Standardisation Versus Adaptation in a Globalisation Context free essay sample

Standardisation versus Adaptation in a Globalisation context Challenge This is the challenge facing primarily multinational firms whether to standardise their local offering or adapt/localise it for the market they are selling into. According to De Wit and Meyer (2010), the question facing managers is whether they should anticipate and encourage global convergence by emphasising global standardisation, centralisation and coordination or should managers acknowledge and exploit international diversity by emphasising local adaptation, decentralisation and autonomy. In other words as St Augustine (534-430) put it â€Å"when I am in Milan, I do as they do in Milan; but when I go to Rome, I do as Rome does†. Technology influencing standardisation What is strongly influencing globalisation in today’s context is technology. Technology is driving converging commonality according to Levitt. Firms benefit more from commonality i. e. standardisation than adaptation to the local market. I would suggest that globalisation has been good for the world consumer in both rich and poor countries. We will write a custom essay sample on Standardisation Versus Adaptation in a Globalisation Context or any similar topic specifically for you Do Not WasteYour Time HIRE WRITER Only 13.90 / page This has largely been achieved through standardisation. In particular, corporations have benefited from this standardised approach through economies of scale in production, distribution, marketing and distribution. Who benefits? As a consequence, the consumer has greatly benefitted in the rich and poor countries as goods have reduced in cost. It may be argued that this is purely for the consumption of goods but not necessarily for the communities that may have once manufactured these goods in either rich or poor countries. It can have devastating consequences once the manufacturer moves out of the local community. Kanter (Best of HBR 1995) would suggest it does not as she puts it â€Å"Does globalisation have to be at the expense of local community? Not at all if that community can become a world-class source of concepts, competence or connections. † Why Standardise? Standardisation is in essence according to De Wit and Meyer (2010) â€Å"doing the same thing in each country without any costly adaptation†. Standardisation is possible to apply to product offerings, value adding activities and resources employed. As mentioned previously, standardisation is particularly important as typically companies achieve economies of scale but more importantly for consumers it enables them to get a â€Å"predictable offering† according to Hamel and Prahalad (1985). Consumers all over the world know what to expect. Companies standardise not just for organisational convenience but it is a means of achieving cross-border synergies. Companies benefit from this strategy by leveraging resources, integrating activities and aligning product offerings across two or more countries. For example, the Apple iPhone has the same layout in terms of operating system /language applied for US, Ireland, UK, Australia and other English speaking countries. Applying this standardised US centric approach enables Apple to achieve huge economies of scale and avoid the costly task of employing localisation companies such as Lionbridge Technologies, Sajan, welolocalize etc. to adapt the market for the locale it is intended for. Consumers generally â€Å"accept† the US English on their iPhones with regards to spelling and use of Apps installed on their phones. The reason companies adopt this approach rather than localising for every locale is because the return in investment would be utterly negligible, enables Apple to have a cost advantage and ultimately keep the cost of the product down for the consumer. Other corporations such as Proctor and Gamble take a multidomestic strategic approach which is in essence treating the world as a portfolio of national opportunities. The product is the same/standardised for each market but the labelling or packaging has been adapted or localised for the market it is sold into. The company is thus avoiding RD costs, â€Å"re-manufacturing† etc. nd is able to achieve large economies of scale as the production of the good can be highly specialised in one locale. PG could in essence manufacture the washing liquid in Ireland but repackage the product for every market to take into account consumer preference not to buy a â€Å"foreign† product and to have confidence in the localised approach. G etting cross border synergies on a large scale can be a way a firm gains competitive advantage over its rivals. Firms can achieve this by leveraging activities, integrating activities and/or aligning positions. This can be seen in the below figure as argued by De Wit and Meyer. Cross Border Synergies Know your Market However, for the success of a firm operating in a global environment, they must remain aware of the specific demands of the local market and equally important be in a position to respond to these configurations in a timely manner. A company must know the differences in market structure, differences in customer needs, differences in buying behaviour, differences in alternative products, government regulations etc. If a firm is not responsive to the nuances of the local market then there is a risk of failure despite taking a standardised approach. According to Levitt’s article â€Å"The Globalisation of Markets, increased standardisation is in essence the world moving towards a converging commonality. Everything is becoming more similar or homogenised. This is where technology is coming to an increasing importance. Levitt argues that Standardisation decimates competitors that live in the old way of doing things. Multinationals and Global Corporations operate differently. The Multinational Corporation operates in many different countries but adopts its products and practices to each locale. Whereas a Global Corporation operates in a standardised approach which enables it to have lower operating costs and in essence treats the world as one overall market as oppose to multi-regional markets. Coca Cola it could be argued is the epitome of success. Its products is standardised in each market. However, it sought to achieve the convergence of cultures and nationalities, it did this very successfully in the 1970s in the hit song it used for its television commercial â€Å"I’d like to teach the world to sing†. By adapting a multicultural approach with cultures throughout the world joining together o sing the hit song it showed how a standardised product such as a cola could be enjoyed on a global scale. Levitt argues â€Å"The commonality of reference leads inescapably to the standardisation of products†. This enabled Coca Cola to focus on efficiency in production, cheap location to manufacture the syrup, distribution, marketing and management which brought about a reduction in cost for both the manufacturer and consumer. A so called win-win for everyone. Cultural impact of Globalisation Coca Cola sought to treat the world as one market. By making the product desirable on a global scale i. e. everybody wants to have the same product for every nationality and culture or as Levitt put it â€Å"Everyone in the increasingly homogenised world market wants products and features that everybody else wants†. Coke ensured this was possible by keeping the price low and thus ensuring local competition was eliminated or significantly reduced. Large scale production is typically cheaper than small scale production. Even if culturally, the elders of society frowned upon this, the younger people wanted to be the same as everyone else. Hence the reason the Coke commercial showed young people singing this song as