CHAPTER 6 Global Marketing Strategies

The multinational corporation knows a lot about a great many countries and congenially adapts to supposed differences..... By contrast, the global corporation knows everything about one great thing. It knows about the absolute need to be competitive on a worldwide basis as well as nationally and seeks constantly to drive down prices by standardising what it sells and how it operates. It treats the world as composed of a few standardised markets rather than many customised markets. Theodre Levitt* Introduction Transnational corporations serve different markets around the world. Their global expansion may be driven by various factors. These include saturated and intensely competitive domestic markets, diversification of risk on a geographical basis, opportunity to realise economies of scale and scope, entry of competitors into overseas markets, the need to follow customers going abroad and the desire to compete in a market with sophisticated consumer tastes. In different markets, customer requirements may vary. The temptation to customise for each market, has to be tempered by the need to keep costs down through standardisation. A truly global marketing strategy would aim to apply uniformly some elements of the marketing mix across the world, while customising others. As discussed before, the logical approach would be to identify and analyse the various value chain activities that make up the marketing function and decide which of these must be performed on a global basis and which localised. Key issues in global marketing : Typically, marketing includes the following activities: Market research. Concept & idea generation. Product design. Prototype development & test marketing Positioning Choice of brand name Selection of packaging material, size and labelling Choice of advertising agency

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==================================================================== * Harvard Business Review, May-June, 1983.

Development of advertisement copy Execution of advertisements Recruitment and posting of sales force Pricing Sales Promotion Selection and management of distribution channels.

Some of these activities are amenable to a uniform global approach. Others involve a great degree of customisation. Again, within a given activity, some parts can be globalised while others have to be customised. For instance, product development may be customised to suit the needs of different markets but basic research may be conducted on a global basis. (We have looked at how companies manage their global R&D network in the earlier chapter).
Understanding overseas markets: The 12 C Analysis Model Phillips, Doole and Lowe have suggested a model to help companies identify the information to be collected while entering an overseas market. The 12 Cs of this model are: Country: Choices: Concentration: Culture: General information, environmental factors Competition, strengths and weaknesses of competitors Structure of market segments, geographical spread. Major characteristics, consumer behaviour, decision making style. Consumption: Existing and future demand, growth potential. Capacity to pay: Pricing, prevailing payment terms. Currency: Presence of exchange controls, degree of convertibility. Channels: General behaviour, distribution costs and existing distribution infrastructure. Commitment: Market access, tariff and non-tariff barriers. Communication: Existing media infrastructure, commonly used promotional techniques. Contractual obligations: Business practices, insurance, legal obligations Caveats: Special precautions to be taken

A global marketing strategy typically evolves over a period of time. In the initial phase, the main concern for an MNC is to decide which market(s) to enter. Then comes choosing the mode of entry. A related decision is whether to expand across several markets, simultaneously or one at a time.

Global Marketing Strategies

With growing overseas presence, MNCs have to resolve issues such as customisation of the marketing mix for local markets and in some cases, development of completely new products. In the final phase, global companies examine their product portfolio across countries, strive for higher levels of coordination and integration and attempt to strike the right balance between scale efficiencies and local customisation. Entering new markets While choosing new markets, TNCs need to consider several macro and micro factors. Some of the macro issues to be examined include the political/regulatory environment, financial/economic environment, socio cultural issues and technological infrastructure. At a micro level, competitive considerations and local infrastructure such as transportation & logistics network and availability of mass media for advertising are important. It may not be a bad idea to do a preliminary screening on the basis of different criteria and then do an in-depth analysis of the selected countries. The factors which need to be examined carefully, include legal and religious restrictions, political stability, economic stability, income distribution, literacy rate, education, age distribution, life expectancy and penetration of television sets in homes. How to enter While entering new markets, an MNC has various options. These include contract manufacturing, franchising, licensing, joint ventures, acquisitions and full fledged greenfield projects. Contract manufacturing avoids the need for heavy investments and facilitates a quick entry with a lot of flexibility. On the other hand, there can be supply bottlenecks in such arrangements and production may not keep pace with demand. It may also be difficult to maintain the desired quality levels. Franchising, like contract manufacturing involves limited financial investment, but needs fairly intensive training to orient the franchisees. Quality control is again an area of concern in franchising. While licensing* offers advantages similar to those in the case of contract manufacturing and franchising, it offers limited returns, builds up a future competitor (if licensees decide to part ways) and restricts future market development. Quality control is again a source of worry in licensing. A joint venture helps in spreading risk, minimises capital requirements and provides quick access to expertise and contacts in local markets. However, most joint ventures lead to some form of conflict between partners. If the conflicts are not properly resolved, they tend to collapse. An acquisition gives quick access
==================================================================== * Licensing confers the right to utilize a specific asset such as patent,

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trademark, copyright, product or process for a fee over a specified period of time. Franchising is similar to licensing but more complex, with the franchisee being in charge of various managerial processes, typically including a strong service element.

Prepared for the Long haul: Kodak in China Eastman Kodaks efforts to strengthen its presence in China illustrate the importance of taking a long-term view in emerging markets of strategic significance. Kodak entered China in 1927 and gradually popularised its brand name in the country over the next twenty years. Small volumes, political unrest and lack of purchasing power forced Kodak to wind up its Chinese operations in 1951. In the early 1980s, Kodak faced intense competition from Fuji. The Japanese companys rapid global expansion began to worry Kodak. Finding it difficult to penetrate the protected Japanese markets, Kodak looked for other growth opportunities. The company decided to return to China in 1981, to set up trading operations. By the late 1980s, even though volumes had started to pick up, the company faced problems such as piracy, heavy import tariffs on finished film and a highly inefficient state owned distribution network. George Fisher who became Kodaks CEO in 1993 began efforts to increase the companys commitment to the Chinese market. The new CEO decided to strengthen ties with the Chinese government and invest in manufacturing facilities. In 1998, Kodak acquired Shantou Era, a local state owned film manufacturer for $159 million. While finalising the deal, Kodak drove a fairly tough bargain. The company did not assume Shantou Eras debts which over the years had piled up to about $580 million. Kodak retained only 480 of the 2500 employees on the original payroll, revamped the poorly maintained plant, which was in a shambles at the time of the take over and introduced modern management practices. Gradually, the factorys competitiveness improved. Kodak has now decided to invest in a greenfield project in Xiamen. The $650 million consumer film manufacturing plant is expected to become operational in 2000. Kodak has also been taking steps to strengthen its distribution network, appointing some 4000 branded outlets across China as licensees. The main problem for Kodak is that many of these outlets are small mom and pop stores whose loyalty remains suspect. Analysts however feel that even non-exclusive stores can pay rich dividends for Kodak by popularising the companys brand name across the country. Notwithstanding Kodaks heavy investments, the Chinese market is unlikely to yield significant profits for some time to come. Some analysts reckon that it might take upto ten years for China to become as important a market as, say, the US. Fisher, however, feels that it is worth the wait. His successor, Daniel Carp is expected to show the same commitment to China. Whatever be the outcome of Kodaks investments, Fisher, according to Fortune*, has addressed the issue of how to make serious money in China more single handedly than any of his US corporate peers to date.

to distribution channels, management talent and established brand names. However, the acquired company should have a strategic fit with the acquiring company and the integration of the two companies, especially when there are major cultural differences, needs to be carefully managed. Greenfield

Global Marketing Strategies

projects are time consuming and delay market access. They also involve big
==================================================================== * October 11, 1999

