Subject Marketing Management

Topic Total Global Marketing Effort

This text version is for your personal study only. Reproduction and/or redistribution is not allowed.

Please note that this is a text-only version. A ll links and animations are not activated in this version.
It is recommended that you view the topic online for an interactive learning experience.

Table of Contents
1. Overview
2. Objectives
3. Integrating the Global Marketing Effort
4. Globalisation of Economies
5. Globalisation of Markets
6. Globalisation of Industries
7. Strategic Issues
8. The Challenge of Global Strategy
9. Self-Assessment
10. Summary

1. Overview
The key to an effective marketing strategy is to analyse the multiple factors internal
to the firm and those in the external environment, and to be able to put all of the
parts together. Once this analysis is done, firms can make decisions about
positioning their products and services in relation to the competition and decisions
about whether to move to a global strategy.

It is important to have an understanding of the components and processes of

marketing strategy in a firm’s home country and abroad. In addition, it is useful to
consider all aspects of globalisation for economies, markets and industries. As a firm
makes decisions about its own company’s marketing strategy, these macro concepts
are worth consideration.

2. Objectives
Upon completion of this t opic, you should be able to
 explain the importance of building a market -orientation in a global
organisation
 identify the forces that drive each level of globalisation
 identify the steps necessary to formulate a successful global strategy

3. Integrating the Global Marketing Effort

This subject began with the marketing concept, which articulates the importance of
understanding and responding to consumer needs. Developing a market -oriented
organisation provides the means to deliver on the marketing concept. S uch
organisations are in a unique position to respond to consumer needs.

By their nature, the functional areas within market -driven organisations are
organised to work co-operatively together to achieve the organisation’s primary
objective. That is, to provide superior value to customers relative to the competition,
which these organisations believe provide the best means to enhance shareholder
wealth and long-term survival.

Teamwork in areas such as research and development, human resource

management, operations, manufacturing, finance and accounting, as well as across
the marketing functions, is required in order to respond to customers’ needs and
create superior value. The philosophy and structural demands required by market

C opyright © 2015, GlobalNxt University. All rights re served. 1 of 17

Subject Marketing Management

Topic Total Global Marketing Effort

orientation, which demands that we start with the market and build the organisation
backwards to serve it, provides the integrating force that unites the many areas
across the organisation.

Building a market-orientation requires strong top-down leadership and bottom-up

acceptance, structured co-ordination and co-operation among functional areas, and
reward systems designed to reinforce customer-oriented behaviours and co-
operative teamwork. Note that such organisations are market -oriented, not
marketing oriented. Marketing does not have primacy by any means, but instead is
simply one part of the organisational team that helps integrate and execute
organisational activities.

In a global organisation, the unifying force provided by a focus on customers

becomes even more important. In dealing with multiple cultures and nations, a
company enjoys the benefits provided by strong customer-driven management.

A culture and structure built around listening, understanding and responding to

customers makes decisions and activities easier to execute. A senior executive with a
major consulting organisation, who requested anonymity, stated that "if companies
simply listened to their customers, we wouldn’t have any business."

Reading: McDonald’s in India

Click the link below to read about McDonald’s behaviour in the Indian market.

McDonald’s in India

McDonald’s in India

In May, 2001, Mr. Luke Harding reported: “Three Hindu businessmen who accused
McDonald’s of secretly using beef in their french fries were triumphantly vindicated
last night when the company admitted that it has lied to the public for 10 years.” Mr.
Harding reported that in some countries (North America and India for example) a
small amount of beef fat has been used by McDonalds in initial pre-cooking before
shipment due to its flavour-enhancing qualities. This happened despite the 1990
announcement by the company that it would only use vegetable oil to cook its chips
in order to make them acceptable to vegetarians.

A key element of a market-oriented organisation is trustworthiness, which once lost

is very difficult to regain. Mr. Harding quotes a McDonald’s spokesman as stating
“We’re not too big to apologise”. An apology would be unlikely to move the ultra -
nationalist Shanka Gaikar, however, who was quoted as saying: “They (McDonalds)
have betrayed the faith of millions of our countrymen by serving food cooked in beef
fat. It is unpardonable”.

The repercussions of such behaviour will likely be felt beyond India. McDonalds is
often portrayed as an international company responsible for spreading American
culture at the expense of that of its host countries. Indeed, the Harding article
reporting on the beef violations stated that earlier in that same month a McDonald’s
outlet had been smashed up in Bombay and its Delhi Headquarters picketed by
activists.

