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Standardization and localization in cross cultural markets

In this report, we have addressed three main themes of international/global marketing vis-à-vis standardization versus localization, cultural patterns and its influence on consumption and finally the research procedure to take when entering new international markets. In the first place we looked at the debates from both sides of standardization and localization that leads to the identification of the advantages and disadvantages of either strategy. Under the cultural pattern, we made use of Geert Hofstede model to distinguish national cultures and their effects on consumption. Finally, we addressed a very important aspect of international marketing – how research should proceed for an enterprise seeking to enter new international markets. We used a five-step model adopted from Johasson book. We closed our discussion with few recommendations.

Standardized and Localized Strategies

Standardization refers to the use of the same or similar marketing mix in as many countries across the globe as possible when a corporation operates beyond its national borders. Corporations that pursue standardization are referred to as Global Corporations and their strategies are referred to as Global or standardized strategies. A few examples of global products include Gillette razor blades, Sony television sets, Benetton sweaters, personal computers, aircrafts, most financial institutions and markets, auto vehicles, Coca Cola, etc. However, it is worth adding that there is no unanimous definition of standardization in the literature [1]

The other extreme of standardization is known as localization. Localization is when a corporation modifies its marketing mix in virtually every country that it operates to suit national taste, preferences and culture. Most Multinational Corporations (MNC) pursue localized strategy. Examples of localized products include; Honda’s European car model “Concerto”, P&G’s Ariel and Vizir in Europe, the Islamic banking version of most Western Banks in the Arab Gulf region, etc.

The marketing mix (mentioned above) best described as the four P’s of marketing – Product, Price, Place and Promotion - are the key constants or variables in standardized and localized strategies respectively. As we have shown in figure 1 below, the marketing mix is surrounded by environmental factors such as; the economy, law, technology, competition and culture. These forces have resulted into various management orientations that spell out the philosophy of a company as follows;

Ethnocentric – feeling that home country is superior compared to the rest of the world. Companies with this view are domestic in nature. The Saudi Telephone Company (STC) and its Al-Jawal mobile services is purely ethnocentric as it concentrates on domestic culture and kept their rates high until customers like us outsourced services from call back services through the Internet.

Polycentric – feeling that each country is different and marketing practices are unique for each country – this view is mostly held by multinational companies.

Regiocentric- the feeling that regions are unique for example the gulf cooperation region is different from other Asian regional economic cooperation. Most of the Saudi new mobile companies such as Mobily and Zain operate regioncentrically.

Geocentric – the feeling that the entire world is a potential market that requires integrated world market strategies [2]. This view is held by companies known as global companies a few examples of which include Toyota, Coca-cola, General Electric (GE), Saudi Aramco oil company, just to mention a few.

Figure 1: The Marketing Mix or 4 P’s of marketing.

With this century's drive towards world market integration in the name of World Trade Organization (WTO) few companies remain ethnocentric. The choice is now either being polycentric or geocentric. In simple terms should companies pursue localization (Polycentric) or standardization (Geocentric)? These environmental forces have led to fierce debates about standardization or localization. The result of these debates is the emergence of the following schools of thoughts –

Globalization: the standardization of products, brands and advertising or marketing practices across the world.

Localization: the variation of the marketing mix to meet differential environmental forces of each market.

Adaptation: Varying some elements of the marketing mix to meet specific market forces while maintaining some of the element constant [6]. Meaning that a given company will standardize the marketing mix but may adjust to the local situation when the need arises. Proponents of this school of thought include; Fatt (1967), Hovell and Walters (1972), Quelch and Hoff (1986), Kreutzer (1988) etc. [Ibid].

Sub-Global: the grouping of foreign markets into groups which are more or less homogeneous (Regiocentric). Standardization is thus implemented across regions or clusters of countries e.g. the European Union, the NAFTA, the Gulf Corporation Council (GCC) of the Arabs states etc.

From the foregoing, we can categories the schools of thoughts into three basic groups; standardization, localization, and combination or compromised (adaptation and sub-global) strategies.