investments. On the other hand, the delay may be worth its while as greenfield projects usually incorporate state of the art technology and features which maximise efficiency and flexibility. TNCs have to choose between simultaneous and incremental/ sequential entry into different markets. Simultaneous entry involves high risk and high return. It enables a firm to build learning curve advantages quickly and pre-empt competitors. On the other hand, this strategy consumes more resources, needs strong managerial capabilities and is inherently more risky. In contrast, incremental entry involves lesser risk, lesser resources and a steady and systematic process of gaining international experience. The main drawbacks with this method are that competitors can move in during the intervening period and scale economies may be difficult to achieve. Timing is another important issue while entering new markets. An early entrant can develop a strong customer franchise, exploit the most profitable segments and establish formidable barriers to entry. On the other hand, an early entrant may have to invest heavily to stimulate demand. Early entrants may also have to invest heavily in distribution infrastructure, especially in developing economies. Competitors may come in later and be able to market their wares incurring relatively low promotional expenditure. The peculiarities of emerging markets For TNCs planning to enter underdeveloped or emerging markets, a careful understanding of the local conditions is crucial to success. In many emerging markets, there are peculiar problems, which managers in developed countries normally do not face. Gillettes experience in China illustrates how easy it is to misread an emerging market. In the early 1990s, Gillette set up a $43 million joint venture* with the state owned Shanghai Razor & Blade Factory (SRBF). At the time of commencing operations, SRBF had a 70% share of the market, consisting mostly of cheap blades of the double-edged carbon variety. Gillette felt that it would not be too difficult to persuade at least a fraction of these customers to opt for more sophisticated blades. Gillette also assumed that SRBFs distribution network would enable efficient and fast coverage of consumers throughout China. Both assumptions have been proved wrong. Gillette has learnt with experience that Chinese men do not shave as frequently as their western counterparts and prefer cheaper blades. SRBFs distribution network has also proved to be highly ineffective. Under Chinese laws, state owned distributors typically collect their quotas from consumer
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* The Chinese Government normally allows MNCs to enter the country only through the joint venture route. The joint venture partner is typically a government controlled agency or company. goods manufacturers. Consequently, they lack customer orientation. Gillettes experience illustrates that in emerging markets, what counts is unsparing attention to detail. An unwarranted focus on the upper end of the market, losing right of the ground realities, can lead to serious marketing problems. Entering developed markets Just as MNCs based in developed countries face major challenges while entering emerging markets, companies from Third World / newly industrialized economies have to plan their entry into western markets very carefully. Consider the example of the Taiwanese computer maker, Acer, established in 1976. Founder chairman Stan Shih has led the companys globalisation efforts since then to make Acer the third largest P.C manufacturer in the world. In 1998, Acer generated 24.1% of its sales in the Asia Pacific, 24.3% in Europe, 4.2% in Latin America, and 41.6% in North America with only 9.5% of its sales coming from the home country. Total worldwide sales amounted to $6.717 billion in 1998. Acer currently operates 176 subsidiaries, employing about 32,000 employees in 42 countries offering a wide product range, including PCs, servers, notebook computers, networking solutions, ISP services and various types of peripherals. Acer has appointed more than 10,000 resellers in 100 countries. After developing a strong presence in south east Asia and Latin America, Acer decided to target the US market with its popular Aspire Home PC, only to find itself being outmaneuvered by stronger rivals such as Dell with superior marketing capabilities. As the Aspire line began to pile up losses, Acer announced that it would concentrate on its Power PCs, backed by a $10 million marketing campaign to target small and medium businesses. Acer also indicated that it would seriously consider launching low cost computer appliances called XCs priced $200 or lower once they were established in Asia. Notwithstanding these moves, Acers market share slipped from 5.4% (late 1995) to 3.2% (late 1998) and it began to make losses in the US market. Shih had once told his executives that a strong presence in America was vital to the development of a global brand*: Its almost a mission impossible but all of our people are ready to fight for that mission. These hopes however were belied and after losing $45 million in the US, in 1999, Acer began to retreat from the US consumer market. Acers experience illustrates that substantial financial resources and strong marketing

Global Marketing Strategies

capabilities are required to enter developed markets such as the US, where competition can be cut throat.
==================================================================== * Business Week, October 12, 1998, p 23.

Market Research Consider another important marketing activity, market research. For a transnational corporation, this activity is far more complicated than for a domestic company. Global coordination is necessary to facilitate sharing and transfer of knowledge.
Conducting Market Surveys in China * Market research plays an important role in international business. A careful understanding of overseas markets is necessary before a company can formulate its entry strategies. Even after entering a market, it becomes necessary to keep in touch with customers. Thus, most companies need to conduct market surveys on a regular basis. Market research is a non-controversial activity, compared to say advertising, where TNCs have to be sensitive to local needs. It essentially involves preparing questionnaire, administering it to a carefully chosen sample of customers and analysing the findings. The example of China illustrates how unexpected complications may crop up, while conducting surveys in overseas markets. MNCs operating in China are facing many ticklish issues. Prior approval from the State Statistical Bureau is required for any market survey conducted by or on behalf of a foreign company. The results of the survey must be reviewed by the Bureau, before they can be used, to make sure that the research being conducted is not related to espionage. TNCs are naturally worried that handing over market sensitive information to a government agency might lead to leakages into the hands of competitors. Press reports indicate that companies such as Procter & Gamble (P&G) have taken up the issue of protecting the confidentiality of market surveys with the Chinese government. Recent trends also seem to indicate that many companies are postponing their plans to do surveys. Market research agencies in China, which have been doing good business, collecting information from a highly fragmented market, on behalf of MNCs, now feel threatened. Till now, no government action has been forthcoming against firms breaching the new rules. There is also some ambiguity about how and when the rules will be enforced. Interpretation can be a tricky issue in the case of some rules. One of these mentions that market research companies cannot repeat any market survey already conducted by the Bureau. Since the Bureau routinely conducts a range of consumer surveys, a strict interpretation of the rule would imply that research firms cannot study income levels or even count the number of retail establishments in the country. Faced with these difficulties, many research agencies are adopting cautious strategies to make sure they are on the right side of the law. One company, Roper Starch Worldwide, has modified its questionnaire suitably while conducting its biennial global consumer survey during 1998. It removed questions such as: Do you feel things in this country are generally going in the right direction today or do you feel that things have pretty seriously gotten off on the wrong track?

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==================================================================== * Draws heavily from Far Eastern Economic Review, October 28, 1999.

The global head of market research has the important job of ensuring that each country is aware of not only the research activities it is carrying out but also of the activities being carried out by other subsidiaries. The research design is more complicated due to cultural differences across regions. Some elements such as the sample to population ratio and the information to be collected for each product category can be standardised. However, questions have to take into account the sensitivity of both the local government and the local people. In particular, personal and embarrassing questions have to be avoided in certain countries. (See Box Item on conducting market research in China.) Notwithstanding these difficulties, opportunities to globalise should not be overlooked. For example, clusters of countries might need the same questionnaire. Product Development Product development is a critical activity for all TNCs. A globally standardised product can be made efficiently and priced low but may end up pleasing few customers. On the other hand, excessive customisation for different markets across the world may be too expensive. The trick, as in the case of other value chain activities, is to identify those elements of the product which can be standardised across markets and those which need to be customised. Thus, a standard core can be developed, around which customised features can be built to suit the requirements of different segments. Japanese companies such as Sony and Matsushita have been quite successful in marketing standardised versions of their consumer electronics products. These companies, had limited resources during their early days of globalisation, and cleverly identified features, which were universally popular among customers across the world. Global economies of scale helped them to price their products competitively. At the same time, they laid great emphasis on quality. Consequently, their products, even without frills, began to appeal to customers. Many of Sonys consumer electronics products are highly standardised except for components that have to be designed according to national electrical standards. This is also the case with Matsushita. Canon offers an interesting example of a Japanese company that took into account global considerations at the cost of domestic requirements while developing a new product. In its domestic market, customer requirements were quite different, photocopiers being expected to copy all sizes of paper. Canon felt that to emerge as a global player, the design had to be built around

Global Marketing Strategies

the requirements of the US, the largest market for photocopiers in the world. In the process, the company deliberately overlooked some of the features required by Japanese customers, to keep its development costs under control. Accord: Hondas Global Car*
Hondas approach to the development of its well known car model, Accord is a classic example of how transnational companies attempt to strike the optimum balance between standardisation and customisation. The trigger point in Honda's product development efforts came during President Nobunhiko Kawamotos visit to the US in 1994. When US customers complained that the Accord was too small, Honda responded by making efforts to lengthen its nose and bulk up its rear end. Though Honda incurred substantial expenditure, the move paid off and the Accord almost overtook Fords popular model, Taurus. Unfortunately, the new model did not find acceptance among Japanese customers. Honda realised that a truly global car had to gain popularity not only in the US but also in Japan and Europe. At the same time, designing separate models for each market would be prohibitively expensive. Soon, Honda began coordinated efforts to develop a platform which could be shrunk, stretched or bent to offer different shapes of the overlying car for different markets. The development efforts were closely monitored by Kawamoto, who wanted different models for different markets but within a tight budget. Chief Engineer Takefumi Hirematsu, who was made in charge of the project, realised the need for a fresh approach. His solution was to develop radically different vehicles based on a single frame. Hiramatsu decided to move the cars gas tank back between the rear tires, so that he could design a series of special brackets that would allow him to hook the wheels to the cars more flexible inner subframe. These brackets allowed Honda to push the wheels together or pull them apart, easily and cheaply. Hondas flexible global platform resulted in three Accords which cost 20% less to develop compared to the single Accord model it had developed four years back. Honda saved approximately $1200 per car enabling it to take on competing models, Camry (Toyota) and Taurus (Ford). For the US market, the Accord was 189 inches long and 70 inches wide with a higher roof, and a roomy interior consistent with its positioning as a family car. For the Japanese market, the model not only had a lower roof compared to the US model, but was also six inches shorter and four inches thinner and incorporated high tech accessories in line with the tastes of Japanese customers. For the European market, the model had a short narrow body for easy navigation on narrower roads and aimed to provide a stiffer, sportier ride.

In the case of industrial products, standardisation may become unavoidable if customers coordinate globally their purchases. This seems to be true in the PC industry. Companies such as Dell are taking full advantage of this trend, which is likely to strengthen further, as companies increasingly feel the need to integrate corporate information systems across their global network. MNCs often choose to replicate the computer system in their headquarters across their worldwide network to minimise training and software development costs.

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==================================================================== * Read Keith Naughtons interesting article, Can Honda build a world car?, Business week, September 8, 1997.