While McDonalds has invested heavily into being a good corporate citizen (eg, Ronald
McDonald House) and has tried to mollify its critics by adapting and contributing to
the countries that it operates in, this debacle will undermine its ability to establish
trusting relationships (and ward off other criticisms whether justified or not). What
impact will this event have on McDonald’s, not just in India but in other countries?

C opyright © 2015, GlobalNxt University. All rights re served. 2 of 17

 Subject Marketing Management

Topic Total Global Marketing Effort

When McDonalds describes the contents of its products for years to come, what will
your response likely be? What do you think about McDonald’s apology?

While speculative, we doubt the McDonald’s decision makers, who felt that adding a
“minuscule” amount of beef fat for flavour was not that big of a deal, could possibly
have had any depth of understanding about the Hindu belief in reincarnation, the
sacred status of cows, and the disgust that would be felt by customers who
unwittingly violated a central tenet of their religion. Understanding and appreciating
the role played by the personal characteristics of their customers should have led
McDonalds to avoid this emotionally traumatic and economically costly decision.
Ref erences
Widing, Sheth, P ulendran, M ittal, A nd N ewman “C ustomer Behaviour: C onsumer Behaviour And Beyond (P acific Rim
E dition),”, T homs on, (Southbank, V ictoria), 2 0 03, P . 2 45.
L uke H arding, “M c donald’s C onfesses To Beef Fat Fries,” T he A ge, Saturday, 2 6 M ay, 2 001, P . 2 7 , World Sec tion.

Do you think top management was actively involved in the decision to pre -cook
French fries in small amounts of beef fat before shipping to India, or do you think
blame was purely on ignorance? For what reasons would a market -oriented
organisation be unlikely to engage in such activities?

Drivers of Global Expansion

The three main levels of globalisation are

 globalisation of economies
 globalisation of markets
 globalisation of industries

Each of these levels of globalisation changes the ways that marketing is done
throughout the world. Marketers must be able to recognise the forces that drive each
level of globalisation. In addition, they must understand the opportunities and
threats that globalisation brings as these forces apply to their own firms, so t hat they
may develop competitive strategic plans.

4. Globalisation of Economies

Global trade and the flow of investment funds across international borders have
markedly increased in the last few decades. That, in itself, does not mean that
economies are globalised.

As shown in the following animation, a national economy is said to be globalising

when there is an increase in the ratio of the country’s economic activity across its
borders to that within its borders. A government’s desire to provide access to less
expensive goods produced abroad, reduced costs as a result of improved
infrastructure like better roads and improved communication networks, and

C opyright © 2015, GlobalNxt University. All rights re served. 3 of 17

Subject Marketing Management

Topic Total Global Marketing Effort

technological improvements, are drivers for the globalisation of economies. View the
following animation on globalisation of economies.

Globalisation of Economies

Globalisation of Economies

The globalisation of an economy is measured by the flow of trade across its borders
relative to the flow of trade within its borders.

Additionally, an economy whose trade is highly dispersed throughout different

regions of the world is more globalised than one whose trade is concentrated in a
limited area.

There are many drivers that push economies to globalise:

 a government’s desire to offer its citizens access to less expensive goods
produced abroad
 a government’s active role in capturing benefits from trade for its domestic
firms
 reduced trade barriers that emerge as a result of shifting government policies
and economic philosophies
 reduced transportation costs due to better roads, improved ordering and
distribution processes, improved communication networks, and increased
availability of airline transportation
 technological improvements that facilitate the exchange of products and
services
 the increasing prevalence of English as a standard business language

It is important for the firm to understand why economies globalise and how this
globalisation impacts the firm.

The globalisation of the world’s economies has been made possible by two primary
factors.

Firstly, the continuing reduction of international trade barriers has made countries
increasingly open to foreign trade. Formal agreements regarding international trade,
through treaties such as the North American Free Trade Agreement (NAFTA) and
those created through institutions such as the World Trade Organization (WTO), have
allowed foreign companies to compete readily against domestic firms.

Find out more about international treaties and institutions by visiting these website s:

World Trade Organization (WTO)

Association of Southeast Asian Nations (ASEAN)

The European Union (EU)

C opyright © 2015, GlobalNxt University. All rights re served. 4 of 17

Subject Marketing Management

Topic Total Global Marketing Effort

Department of Foreign Affairs and International Trade (for NAFTA)

Secondly, the desire of firms to capture new profit opportunities by expanding their
businesses into new markets is made increasingly viable by three major factors:
 Improvements in physical transportation
 Improvements in communications
 Increased global use of a single business language (English)

The improved infrastructure of roadways, airways and shipping routes have been
matched in its globalising effectiveness by the improved communications
infrastructure that has made ordering, distributing and searching for products much
more economical. Furthermore, advancements in communications have allowed firms
to better co-ordinate their activities.

