n s (Snow. The interorganizational relationships in the virtual model can provide additional value to participating firms. Virtual Value Chain PhysicalValue Chain Inbound ~ Logistics Operations Logi~cs/ Sales& Marketing Service VirtualValue Chain Gathering Organizing Selecting Synthesizing~ Di~fibufin8~ market opportunities.Figure 1 Physical vs. Miles.

defensive. competitive response rj~ 5" .Figure 2 Virtual Organizational Model Characteristics Location Often highly synchronized activities Typically homogeneous cultures. and existing strategies O" Electronic Market (Model 5) Rarely co-located 3" Highly responsive. but not necessary In many cases few existing relationships Auditing and exit strategies. but more contractual Often existing relationships limited to adjoining members only Identifying alternative partners for expanding value chain globally t~ Integrated Firm (Model 4) Often co-located or located in close proximity Often highly synchronized with coordinated scheduling Higher emphasis on culture as a competitive advantage Strong existing relationships among at least some members Initiating offensive. but not necessarily highly coordinated Similar service oriented cultures. although distinctive Typically strong preexisting relationships W o r k Cycle Culture Organizational Relationships Virtual Management Issues Challenge of adapting existing relationships into virtual management Shared Partnership (Model 1) Often co-located. more use of contracting relationship Existing relationships have been established Ongoing assessment of old/new partners in constellation < Virtual Value Chain (Model 3) Typically not co-located Highly synchronized across adjoining members of the value chain Some emphasis on culture across adjoining members. a spinoff approach Core/Satellite (Model 2) Typically not co-located unless performing physical job functions Often highly synchronized activities Less emphasis on culture.

the virtual model provides additional support for the relationship between subcontractors from different countries who do not have a common board or a joint working relationship. Reuters. The global relational culture can be either convergent or divergent. and opportunities to increase global market access. This provides a "best breed" approach to partners and maintains Reuters f i r m l y in c o n t r o l of project specifications. bringing in satellite partners as required for specific projects. Benetton. The work is synchronized across adjoining virtual organizational member firms to generate the end product. When this occurs. L o c a t i o n can be remote across many members of the chain. Another example of this type of virtual relationship is used by global information organization. Core firms typically take an active role in coordinating activities. and retailers in different countries. the relationship is coordinated by the general contractor who establishes the virtual cultural relationship.These organizations do not need to be co-located and frequently are located in different countries. Examples of this are numerous. but the core firm(s) play a dominant role in establishing the culture. and on a more permanent basis. as they share new product development ideas for new car development. i n c l u d i n g most industries where the core company has leverage and transfer-pricing and risk/ cost sharing become key issues. MODEL III: Virtual Value Chain The final three models are based on the value or global supply chain model. utilizes a global virtual value chain in coordinating the production and shipments of garments and materials of its virtual global production and . An alternative core/satellite model is the production and sale of consumer products through loosely coupled manufacturers. including governmental defense contractors and some consultancy companies. This model is utilized on both a project basis. distributors. which utilizes this model in software development. the French sportswear marketer. providing economic advantages. the general contractor often drives culture. Ford and its global suppliers have formed this type of virtual relationship. Relationships have often been well established. as with WalMart and international suppliers. but often those adjoining firms are closely located even when the suppliers have to put in facilities in a number of different countries. but on a project-by-project basis. as in large construction projects in developing countries." This co-development reduces cycle time and lowers development costs. as was evidenced in the development of the "Asia Ford. In the case of international construction projects. a smoothing of demand. goods or services are sold at each transaction point in a number of countries. Essentially. Participants anticipate economic incentives through improved coordination. The first of the three is a coordinated set of transactions among companies serving an end customer in a number of dif268 Journal of World Business / 33(3) / 1998 ferent c o u n t r i e s with i n f o r m a t i o n technology supporting the development of the end product or service. and in many cases the use of contractual requirements is a surrogate for establishing inter-firm cultural relationships.

