All signs point to the global economic crisis coming to an end.
Banks are returning to profitability, government stimulus programs are in effect, and the IMF has revised a more positive forecast for growth and recovery for the next year. And, in many countries, people are feeling more positive about the state of their financial affairs and the economy in general. But according to a new re- port, some consumers may find it hard to shake recessionary hab- its. The severity of the recession has brought about a change in consumer values, spending habits, and lifestyle choices in some parts of the world, and the indication is that some consumers in the West will continue to refrain from excessive or unnecessary spending across all aspects, at least in the short term.
Based on GfK Roper Consulting’s 2009 GfK Roper Mood of the World1 Study, the Index was created by averaging, weighting, and combining the following three measures to calcu- late an overall score in terms of how consumers are feeling:
Distress. Consumers indicate which positive and negative financial-related events they have experienced from a list of eight. Globally, 62 percent say they faced a negative event (e.g., losing their job or having diffi- culty paying their bills) in the past 12 months; the United States clocked in higher at 77 percent with Canada not far behind at 72 percent. Americans are also among the most distressed, following only Turkey.
Reaction. Participants report where they have cut back from a list of 26 items and activities as well
as which of 10 money-saving strategies they have employed. Consumers in English-speaking nations such as the United States, Australia, Canada, and the United Kingdom are the most likely to be doing things to cut back and save money.
Concern. Respondents list their top-three worries from a selection of 21 economic, social, and political issues.‘‘Recession’’ranked as the top concern globally.
Regarding the highest levels of economic concern, Asian consumers topped the list, while the United States landed in 15th place, just behind its northern neighbor, Canada (14th).
Major global markets surveyed as part of the Nielsen Global Consumer Confidence Index 2009 indicate that consumers around the world might be expected to return to their previous spending patterns. Indonesia and India have the highest consumer confidence scores while, the lowest scores are in Korea and Japan.
One in six Russians said that they would not retain any of their recessionary habits once the economy improves, and they are particularly eager to spend their money on clothing.
Chinese remain the most confident of an economic re- bound in the near future, and sales of consumer goods products remained robust last year——up 21 percent.
Technology such as home computers and mobile phones look to be early winners: consumers in Japan, Korea, and the Philippines are looking forward to upgrading their current gear.
(continued)
GLOBAL CONSUMER RECESSION INDEX
Index
Highest (Index 115+) in North America, some Western Europe, Korea, Taiwan Medium (Index 86-114) in China, Brazil, and others Lowest (Index 85 and less) in India, Indonesia, Egypt, Russia, and others
Global Consumer Recession Index
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(3) location and extent of value-adding activities, and (4) competitive moves to be made.
This development effort has to combine three elements: (1) adaptation, by max- imizing the marketer’s local relevance; (2) aggregation, by leveraging cross-border re- sources; and (3) arbitrage, by exploiting differences between local and regional markets by placing marketing activities where they are most efficiently executed and by making competitive moves where they deliver the maximum impact.51See Table 9.2 below.
(continued)
More than 40 percent of Americans say they expect to increase their spending on travel and holidays, dining out, and out-of-home entertainment in the coming months.
One in six global consumers will continue to cut back on take-away meals, with 22 percent of Australians indicating that this is one area in which they will con- tinue to reduce spending. Significant numbers of New Zealanders, Japanese, Irish, South Africans, Brazilians, and Americans also indicated that they would stay away from take-away.
One in six global consumers says that they will continue purchasing cheaper grocery products, spend less on new clothes, and cut down on out-of-home entertainment.
As economic recovery gathers pace, consumption and spending will increase, but the post-recession consumer is likely to consume very differently. She or he will think twice——
and maybe thrice——about making purchases big or small. It’s now fashionable in the West to be frugal and trendy to be thrifty. But marketers that are able to convey the value of their products and services will likely continue to grow and prosper.
This time, however, emerging Asia is providing unexpected lo- comotion, with the result that recovery in Europe now appears to be leading the latent one in the United States.
