GLOBALIZATION

The other was on Business Week on McDonalds: "The brand position is different in different parts of the world," he says. In the U.S., customers tend to eat on the go, and around 70% U.S. sales come from drive-throughs. Europeans prefer to linger. "In Europe it's more about the experience," he says. "It's convenient and a destination place at the same time."

To make the Golden Arches a place where Europeans want to hang out necessitated a major design overhaul. Hennequin, as French country head, refurbished the chain's outlets there, and he was tapped to do the same across the 40-country-strong European operation. He created a McDonald's design studio outside Paris to come up with a range of eight design packages from which franchisees, who account for 68% of European outlets, can choose.


Both companies are global leaders in their fields; both companies cater the general public – with lifestyle products and now both companies are moving in different directions of globalization with their products. McDonalds is becoming more local in Europe – by differentiating from the US operations and localizing the offerings to meet European tastes. While Levi Strauss is moving in the opposite direction – by developing a standardized product across the globe.

Interestingly, the financial results of these two companies are also moving in opposite directions. Levi Strauss is seeing a steady decline in income – from a peak of $7.1 billion in 1997 to $4.4 billion in 2007, while McDonalds is showing a steady increase in revenue in Europe.

This article is not a debate of localization of products Vs Globalization of products. Instead, I will concentrate on the fundamental principles of product positioning in a global economy and talk about the choices product managers have when positioning products for different markets.


Product Positioning

Product Managers have several choices in positioning a product in a global market – by varying two levers: Price & product localization (or product customization), which is illustrated below.





Products can be positioned anywhere in this two by two matrix, but in each market (or geography), there can be only one price-localization point for a particular product. The same product can be positioned differently in different markets. For example, Levi Strauss can position its signature button-fly 501 jeans at different price points in different markets or it can choose to have a standard global price.




Note that Levi Strauss has the option of placing its 501 fly button jeans at different price points – and that translates to different value points in different markets. For example if the Jeans is sold at (say) $40 in the US – it is perceived as Value-for-money, while in Malaysia, the same product may be priced at $30 and be perceived as a premium product.

If one were to opt for a global product, then the product pricing & positioning in different markets will have to be carefully planned – in view of the perceived value the product offers to customers. If the value positioning is wrong in one geographic market, then it has serious implication to other markets – in terms of brand reputation. Similarly, for a global product, if the pricing difference varies greatly between two geographic markets, then customers will choose the bypass the organized supply chain & procure the product from the lowest priced geography; which disturbs channel relationships. To illustrate this, if Levis Strauss prices 501 jeans in the US at $24, and prices the same in India at $2100 ($ 50), then customers in India and/or retailers can choose to buy it from the US rather than in India.




Localization also has its pitfalls


McDonalds for a long time followed a global standardization policy: All its restaurants serve similar food – fast, clean and good food. All the restaurants have a standard ambiance and is value positioned in the value of money segment. McDonald’s also establishes its global standard for developing its supply chain – from procuring raw materials to distribution.


However, in the recent times, McDonalds is becoming more open to experimentations and is localizing its product offerings – not just the menu, but also the ambiance and supply chain.

Successful localization for a global company is often difficult as it runs against the standard established practices, also the knowledge gained in one market cannot be used in other markets, and lastly the success of the local operation becomes tightly tied to the local people who run the local operation.


Implications for Technology Products & Companies

High tech products or engineering products such as Aircrafts, Computers, software, Medical equipment, chemicals etc are often positioned as a global product. The product is sold in only one format all over the world and at a same price.

However, the differences in taxes in various markets cause a price difference – which in turn result in “Grey” markets. Intel microprocessors for example is available at a lower price in the grey market, while the same product is available at a higher price through authorized dealers.

Similarly, Dell Laptop Dell XPS M1350 is available at:

US$999 in the US
US$1234 in UK
US$1140 in India

NOTE: Pricing is for an identical configuration in each of the three countries


This price differential makes people buy the Laptop in the US – and for use in India.

The same story is true for HP laptops as well.

Another downside of having a global standard pricing is that it results in diminished demand in other markets. For example most of the enterprise software – like Oracle 11i, SAP etc are sold at a uniform price – a price based on the US costs and demands. This leads to reduced sales in Asia, where customers prefer to use a lower cost alternative such as MYSQL or RAMSOFT ERP etc. In case there are no alternatives, businesses in Asia will prefer not to use such expensive systems – and may use increased labor instead or use it more judiciously. (or may simply choose to use a pirated version)

The trend is however changing. Asian companies have learnt to bargain harder and thus procure the same product at a huge discount. (See Reliance telecom story). Software companies have started the practice of discounting on the price when selling to Asian/African markets. This results in having a global product priced differently in multiple markets. (Discounting is mainly done in-order to maximize marginal revenues)

Many companies have started (albeit slowly – and half heartedly) to localize their products. Microsoft Vista & Microsoft XP is a good example of localization. Product positioning of Microsoft Vista will approximately look like:





Similarly, product positioning for EMC2 SMARTS will be like:




Closing Thoughts

Product positioning in multiple markets is a challenging task. In the initial phase of globalization, companies typically tend to follow a “global product” strategy. In the next phase, companies try out various localizations to increase sales and market share. As the companies evolve – they develop new set of global products from local products – “Glocal products” which is a mix of localization for the global markets.

