Eciding On The Marketing Organization

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Companies manage their international marketing activities in three ways: through export departments, international divisions, or a global organization.

E PO DEPA MEN

A firm normally gets into international marketing by simply shipping out its goods. If its international sales expand, the company organizes an export department consisting of a sales manager and a few assistants. As sales increase further, the export department is expanded to include various marketing services so that the company can go after business more aggressively. If the firm moves into joint ventures or direct investment, the export department will no longer be adequate to manage international operations.

IN E NA IONALDI I ION

Many companies become involved in several international markets and ventures. Sooner or later they will create international divisions to handle all their international activity. The international division is headed by a division president, who sets goals and budgets and is responsible for the company's international growth.

The international division's corporate staff consists of functional specialists who provide services to various operating units. Operating units can be organized in several ways. First, they can be geographical organizations. Reporting to the internationaldivision president might be regional vice presidents for North America, Latin America, Europe, Africa, the Middle East, and the Far East. Reporting to the regional vice presidents are country managers who are responsible for a sales force, sales branches, dispart three tributors, and licensees in the respective countries. Or the operating units may be Developing world product groups, each with an international vice president responsible for world-Marketing wide sales of each product group. The vice presidents may draw on corporate-staff Strategies area specialists for expertise on different geographical areas. Finally, operating units may be international subsidiaries, each headed by a president. The various subsidiary presidents report to the president of the international division. Many multinationals shift between types of organization:

■ IBM Part of IBM's massive reorganization strategy has been to put 235,000 employees into 14 customer-focused groups such as oil and gas, entertainment, and financial services. This way a big customer will be able to cut one deal with a central sales office to have IBM computers installed worldwide. Under the old system, a corporate customer with operations in 20 countries had to contract, in effect, with 20 little Big Blues, each with its own pricing structure and service standards.34

GLOBALO GANI A ION

Several firms have become truly global organizations. Their top corporate management and staff plan worldwide manufacturing facilities, marketing policies, financial flows, and logistical systems. The global operating units report directly to the chief executive or executive committee, not to the head of an international division. Executives are trained in worldwide operations, not just domestic or international. Management is recruited from many countries; components and supplies are purchased where they can be obtained at the least cost; and investments are made where the anticipated returns are greatest.

These companies face several organizational complexities. For example, when pricing a company's mainframe computers to a large banking system in Germany, how much influence should be wielded by the headquarters product manager, by the company's market manager for the banking sector, and by the company's German country manager? Bartlett and Ghoshal have proposed circumstances under which different approaches work best. In their Managing Across Borders, they describe forces that favor "global integration" (e.g., capital-intensive production, homogeneous demand) versus "national responsiveness" (e.g., local standards and barriers, strong local preferences). They distinguish three organizational strategies:35

1. A global strategy treats the world as a single market. This strategy is warranted when the forces for global integration are strong and the forces for national responsiveness are weak. This is true of the consumer electronics market, for example, where most buyers will accept a fairly standardized pocket radio, CD player, or TV. Matsushita has performed better than GE and Philips in the consumer electronics market because Matsushita operates in a more globally coordinated and standardized way.

2. A multinational strategy treats the world as a portfolio of national opportunities. This strategy is warranted when the forces favoring national responsiveness are strong and the forces favoring global integration are weak. This is the situation in the branded packaged-goods business (food products, cleaning products). Bartlett and Ghoshal cite Unilever as a better performer than Kao and P&G because Unilever grants more decision-making autonomy to its local branches.

3. A "glocal" strategy standardizes certain core elements and localizes other elements. This strategy makes sense for an industry (such as telecommunications) where each nation requires some adaptation of its equipment but the providing company can also standardize some of the core components. Bartlett and Ghoshal cite Ericsson as balancing these considerations better than NEC (too globally oriented) and ITT (too locally oriented).

One of the most successful "glocal" companies is ABB, formed by a merger between the Swedish company ASEA and the Swiss company Brown Boveri.36

■ ABB ABB's products include power transformers, electrical installations, instrumentation, auto components, air-conditioning equipment, and railroad equipment. With annual revenues of $31 billion and 219,000 employees, ABB

n chapter 12

Designing Global Market Offerings is headed by Goeran Lindahl. The company's motto is "ABB is a global company local everywhere." It established English—or "broken English," as Lindahl says—as the company's official language (all ABB managers must be conversant in English), and all financial results must be reported in dollars. ABB aims to reconcile three contradictions: to be global and local; to be big and small; and to be radically decentralized with centralized reporting and control. ABB has only 170 staff people at headquarters (with about 19 nationalities among them), compared to the 3,000 who populate Seimens headquarters. The company's many product lines are organized into 8 business segments, 65 business areas, 1,300 companies, and 5,000 profit centers, with the average employee belonging to a profit center of around 50 employees. Managers are regularly rotated among countries and mixed-nationality teams are encouraged. Depending on the type of business, some are treated as superlocal businesses with lots of autonomy and others as global businesses with major central control.