Sources:‘‘The Global Consumer in a Post-Recession World,’’NielsenWire, October 9, 2009;’’Investment Management,’’ING, August 17, 2009; and‘‘GfK Roper Consulting Introduces Global Consumer Recession Index; Reveals Most and Least Affected Countries,’’GfK Research, North America, June 1, 2009.
Table 9.2 Adaptation, Aggregation, and Arbitrage
ADAPTATION AGGREGATION ARBITRAGE
Competitive Advantage Why should we globalize
at all? To achieve scale and scope
economies through international standardization
To achieve scale and scope economies through international standardization
To achieve absolute economies through international specialization Configuration
Where should we locate operations overseas?
Mainly in foreign countries that are similar to the home base, to limit the effects of cultural, administrative, geographic, and economic distance
In a more diverse set of countries, to exploit some elements of distance
Coordination
How should we connect international operations?
By country, with emphasis on achieving local presence within borders
By business, region, or customer, with emphasis on horizontal relationships for cross-border
economies of scale
By function, with emphasis on vertical relationships, even across organizational boundaries
Controls
What types of extremes
should we watch for? Excessive variety or
complexity Excessive standardization, with
emphasis on scale Narrowing spreads Change Blockers
Whom should we watch out for internally?
Entrenched country chiefs All-powerful unit, regional, or account heads
Heads of key functions Corporate Diplomacy
How should we approach
corporate diplomacy? Address issues of concern, but proceed with discretion, given the emphasis on cultivating local presence
Avoid the appearance of homogenization or hegemonism; be sensitive to any backlash
Address the exploitation or displacement of suppliers, channels, or intermediaries, which are potentially most prone to political disruption
Source:Adapted from Pankaj Ghamawat,‘‘Managing Differences: The Central Challenge of Global Strategy,’’Harvard Business Review, March 2007: 58–69.
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Product Offering
Globalization is not equal to standardization except in the case of the core product or the technology used to produce the product. The need to localize varies by product. Fashion or fashion products depend on their appeal on sameness. Infor- mation technology products are susceptible to power requirements, keyboard con- figurations (e.g., Europe alone may require 20 different keyboards), instruction- manual language, and warning labels compliant with local regulations.52Product standardization may result in significant cost savings upstream. For example, Stan- ley Works’ compromise between French preferences for handsaws with plastic han- dles and ‘‘soft teeth’’ and British preferences for wooden handles and ‘‘hard teeth’’—
to produce a plastic-handled saw with ‘‘hard teeth’’—allowed consolidation for pro- duction and resulted in substantial economies of scale. Most automakers have re- duced the number of platforms they offer worldwide to achieve greater economies of scale. For example, Jaguar Land Rover has reduced the number of its platforms from 6 to 2. This is not to reduce variety but to deliver it more cost effectively.53 Shania Twain’s double CD Up!is an example of catering to multiple segments at the same time: both discs contain the same 19 tracks, but one with the effects pop fans appreciate, the other with country dimensions. A third disc with ‘‘an Asian Indian vibe’’ replaces the country disc in Europe.54
Marketing Approach
Nowhere is the need for the local touch as critical as in the execution of the marketing program. Uniformity is sought especially in elements that are strategic (e.g., positioning) in nature, whereas care is taken to localize necessary tactical ele- ments (e.g., distribution). This approach has been calledglocalization. For example, Unilever achieved great success with a fabric softener that used a common position- ing, advertising theme, and symbol (a teddy bear) but differing brand names (e.g., Snuggle, Cajoline, Kuschelweich, Mimosin, and Yumos) and bottle sizes. P&G scored a huge success with its Fusion and MACH3 shavers when they were rolled out in the United States, Europe, and Asia with a common approach based on the prem- ise that men everywhere want the same thing in a shave. The TV commercials for the Gillette Champions, offering the theme ‘‘the best a man can get,’’ languages var- ied (with Michael Clarke representing Australia; Derek Jeter, United States; Kaka, Brazil; Park Ji-sung, Korea; and Yasser Saeed Al-Qahtani, Saudi Arabia), but most of the footage was the same. United Technologies’ corporate advertising campaign known as ‘‘Cross Section’’ is designed to run in targeted financial, business and thought leader publications. Later, UTC modified these ads with regionally appropri- ate and culturally relevant details. The campaign defines how energy-efficient prod- ucts meet the fast growing needs of a rapidly urbanizing and increasingly environmentally-aware China (Figure 9.7).