In industries characterised by high product development costs (as in the pharmaceuticals industry) and great risk of obsolescence(as in the case of fashion goods), there is a great motivation for developing globally standardised products and services. By serving large markets, costs can be quickly recovered. Even in the food industry, where tastes are largely local, companies are looking for opportunities to standardise as developing different products for individual markets can be prohibitively expensive. Though identical offerings cannot be made in different markets, companies are developing a core product with minor customisation, (like a different blend of coffee), to appeal to local tastes. In their enthusiasm to reduce costs by offering standard products, MNCs need to avoid some pitfalls. Customer preferences vary across countries. A product developed on the basis of some average preference may well end up pleasing no one. As Kenichi Ohmae has remarked*: When it comes to product strategy, managing in a borderless economy doesnt mean managing by averages. It doesnt mean that all tastes run together into one amorphous mass of universal appeal. And it doesnt mean that the appeal of operating globally removes the obligation to localise products. The lure of a universal product is a false allure. Some products tend to be more global than the others. These include cameras, watches, pocket calculators, premium fashion goods and luxury automobiles. In the case of many industrial products, since purchase decisions are normally taken on the basis of performance characteristics, considerable scope exists for global standardisation. However, even here, local customisation may be required in engineering, installation, sales, service and financing schemes. In the same industry, different segments may have different characteristics. Institutional financial services, tend to be more global than retail ones. Ethical (prescription) medicines tend to be more global than OTC drugs. Within a given product, some features lend themselves to global standardisation. Consider a product like cars. Traditionally, car manufacturers have developed hundreds of models to meet the needs of different markets without exploring the scope for standardisation. This has resulted in unused capacities and inefficiencies. Faced with excess capacity, car manufacturers have been looking for ways to cut costs. One approach has been to build models of different shapes for different markets around standardised platforms. The idea here is that the basic functionality of a car can be extended globally while features and shape are customised to appeal to

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varying consumer tastes in different parts of the world. Ford, Honda (See Box
==================================================================== * In his book, The Borderless World, p 24.

Item), Toyota and Volkswagen have made a lot of progress in standardising their platforms. Product positioning International positioning is far more complicated than positioning in the domestic market. The degree and nature of segmentation can vary across countries. Brands may not be perceived the same way in different regions. The importance of product attributes may vary from market to market. A TNCs ability to convey an identical positioning across countries may also be constrained by the different degrees of sophistication in the local marketing infrastructure. Well-entrenched local brands can also cause problems by creating competitive pressures that demand a different positioning. Having said that, opportunities for global positioning are expanding due to the convergence of tastes. Global communication media and frequent travel between countries are creating a degree of homogeneity in consumer tastes. In the case of industrial products, organizational linkages created by professional organisations are accentuating this trend. In general, a global positioning is recommended when similar customer segments exist across countries, similar means of reaching such segments are available, the product is evaluated in a similar way by different segments, and competitive forces are comparable. On the other hand, differing usage patterns, buying motives and competitive pressures across countries result in the need for positioning products uniquely to suit the needs of individual markets. Global positioning ensures that money is spent efficiently on building the same set of attributes and features into products. Global positioning can also reduce advertising costs. However, as mentioned earlier, uniform positioning without taking into account the sensitivities of local markets can result in product failures. For a long time, Citibank has been serving the premium segment in India. To open a savings bank account, the minimum deposit required is Rs. 3 lakhs. While this may sound reasonable in dollar terms ($7000) it is obviously beyond the reach of the Indian middle class. Citibank has probably realised that targeting the mass market is a Herculean task in a vast, predominantly rural country like India where there are also several restrictions on the expansion of foreign banks. Hence its decision to limit itself to Indias major cities and target wealthy individuals and blue chip corporates. Citibanks upmarket positioning as a consumer finance company, rather than a

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commercial bank, needs to be appreciated in this context. Now Citibank seems to have realised the need for offering products and services for the mass market. Its new Suvidha scheme is in line with the changed philosophy.
Table I The most Valuable Brands in the world Rank Brand Brand Values ($ million) 1 Coca Cola 83,845 2 Microsoft 56,654 3 IBM 43,781 4 General Electric 33,502 5 Ford 33,197 6 Disney 32,275 7 Intel 30,021 8 Mc Donald's 26,231 9 AT & T 24,181 10 Marlboro 21,048 11 Nokia 20,694 12 Mercedes 17,781 13 Nescafe 17,595 14 Hewlett Packard 17,132 15 Gillette 15,894 16 Kodak 14,830 17 Ericsson 14,766 18 Sony 14,231 19 Amex 12,550 20 Toyota 12,310 Source: Interbrand, August 3, 1999, "World's most valuable brands survey."

Global positioning of products often evolves over time. Ford offers some useful insights in this context. The automobile giants Escort model was launched individually in different countries. Each country not only came up with its own positioning but also developed its own advertising messages using local agencies. In some countries, the product was positioned as a limousine and in others as a sports car. Compared to the Escort, Fords new compact, Focus is a classic example of global positioning. The Focus is being launched across different markets as a car with a lot of design flair, plenty of space, great fuel efficiency and special engineering features to enhance safety. Ford has employed only one advertising agency for the launch of the Focus. Nestle uses positioning documents for its global, as well as, important regional brands. These documents are prepared by the respective strategic business units in consultation with marketing personnel from different parts of

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the world and are approved by the general management. In the late 1990s, roughly 40% of Nestles total sales was generated by products covered by the Nestle corporate brand. For some products such as pet foods and mineral water, Nestle has chosen to keep the brands as distant as possible from the corporate brand. Nestle CEO Peter Letmathe* explains: We felt that people buying water are looking for the purity of the source whereas our seal is that of a manufacturer. So we set up a special institute, Perrier Vittel, which puts its own guarantee on mineral water.
Table II Top brands in terms of advertising expenditure in the US [Figures in $ million] BRAND SPENDING 1998 1999 Chevrolet 645.5 656.3 MCI 636.2 439.9 Ford 621.4 569.9 Dodge 602.8 551.8 McDonalds 571.7 580.8 Sears 571.4 664.6 AT&T 550.8 475.9 Toyota 500.0 453.8 Sprint 462.4 343.9 Burger king 407.5 427.0 Source: Advertising Age

The choice of brand name is an important issue in global marketing. Companies such as Coca-Cola have used the same brand name around the world for their flagship products. Others have used different names to convey the same meaning in different languages across the world. Volkswagen has chosen the same brand name across various countries for many models but there have been some exceptions. It has a series of model names denoting Wind - Golf (gulf wind), Sirocco (hot wind in North Africa) and Passaat (trade wind). Golf is one of Europe's most popular cars. For the US market, however, Volkswagen renamed the Golf as Rabbit to project a youthful image. Japanese car maker Nissan's experience offers useful lessons. When Nissan started exporting cars to the US, it chose the name Datsun. After establishing the brand over a period of time, it decided to revert back to Nissan. Sales however plummetted, with the name change possibly playing a major role in the decline.
==================================================================== * The McKinsey Quarterly, 1996 Number 2.

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Table III Top companies in terms of ad spending outside the US [Figures in $ million] BRAND SPENDING 1997 1996 Procter & Gamble 3011.4 2499.8 Unilever 2525.5 2235.0 Nestle 1321.2 1540.6 Toyota 1254.4 1023.5 Coca Cola 1026.4 851.8 GM 946.5 814.8 Volkswagen 898.2 948.5 Peugeuot 870.5 963.6 Nissan 866.9 871.8 Mars 864.8 715.9 Source: Advertising Age

Advertising In general, advertising is more difficult to standardise, than product development. Due to language differences, chances of being misunderstood are great, especially in the case of idiomatic expressions. Besides, cultural differences can result in different interpretations of the same advertisement in different countries. Differences in media infrastructure also play an important role. In many emerging markets, due to a low penetration of TV sets in rural areas, film based advertising is ruled out. Differences in government regulations also stand in the way of developing a standardised approach to advertising. In Germany, comparative advertising is not permitted. Commercials showing children eating snacks are not allowed in Italy. Many countries impose restrictions on the advertising of alcohol and cigarettes. Due to all these factors, advertising copy content may have to be modified suitably. Yet, some advertising activities can be rationalised, to do away with inefficiencies resulting from excessive customisation. Consider the choice of advertising agency. A totally decentralised approach would mean selection of different agencies for different countries. While local agencies are often in the best position to understand the needs of the local markets, no global company can afford a totally uncoordinated approach towards advertising. Nestle once employed over a hundred different agencies. As the company looked for global branding opportunities, coordinating the activities of multiple agencies became a major problem.

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Nestle decided to retain only a few agencies Mc Cann Ericsson, Lintas, Ogilvy & Mather, JWT, Publicis / FCB and Dentsu.
Pricing in emerging markets: Forgetting the ground reality Pricing very often has to take into account local factors, especially in the case of consumer goods. Indians are among the worlds most price sensitive customers. Yet, many MNCs operating in India have ignored the mass market and launched products for the upper end of the market. Consequently, their ability to build volumes has been threatened. Consider the following. When Levi Strauss entered India in June 1995, it was expected to do well, as it had the advantage of owning one of the leading brands in the world. By mid 1998, Levi had realised that it was going nowhere. Teenagers perceived Levi's products, priced over Rs 2,000, to be too expensive, forcing the company to tone down its premium image. Nike1 started marketing its brands in India in 1995. Till April 1999, however, Nike did not offer any product priced below Rs 2500. Needless to say, volumes did not pick up. In July, 1999, Nike was forced to introduce sneakers priced at Rs 999 to meet the general purpose needs of entry level sports enthusiasts. Heinz recently launched a ketchup in India and claimed2: "We're bringing real ketchup to India." A 500 gm bottle was priced at Rs 65, 20% more than market leader, Maggi. Heinz feels that Indian customers will be willing to pay a premium as Indian taste buds are sophisticated enough to distinguish the superior taste. Gillette has decided to focus on the premium segment in the urban areas of India. Zubair Ahmed, Gillette's country manager explained recently 3: "While most of the blade sales are in the rural markets, these constitute low cost blades. That's not a game that Gillette would like to get involved in since our gameplan is to increase value." Even Gillette's new launches in the flat blades segment are priced four to five times higher than those of competitors. Daewoo4 is a relatively small player in the global automobile industry and is known for its aggressive pricing strategies. Yet, when it launched its small car, Matiz in India in November, 1998, Daewoo announced a price of Rs. 3.55 lakhs, substantially higher than the country's best selling car, Maruti 800. Daewoo's price was also higher compared to competitors like Hyundai (Santro) and the Tatas (Indica). Subsequently, Daewoo cut prices to boost sales.

