You are on page 1of 21

The Impact of Market Similarity on International Marketing Strategies:

The Automobile Industry in Western Europe

Andreas F. Grein

Executive Summary The formulation of an optimal marketing mix is quite complex when that mix must be effective across multiple international markets. At the crux of the problem is whether markets are similar to each other or interdependent and how this influences marketing mix decisions. Examining the marketing mixes of more than 30 automobile companies competing in the five major markets in Western Europe, it was found that easily changed marketing mix elements, such as prices and advertising, reflect market similarity, interdependence, and product-market conditions, although not always in the expected ways. The least flexible element, the number of models offered, does not appear to reflect any of these types of conditions. 2000 John Wiley & Sons, Inc.

eveloping an"sffective marketing strategy requires the manager to consider a variety of factote to insure that the strategy is successful. In addition to an assessment of the firm's capabilities, the manager must also evaluate changes in overall business conditi^bns, competition, regulation, and consumer behavior. While this is jSufpciently/COiTiplex when planning marketing strategy in a single country environment, itjs^^considerably more complicated planning marketing strategy in a multi-country environment. The manager not only has to assess each market individually, but also evaluate the various markets as they relate to each other.

Andreas R Grein is an Associate Professor of Marketing and International business at the Zicklin School of Business, Baruch College, the City University of New York. His research interests are in global marketing strategy and country developing issues.

Thunderbird International Business Review, Vol. 42(2) 167-186 March-April 2000 2000 John Wiley & Sons, Inc.

^ a-7
I O/

Andreas F. Grein

Developing marketing strategy for a group of countries, while more complex, has certain advantages. To begin with it allows planning to take place at the relevant unit which is often quite different from the political boundaries imposed by country borders. Second, it affords a broader view of competitive activities so that a strategy that is effective on all fronts can be formulated. Finally, taking a broader perspective helps identify opportunities for greater synergies than would be possible by looking at businesses on a market by market basis [Douglas & Craig, 1996]. At the core of the issue is the degree to which the different countries that the manager must deal with have similarities and interdependencies. This is not to suggest that identical strategies must be developed for each market. Rather, the degree of similarity and extent of interdependence must be considered explicitly to develop marketing strategies that are effective across the group of countries. The key empirical question of this research is how does market similarity and interdependence, at the macroeconomic level (i.e., based on economic, cultural, and trade conditions as well as geographic proximity), affect marketing strategy. We also consider three variables at the product-market level, in order to capture some of the competitive richness of the industry and period being studied. The purpose of this paper is to examine this question in the context of the five major countries that make up the bulk of the Western European automobile market. Specifically, three components of the firm's marketing mix, price, advertising, and number of models offered, will be assessed as a flinction of market similarity and interdependence.

...the degree of similarity and extent of interdependence must be considered explicitly to develop marketing strategies that are effective across the group of countries.

MARKET SIMIDVRITYANDINTERDEPENDENCE Market similarity and its impact on strategies has been studied extensively. As outlined by Walters [1986] in his review of the literature, studies of the international marketing environment have considered numerous aspects such as consumer behavior in general, family buying behavior, consumer attitudes of women, the identification of international market segments, and broad dimensions such as the economic environment, cultural influences, and the institutional infrastructure. Douglas and Craig [1996] describe similar markets as ones
"... where customers have the same tastes, interests, or purchase behavior, and where market environments are similar regarding,


Thunderbird International Business Review March-April 2000

Impact of Market Similarity on International Marketing Strategies

for example, product or advertising regulation or media and distribution infrastructure." (p. 96)

Interdependent markets are those where a series of linked domestic industries has led to a competitive arena that has shifted beyond national boundaries [Porter, 1986]. As described by Morrison and Roth [1992], these linkages occur due to tangible and intangible assets flows. Examples of tangible asset flows are trade of components and finished products, whereas intangible asset flows are movements of proprietary technologies and management skills. Market interdependencies occur when a competitor takes advantage of these linkages and forces other competitors to respond. Prahalad and Doz [1987] also mention multinational customers, high investment intensity, technological intensity, and universal needs as conditions leading to linkages. Douglas and Craig [1996] describe "market interconnectedness" as occurring when:
"they [markets] share common customers or competitors, have a high volume of trade with each other, can be reached through common distributors or media networks, or when actions in one market affect operations in another." (p. 96)

Markets have become more interdependent due to increased linkages between countries like trade, communications, and travel, and foreign direct investment. Traditionally, businesses' environmental analysis focused on the features of one country. However, as a result of increasing interdependence, managers have begun to consider a number of social, political, and cultural variables, influenced by conditions both within and outside the country, as part of their operating environment [Bartlett & Ghoshal, 1991]. It is very important that companies prepare themselves for the increased importance of market interdependence [Gladwin & Wasilewski, 1986]. As markets become more interdependent, companies are discovering the value of coordinating their activities across different countries. Advantages arising from this coordination are the ability to gain and share knowledge between company affiliates, achieve cross-national economies of scale, and increase the company's ability to respond to changes in the external environment. Because of these advantages, a company's performance in one country is affected by its performance in other countries, which characterizes a global industry [Porter, 1986]. The globalization of industries is sufficiently widespread that companies ranging from the very large to small, and medium-sized businesses are feeling its effects [Douglas & Craig, 1992].