Proponents of Globalization such as Theodore Levitt in his famous article “The globalization of markets”[3] has argued strongly that advances in technology is leading to the convergence of national preferences, economic activities and even culture. Thus, the future success in business belongs to only the global corporations that have realized that advances in communication, transportation etc has set cultural convergence in motion and is capable of producing mass standardized goods at lower costs. For example, the Arabs have very rigid culture, but the influence of technology has made a number of changes in the life styles. We see the youngsters riding big American motor cycles now in Riyadh which was uncommon just ten years ago. Similarly, in Ghana, we see the motor cycles of Japan and bicycles from China now pervading the Ghanaian culture. The director of the Worldwide advertising company: Saatchi & Saatchi, remarked that “I can’t go into a meeting these days with a major multinational client without getting right down to the basics of how to develop the kind of brilliant advertising that can run across all the principal markets of the world” [4]. Other researchers support standardization by using a three-factor-model that argues along the lines of homogeneity of customer response to the marketing mix, transferability of competitive advantage and similarity/variability in the degree of market (economic) freedom [1].

The other school of thought – localization; is held by management gurus such as; Fournis (1962), Boddewyn et al (1986), Schlegelmilch et al (1992), Shoham (1995), Craig et al (1992) [1], Fisher (1984), Kotler (1985), Vedder (1986) [5]; just to mention a few. This category argue that markets are different and will continue to be different in spite of the effects of technology. They maintain that standardization has many barriers hence greater returns pertain to localization (adaptation) of products and marketing strategies to specific situations [ibid]. The debates on standardization and localization have produced reasons why each side holds on to their views. To enumerate them here would be over tasking the patience of the reader. We have adopted Vrontis (2003) figure below (figure 2) to summarize the views of both philosophies. The reasons given in the figure have led to the identifications of the following advantages and disadvantages for each strategy.

Figure 2: Vrontis (2003) model rephrased to depict the reasons calling for adaptation (localization) and standardization.

Pros and Cons of Standardization and Localization

The focus of the debate on the issue of standardization versus localization has led both sides to identify advantages and disadvantages of these strategies. Among them are:

Experience transfer: Standardization facilitates the transfer of experience in successful management practices and marketing strategies across other comparable markets [2, 3 & 5] For example, ABB has successfully transferred its well-tested management model across its 1,300 operating subsidiaries in the 140 countries that it operates in [2], BIC has successfully transferred its "throwaway" concept in lighter razor blade throughout the world, Philip Morris has done similarly with its cowboy image in marketing Marlboro throughout the world [5]. Dell replicated its direct selling practices across the world and generated almost 31% of its sales in overseas market in 1998.

On the other hand, localization is being disadvantaged by its request to treat each market individually. Thus management practices and marketing programs that are successful in other markets are not necessarily applicable in other markets. However, localization looks at specific differences in market conditions and culture to creatively gain market share within the context of the local environmental forces by varying products and/or other elements of the marketing mix. This is expensive and challenging though it could yield positive returns. For example, if Philip Morris had used a sexy woman's poster to market its Marlboro, this would have been rejected in Saudi Arabia and most of the Arab countries where one in every three people smokes.

Uniform image: Standardization of any of the following; programs, process, product line, services, advertizing copy etc help in projecting a uniform image of a company or its products globally [5]. We are all aware of global brands with their ability to create customer loyalty and belongingness. A few of these global brands are Coca-Cola, BMW, Toyota, Mercedes Benz, McDonald, Holiday Inn, Marriott hotel, General Electric, Procter & Gamble, Cisco Systems, Microsoft etc. All these brand names have uniform images to which clients or customers boast of. On the other hand complete localization cannot produce uniform image throughout the world. However, localization can produce regional or national patriotism and increase sales in specific markets. For example, in banking, we have standardized activities. Most of these banks have global branches but when these banks entered the Saudi market, interest based investment did not yield good results. This is because of the Islamic belief that rejects interest base investments. Hence most of the banks as well as their branches in the Western countries have introduced Islamic banking to tap the money of Muslims.