Location of Value-Added Activities
Globalization strives at cost reductions by pooling production or other activities or exploiting factor costs or capabilities within a system. Rather than duplicating activities in multiple, or even all, country organizations, a firm concentrates its activ- ities. Nokia’s more than 39,350 research & development people work in centers in 16 different countries, including China, Finland, Germany, and Hungary. The com- pany has also entered into development agreements with operators (such as France Telecom and Vodafone) to bring innovations to market more efficiently.55Many global companies have established R&D centers next to key production facilities so that concurrent engineering can take place every day on the factory floor.
glocalizationA term coined to describe the networked global organization approach to an organizational structure.
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To enhance the global exchange of ideas, the centers have joint projects and are in real-time contact with each other.
The quest for cost savings and improved transportation methods has allowed some companies to concentrate customer service activities rather than having them present in all country markets. For example, Sony used to have repair centers in all of the Scandinavian countries and Finland; today, all service and maintenance activi- ties are actually performed in a regional center in Stockholm, Sweden. Similarly, MasterCard has teamed up with Mascon Global in Chennai, India, where Master- Card’s core processing functions—authorization, clearing, and settlement—for worldwide operations are handled.56
To show commitment to a given market, both economically and politically, cen- ters may be established in these markets. Philips Electronics has chosen China as their Asian center for global product research and development.57
Competitive Moves
A company with regional or global presence will not have to respond to compet- itive moves only in the market where it is being attacked. A competitor may be attacked in its profit sanctuary to drain its resources, or its position in its home mar- ket may be challenged.58When Fuji began cutting into Kodak’s market share in the United States, Kodak responded by drastically increasing its penetration in Japan and created a new subsidiary to deal strictly with that market. In addition, Kodak solic- ited the support of the U.S. government to gain more access to Japanese distribution systems that Kodak felt were unfairly blocked from them.
Cross-subsidization, or the use of resources accumulated in one part of the world to fight a competitive battle in another, may be the competitive advantage needed for Figure 9.7 Corporate Advertising Campaign
Source:http://www.utc.com
cross-subsidizationThe use of resources accumulated in one part of the world to fight a competitive battle in another.
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the long term.59 One major market lost may mean losses in others, resulting in a domino effect. Jockeying for overall global leadership may result in competitive action in any part of the world. This has manifested itself in the form of ‘‘wars’’ between major global players in industries such as soft drinks, automotive tires, computers, and mobile devices. The new markets often signal a new battle, as happened in the 1990s in Russia, in Mexico after the signing of the North American Free Trade Agreement, and in Vietnam after the normalization of relations with the United States. Imbedded in this planning has to be the selection of the types of power the company wants to exercise in the global marketplace. In business, hard power refers to the use of scale, financial might, or the use of low-cost position to win market access and share. In- creasingly, marketers will also have to incorporate soft power into their tool kits.
Soft power refers to the capability of attracting and influencing all stakeholders, whether through energetic brands, heroic missions, distinctive talent development, or an inspirational corporate culture.60In light of business and reputation risks that may arise from doing business with countries designated as State Sponsors of Terrorism by the U.S. Department of State (Cuba, Iran, North Korea, Sudan, and Syria), compa- nies will not accept business in any of these countries, except activity that is autho- rized by the U.S. government for humanitarian or public policy purposes.