Nestle CEO Peter Letmathe has explained the role of an advertising agency in the companys globalisation efforts5: To us, the most important thing is to have dedicated teams. Mc Cann for instance has 10 people
==================================================================== 1 See article by Chhaya, Just Re-do it, Business Today, March 22, 2000, pp 127-129 2 Business India, March 6-19, 2000, p 88. 3 Business Today, May 7-21, 2000

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Wrong pricing had created problems for Daewoo earlier when it launched the up market Cielo. Expecting to sell some 72,000 cars per year, Daewoo found that the total Indian market could not absorb even 50,000 units. The McKinsey Quarterly, 1996 Number 2.

working only with Nestle. I see them as an extended arm of my communications team. They visit every six weeks to tell us what they are doing around the world. Nestle subsidiaries have encouraged their local agencies to tie up with the companys global agencies. The rationalisation of worldwide communications efforts has helped Nestle cut advertising in the case of products such as coffee, ice creams and chocolates. Nestle has also made attempts to transfer advertising content across countries, but there are obvious limits, as Letmathe explains through an example1: Some time ago, Chile produced an outstanding Nescafe commercial. In a little house by a lake, a man gets up early and tries to wake his son (who prefers to stay in bed) to go fishing. We see the disappointed father sitting in the morning mist at the lake. Then the son reconsiders the decision, gets up and makes a cup of coffee and brings it to his father for a moment of spontaneous renewal. Their whole relationship is built up through coffee. Now, the same commercial, projected in a different market can bring completely different connotations. In Paris, you might even provoke ecological feelings that look almost like an environmental statement. The same images are perceived totally differently. Pricing When it comes to pricing, both global and local approaches can be used, depending on the specific situation. Consider the virtual bookstore Amazon.com, which sells books - essentially branded products. Customers typically have a distinct preference for a particular book. For Amazon. com, global pricing makes sense except in cases where cheaper reprints are available for developing countries. On the other hand, in the car industry, pricing has to take into account local factors. Companies such as Ford2 and General Motors are realising that their Indian customers are unwilling to pay Rs. 8-9 lakhs (based on an exchange rate of Rs. 45/$) for the same models which cost $15 18,000 in the US and Western Europe. This is putting pressure on them to look for ways to cut costs, indigenise and offer cheaper models. Fiats success in Brazil has been largely due to its ability to design and offer value for money cars. Sometimes, global pricing becomes difficult because of different levels of competition in different markets. A company like GE which follows global pricing for its jet engines, makes suitable adjustments to take into account local competitive factors. Using a uniform price relative to competitors appears to make sense in many cases as it

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protects market share while maintaining a consistent positioning. A point

==================================================================== 1 The McKinsey Quarterly, 1996 Number 2. 2 See Case The Indian Car Industry, in this book.

which MNCs should appreciate is that multiplying the home country price by exchange rate to arrive at the price in the overseas market may not always be appropriate. Very often, there is a significant difference between the market exchange rate and the exchange rate calculated on the basis of the relative purchasing power of the two currencies. The Indian rupee trades at about Rs. 46 to the dollar but based on relative purchasing power, the rate is closer to Rs. 10. Sales & Distribution Approaches to personal selling can vary from country to country. In some markets, door to door selling is very popular while in others, people prefer to shop at retail stores. Telemarketing is quite popular in the US but not so in many Third World countries. Yet opportunities to standardise should not be ignored. Dell Computer has replicated its direct selling practices across the world. To be closer to overseas customers in Europe and Asia, Dell has a plant in Limerick, Ireland and another in Penang, Malaysia. In Ireland, Dells facilities are very close to the plants of its suppliers such as Intel (microprocessors), Maxtor (hard drive) and Selectron (motherboard). Such arrangements facilitate the smooth execution of Dells direct selling, build to order, just in time model. Dells sales persons directly target large institutional accounts. Retail customers can dial toll free one of its call centres in Europe and Asia. If a customer in Portugal makes a local call, it is automatically forwarded to the call center in France where a Portuguese speaking sales representative answers the customers questions. International distribution has to take into account local factors. Strategies can vary from country to country owing to different buying habits. In some societies, mom and pop stores proliferate, while in others large departmental stores carrying several items under one roof are popular. In some countries, intermediaries handle credit sales, while in others, cash transactions are the norm. Even within developed countries, significant differences exist in the channels of distribution. (See Note: Distribution in Japan at the end of the chapter). The rapid emergence of the Internet is however changing the old paradigm. Many companies are seriously looking at the potential of the Net as a global distribution vehicle, an excellent example being Amazon.com. Conclusion

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Global marketing strategies have to respond to the twin needs of global standardisation and local customisation. In their quest to maximise local responsiveness, companies should not overlook opportunities to standardise and cut costs. On the other hand, an excessive emphasis on generating efficiencies through a standard marketing mix may result in the loss of flexibility. The challenge for global marketers is to identify the features which can be standardised and build a core product. Then customised offerings can be designed around the core product for different markets. In real life, striking the right balance between standardisation and customisation can be extremely challenging. A classic example is Volkswagen, which faced major problems while trying to market its best selling model, Golf in the US. CEO, Carl Hahn, who had been leading the company's globalisation efforts admitted* "Our basic mistake was to trust the design adaptation of the Golf to American thinking: too much attention to outward appearances, too little to engineering detail.... We were not true to our heritage. We gave American customers a car that had all the handling characteristics - one might say the smell - of a US car. We should have restricted ourselves to our traditional appeal, aiming at customers, who were looking not for American style but for a European feel. Instead, we gave them plush, colour coordinated carpeting on the door and took away the utility pocket. We gave them seats that matched the door but were not very comfortable."
Figure A A Framework for Global Marketing: Striking the balance between centralisation and decentralisation Discounts, Responding to seasonal trends Channel selection, Schemes & Discounts Execution, Choice of sponsor Choice of Media Local Customisation Questionnaire Administration Policy guidelines for regional trading blocs , common markets Internet initiatives, warehousing Theme, Choice of brand name Module building Questionnaire Design Policy guidelines for the worldwide system Policy guidelines Choice of agency, Positioning Management of brand equity Design & Prototype development Identification of Information to be

Pricing

Distribution Advertising & Positioning Product Development

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Market Research Dominance of Local Considerations

collected Dominance of Global Considerations

==================================================================== * Harvard Business Review, July August, 1991.

Case 6.1 : LOral - Global branding in action*

Introduction French company LOral has established a global presence over the years. Though LOral also makes dermatological and pharmaceutical products, cosmetics account for about 98% of total sales. In 1999, LOral generated 56% of its cosmetics sales in Western Europe, 27% in North America and 17% in the rest of the world. LOral which recorded worldwide sales of Euro 10.7 billion in 1999, has 300 subsidiaries, 100 agents and 42,164 employees located all over the world. The companys top ten brands are LOral, Garnier, Lancome, Biotherm, Vichy, Maybelline, Redken, Ralph Lauren, Helena Rubinstein and Giorgio Armani. These brands account for about 80% of LOral's worldwide cosmetics sales. The French company also has strong research capabilities. LOrals Paris headquarters has a large research department that employs over 2100 scientists and files applications for about 400 patents a year. Background Note Eugene Schueller of Paris, after inventing a synthetic hair dye in 1907, established LOral in 1909. After World War II, demand for LOrals products picked up significantly. In 1953, LOral appointed Cosmair as its distribution agent in the US. The company went public in 1963. It diversified in 1965, acquiring French cosmetics maker, Lancme. In 1973, LOral entered the pharmaceuticals business. A year later, Schullers daughter Liliane Bettencourt, who had taken control of the company after his death, swapped nearly half her stock for a three percent holding in Nestle. In the 1980s, LOral grew by leaps and bounds to become the worlds leading cosmetics company. It acquired popular brands such as Ralph Lauren, Gloria Vanderbilt and Helena Rubinstein. Englishman Lindsay Owen Jones became the CEO in 1988. In 1995, LOral acquired Maybelline for $508 million to become the second largest cosmetics company in the US, after Procter & Gamble. In 1996, LOral set up subsidiaries in Japan and China. A year later, it added subsidiaries in Romania and Slovenia. LOral acquired ethnic hair care products maker Soft Sheen in 1998. In 2000, LOral continued with its policy of growth through acquisitions, buying Carson, an

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ethnic beauty products maker, Kiehls, a cosmetics company and Matrix essentials, a salon products manufacturer, owned by the pharmaceutical company, Bristol Myers Squibb.
==================================================================== * This case draws heavily from an article published in Business Week dated June 28, 1999, LOral: The beauties of global branding, Gail Edmondson, et al. Quotes in the case are drawn from this article.