Economies of scale: One of the strongest arguments put forward by proponents of standardization is that it leads to economies of scale in production and marketing [2,3,5] It is argued that modern technology designed to produce large scale of standardize goods is capable of achieving cheaper costs within a wide range of volume than a production line that is flexible to specific small-scale productions. For example, Matsushitta Electric Company from its world-scale factories in Japan has achieved scale economies by exporting VCRs, TVs and other consumer electronics products throughout the world. Proponents of localization have made counter arguments that modern technology do enable flexible automation of nonstandardize goods at a substantial cost-savings. In addition to this, production costs are only partial and not major costs in determining total delivering cost to the ultimate customer. For example distribution cost which are more difficult to standardize are different for different markets and this could form a major cost component for the company.

Governmental and trade restrictions: Standardization is faced with a huge barrier in countries where governments and trade restrictions in the form of tariff, product, pricing or promotional regulation etc exist. A recent example is the case of Black Berry mobile in the Saudi market. The Saudi government has requested that if Black Berry's text messages are not accessible by the local interchange it shall ban the sales of Black Berry. In such circumstances localization has advantage over standardization.

Nature of marketing infrastructure: Differences in the marketing infrastructure between countries may impede the use of standardization [5]. For example, in the U.S., Japan, Australia and many other countries including Ghana, TV advertising forms a major marketing medium. The use of TV advertising is severely censured in Saudi Arabia, Scandinavia and other countries as well. Similarly, the use of print medium is limited to only a few in sub Saharan Africa due to high literacy rate. Localization will be more conducive in markets where marketing infrastructure are very different from other markets.

Differences in customer interests and response patterns: Though proponents of standardization have argued that technology has made customers needs to converge, this is only partially true. There is still differences in customer interests and response patterns in many aspects. Generally speaking, localization avoids having potential customers reject the product out of hand when differences do exist in customer interests etc. For example, Coca-Cola has two formulas throughout the world – sugar type and corn syrup type. Packaging however, consist of the contour bottle design and the dynamic ribbon but it is customized with the country’s native language and sized as other beverage bottles or cans in that country. This is the demonstration of "the ability to think globally and act locally" a strategy refer to as global localization [2]. Examples of this practice beside the Coca-Cola we just mentioned include;

Philadelphia Cream Cheese: 14% fewer calories in Italy

Hellmann's Mayo: ½ the saturated fat in London

Kellogg's All-Bran bar: ⅓ the sodium in Mexico

Kraft's Lunchables: 56% more fat in US

What we have mentioned so far are only the main advantages and disadvantages of both strategies. There are many more to this but for brevity of the text what is presented is sufficient to show the whole picture of the debates. The culmination of the debates is the result of a third school of thought that called for combination - adaptation in certain aspects and standardization in certain aspects. Secondly, the degree of combination is subject to the type of product.

Cultural Pattern in a Society and its effects on Consumption

Culture is “ways of living” built up by a group of people consisting of both conscious and unconscious values, ideas, beliefs, attitudes and symbols that shape the behavior of the group and transmitted from one generation to another [2]. The role of culture is to govern how things are done in a society. One of the most influential organizational sociologist – Geert Hofstede defined culture as “the collective programming of the mind that distinguishes the members of one category of people from those of another” [7]. Geert Hofstede made a great research on national cultural patterns by using subsidiaries of a large multinational corporation (IBM) in 64 countries. The following cultural differences were identified to be the underlining cultural differences in societies;

Small verse large power distance: This is the extent to which the less powerful members of an organization or society accept and expect that power is distributed unequally. It is true that power inequality is a fact of human societies and anybody of international experience will be aware that ‘all societies are unequal, but some are more unequal than others’ to quote Owell. In the western societies there is small power distance that makes people expect and accept power relations that are more consultative and democratic. Hence people in small power distance societies relate to one another more as equals regardless of formal positions. In cultures with large power distance such as found in most of the third world countries, the less powerful accept power relations that are autocratic or paternalistic. This aspect of culture can affect consumer behavior is various ways. For example, goods that are symbols of affluence may not be purchased by the less powerful members of a society in a large power distance culture.