The Internet has directly affected the transportation costs of certain goods. For
example, software can now be downloaded anywhere in the world without any
shipping costs added to its price. Online editions of newspapers provide information
outside of local areas without the high costs of printing, shipping and distribution and
without time lags that might lower the value of the information. Increased
globalisation of the world’s economies has enabled a dramatic increase in the
globalisation of markets and industries.

5. Globalisation of Markets

What exactly does it mean to say that a market is "globalising"? What are the forces
that can lead a firm to lose its ability to price differentiate across markets? What
threats does the globalisation of a market pose to a firm? What opportunities does it
create? These are important questions that a firm must consider as it designs a
marketing strategy in a global environment.

When is a market globalised?

View the following animation on the globalisation of markets.

Globalisation of Markets

Globalisation of Markets

A market is globalised when significant price differentials for a product cannot persist
across geographic regions.

There are several catalysts that drive the globalisation of markets:

 the evolution of global tastes and preferences that converge or become the
same around the world
 reduction in formal and informal trade barriers
 lower transportation costs that drive prices down and open new markets in
previously hard-to-reach locations

C opyright © 2015, GlobalNxt University. All rights re served. 5 of 17

Subject Marketing Management

Topic Total Global Marketing Effort

 a reduction in costs to search for information, due to an effective worldwide

communications network which forces sellers to set uniform prices

It is important for the firm to understand why markets globalise and how this
globalisation impacts the firm.

A market for a product is considered highly globalised if price differentials across

geographic regions cannot be sustained and if demand patterns are similar across
geographical regions. In other words, if the price of a product is the same from one
plac e to another, and if patterns of customer preferences for that product are the
same regardless of geographic location, then that market can be considered to be
globalised.

For example, consider the market for oil and the market for automobiles. The market
for oil is highly globalised. Demand conditions, or customer preference patterns are
similar across regions, and the price of a barrel of crude oil in Brazil is the same as
the price of a barrel of crude oil in Indonesia or Spain.

In contrast, the market for automobiles is less globalised, as the price of automobiles
may vary considerably from Brazil to Indonesia to Germany. Customer preference
patterns also vary throughout different regions, as road width, fuel costs and per
capita income lead consumers to need and prefer different features of cars. Markets
are rarely "100% global" or "0% global." Rather, most markets fall on a continuum
between these two extremes.

What drives a market towards globalisation?

No single driver moves a market towards globalisation. Rather, multiple drivers are
at play when a market becomes increasingly globalised. The four drivers are:
 Global acceptance and preference
 Reduction in trade barriers
 Reduction in the cost of transporting goods
 Reduction in search costs

Drivers Towards Market Globalisation

Global acceptance and preference

The market for a product is driven toward globalisation if that product has a high
level of global acceptance and if patterns of consumer preferences are relatively
similar across regions. Consumer preferences do not need to be homogeneous;
heterogeneity will not prevent globalisation, as long as the heterogeneity is constant
across regions.

C opyright © 2015, GlobalNxt University. All rights re served. 6 of 17

Subject Marketing Management

Topic Total Global Marketing Effort

For example, the market for microchips is very globalised, as consumers around the
world use microchips in countless electronic products. The only preference that
consumers express for a microchip is that it works according to specifications.

On the other hand, the automobile market is less globalised because preferences for
automobiles vary greatly from count ry to country. Citizens of different countries
prefer a number of different styles and modifications in their vehicles, from the size
of the engine to the orientation of the steering wheel. There is no “world auto”,
because patterns of heterogeneity in consumer tastes and preferences differ across
regions of the world.

Reduction in trade barriers

For a market to move toward globalisation, barriers to the flow of trade must be low
enough to permit uniform pricing among markets worldwide. Barriers include formal
trade barriers such as tariffs, and informal barriers such as regulatory differences.

Returning to the market for cars, trade barriers exist in this market that hinder it
from achieving greater globalisation. For example, strict government regulations
concerning pollution may restrict the trade of cars in some countries. Car companies
themselves can also construct informal trade barriers by creating warranty structures
that differ from one country to another.

Reduction in the cost of transporting goods

Reduction in the cost of transporting goods from one country to another will lead to
more globalised markets.

For example, consider the market for oil and the market for natural gas. A reduction
in transportation costs has contributed to the globalisation of the market for oil. The
transportation costs for natural gas, however, continue to be expensive. It is difficult
and costly to transport natural gas over long distances, because it explodes easily.
The market for natural gas, then, is less globalised.