Global Presence LOral currently1 sells cosmetics worth $2.3 billion in the US alone. It had entered the US market as early as 1920, but business in North America really took off only after two exclusive sales agents were commissioned for importing its products: Cosmair USA in 1953 and Cosmair Canada in 1958. These two agents became LOral subsidiaries in 1995. By 1999, LOral was controlling two research centres, 18 subsidiaries and eight factories in North America. In Europe, LOral had started exporting as far back as 1910. Today, LOral owns 169 commercial subsidiaries and 22 factories in Europe. It also has six research centres and 28 agents. LOral had entered Asia in the late 1960s, setting up operations in Hong Kong and Japan. In 1998, Asia generated 4.3% of the companys cosmetics sales. Today, the group controls 23 subsidiaries, 18 agents and four factories in South East Asia. LOral also has a presence in Australia, New Zealand, the Middle East and many African countries. LOral had entered Latin America in the 1920s. It expanded the Latin American operations rapidly after World War II. In 1999, LOral was present in nearly all countries in the region, controlling 29 subsidiaries, 36 agents and 5 manufacturing subsidiaries. Global branding LOral is a good illustration of how global branding can be used to generate new growth opportunities without in any way reducing responsiveness to local needs. LOral, has a portfolio of popular brands, that embody their country of origin. The French company believes that two beauty cultures dominate the French and the American. The two flagship brands, LOral and Maybelline, have distinct positions. LOral is positioned as a French product, with supreme elegance, high prices and sophisticated packaging. Maybelline on the other hand, represents an American value for money product which is perceived as street smart and attempts to convey the urban American chic. Owen Jones feels that creativity in a large organisation such as LOral can be stimulated through competing brands2: It sets one research centre against another research centre, one marketing group against another

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marketing group. They fight among themselves and in so doing, we hope, also beat the competition. In line with this philosophy3, LOral has set up two creative headquarters, one in Paris and the other in New York. Owen Jones explains:
==================================================================== 1 1999 figures 2, 3 Business Week, June 28, 1999.

We set up a counter power in New York with people that have a totally different mindset, background and creativity. The two hubs undertake collaborative research efforts but are competitors when it comes to marketing. LOrals American brand, Redken, competes with Preference, the companys brand in France. Owen Jones feels that healthy competition will motivate the French and American companies to perform even better.
Table I LOral: Summarised Profit and Loss Account (Figures in $ Million) 1999 1998 1997 Sales 10,825 13,417 11,522 Gross Profit 3,733 4,864 4,298 Net Income 702 839 664 Net Profit Margin (Percent) 6.5 6.3 5.8 Source: LOral website, www. loreal.com

LOrals global marketing efforts have been spearheaded by Owen Jones himself. Press reports describe his habit of moving around on the streets in overseas markets, trying to understand customer needs. Owen Jones says*: We have this great strategy back in the head office of how we are going to do it worldwide. But when you go out and look at what is happening, is there a big gap between your projections and the reality of what you see and hear? It is so important to have a world vision because otherwise decentralised consumer goods companies with many brands can fracture into as many little parts if somebody isnt pulling it back the other way the whole time with a central vision.
Table II LOral: Geographic Segment Information (Sales for 1999) $ Million Percentage of Total Western Europe 5,995 56 North America 2,972 27 Other regions 1,837 17 Total 10,804 100 Source: LOral website, www. loreal.com

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Having already established itself in Europe and the US, LOral is now seriously looking at emerging markets. Its acquisition of Soft Sheen is expected to help LOral to penetrate the African markets. L Oreal has been rapidly expanding in India since it set up shop in 1997. It is already the market leader in Mexico. LOrals experience in China reflects some of the
==================================================================== * Business Week, June 28, 1999.

challenges it faces in emerging markets. The companys move to use the glamorous Chinese movie star, Gong Li to sponsor its products has not paid off. Looking back, some analysts feel that LOral should have preferred a sponsor with the girl next door looks as ordinary customers could not relate to Gong Li. When the movie stars contract came up for renewal, L' Oreal decided to involve other sponsors in place of the earlier exclusive arrangement. One important market where LOral continues to be weak is Japan, the second largest cosmetics market in the world with annual sales of about $ 25 billion. Among the problems which the company faces in Japan are the countrys complex distribution network and strict health and safety regulations. LOral recently regained control of Maybelline from local cosmetics maker Kose which had purchased the rights prior to LOrals takeover. Notwithstanding these problems in Japan, LOral seems well placed to continue its global thrust. The French company has seen double digit growth for the last 10 years. As Business Week* has reported, LOral has developed a winning formula: a growing portfolio of international brands that has transformed the French company into the United Nations of beauty.

==================================================================== * June 28, 1999.

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Case 6.2 : Danone - Evolution of a global marketing strategy*

Introduction The French group, Danone is a global leader in the food industry. It is the largest player in the fresh dairy foods and cookies segments and the second largest player in the bottled water business. Some of Danones famous brands include: Bledina, Dennon, Le Sernisima, Galbani (dairy products), Volvic, Ferrarelle, Aqua (Bottled water) and Heudebert, Opavia, Bagley, Britannia (biscuits). In 1999, Danone recorded sales of Euro 13.293 billion and a net income of Euro 682 million. The group employed 75,965 employees in 150 countries. Background Note In 1966, glass container manufacturers, Souchon Neuvesel and Glaces de Boussoi merged to form BSN with an annual turnover of FF 1 billion. By the early 1970s, BSN had diversified into baby foods, mineral water and beer. In 1973, BSN and Gervais Danone decided to merge to form the biggest food group in France called BSN Gervais Danone. By 1979, the groups turnover had reached FF16.5 billion. Following the oil shocks of the 1970s, the group decided to withdraw completely from the glass business to concentrate on foods. In the early 1980s, BSN Gervais Danone began serious attempts to expand across Europe. To start with, it focussed on countries like Spain and Italy, which had a low penetration of super market and hypermarket chains. Gradually, the group established operations all over southern Europe and in the key markets of Britain and Germany. In 1986, it acquired General Biscuit, which had a network of companies in Germany, Belgium, France, the Netherlands and Italy. Three years later, BSN Geravis Danone pulled off a major coup when it acquired US food giant Nabiscos subsidiaries in France, the UK and Italy. With this, the group became the third largest player in the foods business in Europe. By 1989, the groups turnover had grown to FF48.7 billion.

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In the late 1980s, the collapse of communism in the Soviet Bloc countries opened up new opportunities in Eastern Europe. After an initial period of exports, the group set up several joint ventures with local dairy companies in this region. In 1993, a specialised exports division was set up to identify brands with an international appeal and markets which could be
==================================================================== * This case draws heavily from the article, Danone hits its stride, by Gail Edmondson, et al, Business Week, February 1, 1999.

aggressively tapped. The group entered countries like China, Japan, Indonesia, Argentina, Brazil and Mexico. In 1994, BSN Gervais Danone, rechristened itself as Group Danone. Under Franck Riboud its CEO since May, 1996, Danone has been sharpening its focus on core products such as cookies, beverages and dairy products. Besides, the company has also been expanding its global presence. Global expansion Faced with saturated western markets, the motivation for Danone to globalise is fairly strong. Currently, Danone generates 39% of its sales in France and 76% in Europe. This compares quite favourably with the situation in 1992, when 95% of its sales was generated inside Europe. Danone has now indicated plans to achieve 33% of its total sales outside Europe by 2000. In emerging markets, Danone which lags behind Nestle and Unilever sees plenty of growth opportunities. Danone has several strengths to support its globalisation efforts. It owns some of the worlds top brands. Another strength seems to be Ribouds leadership and management style. His fast decision making abilities have helped the company to make quick product launches and strategic acquisitions in key markets. Riboud has also been encouraging and prodding his executives to be aggressive while entering overseas markets. To reinforce Danone's globalisation efforts, Riboud has listed the company on the New York Stock Exchange. By becoming the official supplier to the football world cup held in France in 1998, Danone gained global visibility through the worlds most televised sporting event. Riboud has also hired several executives of non-French origin at senior levels. Some of them have come from FMCG companies such as Sara Lee, Nabisco and Campbell Soup. A Venezuelan has been put in charge of the global water business while a New Zealander manages the Asian region and an American looks after product development. Danone has also prescribed a general rule that new managers must spend at least three years outside their home country.
Table I Danone: Sales Outside the European Union

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Year 1995 1996 1997 1998 1999 International sales of Danone (Euro million) 1719 2287 3058 3303 3960 As percentage of total sales 14 18 23 25 30 Source: Danone website, www. donone.com Table II Danone: Sales by geographical region (1996) France : 34% Rest of European Union : 36% Rest of the world : 30% Source: Danone website, www. donone.com Table-III Danone: Sales by business line (1999) Fresh dairy products 47% Beverages 28% Biscuits 22% Other food businesses 3% Source: Danone website, www. donone.com

As Danone continues its international expansion, it has to address several key issues. In Asia and Latin America, where its brand name is not as strong as in Europe, Danone faces stiff competition from companies such as Nestle, Unilever and RJR Nabisco. Dairy products account for 72% of Danones sales, a significant portion of which is generated by yoghurt, a popular food in Europe. The company faces major challenges in its bid to popularize yoghurt, which is not part of the traditional diet, in many parts of Asia and Latin America. In India, yoghurt is popular but most Indians are used to preparing curd at home. In Mexico, Danone is attempting to boost yoghurt consumption by educating customers about its nutritional value and sending nutritionists to schools. Danone seems to have made a marketing blunder in Brazil, through an unwarranted focus on high priced premium yoghurt products. Danone also faces stiff competition in the mineral water business, which it has been trying to expand through acquisitions. Nestle however continues to be a formidable competitor and Coke and Pepsi are both strengthening their presence in the water business. In the strategically important US market, growth and operating margins have not been impressive. Notwithstanding those problems,

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the $15.8 billion Danone is setting an example for other European companies that are serious about globalisation.