SUMMARY

1. Companies cannot simply stay domestic and expect to maintain their markets. Despite the many challenges in the international arena (shifting borders, unstable governments, foreign-exchange problems, corruption, and technological pirating), companies selling in global industries need to internationalize their operations.

2. In deciding to go abroad, a company needs to define its international marketing objectives and policies. The company must determine whether to market in a few countries or many countries. Then it must decide on which types of countries to consider. In general, the candidate countries should be rated on three criteria: market attractiveness, risk, and competitive advantage.

3. Once a company decides on a particular country, it must determine the best mode of entry. Its broad choices are indirect exporting, direct exporting, licensing, joint ventures, and direct investment. Each succeeding strategy involves more commitment, risk, control, and profit potential. Companies generally begin with indirect exporting, then proceed through later stages as they gain more experience in the international arena.

4. In deciding on the marketing program, a company must decide how much to adapt its marketing mix (product, promotion, price, and place) to local conditions. At the two ends of the spectrum are standardized and adapted marketing mixes, with many steps in between. At the product level, firms can pursue a strategy of straight extension, product adaptation, or product invention. At the promotion level, firms may choose communication adaptation or dual adaptation. At the price level, firms may encounter price escalation and gray markets, and it may be very difficult to set standard prices. At the distribution level, firms need to take a whole-channel view of the challenge of distributing its products to the final users. In creating all elements of the marketing mix, firms must be aware of the cultural, social, political, technological, environmental, and legal limitations they face in other countries.

5. Depending on the level of international involvement, companies manage their international marketing activity in three ways: through export departments, international divisions, or a global organization. Most firms start with an export department and graduate to an international division. A few become global companies in which the top management plans and organizes on a global basis.

APPLICATIONS

Developing

Marketing 1. Because of shrinking domestic markets due to competition, a moderate-size com-

Strategies pany in the salad-dressing industry is trying to decide "whether to go abroad."

What are some questions concerning political, religious, and cultural factors that the company should ask itself before it decides to engage in international business? Choose a country and answer the questions in Figure 6-1, then decide whether or not to market salad dressing in that country.

2. Select one of the following countries or regions and prepare a brief (two- to five-page) report on its marketing institutions and practices. Also discuss the challenges that face domestic marketers within those countries, as well as the challenges faced by U.S. marketers who want to do business there.

a. Mexico d. People's Republic of China b. the European Union e. Japan c. Ukraine f. South Africa

3. A U.S. heavy-equipment manufacturer operating in Western Europe has been using Americans as salespeople. The company feels that it could reduce its costs by hiring and training nationals as salespeople. What are the advantages and disadvantages to using Americans versus nationals for selling abroad?

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Designing Global Market Offerings

NOTES

1. John Alden, "What in the World Drives UPS?" International Business, April 1998, pp. 6-7 + .

For more on shifting borders, see Terry Clark, "National Boundaries, Border Zones, and Marketing Strategy: A Conceptual Framework and Theoretical Model of Secondary Boundary Effects," Journal of Marketing, July 1994, pp. 67-80. Michael E. Porter, Competitive Strategy (New York: Free Press, 1980), p. 275. Marc Gunther, "They All Want to Be Like Mike," Fortune, July 21 1997, pp. 51-53.

5. Joann S. Lublin, "Too Much, Too Fast," Wall Street Journal, September 26, 1996, p. R8.

Yumiro Ono, "On a Mission: Amway Grows Abroad, Sending 'Ambassadors' to Spread the Word," Wall Street Journal, May 14, 1997, p. A1. Igal Ayal and Jehiel Zif, "Market Expansion Strategies in Multinational Marketing," Journal of Marketing, Spring 1979, pp. 84-94.

See Kenichi Ohmae, Triad Power (New York: Free Press, 1985); and Philip Kotler and Nikhilesh Dholakia, "Ending Global Stagnation: Linking the Fortunes of the Industrial and Developing Countries," Business in the Contemporary World, Spring 1989, pp. 86-97.