Individualism versus collectivism: How much members of the culture define themselves apart from their group members. In individualist culture (e.g. western culture), people are expected to develop and display their own individual personalities and choose their own affiliations. In collectivist culture (e.g. sub Saharan African culture), people are defined and act mostly as a member of a long-term group such as family, religious group or tribal group. For an example, an estate developer in Ghana or any of the sub-Saharan African countries will loss market by constructing single or two small bedrooms flats (apartments) because such premises cannot entertain extended family members. On the other hand, in Europe where the culture is individualistic, such small apartments are common and successful.

Masculinity versus femininity: The value placed on traditionally male or female values. In 'masculine' cultures, men are expected to be competitive, assertive, ambitious, and be concerned with the accumulation of wealth and material possessions while women fulfill the role of nurturer such as being concern with the welfare of children. In 'feminine' cultures, the roles of men and women overlap, with neither gender exhibiting more control over other. For example, my native culture in the northern region of Ghana is masculine hence done of my direct sisters was sent to school. Thus, in masculine culture, female education will not be lucrative and educationalists must aim at the male population. Any social gathering that will make men and women interact is discouraged in Saudi Arabia. Businesses, that are of this type will not succeed in Saudi Arabia.

Weak versus uncertainty avoidance: This is concern with a society's tolerance for uncertainty and ambiguity. It reflects the extent a culture programs its members to feel either uncomfortable or comfortable in unstructured situations. The uncertainty accepting cultures are more tolerant of opinions different from what they are used to; they try to have as few rules as possible. Uncertainty avoiding cultures try to minimize the possibility of unstructured situations by strict laws and rules, safety and security measures [8]. An organization such as Microsoft that requires employees to be innovative might not succeed in uncertainty avoidance culture because employees will fear to make mistakes and cause the company loss of money.

Long versus short term orientation: This is the degree of importance a culture attaches to the future versus the past and present. This last aspect was added to Hofstede model at a much later time. For example, in cultures that are oriented toward the long term, corporations can obtain investors who are willing to wait for several years for capital appreciation. In a short term oriented culture, corporations must use a yearly dividend policy to attract investors.

From a marketing point of view, it is imperative for marketers to realize the above cultural patterns and to known the degree of homogeneity and differences of national cultures. Also important is how these cultural patterns govern consumer behavior in different markets. The basic fact here is that; markets in the 21st century are global and yet cross-culture markets. To be aware of and sensitive to the cultural differences is a major premise for success in the 21st Century marketplace. This is because; both consumer behavior and business practices are performed to a greater extent by the culture within which they take place. Thus, the role of culture in any society is to determine how things are done – acceptable and unacceptable actions. For instance, culture defines acceptable purchasing and product-use behavior for both consumers and business. Using business gift as a classic example, in cultures where a business gift is expected but not presented becomes demeaning to the host. In African for example, business gifts generate an obligation and it is therefore desirable to give it. On the other hand, in the western culture business gift might be seen as antitrust violation hence presenting a business gift could be interpreted as inappropriate. Secondly, elements of the marketing mix are influenced by the culture. For example, promotion is influenced by the language, new product acceptance is affected by certainty avoidance index of the culture, and distribution is influenced by social institutions such as collectivism versus individualism. A third point to consider is that marketing also influences culture by means of cultural borrowing and change. Looking at the dressing pattern of Saudi youth, one will not fail to see the influence of western culture gradually invading the national culture. Nonetheless, cultures may change slowly and specific product consumption such as western style of dressing in the Arab countries may be visited with resistance. We therefore recommend that any company going overseas should be mindful of the following realities;

Develop cultural empathy – recognize, understand and respect another’s culture and difference

Develop cultural neutrality – realize that difference is not necessarily better or worse.