MTV: Global entertainment for a local audience*

Introduction MTV Networks, one of the leading entertainment channels in the world, earned an operating profit of $1 billion (before depreciation, interest and taxes) on sales revenues of $2.4 billion in 1999. During the 20 years of its existence, MTV, a part of Viacom, one of the worlds largest entertainment groups, has come a long way. (Viacom, which earned revenues of $12.86 billion in 1999, operates in 100 countries, employing some 126,820 people). Today, MTV airs 22 types of programmes for audiences all over the world. Even though MTV currently generates profits of only $50 million outside the US, its investments in Asia, Australia, Europe, Russia and Latin America are beginning to pay off. Global Expansion MTV began as a joint venture between American Express and Warner Communications. Almost from its inception, the MTV channel had a tremendous impact on the lifestyles of young viewers. Current MTV chairman Sumner Redstone acquired a controlling stake in Viacom in 1987. Even though the banks that supported Redstone were not very confident about MTVs prospects, Redstone himself was very optimistic. Redstone restructured MTV and installed a more aggressive advertising and sales staff. The then CEO, Franks Biondi, began efforts to promote MTV networks as global brands, with unique offerings for customers. Biondi negotiated exclusive contracts that gave MTV the first rights to play most major record companies music videos. MTV also went beyond music to produce new kinds of programming that would appeal to the youth. Redstone, laid great emphasis on keeping costs under control, leading by example. He decided to produce most of the programs with MTV employees using low cost homegrown talent instead of celebrated hosts.

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In 1987, MTV launched its programmes in Europe, using a single feed across all countries, based on American programming and English speaking veejays. Soon, MTV realised that tastes varied from country to country and local competitors were snatching market share. Over a period of time, MTV increased the number of feeds. By 2000, MTV was offering five categories of regional programmes one for the UK and Ireland, another for Germany, Austria and Switzerland, a third for Italy, a fourth for Scandinavia and a broader broadcast for 28 countries including Belgium, Greece and
==================================================================== * Draws heavily from the article Sumners Sandstone by Brett Pulley and Andrew Tazer in Forbes Global, February 21, 2000. The quotes in the case are drawn from this article.

France. Even though about 60% of MTVs programs originate in the US, MTV is now increasingly moving towards locally produced fare. According to William Roedy, London based president of MTV: Local repertoire is a worldwide trend. There are fewer global megastars. Technology has played a major role in helping MTV to respond efficiently to local customer needs. More than half a dozen broadcasts can be made using the same satellite transponder. Viacoms recent merger with CBS is expected to give a renewed thrust to MTVs globalisation efforts. After the merger is completely implemented, CBSs two music networks, Nashville Network and Country Music Television, are likely to be integrated into MTVs network. MTV is confident that it can popularise country music in several overseas markets. For MTV, globalisation has not been free from hurdles. In many overseas markets, local imitators are eating into MTVs market share. Regulatory snags have stood in the way of MTVs opening new channels in South Africa and Canada. In Italy, where MTV runs one of its most popular channels, regulators are limiting the number of licensed broadcasters. Regulatory hurdles also exist in another important market, Japan. Roedy however remains supremely upbeat: We want MTV in every household. MTV has identified India as a strategically important market. The country has a rich tradition of music. Most movies produced in the Indian movie capital Bombay are packed with song sequences. MTV videos in India heavily promote albums and films and also new singers. Currently, the Indian channel produces 21 local shows, hosted by local veejays, who speak a mixture of Hindi and English. MTV today reaches an estimated 13.3 million homes in India. The management in India is essentially local. Roedy admitted in a recent interview: Creating 22 new MTVs outside the US hasnt been easy. Were always trying to fight the stereotype that MTV is importing American culture. Redstone on his part takes great

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pains to explain that MTV does not believe in cultural imperialism; and that it attaches great importance to cultivating and nurturing local artistes and shows. Much of Redstones time is spent in managing relationships with skeptical governments who are worried about the cultural invasion by the West. Recently, Redstone travelled to China to smoothen the rumpled feathers of the Chinese Government, which was furious at the accidental bombing of the Chinese embassy in Yugoslavia by US warplanes. This had led to the Chinese Governments refusal to air an MTV awards programme produced specifically for the Asian market. Redstones public relations efforts worked and the show called Mandarin Music Honours was viewed by some 300 million Chinese households.

Case 6.3 : Competing effectively in emerging markets - Fiat in Brazil

Introduction Brazil is the seventh largest car market in the world and the largest among emerging markets. In 1997, almost 1.8 million vehicles were sold in Brazil. Not surprisingly, most of the major automobile companies have been taking this market seriously. Strangely enough, the top two players in this strategic market do not belong to the US or Japan. Instead, it is the German car maker, Volkswagen which is the leader*, with a 29.1% share of the market, closely followed by the Italian company Fiat with 28.3%. The success of Fiat despite its relatively weak brands and poor quality products offers important lessons for MNCs competing in emerging markets. Background Note After entering Brazil in the 1970s, Fiat maintained a relatively low profile for a long time. In the early 1990s, as growth in Europe slowed down, global market expansion became a compelling need for Fiat. After careful deliberations, the top management identified several strengths in the companys Brazilian operations. Not only was Brazil a fairly big market, but also, Brazil, Argentina, Uruguay and Paraguay had formed a customs union called Mercosur. Fiat had a very efficient plant near Sao Paolo, with enough capacity to serve the large market. The company decided to move boldly, spending almost $2.5 billion in expanding and upgrading the plant. In late 1995, Fiat deputed one of its star executives, Giovanni Razeli, to Brazil to manage the companys aggressive expansion in Latin America. Circumstances turned in Fiats favour around this time. Even before Razelis arrival, Fiat got a major boost when President Fernando Collor de Mello reduced taxes on sub compact models (below one litre engine capacity).

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This helped the market to expand by more than 50 percent within a year. In a proactive move, Fiat decided to retool its plant and launch its sub compact model, the Uno. The low cost of production enabled Fiat to price this model as low as $ 7250. In 1993, the very first year of its launch, sales crossed 100,000. Next year, sales doubled. Even though the Uno was not very elegant looking, the cars affordability appealed to customers in a country traditionally plagued by hyperinflation and low purchasing power. Fiat did not remain content with the success of the Uno. The company realised that as the market matured, customers would become more
==================================================================== * 1998 statistics

discriminating. In 1994, when Fiat began firming up plans for the launch of its world car the Palio, Brazil was chosen as the launch market. Fiat trained more than 100 Brazilian engineers at its headquarters in Turin, Italy. With inputs from the Brazilian team, the Palio was designed with higher ground clearance and sturdier suspension to negotiate Brazils rough roads. The car was made stronger than the Punto (Palios equivalent in Europe), to suit the road conditions. For Fiat, whose cars had a long standing reputation for lightweight tininess, this was a big change. Fiat also equipped the Palio to combat plenty of noise, dust and water, everyday hazards of driving in Brazils tropical conditions. The Palio was also made bigger than the Punto, to serve as the sole family car for Brazilians, instead of being the second car as in the case of the Europeans. The design team rounded the cars edges and stylised the tail lights to give the car a sportier look. When the Palio, prized at $11,000 was launched in 1996, it became popular overnight, selling more than 230,000 units by the next year. The Palio has now emerged as the second most popular car model in Brazil after Volkswagens Golf. Fiat has launched various other initiatives to strengthen its competitive position in Brazil. It has streamlined the supply chain and asked suppliers to relocate close to its plant to facilitate trouble shooting on the shop floor. Fiat has also invested heavily in employee training and asked workers to join programmes ranging from elementary school courses to post graduate studies. Challenges ahead One challenge which remains for Fiat to address is the dealer network. Dealers in Brazil are notorious for overcharging customers and providing poor service. Fiat plans to select only the best dealers and help them open more showrooms, instead of appointing new dealers. Fiat has already doubled the number of service centres (during the period 1993 98) but needs to set up

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many more centres, in a country where customers deeply mistrust the service departments of dealers. As other auto majors increase their commitment to Brazil, Fiat cannot afford to be complacent. Its early start, however, has given the company a competitive advantage that it can build on.