9. John Heilemann, "All Europeans Are Not Alike," The New Yorker, April 28-May 5, 1997, pp. 174-81.

Emeric Lepoutre, "Europe's Challenge to the US in South America's Biggest Market: The Economic Power of the Mercosur Common Market Is Indisputable," Christian Science Monitor, April 8, 1997, p. 19; Ian Katz, "Is Europe Elbowing the U.S. Out of South America?" Business Week, August 4, 1997, p. 56. Solange De Santis, "U.S. Companies Increasingly Look to Canada to Make Their Initial Foray into Foreign Lands," Wall Street Journal, July 15, 1998, p. A10. Charlene Marmer Solomon, "Don't Get Burned by Hot New Markets," Workforce, January 1998, pp. 12-22. Russ Banham, "Not-So-Clear Choices," International Business, November-December 1997, pp. 23-25. Ibid.

"In Brief: e-Trade Licensing Deal Gives It an Israeli Link," American Banker, May Part 11,1998.

D16.loCynthia Kemper, "KFC Tradition Sold MarketJapan on Chicken," Denver Post, June 7, Strateg1998, p. J4.

17. Laura Mazur and Annik Hogg, The Marketing Challenge (Wokingham, England: Addison-Wesley, 1993), pp. 42-44; Jan Willem Karel, "Brand Strategy Positions Products Worldwide," Journal of Business Strategy 12, no. 3 (May-June 1991): 16-19.

18. Paula Dwyer, "Tearing Up Today's Organization Chart," Business Week, November 18, 1994, pp. 80-90.

19. Banham, "Not-So-Clear Choices."

20. See Jan Johanson and Finn Wieder-sheim-Paul, "The Internationalization of the Firm," Journal of Management Studies, October 1975, pp. 305-22.

21. See Stan Reid, "The Decision Maker and Export Entry and Expansion," Journal of International Business Studies, Fall 1981, pp. 101-12; Igal Ayal, "Industry Export Performance: Assessment and Prediction," Journal of Marketing, Summer 1982, pp. 54-61; and Somkid Jatusripi-tak, The Exporting Behavior of Manufacturing Firms (Ann Arbor, MI: University of Michigan Press, 1986).

22. Warren J. Keegan, Multinational Marketing Management, 5 th ed. (Upper Saddle River, NJ: Prentice Hall, 1995), pp. 378-81.

23. J. S. Perry Hobson, "Feng Shui: Its Impacts on the Asian Hospitality Industry," International Journal of Contemporary Hospitality Management 6, no. 6 (1994): 21-26; Bernd H. Schmitt and Yigang Pan, "In Asia, the Supernatural Means Sales," New York Times, February 19, 1995, pp. 3, 11.

24. "What Makes a Company Great?" Fortune, October 26, 1998, pp. 218-26.

25. David Leonhardt, "It Was a Hit in Buenos Aires—So Why Not Boise?" Business Week, September 7, 1998, pp. 56-58.

26. Charles P. Wallace, "Charge!" Fortune, September 28, 1998, pp. 189-96.

27. "The Growth of Global Retailers," The Journal of Business Strategy, May-June 1998, p. 14.

28. Ben Dolven, "Find the Niche," Far Eastern Economic Review, March 26, 1998, pp. 58-59.

29. Richard P. Carpenter and the Globe Staff, "What They Meant to Say Was . . . ," Boston Globe, August 2, 1998, p. M6.

30. Carlos Briceno, "Labatt Believes Going 'Glocal' Will Melt the Ice for Carlsberg," Beverage World, September 30-October 31, 1988, p. 17.

31. Maricris G. Briones, "The Euro Starts Here," Marketing News, July 20, 1998, pp. 1, 39.

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Designing Global Market Offerings

32. Elliott Masie, "Global Pricing in an Internet World," Computer Reseller News, May 11, 1998, pp. 55, 58.

33. Ram Charan, "The Rules Have Changed," Fortune, March 16, 1998, pp. 159-62.

34. Dwyer, "Tearing Up Today's Organization Chart," pp. 80-90.

35. See Christopher A. Bartlett and Sumantra Ghoshal, Managing Across Borders (Cambridge, MA: Harvard Business School Press, 1989).

36. Martha M. Hamilton, "Going Global: A

World of Difference; DaimlerChrysler Joins Growing List of Titans That Must Find New Ways to Compete," Washington Post, May 10, 1998, p. H1; Jeremy Main, "Globe-zilla," Working Woman, October 1998, p. 9; Charles Fleming and Leslie Lopez, "The Corporate Challenge—No Boundaries: ABB's Dramatic Plan to Recast Its Business Structure Along Global Lines: It May Not Be Easy— or Wise," Wall Street Journal, September 28, 1998, p. R16.

chapter 12

Designing and Managing Global Marketing Strategies

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