As markets become more interdependent, companies are discovering the value of coordinating their activities across different, countries.

Thunderbird International Business Review March-April 2000


Andreas F. Grein

Therefore, market similarity and interdependence operate in complementary ways. A firm operating in markets that are similar to one another or more interdependent may have the opportunity to employ similar strategies. The overriding research question concerns the extent to which companies vary strategies between countries. It has been argued that companies are likely to adopt strategies similar to those used in other markets wherever possible, because of faith in the strategy's viability (from previous experience) and the learning generated from previous successful execution [Davidson, 1982]. Other benefits of standardization are the ability to achieve economies of scale in production, lower costs, and strengthen brand awareness [Levitt, 1983; Douglas & Wind, 1987; Samiee & Roth, 1992]. Standardization between markets is possible when markets are more similar (both economically and culturally) [Jain, 1989] to each other and when interdependence between markets exists [Gladwin & Wasilewski, 1986]. Therefore, this research asks whether strategies vary less between similar countries and/or between countries that are more interdependent at the macroeconomic level. Environmental similarity is operationalized using gross domestic product and cultural measures developed by Hofstede [1980]. Environmental interdependence is operationalized using geographic distance and trade flows between countries. Also included are three variables that capture similarity at the product-market level. These variables are the aggregate share of domestic competitors in that market, the number of foreign competitors in that market, and the market's annual growth rate. The purpose of these variables is to capture competitive forces more specific than the macro-environmental level, thereby shedding further light on how strategies reflect competitive conditions. Marketing strategy is operationalized by examining the company's levels of prices, advertising, and the number of models offered in markets. The analysis tests whether companies' marketing strategies are more similar between countries (i.e., to what extent does the company vary prices between these two countries) that are more interdependent (e.g., how large is the volume of trade between these two countries). Likewise, it tests whether companies' strategies are more similar between countries that are more similar to each other (e.g., based on the difference between the gross domestic product per capita of these two countries). Hypotheses are developed below, followed by a description of both the data and the operationalization and testing of the hypotheses.
7 70
Thundcrbird International Business Review March-April 2000

Impact of Market Similarity on International Marketing Strategies



It is expected that higher degrees of similarity or interdependence between two countries will allow companies to pursue more similar strategies in these markets. In other words, as implied by Davidson [1982], companies will have less need to alter the marketing mix between countries that have fewer differences in conditions or more linkages which can lead to similarity. If markets are more culturally and economically similar, companies will pursue more similar marketing strategies in those countries [Sorenson & Weichmann, 1975; Levitt, 1983; Jain, 1989]. Companies do this to achieve lower costs, present a consistent image to consumers, and acquire competitive advantage over companies that operate only in one country [Gladwin & Wasilewski, 1986]. Research has also shown that companies can expect similar relationships to exist between marketing mix elements and performance or market response, so they are therefore able to pursue standardization strategies [Szymanski et al., 1993; Farley & Lehmann, 1994]. Therefore, the following hypothesis is developed.
HI: A company will use more similar marketing strategies in countries that are more similar to each other.

European and Japanese companies that emphasize corporate product policy and manufacturing are increasingly shaping international competition, and therefore affecting all competitors in countries where they compete.

Countries can also become interdependent. Interdependent countries are more open to each other and are linked by feedback loops. Because of these links, interdependent countries are more likely to become similar to each other as well [Gladwin & Wasilewski, 1986]. Market interdependence leads to market similarity because international communications, tourism, scientific exchange, and trade and factor movements encourage the dissemination and adoption of innovations. Economic cycles of interdependent countries can also become synchronized. Sometimes efforts are made to harmonize laws and standards of these countries. Kotabe [1990] seems to have found some evidence of this occurring. He argues that European and Japanese companies that emphasize corporate product policy and manufacturing are increasingly shaping international competition, and therefore affecting all competitors in countries where they compete. This represents a form of interdependence because the same competitors are present in multiple markets. Kotabe found that tiiese companies are pursuing product standardization and process improvements. Their competitors, therefore, must also pursue tiiese goals in order to achieve competitive advantage or
Thunderbird International Business Review March-April 2000