Case 6.4: Coca-Cola in India - A major struggle for a global giant Coca-Cola (Coke) entered India in the early 1990s, buying the well established brands of local businessman, Ramesh Chauhan. For Coke, the acquisition route made sense as it was entering India much after Pepsi, in its second avatar (Coke had left India in the early 1970s after pressure from the Indian government) The deal not only gave Coke the ownership of some of the most popular carbonated soft drink brands in the country (Thums Up, Goldspot and Limca) but also access to Chauhans distribution network of 56 bottlers. Coke paid approximately $100 million as part of the deal and gave Chauhan various carrots. Not only was Chauhan retained as consultant, he was also given the first right of refusal for new large size bottling plants in the Pune Bangalore corridor and bottling contracts in Delhi and Mumbai. Cokes first CEO in India, Jayadev Raja realised there were major weaknesses in the system inherited from Chauhan. Many of the bottling plants were of very small capacity (200 bottles per minute against the global standard of 1600) and used outdated technology. The bottlers resisted the idea of making further investments in their plants and in upgradation of the trucks used for shipping the bottles. Behavioural problems also emerged as bottlers found it difficult to adjust to the new arms length relationship with Cokes professional managers, used as they were to Chauhans paternalistic and hands-on style of management. To complicate matters, Chauhan himself felt alienated and began to emphathise with the bottlers. Coke on its part suspected that Chauhan* was supplying concentrate unofficially to its bottlers. In 1995, Raja was replaced by Richard Nicholas, an experienced hand in institutional selling. Nicholas gave an ultimatum to bottlers to expand their plants or sell out. Coke also began to insist on equity stakes in many of the bottling companies. As the beverages giant did not provide any soft loans and many of the bottlers were plagued by low margins, the move backfired. In

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Ahmedabad, a bottler switched loyalty to Pepsi. Soon, others followed. All along, Chauhan supported the bottlers from the sidelines. Coke made strategic blunders in the way it managed the countrys leading cola brand, Thums Up. During the 1996 cricket world cup, when Pepsi launched a popular advertisement campaign, Nothing official about it, (Coke was the official drink for the world cup.) Coke failed to use Thums Up to counter the campaign. Analysts felt this was a mistake as Thums Up had the right sporty image to take on Pepsi.
==================================================================== * Business World, March 6, 2000.

In 1997, Nicholas was replaced by Donald Short. Armed with heavy financial powers, Short bought out 38 bottlers for about $700 million. This worked out to about Rs. 5 Rs. 7 per case. Looking back, analysts feel a more appropriate figure would have been Rs. 3. Short also invested heavily in manpower. By 1997, Coke's employee strength had increased to 300. In early 2000, as overheads mounted, Coca-Cola headquarters admitted that the companys investments in India were proving to be a heavy drag.
Table I Coke Vs Pepsi in India Coca Cola No. of bottling plants 62 Ad spend Rs. 60 crores Marketing people 20 No: of brands 10 No: of CEOs in last 7 years 4 Money invested in India since entry $ 800 million Source: Business World, March 6, 2000, p 23.

Pepsi 42 Rs. 40 crores 3 5 1 $400 million

In recent times, Coke has been trying to fight back, by increasing its ad spending and associating the brand with sports and events that are popular in India, including cricket, movies and festivals. Coke has also appointed a new advertising agency, Chaitra Leo Burnett and hiked the advertising budget for Thums Up to Rs. 15 crores. During 1998 99, Cokes ad spend was roughly three times that of Pepsi. This has given Coca-Cola far greater visibility than earlier. A major area of concern for Coca-Cola is human resources. During the past seven years, Coke has had four CEOs. Coke is taking new initiatives to reorient the culture and inject an element of decentralisation along with empowerment. Each bottling plant is expected to meet predefined profit, market share and sales volume targets. For newly recruited management

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trainees, a clearly defined career path has been drawn, to enable them to become profit centre heads shortly after the completion of their probation. Such a decentralised approach is something of a novelty in the Coke system worldwide. However, an encouraging factor is the leadership style of the parent company's new CEO, Doug Daft, who is considered to be a strong believer in decentralisation. Daft has been sending signals that there is a need for Coca Cola to become an insider in every country to deal with local requirements more efficiently. Alexander Von Behr, who has recently taken charge of Indian operations has given clear indications that regionalisation of operations and decentralisation will be the buzzwords. Coke has divided the country into six regions, each with a business head. According to Von Behr*, We want to be an Indian company in India, based on principles of integrity, localisation, result orientation, teamwork and diversity. The way to do it would be through people. The new organisation structure has created upheavals in the Coke ranks with many employees leaving or being asked to leave. The Coke management is however confident that results will start coming. Von Behr has been moving around the country to restore employee morale. Douglas Daft is said to be watching the happenings in India with keen interest. Coke has initiated various belt lightening measures. Many executives who were earlier accommodated in farm houses have been asked to move to smaller houses. The number of farmhouses rented by Coke has reduced from 14 to six. Coke has also renegotiated the rentals of its Gurgaon headquarters. Von Behr has also put in place standardised discount limits to discourage reckless discounts given by managers in the past. Information systems are being upgraded to enable the Indian headquarters to access online the financial status of its out posts down to the depot level. Coca Cola executives continue to lay heavy bets on India, where the per capital consumption of beverages is only four bottles a year. India is obviously a market where there is a huge potential. Even though Coke is not expected to make profits in India for probably another 20 years, its global might gives it the staying power to press on in this strategically important market. Only time will tell how successful Cokes strategy in India will turn out to be.

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==================================================================== * Business Today, January 6, 2001.

Note 6.5 : Distribution in Japan

Introduction The Japanese distribution system has baffled many western MNCs, who have found it complicated and inefficient. A product typically passes through two, and sometimes as many as five layers of wholesalers before reaching the retailer. It has been estimated1 that the average retail price is three times the factory price in Japan as against 1.7 in the US. A distinguishing feature of the Japanese distribution system is that personal relationships among channel members are considered more important than objective parameters such as sales or profitability. Compared to the West, there is a larger number of small retailers2 typically dominated by large manufacturers. Background Note Traditionally, each distributor in Japan has functioned as a dedicated and exclusive channel partner for a manufacturer, in a particular product category. Often, a distributor does not stock competing brands. Primary wholesalers show tremendous loyalty and strongly believe that their livelihood is linked to the manufacturers ability to provide products that can compete with similar offerings by other players. The manufacturers on their part consider the distribution network to be an extension of their own company. Frequent exchanges of visits between the manufacturers executives and the distributors staff are common. With so much emphasis being laid on relationship building, disputes are resolved informally rather than on the basis of formal contracts. Most Japanese manufacturers actively support their retailers in areas such as after sales service, advertising and handling consumer complaints. Retailers also receive different kinds of rebates for placing bulk orders, making early payments, achieving sales targets, performing services, keeping inventory, promoting sales, being loyal to the supplier, etc. Another commonly accepted practice is the return of unsold goods by retailers to manufacturers, for virtually any reason. This practice, called henpin, is

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particularly popular in the case of apparel, books and pharmaceuticals. Channel members also use tegatas or promissory notes that offer buyers very generous credit terms.
==================================================================== 1 In the late 1990s 2 Fahy and Taguchi (Sloan Management Review, Winter 1995) have correctly pointed out that aggregate statistics conceal sectoral differences. While Japan has a significantly larger number of food stores compared to the US, this is not so in the case of non food stores. Also, while products such as fresh food pass through long complex channels, others such as electronic goods take a much shorter route.

Wholesalers handle the financing, physical distribution, warehousing, inventory and payment collection functions. Since land is very expensive, most retailers keep limited inventory and wholesalers are expected to deliver products fast, frequently and in small quantities to them. There is little risk for the retailers, who not only get generous financial assistance, but as mentioned earlier, can also return unsold goods. Wholesalers also provide sales people to the retailers and call on the bigger retailers, at least once a day. Cultural factors The Japanese diet typically consists of fish and other perishable items. As freshness is an important parameter, buyers often buy in quantities that last only for the day. (According to some estimates, 50% of Japanese women were accustomed to daily shopping in the 1990s). Due to congested roads and difficulties in driving and parking, Japanese customers also prefer to shop in their own locality. As a result, small independent stores, where sales staff provide excellent service, have emerged as an integral part of the distribution system. In 1997, mom and pop retail stores, with a limited selection of goods and high prices, accounted for 56% of retail sales, compared to 3% in the US and 5% in Europe. Small stores depend on the patronage of local clients and make special efforts to develop close relationships with their customers. Even for small purchases, they provide home delivery. Sales personnel also visit the homes of customers to collect gift orders during festive seasons. All products are checked meticulously before being packed and handed over to customers. Courtesy to customers is given utmost importance. When a shop opens in the morning, senior staff members stand at the entrance to welcome customers. During normal times of the day, staff members bow before the customers and thank them for their patronage. Prima facie, the complaints by western MNCs about unfair distribution practices in Japan seem to be valid. Yet, a careful understanding of the cultural context, would enable them to appreciate the subtleties

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involved and to respond suitably. The Japanese distribution system, as pointed out earlier, is based on trust rather than contractual relationships, with the terms not being negotiated explicitly. According to Pirog, Schneider and Lam*, Trust is crucial because there is no overt meeting of the minds in which one articulates his share of costs or what he expects to receive for his effort. The exchange experience creates a mutual obligation between the parties to carry out future exchanges with each other, resulting in increased bonds of trust and development of more accurate expectations. Channel
==================================================================== * International Marketing Review, Vol 14, Issue 2, 1997

partners in Japan are usually prepared to make short-term sacrifices and in turn expect help when they are in trouble. Consequently, small and inefficient channel members are often tolerated. The Japanese distribution system also meets larger social objectives such as employment generation. Senior citizens invest their savings in retail shops. As Martin1, Howard and Herbig put it: It is a flexible make work device, acting as a buffer to absorb excess workers, especially those of retirement age or to absorb labour during economic downturns. What Western MNCs need to do The implications for Western FMCG companies trying to enter Japan are very clear. Attempts to penetrate an existing channel may not be successful due to a conflict of interest between existing members and the new entrant. Consequently, western MNCs would do well to target partners whose allegiance to an existing distribution network is not very strong. As Pirog, Schneider and Lam suggest2, If Japans barriers to entry cannot be overcome, they can be circumvented. The socio- cultural framework suggests that westerners should look for Japanese affiliates that have low status within the distribution power structure, as these firms have the least dependence on others in the system and are most prone to cooperating with outsiders. Western companies can also take heart from the changing customer preferences in Japan. During the prolonged recession of the 1990s, many Japanese customers have become price sensitive and more demanding. According to Gen Tamatsuka, the merchandising director of one of Japans leading retailers, Fast Retailing3: Japanese consumers used to believe that cheap meant bad. Now that perception has changed. They are learning that they can have good quality at low prices. According to Fahy and Taguchi 4, In the past, a consumer who bought inexpensive products lost face, whereas now a consumer who buys high quality products at low prices is admired, a trend emphasised by discount stores significant gains in the past two years. Shorter working days and growing affluence mean that families are also

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prepared to travel by car to shop in suburban areas rather than visit nearby stores typically located adjacent to train stations.
==================================================================== 1 European Business Review, Vol 98, Issue 2, 1998. 2 International Marketing Review, Vol 14, Issue 2, 1997. 3 The Economist, June 1, 2000. 4 Sloan Management Review, Winter 1995.