Consumer product manufacturers such as Unilever, P&G, Toyota are good examples of such companies – they have few global brand names – but all of them have a localization content.

Product managers can use the two-by-two matrix to plan their product mix and then position their products in multiple markets.
posted by arun kottolli at 2:30 am 0 comments links to this post
labels: globalization, leadership, marketing, working across cultures
sunday, november 05, 2006

China’s Globalization Plans off to a rocky start
“Going global is a must, rather than a choice”

Chinese manufacturers are eager to go global – their gargantuan market share at home, their deep expertise in large scale (contract) manufacturing, and their nascent (but world class) R&D capability has given the Chinese companies the confidence to go global.

Chinese firms feel the urgency to go global – and want to expand rapidly. But their early steps seem to be faltering. In the last 2-3 years, three Chinese firms experimented with acquisitions as a path for globalization – and are struggling.

BenQ’s Loss Making Acquisition

BenQ experimented with the acquisition of Siemens’ cell phone unit. BenQ wanted to piggyback a ride to become a global brand on Siemens brand image via acquisition. The mounting losses in the handset unit forced the company is shut down Siemens cell phone unit – BenQ realized that Siemens unit will not take it global. (see: http://arunkottolli.blogspot.com/2006/10/when-brand-buying-is-not-good-idea.html)

TCL’s Struggle

TCL was hailed as China’s answer for Sony. TCL is a home grown manufacturer of electronic goods, which started out as a contract manufacturer and commands a large market share for Televisions, Audio players, DVD players etc. in China. In 2003 TCL purchased Thompson’s television and DVD player operations – along with the right to use Thompson brand name for four years. In 2004, TCL purchased Alcatel’s cell phone business. With these two acquisitions, TCL became one of the first Chinese manufacturer to go global.

TCL’s problems started immediately after the acquisitions. These loss making brands had to be turned around rapidly else it can drag TCL’s image and cash down the drain. TCL struggled to make its cell phone division profitable, and in 2005 TCL ended its venture with Alcatel. A similar fate now hangs over its Thompson branded television business.

Lenevo Takes a Hit

Lenevo purchased IBM’s personal computer business in 2005 – along with the right to use IBM’s brand name and it’s “Think Pad” brand name. In 2006, Lenevo’s profits were down 85% - and the IBM’s unit (global) is still making losses – which is wiping out the profits Levenvo makes in China.

Globalization Strategy that Went Wrong

In a previous post on why it was a bad idea to buy a global brand. The problems faced by the three biggest Chinese manufacturers are similar. Their rush to go global – by acquisition of well known (but struggling) brands was not a well thought out idea.

Buying a brand – without understanding the cultural issues associated with the brand can be lethal. Companies must understand what they are buying. A brand name is also a promise which the seller makes to customers and that brand promise must be fulfilled to attain brand value. If a company is buying a famous brand name, then the acquiring company must fully understand the brand image and the brand promise – which can vary significantly from cultures to cultures.

Chinese organizations seem to have purchased the brand names – without understanding its cultural significance, without understanding its brand promise. As a result, these acquired brands fell from customer grace very rapidly.

Chinese firms were also buying the operations – these operations were loss makers to begin with. These firms underestimated the challenges of managing a global organization, when they did not have a global operations and supply channel experience to begin with.

Closing Thoughts

In a stark contrast to Chinese experience, Indian companies seem to make rapid progress in their global acquisition strategy. Tata Tea has successfully gone global with the acquisition of Tetley. Tata Motors has successfully acquired Daewoo’s truck division. Tata Motors has successfully expanded into South Africa. Ispat steel (now called Mittal Steel) has been extremely successful in global M&A strategy. Wipro, Videocon, Ranbaxy, Wockart, and others have been making global acquisition – and their profits are soaring.

The key difference I can observe here is that the acquiring company must know the markets, the customer and the consumer in the global context. Marketers must understand the cultural nuances of their global customers. Company managers must fully understand the challenges of running and managing a global supply chain and distribution channels.

Chinese businesses which were built ground-up: Haier, ZTE & Huawei are thriving. While hurried up acquisitions are struggling. This is a good learning example for other Asian firms which are now planning to go global via the acquisitions route.