1991) allows firms to compete in global markets while allowing customers to select from a variety of potential providers. which leads participants to identify the value of improved coordination. and coordination of manufacturing to maintain a competitive advantage at both local market and global system levels. suppliers locating in the same countries as marketing members of the value chain). Culture and work synchronicity are more important dimensions. This vertical i n t e g r a t i o n results in autonomous units utilizing technology to coordinate efforts between functions and countries at the same time.channel of distribution system. 1995). MODEL V: Electronic Market The final global virtual marketing relational model is that of an electronic market. with the technology itself serving as a key component in creating the market among the virtual global marketing organizational partners. An example of an open market is the wine market and digital newspapers on the World Wide Virtual Management of Global Marketing Relationships 269 . 1993) with firms supplying each of the companies in the value chain. Hakasson.. one of the relationship member o p e r a t i o n s p r o v i d e s a unique geographic location for the needs of the integrated value chain (e. This network of companies is frequently located in different countries participating across a marketing value chain to deliver a product or service to an ultimate consumer. This concept incorporates a continuing set of global strategic marketing relationships (Anderson.g. & Johnson. designing and manufacturing clothing. Individual firms operate within the electronic market using the technology as an intermediary to interact with end customers. the electronic market is open and other marketing relationship members serve as intermediaries. MODEL IV: Integrated Firm The fourth model takes a more integrated view of the global supply chain. The virtual value chain passes through a number of suppliers generating textiles. generating a virtual value chain (Benjamin & Wigand. Existing marketing relationships among the organizations following this model are typically well developed. This model might also be extended to include value constellations (Normann & Ramirez. design specifications. T h i s provides sharing of market information. The contact between companies across the specific production activities is more fully coordinated than in the prior models. and in many cases. a Finnish elevator manufacturer. and providing distribution services to retailing establishments. A group of companies conduct related businesses as parts of a vertical set of processes to produce a good or service. The establishment of an electronic market (Bakos. In this type of global virtual relationship. Many of the Korean chaebol are examples of this global model of virtual organizations. 1994). In some cases. This model is utilized by Kone Elevators. the companies agree to function as a single v e r t i c a l l y i n t e g r a t e d firm throughout the world. including the economic leverage of economies of scale and market access to a number of foreign markets. to integrate the work of its affiliated companies t h r o u g h o u t the w o r l d .

Examples include amazon. The coordination among marketing p a r t n e r s in a v i r t u a l r e l a t i o n s h i p becomes a critical dimension in achieving the desired results of increased value-added to the global relational network (Venkatraman. 1997).. In order to manage these global organizations virtually. physical location. forthcoming). More virtual r e l a t i o n s h i p s must d e v e l o p a mechanism for structuring and coordinating work/employees while at the same time being exceptionally flexible and open to change while alleviating managers and employees anxiety that results from lack of formal structure (Allcorn & Diamond. 1997). Palmer & Speier.com connecting with book dealers and end customers worldwide. 1996. Frequent contact and "hand- . Existing relationships between countries are less typical in this model. EBAY on-line auction). 1995). The establishment of virtual management has been characterized as effectively coalescing key "players" from intemal and extemal sources and from a variety of organizations to capitalize on a market opportunity (Davidow & Malone.Web. Participants have economic incentives of increased foreign market access and potential for compelling cost savings in inventory. The appropriate infrastructure for virtually managing marketing relationships will be dependent on the geographical distance. Allcorn. These virtual relationships/organizations will develop a culture and identity of their own apart and distinct from that of the two parent organizations (Allcom.g. more than likely. 1997. Given the difficulty of managing the entire domain of potential global marketing r e l a t i o n s h i p s in this virtual mode. payment authorizers and the end consumer in a number of countries. with multiple vendors competing for worldwide business. and distribution costs. or virtual banking establishments coordinating the lending functions and electronic payments among on-line retailers. work-cycle synchronicity. What is needed is a decision process that can be used to determine the virtual m a n a g e m e n t requirements associated with the different virtual models. electronic markets have established worldwide capabilities for auctioning of goods as diverse as furniture and computers to high end antiques and personal services (e. V I R T U A L M A N A G E M E N T OF G L O B A L RELATIONSHIPS Marketing relationships and the management of relationships can be characterized as "virtual" as a significant amount of activity between relationship partners occurs outside their organ i z a t i o n a l d o m a i n s and t h e r e f o r e . a basic philosophy of global interorganizational management should be developed. and cultural differences between relational partners (Gray & Igbaria. 1993). an assessment of the "degree of virtualness" between global partners is necessary. This management orientation. will have to go b e y o n d the c o m m a n d and c o n t r o l model that is frequently used within 270 Journal of World Business / 33(3) / 1998 organizations and focus on cooperation as the basis for the interaction. In addition to bookstores such as Amazon and banks. occurs in non face-to-face contexts.