Andreas F. Grein

parity. These findings suggest that this form of interdependence determines how products are both designed and manufactured. Indeed, it is also possible that market similarity leads to market interdependence because of the tendency to trade with and invest in countries that have more similarities. The former is known as the "preference similarity hypothesis" [Linder, 1961] whereas the latter is due to the perceived ease of operating in economically and culturally similar environments, which would favor more linkages. Due to the theoretical possibility that both directions of influence exist, it is not possible to determine whether similarity leads to interdependence, or whether interdependence leads to similarity, as the "feedback loop" argument above suggests. Clearly, both directions of influence are possible, and it is quite possible that they are mutually reinforcing. Regardless of the relationship between similarity and interdependence, if companies adjust strategies to fit their environments, then more interdependent environments will allow companies to pursue more similar strategies. The second hypothesis is:
H2: Companies will pursue more similar strategies in countries that are more interdependent.

While the firm devises an overall marketing mix to help it to compete effectively, not all of the mix elements are equally flexible. The different elements of the marketing mix vary in the degree to which they can be changed. Looking at the three mix variables included in this study, price and advertising are the most flexible and the most easily modified. The number of models offered can be altered from country to country; however, once a firm commits to producing a model, the desire to achieve economies of scale exerts strong pressures to offer a model in all major markets. Given the difficulties of modifying the number of models offered, as opposed to prices and advertising levels, the following hypothesis is developed:
H3: The price and advertising variables will respond more strongly to differences in market similarity and interdependence than the number of models offered.

RESEARCHTVIETRODOCOGY The research uses data on the automobile industry in Western Europe, provided by an American automobile manufacturer and Leading National Advertisers in New York. Specifically, included is information on all companies operating in the five major Western 772
Thunderbird International Business Review March-April 2000

Impact of Market Similarity on International Marketing Strategies

European markets (France, West Germany, Italy, Spain, and the United Kingdom), which together comprise 81% of 1990 sales in Western Europe and 29% of 1990 world sales. The data cover the period of 1988 to 1990 and all five segments of the industry,' thereby capturing 99% of new automobile sales. All comparisons are made within segments, with the exception of advertising spending where these data were not available at the segment level. The period chosen permits similarity and interdependence issues to be examined prior to the implementation of the Single European Act. This industry is ideal for studying companies' adaptation to market conditions because of the potential for both significant differences and interdependencies between these countries' automobile markets. The automobile industry is often referred to as a global industry, which, in Porter's [1986] words means "a series of linked domestic industries in which rivals compete against each other on a truly worldwide basis" (p. 18). The hypotheses state that countries which are either similar to each other or are interdependent will enable companies to pursue more similar strategies. In this research, differences in the levels of marketing mix variables between two countries are compared to the differences between the degree of similarity or interdependence in the two countries. Douglas and Craig [1996] suggest that both market similarity and interdependence can be thought of as having three levels: 1) macroeconomic; 2) product market; and 3) similarity of the firm's operation. This research specifically considers the relationship between the macroeconomic level, the product market level and the firm's marketing mix. Tables 1 and 2 list the variables used, describe their operationalization, and show the source for each. One measure of market similarity used in this study is gross domestic product per capita. It has been argued, for instance, that the level of discretionary income makes consumers in Organization for Economic Cooperation and Development (OECD) countries similar in terms of consumer behavior [Jain, 1989]. There is a correlation between people's level of income and how they meet their needs in both consumer and industrial markets [Cundiff & Hilger, 1984]. It was also found that there is a correlation between much broader measures of the environment, namely, gross national product and social and political variables [Adelman & Morris, 1965]. Therefore, this study uses GPD per capita as a surrogate for similarity in both consumer behavior and the broader economic environment.
' The market segments are based on engine and car size. They are commonly used in the automobile industry outside of North America and are not company specific. The five segments are: Small (e.g., Ford Fiesta); Lower Medium (e.g., Volkswagen Golf/Jetta); Intermediate (e.g.. Ford Sierra); Upper Medium (e.g., Audi 100, BMW 300); and High (e.g., BMW 500, 700). Thunderbird International Business Review March-April 2000

Andreas F. Grein

Table 1. Independent Variables VARIABLE

Market similarity: Gross domestic product per capita

Differences between pairs of countries of gross domestic product per person (1980 U.S. dollars). From International Financial Statistics Yearbook. Proximities scores for differences in pairs of countries based on Hostede's (1980) 4 cultural dimensions. Volume of total trade flows between pair of countries as a percentage of each country's total trade flows. From Direction of Trade Statistics. Driving distance between pairs of capital cities in kilometers. From Road Atlas Europe. Differences between pairs of countries in total segment level market share of domestic competitors. From company data. Differences between pairs of countries in number of foreign competitors by segment. From company data. Differences between pairs of countries in annual percentage change in units sold by segment. From company data.