Discard cultural transferability – never assume transferability of a concept from one culture to another

Involve cultural informants- get cultural informants involved into the decision-makings.

Market Research for Entering a New International Market

Most businesses have products that can travel to new geographic markets or to new industry segments that are yet to be tapped. New markets, wherever they may be; in new countries or new industrial segments do carry some risk. For an enterprise to enter new international markets the prerequisites are to identify whether or not an opportunity exists, define the nature of this opportunity and devise strategic and tactical market entry strategies. One term for all these prerequisites is marketing research. For an enterprise to enter new international markets, it is imperative to conduct a market research or marketing research- the procedure of which varies a lot in the literature. We shall adopt the five steps process mentioned by J.K. Johansson (2000) [9] for entering international markets. These five steps are; country identification, preliminary screening, in-depth screening, final selection and direct experience. We shall look at each of these step one after the other.

Country Identification

As we have already seen above, the world is converging to a global village where previous trade barriers are being dismantled. Hence the entire globe becomes a market for any enterprise seeking customers beyond its national borders. The first step in the marketing research to enter international markets should proceed by country identification. Here, a general overview of potential new markets is made and a match of heritage, culture or similar business legal systems with those of home country identified. Thus, a list of potential international markets is made based on the data collected on market opportunities and similarity and difference in economic, political, linguistic and cultural systems.

Preliminary Screening

After making the list of potential countries to enter, the next step is to look at your list careful to make a preliminary screening. Here, the research proceeds by scoring, weighing and ranking the countries based upon macro-economic factors such as; currency stability, exchange rates, level of domestic consumption, political stability etc. The nature of market entry costs should be made, competitive nature of the market should be assessed, market growth potential and legal requirements compared. For example, currently the countries with the highest growth potential are the emerging market economies of Asia, Latin America, Eastern Europe [10] and possibly Africa the sleeping giant. At this juncture, the research should sieve out some countries leaving a shorter list of countries for in-depth screening.

In-Depth Screening

The countries that have made it to this stage are all considered feasible for market entry. Now using modern information technology, we now collect and analyze detail information on the target market, how to position products in this market and how far to adapt different elements of the marketing mix to local market conditions. Micro-economic factors should be looked at in details trying to find answers to questions such as; what prices can be charged in this nation? How are goods and services distributed in this nation? In addition, it is worth considering the value of the nation’s market, any tariffs or quotas in operation and similar opportunities or threats to new entrants.

Final Selection

Here, a final short list of potential nations is decided upon while reflecting upon strategic goals and for a match in the nations at hand. The research should concentrate on the activities of competitors or similar domestic companies that have already entered the market to get firmer costs in relation to market entry. The enterprise in question should also draw from the experiences it has had in entering other nations make use of what others have learned. A final scoring, ranking and weighting can be made based upon more focus criteria.

Direct Experience

The research team or their representatives should travel to the nation(s) selected to get personal experience of the culture and business practices of the nation in question. While in the country, one should endeavor to discern any similarities or dissimilarities to home market or in countries the enterprise has already entered. Here one must be careful of falling victim to the self-reference criterion SRC [2] – the tendency to judge others base on your own culture. We have already seen how culture influence consumption and one will need to use the recommendations made in the last section.

Comments and Conclusions

We have learned in this report that though the world markets are converging due to developments in mass communication technology, national differences by way of culture will persist to the foreseeable future. This calls for the debaters on standardization and localization to accept the pros and cons of each strategy. It is true that CNN, BBC, MTV, and other global and regional communication media have created an environment where certain segments of the population worldwide are developing a common set of expectations, familiarity with common set of symbols, similar preferences for products and services, differences still exist in the way a company would manage its marketing mix across-cultures. Standardization should be done to the extent that makes it fit in the global markets while some aspects are adapted to local market conditions. We have also seen that any company that is culturally myopic is so to its own peril. Thus, companies must develop cultural empathy in order to succeed in overseas markets. Going international requires a systematic marketing research that will guide the company to selecting markets to enter.

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