Given their multiple bases of operation, global companies may defend against a competitive attack in one country by countering in another country or, if the com- petitors operate in multiple businesses, countering in a different product category altogether. In the mobile devices category, the winners in the future will be those who can better attack less-mature markets with cheaper phones, while providing In- ternet-based devices elsewhere. In a study of how automakers develop strategies that balance the conflicting pressures of local responsiveness and regional integration in Europe and the United States, Japanese marketers were found to practice standard- ization in model offerings but selectively respond to differences in market conditions by manipulating prices and advertising levels.61
IMPLEMENTING GLOBAL PROGRAMS
The successful global companies of the future will be those that can achieve a bal- ance between the local and the regional/global concerns. Companies that have tried the global concept have often run into problems with local differences. Especially early on, global programs were seen as standardized efforts dictated to the country organizations by headquarters. For example, when Coca-Cola reentered the Indian market, it invested most heavily in its Coke brand, using its typical global position- ing, and had its market leadership slip to Pepsi. Recognizing the mistake, Coke reem- phasized a popular local cola brand (Thums Up) and refocused the Coke brand advertising to be more relevant to the local Indian consumer.62In the past ten years, Coca-Cola has been acquiring local soft-drink brands such as Inca Cola in Peru and making it available in Peru, Chile, Ecuador, and the United States.63
Challenges
Pitfalls that handicap global programs and contribute to their suboptimal per- formance include market-related reasons, such as insufficient research and a tend- ency to overstandardize, as well as internal reasons, such as inflexibility in planning and implementation.
If a product is to be launched on a broader scale without formal research as to regional or local differences, the result may be failure. An example of this is Lego A/S, the Danish toy manufacturer, which decided to transfer sales promotional tactics successful in the U.S. market unaltered to other markets, such as Japan. This promotion included approaches such as ‘‘bonus packs’’ and gift promotions. However,
soft powerThe ability to obtain what one wants through co-option and attraction.
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Japanese consumers considered these promotions wasteful, expensive, and not very appealing.64Going too local has its drawbacks as well. With too much customization or with local production, the marketer may lose its import positioning.
Globalization by design requires a balance between sensitivity to local needs and deployment of technologies and concepts globally. This means that neither headquarters nor independent country managers can alone call the shots. If country organizations are not part of the planning process, or if adoption is forced on them by headquarters, local resistance in the form of the not-invented-here (NIH) syndromemay lead to the demise of the global program or, worse still, to an overall decline in morale. Subsidiary resistance may stem from resistance to any idea origi- nating from the outside or from valid concerns about the applicability of a concept to that particular market. Without local commitment, no global program will survive.
LOCALIZING GLOBAL MOVES
The successful global companies of the twenty-first century will be those that can achieve a balance between country managers and global product managers at head- quarters. This balance may be achieved by a series of actions to improve a company’s ability to develop and implement global strategy. These actions relate to manage- ment processes, organization structures, and overall corporate culture, all of which should ensure cross-fertilization within the firm.
Management Processes
In the multidomestic approach, country organizations had very little need to exchange ideas. Globalization, however, requires transfer of information not only be- tween headquarters and country organizations but also between the country organiza- tions themselves. By facilitating the flow of information, ideas are exchanged and organizational values strengthened. Information exchange can be achieved through periodic meetings of marketing managers or through worldwide conferences to allow employees to discuss their issues and local approaches to solving them. The IBM In- stitute for Business Value is comprised of more than 50 consultants who conduct re- search and analysis across multiple industries and functional disciplines. The institute has a worldwide presence, drawing on consultants in 11 countries to identify issues of global interest and to develop practical recommendations with local rele- vance.65IBM has found that some country organizations find it easier to accept input of other country organizations than that coming directly from headquarters.
Part of the preparation for becoming global has to be personnel interchange.
Many companies encourage (or even require) mid-level managers to gain experience abroad during the early or middle stages of their careers. The more experience people have in working with others from different nationalities—getting to know other mar- kets and surroundings—the better a company’s global philosophy, strategy, and actions will be integrated locally.
The role of headquarters staff should be that of coordination and leveraging the resources of the corporation. For example, this may mean activities focused on com- bining good ideas that come from different parts of the company to be fed into global planning. Many global companies also employ world-class staffs whose role should be to consult subsidiaries by upgrading their technical skills and focusing their attention not only on local issues but also on those with global impact.
Globalization calls for the centralization of decision-making authority far beyond that of the multidomestic approach. Once a strategy has been jointly developed, headquarters may want to permit local managers to develop their own programs within specified parameters and subject to approval rather than forcing them to ad- here strictly to the formulated strategy. For example, Colgate Palmolive allows local
not-invented-here (NIH) syndromeA defensive, territorial attitude that, if held by managers, can frustrate effective implemen- tation of global strategies.
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