1990). at the same time. 1992). internal. Each domain and dimension of the domain impacts the degree of virtualness of the management philosophy (Kraut. and foster a rich relationship. the management system does not have to be modified to accommodate the virtual nature of the relationship (Gray & Igbaria. Similarly. Schein. If relational partners are working in the same location. organization-toindividual) changes the degree of virtualness between partners also can change based upon the geographical distance. Whereas the need for a sophisticated virtual management philosophy is imperative when the relationship partners work in geographically disparate locations. The greater the cultural convergence. work-cycle synchronicity. and have convergent culture. As the domain of the relationship changes the degree of virtualness of the management will also have to be modified. and have dissimilar cultures. Therefore. In this phase of global virtual management. STEP ONE: Development of Relational Characteristics/Criteria forthcoming). While the domain of relationships may be broad. 1996). 1996).holding" can occur in relationships with low geographic distance facilitating rich relationships. The more dissimilar the context of the relationship the more virtual the management s y s t e m must b e c o m e to accommodate the complexities of these diverse marketing relationships. For example. In contrast. the easier it is to develop trust. developing an organization-to-organization relationship may be deemed most important to gain a global competitive advantage in the market place. one domain may be assessed to identify key marketing partners. rather than examining all potential relational partners in the full domain of relationships. Egido & Galegher. one must identify the significant characteristics of Virtual Management of Global Marketing Relationships 271 . at different times. Seven steps addressing virtual management of global marketing relationships are presented in this section. As the domain (i. organizations may strategically decide to focus on one set of marketing relational opportunities over others. 1990. Barry & Bateman.. These marketing relationships can be managed differently from those where high richness is desired yet partners are geographically disparate (Gray & Igbaria. mutual understanding. the cultural dimensions assess the degree to which relational partners share values and beliefs (Schein. Each of the steps will be discussed separately to highlight their importance in developing a virtual management philosophy to global marketing relationships.e. a high degree of work cycle synchronicity implies high interdependence and low ambiguity regarding work activities. and culture between the focal organization and the relational partner (Palmer & Speier. Finally. 1990). organization-to-organization. 1990. STEP TWO: Identification of Alternative Relational Partners The first step in developing a global virtual management orientation is to identify the characteristics of the domain(s) of the potential relationships. low synchronicity involves increased ambiguity resulting in additional time and communication between partners (Barry & Bateman.

1994). but all three levels should be considered. when forming organization-to-organization relationships. The analysis may start at any level. 1990) might be most appropriate (see Figure 3). a three step assessment of macro-environment. 1980. the depth of analysis at each of the three levels may vary according to the importance of that level to the relationship. RELATIONAL PARTNER(S) /' ( ENVIRONMENTAL ASSESSMENT: \ 272 Journal of World Business / 33(3) / 1998 . industry level analysis. and company level characteristics consistent with competitive analysis (Porter.. 1993). the difficulty in obtaining accurate information. These variables will vary by the domain of the relationship and therefore a set of selection criteria needs to be established for each potential relational configuration. The combination of characteristics found in the relationship determines how the relationship can strategically outperform competitors (Vasconcellos e Sa.. ~ ~ } /~. Utilizing this process.potential relational partners.Or.~MENTAL \ ~ M A C R O . Furthermore. the unique attributes of the potential relational partners can be assessed and the distinctive competencies of the resulting relationship can be determined (Parkhe. 1988) Figure 3 Interactive Assessment Process in Selecting Relational Partners t \ / ~ ASSESSMENT: (Comparative Advantage Er4VtP. For example. The criteria to select global relationship partners reflect the domain of the relationship. and the perceived magnitude of importance of the relational decision relative to the focal organization (Ring & Van de Ven.