Cultural scores

Market interdependence: Trade between countries

Distance between capital cities

Product-market conditions: Share of domestic competitors

Number of foreign competitors

Market growth

Table 2. Dependent Variables VARIABLE


Differences between pairs of countries in company's sales-weighted average prices (1980 U.S. dollars) in each segment. From company data. Differences between pairs of countries of company's advertising expenditures (1980 U.S. dollars) per unit sold. From Leading National Advertisers. Note: This source reports only print media spending. Differences between pairs of countries of company's number of models offered in each segment. From company data.




Thunderbird International Btisiness Review March-April 2000

Impact of Market Similarity on International Marketing Strategies

Each country's GDP per capita was converted to 1980 U.S. dollars, then the absolute value of the difference of two countries' GDPs per capita was taken. A larger difference is assumed to indicate a greater dissimilarity between countries. The other measure of similarity is the Hofstede [1980] cultural scores. Most of consumption behavior is culturally influenced, so it is important for international marketing to understand what cultural similarities and differences exist [Gundiff & Hilger, 1984]. Hofstede's cultural scores empirically measure features of 53 cultures (initially 40, but then expanded to more countries). These scores are given on four dimensions: 1) individualism versus collectivism; 2) large or small power distance; 3) stronger or weak uncertainty avoidance; and 4) masculinity versus femininity. Briefly, the first dimension concerns the relationship between individuals and others. The second dimension concerns how societies deal with power inequalities. The third dimension measures how cultures cope with the unpredictability of the future. Finally, the fourth dimension considers how certain activities are viewed as being either masculine or feminine.^ The dimensions are independent of each other and the scores are stable over time. An overall score of the similarity between countries, combining the values on the four dimensions, was achieved using the SPSS Proximities procedure. Gountries' scores on the four Hofstede dimensions were first standardized. Then, the Proximities procedure calculated the similarity of each pair of countries using the Euclidean distance formula: EUCLID(x,y) =
Most of consumption behavior is culturally influenced, so it is important for international marketing to understand what cultural similarities and differences exist

Subscript i denotes the scores on the four dimensions for each country {x and y). Low proximities scores show that countries are more similar culturally, whereas high proximity scores indicate the opposite. (Proximities scores are shown in Table 3.) Also, two conditions of market interdependence are used, namely the volume of trade flows (imports and exports) between two countries as a percentage of each country's total trade flows, and the distance between the capital cities of the countries being compared. Trade flows are used to assess the level of interdependence between
' A fifth dimension, Confucian dynaniisni, has been identified which applies mainly to East Asian countries.

Thunderbird International Business Review March-April 2000


Andreas F. Grein

Table 3. Proximities Scores for Hoftede's Cultviral Values (Dissimilarities ScoresGreater Value Means More Dissimilar) COUNTRY:
France Germany Italy Spain U.K.



2.42 1.35

1,64 2,78 2,82

3,96 2,13 2,38 4,34

3.04 2.42 1.64 3.96

1.35 2,78 2.13

2,82 2,38


countries' economies. Intuitively, the assumption is that if two countries have significant trade with each other, then their economies are more interdependent, A study on the European Community finds that trade causes changes in both the exporting and importing countries [Owen, 1983]. Successfijl exporters reduce the number of high-cost producers and therefore change the industry structure in the importing country. They are changing the industry structure to favor themselves, and can be seen as increasing the similarities between the home and export markets. Similarly, Mokhtari and Rassekh [1989] find that trade between countries leads to factor price equalization. The trade fiows variable used in this research is calculated by taking country A's exports to country B and dividing this amount by country A's total trade. The latter step is necessary to control for the effects of country size on trade fiows. All values were converted to 1980 U.S. dollars to eliminate the effects of inflation and exchange rate variation. This value was then averaged for both countries to produce a trade flow value representing the pair of countries, with larger values indicating more interdependence, (Trade flow values are shown in Table 4.) The geographic distance between capital cities is also used to measure the interdependence of countries. This is an interesting variable as it could lead to either market similarity or interdependence. Clearly countries which are close to each other have a larger chance of being more similar, although this does not need to be true. In Tables 3 and 5 the cultural similarity of France to the other countries appears to be inversely related to geographic proximity. It is possible that geographic proximity leads to country interdependence [Mascarenhas, 1989] as, for example, firms and consumers are more likely to move
' ' ^ Thunderbird International Business Review March-April 2000

Impact of Market Similarity on International Marketing Strategies

Table 4. Trade with Comitry B (Columns) as Proportion of Country A's (Rows) Total Trade (1988) COUNTRY:
France Germany Italy Spain U,K,