Case 6.6 : Competing in India

Introduction After the economic liberalisation of 1991, many TNCs have entered India. Today, global companies having subsidiaries in India include Unilever, BAT, Colgate Palmolive, Procter & Gamble, General Electric, General Motors, Ford, Pepsi and Coca-Cola. India is now considered by many MNCs to be a strategically important market. Historically, the main reason for the entry of MNCs into India was to jump the tariff wall. High import duties ruled out the option of exporting finished goods from the home country to India. On the other hand, once they entered the country and set up operations, the countrys high tariffs guaranteed adequate protection. In some cases, the need to customise products necessitated a strong local presence. Over the years, Unilever's Indian subsidiary, Hindustan Lever, has developed various products to suit local tastes. This would obviously not have been possible if Unilever had only been exporting its products to India. In recent times, other reasons have become quite important. India has emerged as a low cost manufacturing base, thanks to its skilled but relatively cheap manpower. In the computer software industry, many MNCs are establishing Indian bases to tap local manpower. Not only are Indian software workers well educated, they are also more comfortable with English, compared to their counterparts in countries such as China. Companies like General Electric and Texas Instruments are looking at India as an important R&D base which can contribute to their global knowledge pool. Varying degrees of success While several MNCs have entered India, not all of them are doing well. This is obviously the case when performances are compared across industries. However, even within a given industry, some MNCs seem to be doing better than the others. Consider the automobile industry. Here, Suzuki and Hyundai

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are way ahead of formidable rivals such as General Motors and Ford. Similarly in the FMCG sector, even after allowing for its relative late entry, P&G remains a marginal player compared to Hindustan Lever. And surprise of surprises Pepsi seems to be doing much better than the global beverages leader, Coca-Cola. Then, there is also the unique case of an MNC, Indian Aluminium (Indal), actually being taken over recently by an Indian company, Hindustan Aluminium. Arriving at explanations for the good performance of some MNCs and the poor performance of others is obviously an involved exercise. An important point to note here is that different MNCs have set up shop in India at different points in time and responded to the needs of the environment accordingly. For example, MNCs which entered India in the 1990s have in general been more aggressive and proactive in a liberalised business environment, than those which began operations before Independence. The older MNCs have also been handicapped by the baggage accumulated over a period of time. Unilever, Bata and Alcan Consider three of the earliest entrants into the Indian market Unilever, Bata and Alcan (Indals parent). The company which demonstrated the highest degree of early commitment to the Indian market was obviously Bata. The shoe major invested in a fairly elaborate distribution network with its own retail shops in even small towns. Bata also took the bold step of targeting the mass markets rather than just the premium segments. While its shoes were expensive, compared to the roadside cobbler, they still offered value for money. Bata, however, began to deviate from this strategy in the late 1980s, targetting up-market segments. It saw its market share being rapidly eroded by nimble footed local players such as Liberty. Like Bata, Hindustan Lever Ltd (HLL) also displayed a clear intention from early on to take the Indian markets seriously. It set up a huge distribution network and developed a wide product range. Though its efforts to penetrate the rural markets have only taken off in recent times and in relation to local competitors like Nirma, some of its products look overpriced, HLL has a strong presence in India, that has inspired the awe of many TNCs. Of the three companies, Alcan* showed the least inclination to invest and build its business in India. Essentially, Alcan looked at India as a cheap source of bauxite, the main raw material used in the manufacture of aluminium. It decided not to build captive power plants, though fully aware of the pitfalls in depending heavily on the countrys poorly managed State Electricity Boards. Alcan also decided to depend on outsourced aluminium

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metal to add value and offer branded products. There is no satisfactory explanation which Alcan can offer for not investing adequately in smelters and power plants, the heart of any aluminium manufacturing process. Probably, Alcan's global policy guided the Indian subsidiary's strategies. On the other hand, Hindustan Aluminium, the leading private sector player in the Indian aluminum industry, has demonstrated that with a captive power plant, a highly profitable smelting business can be run.
==================================================================== * See case Alcan in India included in this book, for a more detailed account.

Today, HLL is probably the best managed MNC in India and one of the star performers in the Unilever group. However, it is facing a distinct threat from cheaper brands. On the other hand, Bata is attempting a turnaround, trying to refocus its marketing efforts on the mass markets. This is a major correction from the misplaced strategies of the late 1980s and early 1990s. And Indal, no longer exists, having been taken over by Hindalco. Koreans lead the pack In the automobile industry, the one MNC which has shown a clear willingness to make heavy early commitments in India has been Hyundai. This Korean company has not only chosen to enter the Indian market, with a car (Santro) which offers value for money to the countrys price sensitive consumers, but has also made very heavy investments in manufacturing facilities. Of course, Suzuki had pursued a similar approach when it entered India in the early 1980s, but then it had been supported by favourable government policies, in particular protection from imports. Hyundai is one of the few MNCs to have established meaningful volumes in India and that too, very quickly. A case on the Indian car industry, in a later part of this book, gives a more detailed account of Hyundais strategies. Another Korean company1, which seems to be doing well in India, despite the disadvantages of late entry, is Lucky Goldstar (LG). The Korean giant entered the country in 1997 but by 1999 had reached a turnover of Rs. 1056 crores and was earning profits of Rs. 40 crores. By early 2000, LG had emerged as the second largest consumer appliances brand behind BPL, but ahead of Videocon and another Korean rival, Samsung. While entering India, LG chose to set up a wholly owned subsidiary instead of pursuing the joint venture route. The company did not hesitate to pump in money and by early 2000 had invested almost $300 million with plans for investing another $100 million. In recent times, LG has announced that it will increase its production capacity in India, for most products - colour televisions (from 500,000 to 800,000), washing machines (from 200,000 to 400,000), air conditioners (from 100,000 to 200,000), and microwaves (from 50,000 to 100,000). LG is

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also investing $20 million in a new refrigerator plant. These are fairly heavy investments in the Indian consumer appliances business where the largest company, BPL has a turnover of less than $450 million. LG has succeeded not by competing on price, but by offering features which appeal to Indian customers. LG televisions incorporate golden eye2 technology and
==================================================================== 1 This part draws heavily from the article, LG pumps up the volume, Business World, March 6, 2000. 2 Golden eye technology is meant to reduce the strain on the eye.

multilingual on-screen displays; refrigerators use preserve nutrition technology and washing machines the chaos punch plus three* technology. For the rural market, LG has launched a stripped down range of television sets called Sampoorna. This accounted for 20% of LGs sales volume in early 2000. In the case of washing machines, LG has been offering 6-kg equipment instead of its usual 4.5 kg models, to take into account the washing requirements of large Indian households. LG's commitment to the Indian market can also be judged from its wide product range. It offers 26 CTV models, seven washing machine models with capacities ranging from 5.5kg to 10kg, nine models of ACs and three models of microwaves. Currently, LGs Indian establishment has 862 employees with 30 people exclusively devoted to R&D. Since early 2000, LG has also been promoting its website aggressively and hopes to attract more than one million visitors to its site in 2000. LG has set a target of developing 2000 Internet dealers in 2000, in addition to the existing 3000 dealers all over India. To maintain its competitive advantage, LG would probably need to build on its early success by a more aggressive penetration of the rural markets and by offering more value for money items. Conclusion The above examples indicate that there are probably two critical success factors in the Indian market. The first is the need for a strong commitment. This implies a willingness to invest in full fledged manufacturing facilities as opposed to assembly of completely knocked down kits, in a widespread distribution network as opposed to a limited presence in the major cities and in customised products as opposed to standard offerings from the parent company's product range. The logical corollary of these initiatives, which imply substantial investments, is the capability and willingness to absorb losses and play the waiting game till a critical mass is reached. The second factor is the need to respond to the environment and frame strategies in a flexible way. This, in turn means the ability to respond to changing customer needs and come up with new products at regular intervals. A static approach

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which rests on past laurels is definitely not appropriate for an evolving market like India. HLL seems to have done well on both counts, Bata on the first and Indal on neither. Unfortunately, many MNCs which have entered India in recent times have been found wanting in one or both respects.
==================================================================== * To facilitate more vigorous agitation.

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