and (3) reducing government influence on new product testing and introduction. Most frequently. increasing power relative to a competitor. relationships are proactive.and facilitates the determination of a global virtual management strategy. the degree of virtualness (location. STEP THREE: Comparative Assessment of Relational Partners This stage of global virtual management development focuses on the direct comparison between potential marketing relationship partners on the criteria established in the preceding step. E x a m p l e s of d e f e n s i v e s t r a t e g i e s include: (1) reducing the power of one member of a channel-of-distribution by forming a coalition. there are a number of defensive or reactive reasons to form a relationship.g. The result of this analysis may be a ranking of the potential candidates or a classification system that identifies highly attractive to unacceptable candidates. Following this orientation. (2) entering a market through a relationship to test new products to avoid a negative impact on primary markets. and culture) should be determined to establish the management philosophy most appropriate for the global virtual model in place. The primary defensive motivation is to affect a stronger competitor's market position or competitive advantage. The initial assessment of what was needed to have Virtual Managementof Global Marketing Relationships 273 . There are a number of reasons that could provide the impetus for establishing a long-term global marketing rela- STEP FIVE: Managing Relationships Over Time The virtual management of relationships must take into account the original assessment of the global marketing relationship and how that relationship may change over time. offensive strategies (e. the focal organization implements a relational strategy to improve effectiveness and efficiency in their operations maintaining a relative advantage over competitive rivals. increasing economies of scale. work-cycle synchronicity. In this step. STEP FOUR: Initiating Relationship Strategies The primary objective of this virtual management stage is to identify the motivation for forming the relationship. The goal of this stage is to develop a discriminate analysis among the potential relationship partners and to determine when there is a significant difference between potential partners.. The linkage between the virtual partners can also be analyzed to ascertain the necessary activities for maintaining the marketing relationship over time and the degree of relational richness may become a critical dimension in the ultimate selection of relational partners. While offensive motivations for forming relationships dominate the rationale for entering relationships. Overall. the defensive motivation for forming relationships recognizes the difficulty of meeting the business challenges in hyper-competition markets. tionship. expanding distribution) to improve competitive position in the marketplace.

changing goals... (2) analyzing change in the external environment that could impact the value/ benefit of the relationship (Hamel & Pralahad. potential other marketing partners may be precluded from entering into relationships with the focal organization. such as termination by acquisition. 1997).... (4) changes in the market place (consumer/competitor) that makes formation of another relationship more attractive. 1991. Developing a management auditing process could enable assessment of relationship changes over time. ownership. Several alternative strategies have a proactive exit orientation.relational incompatibilities.. and independently undertaken to provide objective data on the present "value" of the relationship. The relationship auditing process should include the following steps: (1) assessing the initial goal of the relationship and the commitments made during the formation of the relationship.. or financial problems. and (5) determining an appropriate set of exiting strategies. assessing potential relationship constraints should be undertaken to determine the sustainable competitive value 274 Journal of World Business / 33(3) / 1998 . (2) growing differences between relational partners. (4) determining the explicit cost of maintaining the relationship. competitors' reactions to the formation of a relat i o n s h i p s h o u l d be m o n i t o r e d to determine their strategic reaction (Day.. and (6) the original goal(s) of the partnership have been met.was not successful. & Johanson. systematic. The motivation to exit the relationship may also be based on the inability to manage the marketing relationship effectively and may be the sole impetus for leaving relationships (Holm.heightened opportunity cost. (5) internal problems in focal organization that necessitate dissolution of relationship. Similarly.. Existing marketing relationships create potential opportunity cost associated with the development of future relationships.. substitution of new member(s). (3) evaluating the configural advantage of the relationship relative to future competitive positioning and market opportunities (Douglas & Craig. The audit process should be periodic. and selling the intangible rights of the relationship to a third party. 1990..change in strategy. Eriksson. There are a number of termination strategies that need to be evaluated when exiting a relationship. (3) breach of explicit and/or implicit relationship agreement. By virtue of having existing global marketing relationships.a successful marketing relationship might have been assessed incorrectly or perspectives on the goals of the relationship have changed over time. Therefore..successful completion of the intent of the relationship. STEP SEVEN: Exit Strategies from Relationships There may be a number of reasons for terminating a relationship: (1) the relationship did not reach predetermined goals. 1994). 1994). 1996). STEP Six: Response to Reaction from Potential Relational Partners and Competitors to existing relationship relative to other configurations that could be formed in the market place.

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