0,00 0,12 0,15 0,16 0,09

0,19 0,00 0,20 0,15 0,14

0,12 0,09 0,00 0,09 0,05

0,05 0,03 0,04 0,00 0,03

0,09 0,08 0,07 0,09 0,00

into neighboring markets and there is a higher potential for media spill-over [Douglas & Craig, 1996], As proximity implies that people and ideas flow more easily, this leads to increasing similarity in behavior and the spread of innovations. This suggests that markets which are geographically proximate will also permit more similar marketing strategies. To capture the degree of similarity at the product-market level, this research uses three variables: share of domestic competitors, the number of foreign competitors, and the market growth rate. As domestic competitors become stronger, one would expect that they are better able to exert market power in terms of issues like pricing and distribution, as well as blocking access to foreign competitors, who affect prices and product lines [Solvell, 1988; Kirman & Schueller, 1990; Ramrattan, 1991], Although related to the share of domestic competitors, the number of foreign competitors captures the diversity, rather than merely the share, of the foreign firms, A greater number of foreign competitors implies that consumers are exposed to more different models and also different competitive practices. Finally, the market growth rate clearly affects the nature of competition in that market [Buzzell & Gale, 1987; Craig et al., 1987; Boulding & Staelin, 1990], For the product-market similarity variables, it is expected that greater similarity is related to greater similarity in marketing strategies. In the analysis, observations are pairs of countries. Differences between pairs of countries for the two similarity variables and the three product-market variables are calculated. The degree of interdependence of two countries can be assessed directly from the interdependence measures and does not need to be calculated separately.
7 77
Thunderbird International Business Review March-April 2000

Andreas F. Grein

Table 5. Distances Between Capital Cities (km) COUNTRY: France

France Germany Italy Spain

579 0
1304 1854

1467 1304

1266 1854 2085

438 747
1813 1701

1121 1667 1727 1175

0 579
1467 1266

2085 1813




Differences in the levels of the marketing mix variables were also calculated. The price and models data are reported by automobile segments, which are based upon the size of the car and engine. The advertising data is at the company level. The weighted average price of the company's models in each segment was calculated. Prices have been adjusted to exclude the value-added tax in each country. Then, the difference in a company's prices between two countries, as a percentage of the company's average price in these countries, was calculated for each segment. These values also have been converted to 1980 U.S, dollars. Likewise, differences in the level of advertising/unit (segment level information was not available for this variable) and number of models offered (for each segment) have been calculated. The differences in marketing mix variables are used as dependent variables in regression equations. The independent variables for these equations are the differences in GDP per capita, the cultural similarities scores calculated from Hofstede's cultural measures, the extent of trade flows, the geographic distances between countries, the share of domestic competitors, the number of foreign competitors, and the market growth rate. The price equation, for instance is: Price..^^ = P^-h P,GDP., + ^^Culture.^ + ^^Trade.^ + ic Share.^^ + ^^Forei^n Competitors.^^ Growth.^ + e.^^


All values represent the differences in the variables between pairs of countries denoted by the subscript i. The subscript j represents the company, k the segment, and t the year. Similar equations are used to test the relationships with advertising and number of models offered.
Thunderbird International Business Review Marcii-April 2000

Impact of Market Similarity on International Marketing Strategies

SEDVnOIVISHIP^ETWEEIVrsriVIILARrrYXINTERDEPENDENCE OF COUNTRIES AND SIMILARITY OF MARKETING MIXES The marketing mixes of 30 automobile firms operating across five segments in the five major markets of Western Europe are examined in light of the three research hypotheses. The thrust of the analysis is to determine whether marketing mixes vary in response to market similarity, interdependence, and product-market factors as well as the strength of these effects. The results for each element of the marketing mix are described below. Prices Of these three equations, the price equation has the most explanatory power (adjusted R^ = 0,28, see Table 6). Neither differences in gross domestic product per capita nor culture scores have a significant relationship to the differences in prices. Therefore, with regard to macroenvironmental market similarity, hypothesis 1 is not supported. This equation also shows that companies charge more similar prices in countries that have more mutual trade, although prices are more different in geographically close countries. Therefore, this only partially supports hypothesis 2, which argues that greater interdependence of markets leads to greater similarity in marketing mixes. Given that there are numerous obstacles to the direct importation of cars by consumers [Kirman & Schueller, 1990], it cannot be argued that grey markets between proximate countries affect prices. From these findings, one must assume that trade is the only macroenvironmental force which appears to be leading to price convergence. Despite the partial support for hypothesis 2, this is an important finding for the European Union. There has been extensive discussion and research on price differences between European Union automobile prices [for example, Kirman & Schueller, 1990], This finding strongly suggests that completely opening markets to trade (i.e., enabling consumers to purchase cars in other countries as well as liberalizing Japanese imports) will be somewhat effective in harmonizing prices across countries. Differences in the market's aggregate share of domestic firms affects prices, although countries that are more similar with regard to the domestic share appear to have more different prices. This counterintuitive finding can only be explained by considering the conditions in this set of countries. Comparing domestic firms' shares and prices, one can see an inverse relationship. For instance, Italian firms have a 7 79
Thunderbird International Business Review March-April 2000