When the cost of transporting a good is reduced, the price of that good tends to even
out so that it costs the same in Bangkok as it does in Vancouver. Generally, recent
advances in shipping and freight technology have made transporting goods around
the world more economical for many companies. As these transportation costs are
part of the price structure for a good, companies that capitalise on lower
transportation costs can pass these savings on to consumers in the form of lower
prices.

Lower transportation costs have also revealed new markets for products in locations
that a company might have avoided in the past due to prohibitively expensive costs
of getting the product into that market.

Reduction in search costs

An effective communication network among buyers and sellers worldwide permits

equal access to information, which leads to a reduction in search costs. The Internet
makes it very easy to find the lowest price or the lowest price/quality combination
for a good. The Internet also allows customers to search efficiently for the best
cost/quality combination for a good, which puts pressure on firms to offer the best
deal to customers.

For example, if you are responsible for purchasing raw materials for production, you
want to be sure to get the best price for those raw materials. Without the telephone,
the Internet or the commodities market you might be limited to purchasing those
materials within your local community. Although transportation costs might be lower
if you were to buy these raw materials from a supplier in your community, it is also

C opyright © 2015, GlobalNxt University. All rights re served. 7 of 17

Subject Marketing Management

Topic Total Global Marketing Effort

possible that the supplier will realise that you have limited options and might,
therefore, set the price higher.

Globalisation of markets: implications for the firm

Knowing the factors that drive a market toward globalisation enables marketers to
cope with the changing world. Factors such as global acceptance and preference,
reduced transportation costs and lowering search costs all lead markets toward
globalisation.

Common tastes enable firms to sell their goods to multiple markets. Commodities
such as soybeans are undifferentiated, and prices are set by organised, competitive
markets. Conversely, differentiated goods such as beer have local styles and
preferences, which have long limited the globalisation of the beer market.
Budweiser®, the most popular brand of beer in the world, has just 3.6% of the world
market, although it accounts for nearly half of US sales.

Foreign companies may have a competitive advantage in the production of a

product, but if transportation costs overseas are too high, they might not choose to
do so. Lower transportation costs allow foreign firms to compete more equally with
local ones.

High search costs limit globalisation when buyers are unaware of the most
favourable prices. Improved communications and information-sharing technologies
are reducing the time and cost of searching for lower prices. This encourages buyers
to discover the lowest price available, wherever that price might be offe red.

Globalised markets create both opportunities and threats for many firms. Producers
that can differentiate themselves in ways besides price can find themselves in good
competitive positions, with more profit opportunities. But businesses that once were
able to differentiate themselves geographically may no longer be able to do so.
Imagine the impact of Internet banking on small regional banks that once dominated
their geographical areas.

Opportunities include the increasing potential to sell products or services worldwide.

As buyers tend to screen for suppliers on a more worldwide scale, the opportunity to
be in that "net" increases. In addition, when price becomes more standardised, firms
that can create distinct non-price advantages can find themselves in an
advantageous competitive position.
Threats to a firm include current cost structures that might not allow firms to be
profitable. As information becomes broadly available, buyers are able to demand
more for less, and if firms do not respond appropriately, overall company profit
margins will suffer.

A highly global industry has two characteristics

 The same firms in the industry are the main competitors in the key
geographic markets around the world.
 Each major firm has a strategic position that is similar across different
geographic markets.

View the following animation on globalisation of industries.

C opyright © 2015, GlobalNxt University. All rights re served. 8 of 17

Subject Marketing Management

Topic Total Global Marketing Effort

Globalisation of Industries

Globalisation of Industries

The globalisation of industries is ac hieved when there are a set of firms, or key
players, that are competing around the world in all the major markets, and when
each firm maintains a similar strategic approach in all of those markets.

Several forces drive the globalisation of industries. Eac h driver ties directly to the
competitive strategies of the key players in these globalised industries.

...industries whose key players see opportunities to take advantage of economies of

scale.

...industries whose key players see opportunities to take adv antage of resources that
improve capabilities or lower production costs.
...industries whose key players seek to advance their own unique competitive
advantage to capitalise on opportunities and to establish themselves as first movers,
or gain access to materials and resources that may be in short supply.

As firms are commonly forced to respond to a globalising industry, it is important for

the firm to understand why industries globalise and what potential opportunities and
threats occur through globalisation.

An industry is driven towards globalisation as dominant firms attempt to take

advantage of opportunities. To stay competitive, managers must be able to
recognise and act on these opportunities. A number of opportunities can drive
industry globalisation. The four major drivers are economies of scale, smoothing
demand over time, leveraging competitive advantage and lower-cost resources.

Drivers Towards Industry Globalisation.