oppose to more senior people. Levitt argues that cultural preferences for tastes i. e. older products is more or less a thing of the pass. However, in many multinational organisations Senior Managers typically treat the customer as â€Å"king† and offer the customer everything they could possibly want rather than what they’d like. This is a costly adaptation or providing a localised product. Managers need to engage the assistance of Marketers to help them sell the product consumers like rather than want. Managers may be fragmenting the market at a costly exercise and possible failure of product. Levitt illustrates this with the example of Hoover and how they overly localised the market rather than standardising the product offering of a washing machine across Europe. It resulted in Hoover conducting market analysis and potentially overly customising the products for each market with considerable cost variation. This would have put Hoover at a considerable disadvantage versus their competitors in each of the market. However, Hoover fell down significantly by not telling the customer what they wanted as oppose to conducting detailed marketing analysis and finding out all sorts of cultural preferences which would have resulted in varying costly products that would have put Hoover at a significant disadvantage versus their competitors. The Global standardisation philosophy: the underlying assumptions. This article by Douglas and Wind (1987) showed that there was greater potential for standardisation across industrial goods or luxury goods when rich or more upscale consumers were targeted. They also showed that more industrialised nations were ripe for greater standardisation than poorer nations. The reason being because customer interest as well as market conditions are more similar. Especially true if you compare nations such as Australia, UK USA The counter argument for standardisation Douglas and Wind argue that few companies pursue the extreme position of complete standardisation i. e. marketing, RD. manufacturing etc. They believe that some level of localisation is necessary due to the firms operations or in certain locations due to possibly regulation. It is not always possible to implement a global strategy particularly if for example a firms operations in another geography has in the past been given a lot of autonomy to pursue their own adapted strategy. They will get a lot of resistance to implement the â€Å"new† standardised approach. However firms pursue the standardised approach for the following reasons 1. Customer needs and interest are becoming increasingly homogenised. This we have seen earlier in the case of Coca Cola. 2. People around the world are willing to give up preferences in product features and design for lower priced goods with better quality. 3. Economies of scale can be achieved by firms operating in global markets in terms of production and marketing. This was evident by the earlier example of Apple marketing a non-localised product across many English speaking countries. Resistance to standardisation Douglas and Wind argue that despite Levitt’s paper, they found evidence that there was increasing diversity of behaviour within countries and resistance to the perceived globalisation of the world by firms. This has certainly resulted in an anti-globalisation sentiment that has certainly been evident in the last 10 years or more. Douglas and Wind also counter argue that despite the belief that people have a universal preference for low price at an acceptable quality. They find that this standardised approach has three major issues which I would tend to believe is more applicable today that when Levitt first wrote the paper. 1. Lack of evidence in increased price sensitivity. It is believed that customers are willing to trade off specific features for a lower price. However if you look initially at say Apple. They have successfully segmented the market and despite charging a premium for their iPhone, they have created desirability for a premium product with a significant mark up in price for its product. 2. Low price positioning is a highly vulnerable strategy. As above this is particularly evident with Apple’s counter strategy. They go even so far as to segment the market and charge more for the product in Europe as oppose the US to create an increased desirability for consumers. Pursuing a low priced position would not have made this product as desirable as it currently is. 3. Standardised low price can be overpriced in some countries and under-priced in others. Again Apple clearly runs counter to this argument. There is not a standard price for its product in every market. They may have adopted a standardised manufacturing approach with manufacturers in China but clearly adopt a non-standardised or highly localised pricing strategy. Apple are showing us how the take the benefits or standardisation and adaptation to best benefit the organisation as oppose to consumer . Otherwise they would have adopted both a standardised manufacturing approach but also a standardised pricing approach around the globe. Douglas and Wind also argue that standardisation is only possible if the following conditions 1. The existence of a global market segment 2. Potential synergies from standardisation 3. The availability of a communication and distribution infrastructure to deliver the firm’s offering to target customers world-wide. There are a number of constraints though to effectively implement a standardised approach throughout the world as follows:- Government and trade restriction. A firm may have a universal and standardised approach but if there are trade restrictions or local government barriers then the strategy is not effective. In particular the current climate dictates that the philosophy being approached is â€Å"every man for himself†. Despite getting agreement on world trade, countries are trying to export their way out of economic gloom. More and more countries are considering implementing barriers to protect domestic economies. 2. Differences in marketing infrastructure. It may not be possible to use the medium of television, print media or internet to assist marketing of products. For example in China, they put barriers in place to prevent overseas firms from advertising products on TV or even close down internet sites to protect local manufacturers e. g. many internet sites are closed . to â€Å"protect the local consumer† 3. Interdependence with resource markets. Overseas operations may not have access to the same raw materials, labour capital and will influence where an organisation will locate its facility despite the potential market in that economy. . Differences in competition from one country to the other. Despite being a multinational a firm might find it is competing against other multinational firms overseas and consequently may have to adapt a localised strategy on pricing, marketing or distribution to win consumers. Initially as I tacked this assignment I was very much in favour of Levitt’s view of the world and the only w ay forward for a multination organisation to succeed was to develop a very much standardised approach to everything from manufacturing, to marketing to distribution etc. However, having read the counter arguments I strongly now believe a firm needs to take the best of standardisation and adaptation combined to enjoyed the greatest possibility of success. Levitt despite being a radical thinker took a narrowed view of the world. A standardised approach of strategy was perhaps successful in the early 1908s but clearly not successful today. Many companies have taken the best of a standardised approach whilst ensuring aspects of their strategy is still localised. This is particularly evident by Apple who is now one of the most successful firms in the world.