Andreas F. Grein


o d d

o ^

o o


4-. X !





bc a


b ro

(N <3 O

u IN

a u

d d o

OS O Ln Ln

^ q

d d

rH m <N OS OS


c -g
Thunderbird International Business Review March-April 2000

Impact of Market Similarity on International Marketing Strategies

high share of Italy's sales in the smallest segment (61%) yet this segment also has the lowest average price of the 5 countries. Similarly, French firms have 70% share of segment 3, while prices in segment 3 are the second lowest among the 5 countries.

The advertising equation is significant, although it has low explanatory power (adjusted R^ = 0.10). The similarity of countries' gross domestic product per capita positively influences similarity in advertising spending. It is very intuitive that firms would spend more on advertising in countries that are wealthier, and that countries of similar levels of wealth would also have similar levels of advertising spending. Although culture does not have an effect on advertising, hypothesis 1 is partially supported. Similar to what was found for prices, both trade and geographic distance affect advertising. Again, more trade between countries is related to more similar advertising spending levels. It appears that the role of trade is quite important for advertising as well as for prices, which is very interesting as, one would not expect that inter-country trade would affect advertising similarity in the same way as it does retail prices or factor costs. This finding possibly suggests that trade has led to similar industry structures (i.e., level of competition), as found by Owen [1983], which have then led to similar advertising spending. However, more geographically proximate countries have more dissimilar advertising levels, similar to what was found for prices. Clearly mere proximity does not ensure similarity, and in this case is actually related to dissimilarity. Instead, of the two interdependence measures, trade is related to convergence in advertising spending. Therefore, hypothesis 2 is also partially supported for advertising. Like the case for prices, the similarity of the share of domestic firms also has a negative impact on the similarity of advertising spending levels. For instance, Germany and Italy have the highest average shares of domestic firms (60.2% and 59.3% across all 5 segments) and while Italy has the lowest advertising spending per unit, Germany's is already more than twice this level ($1.29 per unit for Italy compared to $2.84 per unit for Germany). The number of foreign competitors in the market also affects advertising spending. Again, countries with more similar numbers of foreign competitors also have more dissimilar levels of advertising spending, Italy and the United Kingdom both have relatively high numbers of foreign competitors (28 and 29 respectively) but are very
Thunderbird International Business Review March-April 2000

Similar to what was found for prices, both trade and geographic distance affect advertising.


Andreas F. Grein

different in terms of average advertising spending per unit ($1,29 and $5,55 per unit).

The final equation shows that the number of models offered is not infiuenced by either similarity, interdependence, or product-market conditions. Although one would expect that companies would vary their models lines depending on conditions such as consumer tastes (market similarity), it appears that companies need to consider broader factors (such as global economies of scale) in deciding whether models should be offered in certain countries. Not surprisingly, this appears to be a firm level, rather than a market level, decision. Once a model has been developed, it is cheaper to cross-ship the automo. . , findings bile model than to adapt the product to local conditions [Kirman & indicated that Schueller, 1990], An examination of the data reveals that the average neither gross number of models offered by the same company does vary somewhat domestic between countries and different years. However, the range (at the product per segment level) is between 1 and 2 because companies avoid offering capita nor culmore models per segment due to possible cannibalization of, sales. tural similarity Therefore, comparing the findings of the models equation to those have a role in for prices and advertising, it is clear that the number of models terms of harmo- offered has a much weaker, or nonexistent relationship to the siminizing prices larity, interdependence, and product-market conditions studied in across countries. this analysis. This appears to support hypothesis 3,

DISCUSSION This research has examined companies' marketing mixes and their variation between different national markets. The research question is whether companies employ more similar marketing mixes in countries that are more similar to each other or whose markets are more interdependent. It was found that differences in prices are associated with interdependence and product-market factors. Hypothesis 1 was not supported as the findings indicated that neither gross domestic product per capita nor cultural similarity have a role in terms of harmonizing prices across countries. This is a very intriguing finding as the theory of marketing mix standardization suggests that prices should be more similar in more similar markets. By contrast, trade between countries and their geographic distance did influence prices. The strong positive role of trade suggests that it plays an important role in the interdependence of economies that is felt at the consumer and competitive level. The only product-market variable which affected prices is the share of domestic competitors, but given the conditions
Thunderbird International Business Review March-April 2000

