Global standardization vs local adaption
GS- to what extent are their product/service/operations the same in the different markets they are in
LA- or to what extent are they differentiated and adapted to local needs
Forces for local adaption or global standardization when talking about the product
- Substantial cost and efficiency savings by standardizing what they do
- Success in a particular market may require adapting product/service to local market conditions
- Every company has some level of adaption to local conditions, but there are a number of factors that can determine how much adaption is required
WHY DOES MCDONALDS NEED A LOCAL STRATEGY?
- Local tastes and customs- e.g. India does not eat beef
- Local competition
- Local government laws- different view on what can be sold (e.g. beer in McD in Spain, however not in the UK)
- Local franchise operations- standardized- how motivate your franchisee when all decisions are made by the headquarter?
- Local service quality- products cooked locally, local people delivering the local products. Global products and services must be delivered locally at each individual McDonalds Restaurant.
Forces for local adaption or global standardization when talking about the production
- Produce close to the customer (local production)
- Producing wherever the factor costs are cheaper (global production)
- Producing in one place (limited local production)
GLOBAL STRATEGY
- Maximize global integration
- Whole world seen as single market and customer needs homogenous
- Aims are to capture economies of scale and location factors (vertical MNC activity)
- High level of control from headquarters and strong uniform governance mechanism
- No focus on differentiation, all subsidiaries managed the same
Examples: IKEA; Sports clothes, SHELL
TRANSNATIONAL STRATEGY
- Tries to balance standardized ideas and local adaption
- Aims to gain cost efficiencies and economies of scale
- Products produced with minimum standards and adapted accordingly to local needs
- Strong emphasis on cross-cultural learning to promote innovation
- Mix of central control and decentralized decision-making
- Can be quite complex and difficult to find the right balance
Examples: McDonalds, Dominoes
MULTIDOMESTIC STRATEGY
- Maximized adaption to local needs
- High level of local autonomy for managers
- Some loose coordination from headquarters
- Can be risky to brand reputation if too much variation develops
Examples: MTV, 7 Eleven
EXPORT STRATEGY
- Low adaption of product to local market
- Focus on distinctive capabilities for both adaption and standardization
- Used when there are low forces for both adaption and standardization
- Risk of being outmaneuvered by local companies with better understanding of local needs
Examples: Chanel, Harley Davidson, Dolce&Gabbana
CAGE analysis
Differences matter- and the importance of understanding them when entering a foreign market
- Cultural distance
- Administrative distance
- Geographic distance
- Economic distance
Cultural distance
Can be a barrier to entering and functioning in a foreign market
Examples:
- Consumer tastes
- Different working habits
- Different family structures
- Different social norms
Administrative distance
Administrative such as the policies of the host country, included in the administrative distance, can affect a company.
Examples:
- Common trade policy (EU,NAFTA)
- Government policies (protection of some sectors, promotion of others etc.)
- Business bureaucracy
- Similarity of legal systems
Geographical distance
Geographical distance will affect the development of markets
Examples:
- Common land border/shared communication links
- Transportation infrastructure (channel tunnel)
- Digital communication infrastructure
- Climate conditions
Economic distance
Economic distance will be large for companies relying on economies of scale, experience or standardization
Examples:
- Common currency and monetary policy
- Similar purchasing power
- Shared taxation schemes
- Equality levels/wealth concentration
Walmart in Germany- cultural
- German customers did not approve their customer service
- Germans preferred to fill their own shopping bags, and not do it the American way
- Labor union conflicts caused by German workers resisting Walmart´s workplace customs
- Germans had a different shopping habit, focusing on price more than efficiency
How this affected the business:
- Weak customers can affect customers to choose a different retailer. In many cases only one bad experience can be enough for customers to change location.
- Even if this seemed like a minor inconvenience it disturbed the German customers
- An unsatisfied environment among workers affect the company as a whole
- One of Walmart´s main strengths are the possibility to buy everything you need in one place, and this will not be appreciated in the German market. To some the huge stores is more a problem than a solution
Walmart in Germany- administrative
- Struggled in the beginning as they didn’t have a strong relationship with German suppliers
- The employees disapproved the policy against romantic relations at work
- Internal administrative struggles- 4 different presidents in 8 years
- Relocating the two headquarters into one, causing several partners to leave instead of being a part of the relocation
How this affected the business:
- The lack of a good relationship with suppliers affects the final price of their products
- It affects Walmart’s image in Germany in a negative way, as the administration seems conventional, and the employees are unsatisfied with their superiors
- Weakens the brand image among customers and employees. A good business is led by a strong administration, and the German operation weakened their position in the market
- Multiple changes in administration made at once can affect the stability of the organizational chart
Walmart in Germany- geographical
- German laws prohibited them to provide the opening hours they wanted
- German laws prohibited Walmart to sell below cost, their normal way to attract customers
How this affected the business:
- It destroys Walmart´s purpose and uniqueness of being available at all times, as well as reducing their capacity to sell more
- This changes Walmart´s successful sales model, as their “every-day-low-prices” model are used to attract customers who normally purchase more than originally planned
Walmart in Germany- economic
- Did not have enough economies of scale compared to the local competitor
- Walmart struggled with high competition from already well-established competitors
How this affected the business:
- Causes their final price to be higher than their competitors, destroying their image as a low-price retailer
- Well-established competitors have already built a loyal customer environment, making it even harder for Walmart to find their place in the German market