Economies of scale

In a situation in which a company exploits economies of scale, the company’s per-

unit cost decreases as output increases, because fixed costs are allocated over more
units of production. Economies of scale can be generated by many activities, such as
manufacturing and advertising. Consider computer software. The research and
development costs needed to create a new piece of software can be very high. Once
the software is developed, the company can produce copies of the product itself
quite cheaply. It therefore benefits the company to sell as many copies of the
software as possible, including to foreign markets.

Smoothing demand over time

Another reason that industries are often driven to globalise is to improve utilisation -
and increase efficiency - by smoothing demand over time. Often, the economy of one

C opyright © 2015, GlobalNxt University. All rights re served. 9 of 17

Subject Marketing Management

Topic Total Global Marketing Effort

region of the world will be rapidly growing as another regional economy is facing
problems. A company that operates in many regions of the world is less subject to
the consequences of regional economic downturns.

Leveraging competitive advantage

How a company creates and captures value is referred to as its competitive

advantage. It comprises the features that differentiate the company’s products to
win customer business at profitable prices. There are two general types of
competitive advantage for a firm: quality and cost. Companies that have competitive
advantage earn per-unit profits and have an incentive to increase their market by
crossing borders.

Lower-cost resources

Another driver to globalisation for some industries is lower costs of resources,

especially lower labour costs. The outsourcing of labour is often covered by news
media, particularly when a large firm moves its operations to a country with lower
labour costs.

Globalisation of economies, markets and industries refers to the structures within

which firms operate. An individual firm might decide to globalise for a variety of
reasons. Click the link below to find out more about why firms globalise.

Why Firms Globalise

Why Firms Globalise

The many reasons that firms might choose to globalise can be broadly classified into
three categories
 internal strategic reasons
 external strategic reasons
 opportunistic and imperialistic reasons

Sometimes a single reason might be compelling enough to justify a firm’s decision to

globalise, but frequently a combination of these factors steer a firm toward
establishing an international presence.

Internal strategic reasons to globalise involve selling, buying or manufacturing.

Selling in foreign markets is appealing to firms that can offer better value than other
firms in those markets and that are able to use resources more profitably.
 A firm might have something that can be used repeatedly at low cost, such as
proprietary technology, special knowledge or brand image. For example,
Microsoft could introduce its operating system to a new market at a small
fraction of an operating system’s development cost.
 A firm may possess resources that can be better utilised in an international
scope, such as production capacity. For example, synthesised insulin must be
made in large quantities that often exceed domestic demand. This leads
companies to sell their surplus insulin abroad.
 A firm’s resources may be in demand somewhere where those resources are
not available - for example, diamonds or oil.
 A company’s cost or quality advantages may be maintained when more
markets are entered.

C opyright © 2015, GlobalNxt University. All rights re served. 10 of 17

Subject Marketing Management

Topic Total Global Marketing Effort

 First-mover advantages may be attained in unserved markets.

 A firm may globalise to strengthen customer relationships, such as following
customers into new markets to reduce transaction costs.

Buying and manufacturing goods internationally is also an internal strategic

motivation for going global.
 Firms often shift production abroad to regions with cheap labour costs for
labour-intensive goods such as clothing, shoes and some heavy industry.
 Companies may choose to buy or produce in foreign countries to gain favour
with the local government or market.

External strategic reasons to globalise involve operating near other industry

participants - buyers, suppliers and competing producers.
 By operating closer to consumers and suppliers, a business may build better
relationships with them.
 A firm may want to monitor its competitors’ environment and ensure that
competitors do not gain a great advantage.
 A company may seek to gain industry expertise. For example, the Japanese
company Canon created a research and development centre in Palo Alto,
California, to learn from high-tech firms.

Other reasons that firms go international include opportunistic and imperialistic

reasons. On some occasions, firms have sought global expansion for the prestige or
status associated with an international presence. Further justification related to the
internal and external strategic factors above would be necesssary for such expansion
to be in a company’s best interests.

7. Strategic Issues
Successful global expansion is not just a matter of shipping goods overseas, building
a factory in a low-wage country, or repeating the same marketing formula that
worked in the domestic market. In fact, history has shown that this approach is
probably closer to a recipe for disaster. Many of the world’s most respected and
best-managed companies have all made mistakes when venturing abroad. The best
ones have learned from their experiences and adjusted their strategies according to
the realities of the new business environments.

Consider the experiences of IKEA, the Swedish furniture retailer. IKEA began
reinventing furniture retailing in Europe by building large, convenient stores that
featured a variety of affordable furniture that could be purchased, taken home and
assembled the same day. This was a change from the high prices, limited selection
and long delivery times of traditional furniture retailers in Europe .