Impact of Market Similarity on International Marketing Strategies

in these countries, it was actually determined that countries with more similar levels of domestic shares had more different prices levels. This suggests that large domestic competitors can actually lead to more or less competitive intensity in a market. Advertising is related to similarity, interdependence, and productmarket variables. Cultural similarity is related to similarity in advertising spending, partly supporting hypothesis 1. Surprisingly, the level of trade between countries is also related to more harmonized advertising spending, whereas physical proximity again is related to more different advertising spending. As in the prices results, trade has a surprisingly clear impact on advertising spending, in contrast to income levels, which might be presumed to determine advertising spending. The share of domestic competitors has the same relationship to advertising as to prices, again suggesting large domestic competitors may or may not affect competitive intensity. Also, differences in the number of foreign competitors affect advertising, with more different countries having more similar advertising. Neither variable gives the expected results, in part refiecting the diversity of markets in this data. However, the other implication is that the share of domestic firms or the number of foreign competitors will affect marketing mix levels in predictable ways. The number of models offered, on the other hand, is not related to any of the similarity, interdependence, or product-market conditions measured. It is believed, however, that model offerings may already refiect market similarities and interdependence because this could already have been taken into account at the design stage. It is very costly to design new models and companies need to achieve sales beyond the amount possible in any single Western European market due to the inherent economies of scale in production [Kogut, 1984]. This appears to account for the low level of variation in models offered between countries. Indeed, it was found that Western European automobile manufacturers are not taking full advantage of economies of scale [Doz, 1986] even with this limited range of model offerings. This author estimated that minimum efficient scale for production, in the late 1970s, was about 500,000 units. He found that most European models sold fewer units than this. The broader managerial implications are that convenient measures of market similarity like income levels or assessments of cultural similarity can be misleading in terms of suggesting similar strategies between countries. However, trade, which is a very explicit measure of country interdependence, and which suggests things like similar levels of product variety and the presence of multinational competitors, has a
Thunderbird International Business Review March-April 2000 "^

Andreas F. Grein

. . . not only must managers \u^e caution in \inferring relaItionships, but they must also consider each aspect of the marketing pro\gram individuality^ and develop ja^ effective mar\keting program for each market.

strong impact on price differences. Therefore, managers trying to develop marketing strategies for multiple international markets would be well advised to give more weight to specific market interdependence measures like trade rather than other assessments of market similarity. Also, managers should make attempts to test the relationships between their measures of market conditions and the specific marketing mix variables that are in question. The relationships between these independent variables and the marketing mix variables vary depending on which marketing mix variable is under consideration. This suggests that not only must managers use caution in inferring relationships, but they must also consider each aspect of the marketing program individually, and develop an effective marketing program for each market. This is not to say that standardization of programs cannot occur, but rather it states that the evaluation of whether this is appropriate must be conducted very carefully. These findings are, of course, specific to the automobile industry as well as the countries and time period in question. It may be difficult to generalize to other industries which operate with different market conditions and linkages between countries. In addition, this study uses a limited representation of measures for market similarity and interdependence. Although these measures have been identified as having an important impact on marketing strategies, the results demonstrate that this impact varies across the marketing mix, and the relationships are not obvious. Therefore, this research should be extended by considering other industries, markets, as well as a broader range of variables. Finally, the issue of causality, such as whether market conditions lead to marketing mix similarities, cannot be fully addressed without using more sophisticated modeling techniques.

Companies appear to adapt their marketing mix not only to specific country market conditions, as suggested by Davidson [1982], but also to conditions beyond the single market level, as has been argued by Porter [1986], Prahalad and Doz [1987], Bartlett and Ghoshal [1989], and others. Market interdependence is having an effect on companies' behavior, and international competitors must be aware of and respond to this growing range of forces. Certain elements of marketing strategy, namely prices and advertising, are more responsive to similarity, interdependence, and
Thunderbird International Business Review March-April 2000