Also See:

When Brand Buying is not a Good Idea
Brand Management
Developing a Brand Position
Selecting a specific brand position
posted by arun kottolli at 10:42 am 0 comments links to this post
labels: globalization, working across cultures
tuesday, may 30, 2006

Global Manager
Recently there was a The Indus Entrepreneurs (TIE) meet in Bangalore. The meeting was an opportunity to meet high tech entrepreneurs and would be entrepreneurs with venture capitalists. The meeting itself was not of great interest for me, but the companies represented (directly or indirectly through employees) at TiE is something worth writing about. Most of the companies were startups and yet global companies: Aarohi Communications, Sonoa Systems, EFI, Tavant, RelQ, Open-Silicon to name a few. These companies are called "Born Global" companies. ( Born Global companies are those companies which have operations in multiple companies within one/two years of their existence)

To be successful these companies need Global Managers. The top management and senior management in these companies need to have a special management skills. I have worked in one such company. I am writing this article on what it takes to be a global manager based on my experience and observations at my current firm and learning at B-School.

Successful managers need to have global vision
To be successful, global companies need to develop unique set of capabilities which allows them to:
Take advantage of resources available to it on worldwide basis - regardless of where these resources are located. These resources may be company owned or may belong to other independent firms. For example, my current company has the ability to use (third party) factories in Taiwan, Israel, China & Korea.

Enter any country it chooses and sell products in any country based on business opportunities. These companies are constantly in the lookout for new opportunities - and are not limited by geographic/national boundaries. My company, for example, has customers in USA, Canada, Israel, Portugal - and is/was negotiating with firms in Thailand, India, Korea, France, Ireland and Japan.
To succeed in a global market place, managers need to have a global vision and a complementing strategy which enables managers to develop a global vision which helps in breaking down existing geographic and competitive boundaries.

The manager’s global vision is shaped by several factors. One of the biggest driving factor is having a global mindset - i.e., ability to look at the global markets as a whole. This can be summarized by the slogan "Think Local Act Global".

Global managers work with the assumption that global markets are best served by adaptation to local conditions - and have local initiatives in different markets around the world. Diversity - ethnic, consumer, geographic, & economic diversity is looked as sources of opportunity. Global strategy focuses on optimal global sourcing, selling standard products and the ability to react globally to competitors’ moves.


External forces which drive global mindset

Company may have a global vision and a global strategy, but manager’s mindset is crafted by several forces internal to the company. In my opinion, there are four influences on the manager:


Leadership View of the world

One of the leading forces is the leadership view of the world. This is often driven by the CEO. A visionary leader can drive the global strategy - but he also shapes the managers’ view and his actions. Often times, top leaders in global companies have worked in many countries. Top leadership team in global companies often consists of members from a diverse set of countries. - See Leadership & Diversity
Top leadership in our firm consists of members from Pakistan, India, USA & Egypt.

Administrative Heritage

Administration style of the company can either be centralized or decentralized. In a global company, administration is often highly centralized. All decisions on use of tangible and intangible assets are centrally controlled. Local business units do not have control over local assets.


Organizational Structure

Manager’s mindset is also influenced by the organization structure. Global companies are structured around products & functional roles Global companies are not structured according regional offices.


Industry forces

No firm can work in isolation. It has to deal with vendors, suppliers, customers and competitors. The need to achieve economies of scale and scope have forced vendors and customers to globalize. For example, my company has to open an office in Taiwan so that we could deal with our vendors better.


Global Manager’s thought process


Managers have to retrain their thinking process to become global managers. This is a difficult task as their thoughts are often crafted by ‘traditional’ practices: Home country practices, ethnocentric views, preference to local/home country candidates/process/procedures etc. These ‘traditional’ thoughts has to be replaced by global thinking. A global manager’s thought process is characterized by:

Multicultural approach to reflect global operations
Shift of focus on "soft tools" - Vision, process and people to achieve objectives
Collaboration with a network of vendors, partners & customers
Recruitment from global talent pool - to get best set of people
Global transfer of human resources - global learning/training process
Creating a learning Organization
Focus on big picture - respond rapidly to global business environment changes.
Closing thoughts

In a global economy, high tech companies need to go successfully global. Such companies can then maximize the sales potential from existing customers and attract new customers without stepping into new product ranges, focus on innovation and offer improved and new products,
services and reshape the industry through a network of partnerships. For a strong global performance, the organization needs a group of global managers . Only then the global strategies can be implemented successful - thus making the company successful.


Born global companies which must develop a global mindset from scratch. The primary motivation in these companies are either ‘growth hungry’ or "deliver the best for the lowest price’. Depending on their primary motivation the companies develop a global strategy - which has to be successfully implemented by global managers.

As companies continue to expand globally they need managers who understand global business, operate effectively across cultural boundaries and balance strategic integration with adaptation to local markets. The opportunities the company pursues, and how it deals with the many challenges of a global business approach, depends critically on how good its managers are at interpreting and responding to the dynamic and diverse challenges facing the organization.