IKEA lowered its costs by working intensively with its suppliers to design simple yet
stylish pieces that could be produced in large batches and sold across Europe. In
exchange for providing the labour, time, and transportation to buy furniture from
IKEA, its customers enjoyed low prices, wide selection, and instant availability.

The success of this formula in Europe prompted IKEA to try the US market. In 1985,
it built a large, attractive store next to an interstate highway outside of Philadelphia.
Customers came to the store but often left empty-handed. The reason was simple:
IKEA’s European designs did not mesh with American tastes and dimensions. Its
beds and cupboards were narrower than the ones that Americans typically preferred.
Its drinking glasses were too small for many iced beverages, so Americans bought
IKEA’s flower vases to use as glassware.

C opyright © 2015, GlobalNxt University. All rights re served. 11 of 17

Subject Marketing Management

Topic Total Global Marketing Effort

IKEA saw its mistake and began producing new designs for the US market. Sales
improved dramatically, but the disruption to IKEA’s highly efficient supply chain
began to eat away at its cost advantage. Within a few years, IKEA’s overhead costs
jumped significantly. IKEA adjusted its strategy again by shifting more production for
the US market to local sources. By 1993, IKEA began showing signs of recovery from
its missteps in the US. Its global sales and profit margins showed acceptable growth,
despite a recession in Europe.

IKEA’s experience illustrates the basic challenge of developing sound global strategy.
A firm’s success will depend largely on its ability to learn and quickly discover the
right marketing mix.

As successful firms grow, seek new opportunities or find that external forces are
driving them to globalise, they may expand by entering foreign markets, developing
global supply chains or both. These actions often require firms to make difficult
choices in terms of what activities to perform (manufacturing, advertising,
promotion, etc.), where to perform them and how to deliver the products and
services to the consumers.

These are not disconnected decisions that can be addressed through ad hoc methods
but rather are elements of a company’s explicit global marketing strategy.

Reading: Global Insights and Local Realities.

This article by Wyner (2014) discusses ways to analyse purchasing behaviour of

consumers on a global scale. Topics discussed include ways to developing insights
from analysing local realities, operational challenges in conducting research on a
global level, ways to frame marketing issues and develop practical solutions to them,
development of tools for assisting decisions on the basis of various global research
programs, ways to improve research quality and validity in consumer buying
decisions, building appropriate measurement methods to capture the local market
and differences in the shopping environment for consumer packaged goods in highly
developed economies to lesser developed economies.
 Global Insights and Local Realities.

8. The Challenge of Global Strategy

A global strategy must accommodate the need to find the right balance between
activities that are locally responsive and those that are globally co-ordinated.
On the one hand, global firms face a challenge of developing local responsiveness -
the ability to understand and react to customer tastes and preferences in a foreign
market. On the other hand, global firms face a challenge of developing global co -
ordination - the ability to create value in the supply chain by minimising costs or
maximising productivity.

These challenges often create opposing forces. The more a firm seeks to be locally
responsive by customising its processes and products for a specific market, the less
it is able to minimise costs through such techniques as creating economies of scale in
its supply chain through more centralised activities.

A global strategy attempts to manage these forces by determining the right

combination for the firm’s environmental and organisational conditions. As these
conditions change, the firm is often forced to adapt its strategy, creating another
challenge to sustaining competitive advantage.

C opyright © 2015, GlobalNxt University. All rights re served. 12 of 17

Subject Marketing Management

Topic Total Global Marketing Effort

Developing and adapting a global strategy to meet these challenges requires skilful
questioning. It is useful to have a framework to help identify the right questions. One
framework suggests these four steps to formulate a successful global strategy. They
are:
 Identify the firm’s goals
 Identify the source of competitive advantage
 Define the scope of global activity
 Explain the logic of the strategy

Four Steps to Formulating a Successful Global Strategy

Identify the firm’s goals

Goals clearly define a market position that the firm plans to achieve and maintain of
performance. In this way, well-conceived long-term goals provide specific direction
for what actions the firm should take and allow the firm to evaluate its performance.
A company’s goals, such as being the most profitable company in the industry or
being in the top five in terms of global market share, can be supported by
globalising. This could provide the company with such opportunities as developing
multiple markets to capture economies of scale or sourcing abroad to capture lower
production costs.

Identifying the company’s long-term goals is a good starting point for developing
global strategy. It gives an indication of the types of trade-offs the firm needs to
make to balance local responsiveness with global co-ordination in the way that is
best for the firm.