Impact of Market Similarity on International Marketing Strategies

product-market conditions. However, the number of models offered is not affected by these conditions. This is not surprising, given that there are large development costs and foregone economies of scale inherent in tailoring new models to individual markets. It appears that companies use considerable flexibility in adjusting the marketing mix to differences between countries: They may respond to country similarities, interdependence, or product-market conditions, or they may respond to broader global concerns. Market similarity, interdependence, and product-market conditions appear to have a complex relationship with the marketing mix variables, and it is not easy to predict how they will affect marketing strategies. Marketing managers must develop an understanding of these forces, and then develop competitive strategies which will enable them to cope with changing international markets, ^
Adelman, Irma & Cynthia Taft Morris, 1965, A factor analysis of the interrelationship between social and political variables and per capita gross national product. Quarterly Journal of Economics, 79 (November): 555-578, Bartlett, Christopher A, & Sumantra Ghoshal, 1991, Global strategic management: Impact on the new frontiers of strategy research. Strategic Management Journal, 12: 516, Boulding, William & Richard Staelin, 1990, Environment, market share, and market power. Management Science, October 36 (10): 1160-1177, Buzzell, Robert D, & Bradley T, Gale, 1987, The PIMS Principles, New York: The Free Press, Craig, C. Samuel, Susan P, Douglas, & Srinivas K, Reddy, 1987, Market structure, performance and strategy: A comparison of U,S, and European markets. In S,T, Cavusgil, ed,. Advances in International Marketing, Greenwich, CN: JAI Press, Cundiff, Edward W, & Marye Tharp Hilger, 1984, Marketing in the International Environment, Englewood Cliffs, NJ: Prentice-Hall. Davidson, William H, 1982, Global Strategic Management, New York: John Wiley & Sons, Direction of Trade Statistics, Washington, DC: International Monetary Fund, Douglas, Susan P, & C, Samuel Craig, 1992, Advances in international marketing. International Journal of Research in Marketing, 9 (4): 291-318, , 1996. Global portfolio planning and market interconnectedness. Journal of International Marketing, 4 ( 1 ) : 93-110, Douglas, Susan P, & Yoram Wind, 1987, The myth of globalization, Columbia Journal of World Business, Winter 22 (4): 19-29, Doz, Yves, 1986, Strategic Management in Multinational Companies, New York: Pergamon Press, Farley, John U, & Donald R, Lehmann, 1994, Cross-national "laws" and differences in market response. Management Science, 40 (1): 111-121, Gladwin, Thomas & Nikolai Wasilewski, 1986, Environmental interdependence and organizational design: The case of the multinational corporation. Advances in Strategic Management, 4: 229-277, Hofstede, Geert, 1980, Culture's Consequences: International Differences in Work-Related Values, Beverly Hills, CA: Sage Publications, International Financial Statistics Yearbook, Washington, DC: International Monetary Fund, Kirman, Alan & Nathalie Schueller. 1990, Price leadership and discrimination in the European car market. Journal of Industrial Economics, September 39 (1): 69-91, Kogut, Bruce, 1984, Normative observations on the international value-added chain and strategic groups. Journal oflnternational Business Studies, Fall, 15 (2): 151-167. 1 R'n
Thunderbird International Business Review March-April 2000

Andreas F. Grein-

Kotabe, Masaaki. 1990. Corporate product policy and innovative behavior of European and Japanese multinationals. Journal of Marketing, 54 (April): 19-33. Levitt, Theodore, 1983, The globalization of markets. Harvard Business Review, May-June, 61 (3): 92-102, Linder, Staffiin B, 1961, An Essay on Trade and Transformation, New York: John Wiley, Mascarenhas, Briance, 1989, Transnational linkages and strategy. In Anant R, Negandhi & Arun Savara, eds,. International Strategic Management, Lexington, MA: Lexington Books, Mokhtari, Manouchehr & Rassekh, Farhad, 1989, The tendency towards factor price equalization among OECD countries. Review of Economics and Statistics, 71 (4): 636-642, Morrison, Allen J, & Kendall Roth, 1992, A taxonomy of business-level strategies in global industries. Strategic Management Journal, 13: 399-418, Owen, Nicholas, 1983, Economies of Scale, Competitiveness, and Trade Patterns Within the European Community, Oxford: Clarendon Press, Porter, Michael E. 1986. Competition in global industries: A conceptual framework. In M.E. Porter, ed.. Competition in Global Industries, Boston: Harvard Business School Press, Prahalad, C,K, & Yves L. Doz, 1987. The Multinational Mission: Balancing Local Demands and Global Vision. New York: The Free Press. Ramrattan, Lall B. 1991. The impact of imports on price competition in the automobile industry. American Economist, Fall, 35 (2): 60-66, Road Atlas Europe, 1970, Edinburgh, Scotland: John Bartholomew and Sons, Samiee, Saeed & Kendall Roth, 1992, The influence of global marketing standardization on performance. Journal of Marketing, April, 56 (2): 1-17, Solvell, Orjan, 1988, Is the global automobile industry really global? In Neil Hood & Jan-Erik Vahlne, eds,. Strategies in Global Competition, New York: Croom-Helm, Sorenson, Ralph Z, & Ulrich E, Weichmann, 1975, How multinationals view marketing standardization. Harvard Business Review, May-June 53 (3): 38-54, 166, SPSS Reference Guide, 1990, Chicago: SPSS, Incorporated, Szymanski, David M,, Sundar G, Bharadwaj, & P, Rajan Varadarajan. 1993, Standardization versus adaptation of international marketing strategy: an empirical investigation. Journal of Marketing, 57 (October): 1-17, Walters, Peter, 1986, International marketing policy: A discussion of the standardization construct and its relevance for corporate policy. Journal oflnternational Business Studies, 17 (2): 55-69,

Thunderbird International Business Review March-April 2000