Identify the source of competitive advantage

A company’s competitive advantage is how it creates and captures value in an

industry. It comprises those features of the company that lead customers to pay
prices that are profitable to the company. It differentiates the company in such a
way that it can create and capture more value than its competitors. There are two
general types of competitive advantage for a firm, quality and cost.

Firms generally face a trade-off between quality and cost. Being the low-cost
producer may be contrary to providing the c ustomer with the service, high-quality
image and extensive features typically needed to develop a position differentiated on
quality. This is also true for global firms. A firm that has engineered its supply chain
for global coordination generally cannot develop a cost advantage in one market and
a quality advantage in another market.

The source of competitive advantage - the feature that allows the company to attain
lower costs or higher quality than competitors - may disappear with foreign
expansion. A firm that does develop competitive advantage in one market may have
trouble replicating it in foreign markets. It may lose some of the “fit” in its supply
chains as it expands globally. A firm may enjoy trade protection, government
support or favourable industry standards in its home country that it will not have
abroad.

Trade-offs are the key to creating sustainable competitive advantage for a firm.
Competing firms that attempt to replicate the success of another firm will be forced
to address the same trade-offs in their own supply chain and market position, as well
as in their ability to be locally responsive. The more effectively a firm manages these
trade-offs, the more sustainable is its competitive advantage.

Define the scope of global activity

C opyright © 2015, GlobalNxt University. All rights re served. 13 of 17

Subject Marketing Management

Topic Total Global Marketing Effort

A firm’s global strategy starts to take shape when it decides what activities it will
perform and where it will perform them. These activities include the products,
markets (demographic and geographic), technologies and processes that the firm will
pursue as well as the activities that it will not pursue.

Deciding what activities to pursue is influenced by the challenge of local

responsiveness. The firm must have a strong understanding of the products, services
and features that local customers value before deciding what activities will best serve
the market. However, even highly successful firms do not easily gain this
understanding. Foreign countries often present an unfamiliar market environment.
Customer preferences and buying patterns are different, and competitor behavior is
often unfamiliar.

Deciding where activities are to be performed is influenced by the challenge of global

coordination. Developing a global supply chain often requires balancing centralised
and decentralised production activities. This balance depends on a variety of factors
 economies of scale
 transportation costs
 local input costs (labour, raw materials, energy) and productivity
 coordination costs
 non-market rules affecting local production
 diversification of supply and production risk

Most firms approach designing the global supply chain as a cost -optimisation
problem, where some factors favour centralising production in a single location while
others favour decentralising production. Using this approach, firms can determine
which supply-chain activities will be performed in what locations. Many firms in
global industries try to develop both global coordination and local responsiveness by
centralising some supply-chain activities and decentralising others, rather than
applying one approach or the other to the entire company.

Explain the logic of the strategy

The best global strategies explain why a firm’s chosen activities, combined with its
competitive advantage, will help achieve its long-term goals. They make
assumptions about the firm and the environment that must hold true if the strategy
is to succeed. They describe the trade-offs that the firm will make in its local
activities and its supply chain, and how these trade-offs will create and sustain
competitive advantage. Until a firm is able to articulate how goals, scope and
competitive advantage come together to provide a clear and convincing case for
success, the firm has no strategy.

Click the link below to read about Nike’s effective global strategy that helps Nike to
be a world leader in sports and fitness apparel.

Nike’s Global Strategy

Nike’s Global Strategy

Between 1990 and 2000, Nike’s revenue from the United States increased 185
percent to $5 billion, while its revenue from Europe increased 600 percent to $2.4

C opyright © 2015, GlobalNxt University. All rights re served. 14 of 17

 Subject Marketing Management

Topic Total Global Marketing Effort

billion, and from Asia 3,200 percent to $1 billion, allowing net income to more than
double to $0.6 billion.

Nike achieved this astounding global success by implementing a very effective global
strategy. Its goal was to become the number-one sport and fitness company in the
world; its scope was high-performance athletic shoes and related items; and its
competitive advantages included innovation and the Nike ® brand, conceived and
developed to reflect the spirit of athletic competition and victory. Nike’s logic was
that the brand image was based on the “international language of sports”, which
would appeal to all geographic regions and create global demand for its innovative
products, allowing Nike to become the globally preferred shoe for image combined
with performance. However, Nike found that a brand-centred strategy required
careful management that needed to be adjusted over time.

One of its main threats was that despite requiring an elite reputation that was
consistent yet appealing across cultures, Nike nearly lost control of the brand’s
future by licensing it to distributors in its rush to enter Europe. The individual
distributors concentrated on competitive forces within their own countries, driving
them to develop inconsistent images, many of which did not emphasise quality
athletic performance. Further complicating the brand management, Nike’s expression
of competition was rooted in a US perspective, which was often unappealing to
customers in other cultures.

Nike responded and regained a measure of control over its brand image, rescuing its
brand-centred strategy. It narrowed its scope and restric ted its product line to high-
end shoes in Europe to limit promotion options at the expense of immediate volume.
In addition, Nike implemented a model in which new operations are run by local staff
after expatriates have established a basic understanding of the brand. The aim of
this model was to make the brand less specific to US culture while retaining
consistency.
Credits and Disclaimer
N ike is a regis tered trademark of BRS, I nc .

The Marketing Manager and the Global Organisation

William Lazer and Eric H. Shaw (2000) wrote that macro-marketing effects have
changed the nature and responsibilities of the marketing manager. Some of the
changes include new trading alliances, the Euro, global over-capacity, the lessening
ability of nations to erect barriers to imports while exporting heavily (less ability to
export economic difficulties), instantaneous capital flows, global alliances and
conglomerates, the Internet, and generally enhanced communication and
information.

The authors suggest that the marketing manager of the new millennium must have a
new mindset equipped to deal with the rapid, unpredictable, macro-marketing
changes. They suggest that marketing managers need to
1. increasingly cope and become comfortable with turbulent environments
versus using mechanistic managerial approaches suitable for stable
environments
2. adopt an external and global perspective versus traditional internal and
national perspectives
3. be creative and take risks versus being averse to risk and traditional thinking
4. focus on anticipation of events and problem prevention versus the current
emphasis on problem solving and dependence on hard data

C opyright © 2015, GlobalNxt University. All rights re served. 15 of 17

Subject Marketing Management

Topic Total Global Marketing Effort

To the degree that Lazer and Shaw are correct in their assessments, what will the
impact be on the selection, training, evaluation and reward for managers in your
organisation?

Reading: Convergence and Divergence: Developing a Semiglobal Marketing

Strategy

Many markets are converging, as communications and logistic networks become

more integrated and firms from all parts of the world are expanding operations on a
global scale. At the same time, other markets are becoming more diverse, and
marketers are increasingly encountering economic and cultural heterogeneity. The
authors examine the implications of these trends and the extent to which they
necessitate rethinking and refocusing global marketing strategy. The authors
advocate developing a semiglobal market ing strategy, which involves following
different directions in different parts of the world, resulting in greater autonomy at
the local level.

Convergence and Divergence: Developing a Semiglobal Marketing Strategy .

9. Self-Assessment
Now, try the self-assessment questions to test your understanding of the topic. Click
the following link to open the Self-Assessment in a new window.
Self-Assessment

Q1. Which one of the following is not a feature of a global organisation that is able to
respond to consumer needs?
1. Has structured co-ordination and co-operation among functional areas
2. Has strong top-down leadership
3. Has bottom-up acceptance
4. Is marketing-oriented
5. Has reward systems that reinforce customer-oriented behaviours and
cooperative teamwork

Q2. Identify the four drivers that move a market towards globalisation.
1. Economies of scale
2. Reduction in trade barriers
3. Lower-cost resources
4. Reduction in the cost of transporting goods
5. Global acceptance and preference
6. Reduction in search costs

Q3. What are the four steps required for formulating a successful global strategy?
1. Identify the firm's goals.
2. Identify who is the intended audience.
3. Identify the source of competitive advantage.
4. Define the scope of global activity.
5. Explain the logic of the strategy.
6. Identify the produc t proposition.

10. Summary
This topic covered the following main points:

There are many forms of promotional activities:

 The key to an effective marketing strategy is to analyse the internal and
external factors that affect the firm.

C opyright © 2015, GlobalNxt University. All rights re served. 16 of 17

 Subject Marketing Management

Topic Total Global Marketing Effort

 Teamwork in areas such as research and development, human resource

management, operations, manufacturing, finance and accounting is required
to respond to customer needs and create superior value.
 Building a market-orientation requires strong top-down leadership and
bottom-up acceptance, structured co-ordination/co-operation and reward
systems designed to reinforce customer-oriented behaviours and co-operative
teamwork.
 The three drivers of global expansion are the globalisation of economies,
markets and industries.
Ref erences
L azer, L . and E .H . Shaw.“E xec utive I nsights: G lobal M arketing M anagement at the D awn of the N ew M illennium.” Journal
of I nternational Marketing 8 (2 0 0 0): 6 5 -77.

Credits and Disclaimer

Budweis er is a regis tered trademark of A nheuser- Busch, I nc.

C opyright © 2015, GlobalNxt University. All rights re served. 17 of 17