Product Standardization in the International Market
Category : Standardisation
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Product Standardization in the International Market
This paper discusses the standardization of products across international boundaries. It presents theories supporting the argument that products as well as marketing strategies can indeed be standardized across international boundaries though with minor adaptations.
The age of globalization in which markets are liberalized, trade barriers and tariffs are reduced, firms are encouraged to compete internationally and enter different market segments. Primarily, the motivation behind the internationalization is rooted from the need to expand and explore different markets. Also, the threat and pressures from local and foreign markets trigger such practice. However, entering the international market is not an easy task. Factors such as language, diversity and culture are to be considered in terms of entering the market.
Consumers from different countries vary in terms of their preference and their needs. However, there proves to be a prospect for product standardization across countries. As evidenced by global brands such as Revlon and Mc Donald’s, it is possible to standardized product successfully. Moreover, standardization of marketing strategy proves to be beneficial to the firm in terms of cost efficiency. However, the possibility of standardization on the product and the marketing strategy is not absolute. While the perspective of standardization has indeed been proven by global firms, it is undeniable that minor adaptations are still needed in order to cater to the needs of a diversified market.
The opening of markets around the world has resulted to a tough competition on the global level. There has become the relentless effort by firms to pursue international marketing strategies. A great challenge that is faced by international firms is the diversity across countries. Marketing internationally is never an easy task. While it may be challenging and rewarding, this undertaking requires a great deal of commitment and expertise on the part of the firm. In a globally competitive market, a firm must be able to establish a competitive advantage of its resources, competences and be able to build relations in the international markets. Additionally, the competitiveness in the international arena entails continuous adjustments in regards to the target consumers, competitors and the public authorities. Manufacturing standardized products is a strategic requirement for global companies. However, the degree of the standardization of products across markets is a key consideration in pursuing a global product. The firm must identify whether or not its products are tailored to the specific markets of the country or if one product is produced and targeted at all international markets.
Internationalization and the Standardized of Marketing Strategy
Standardization entails each and every element of the marketing mix to be identical. This goes with the question of which elements are to be standardized and to what degree. Significantly, there are costs savings associated with this concept as well as the consistency with the consumers, and the improvement of planning and control. Obstacles to standardization though require a balanced appraisal due to the existing differences in the market characteristics, marketing institutions and the legal restrictions of a particular country. The strategic alternatives for multinational corporations depend on the combination of adaptation and extension. By extension, identical strategies form one market to another are extended. Adaptation is another strategy that can be utilized to another market due to differences in market conditions. The concept of standardization and extension are closely related. Standardization though is more of the result of the process. Moreover, the concept of long-range multinational marketing planning discuss the issue if integration with the concept of differentiation and universalization. The adaptation of marketing programs to local conditions refers to differentiation while universalization refers to the design of marketing programs that are for universal use (1980)
Fundamentally, global firms are tasked to strategize by creating coordination between the headquarters and the subsidiaries. Following the core global business strategy, the internationalization can be done with the transfer of know how and best practices between countries and extending feedbacks to the headquarters (2003). By this, capabilities in one market are monitored and made usable in other markets. The degree of customization or standardization has become the primary issue in the international marketing. In the international setting, two of the most prevalent structures are the Multinational Corporation (MNC) and the Global Corporation (GC). A decentralized strategy is adapted among MNC in which the decision making is entrusted to subsidiaries. They in turn, respond to the needs and the idiosyncrasies of the countries they are assigned to. Custom tailored products that are offered to countries reflect this kind of strategy. On the other hand, subsidiaries of Global Corporations are guided by a pervasive strategy. By this, standardized products are offered around the world enabling the exploitation of savings derived from economies of scale. Among the approaches adopted by the GC is to customize the price of the standardized product to specific economic factors of the country. Another is the adaptation of a uniform pricing policy for the product. Lastly, a ‘core product approach’ in which a core product is centrally produced by the GC and becomes the basis for the production of the customized products ( 1994)By analyzing the value chain of the company, a competitive advantage will be identified. The activities on the strategic levels can be then connected to those of the value chain. Moreover, the upstream activities can be focused on the centralization of economies of scale while the downstream activities are focused on locating capabilities of the countries with identification of the customers and the markets.
In terms of going global, the internationalization theories state that the major motives for firms to internationalize includes proactive and reactive. Fundamentally, internationalization is the means of adapting products for potential use virtually everywhere. Firms are driven to internationalize because of either proactive or reactive motives. That is the attempt to explore market possibilities and or as a result of pressure and threats from home and foreign markets. Based on the Uppsala Internationalization Model (U-M), there are four modes of entering an international market in which the higher degree of international involvement is represented by the successive stages. These stages includes: 1. No regular export activities 2. Export via independent representatives 3. Establishment of an overseas sales subsidiary 4. Overseas production/manufacturing units. The internationalization across the markets of differing countries is characterized by a psychic distance. The concept of psychic distance encompasses the factors that affect the flow of information between the firm and the market.
Factors and differences such as language, culture, political systems as well as the levels of education and industrial development are all part of the psychic distance. A dynamic model was developed by (1977) to explain the incremental character of internalization. By this, the structure is distinguished between the state and the change aspects of the variable of internalization. The state aspect is the market commitment whereas the change aspect is the decision to committing resources of business activities.
Moreover, the market knowledge and commitment affect the commitment decisions and how decisions are made which in turn result to the change in market knowledge and commitment. Both general knowledge and market specific knowledge are required of in international activities. The knowledge of operations can facilitate lateral growth if it is transferred from one country to another. The stronger commitment to the market results from a better knowledge of the market. Larger internalization steps can be taken by firms with large resource experience. Additionally, the stability and the homogeneity of the market conditions pave the way for relevant market knowledge rather than those learned through experience. The considerable experience of the firm from markets having the same conditions will help generalize the experience in any market (1993).
Considerations for internationalization can be triggered by certain factors. One of which is the increasing market demand which pushes the producer to go international. Another is the global competition which is a strong catalyst for internationalization. Over the past two decades, the international marketing underwent fundamental changes. This is brought about by the trends in the global, political as well as the economic liberalization. Business opportunities and challenges are then presented to international marketers. Exceptional firms that have become household names throughout the world are companies such as Coca Cola, IBM, Mc Donald’s and Microsoft (2004). While the standardization of marketing strategy is possible, local subsidiaries are compelled to adapt minor changes in order to suit the differences of the market segment. With this, being able to adapt to cosmetic changes or minor alterations must be implemented while the core components of the products remain standardized.
The concept of ‘core components standardization’ states that cosmetic changes are required of universal products to cater to the different needs across countries or among the market segments. This concept has become more meaningful because of the growing trend by multinational corporations to outsource components in order to gain economies of scale (2003). By having standardized components, economies of scale are achieved by the firm while products are adapted to offer a wide range of models in accordance to the needs of various country segments. Moreover, constraints are also present in the global marketing standardization as outlined by (1968) and (1987). The major constraints on product standardization include the consumer preferences and the governmental and trade restrictions. The specification that products must contain a specified proportion of the locally manufactured components is one of the major government constraints. Another is the heterogeneous preferences of the consumers as well as government policies which compels the repackaging of the product offered (2003).
With global branding, the same brand name and image is promoted in all the countries in which the company does business. Coca Cola is one of the multinational corporations that adhere to this. However, there also exists the practice of having a separate identity in each national market for the same product. Nescafe Gold Blend for one sells Oro in Denmark and Tasters Choice in the United States ( 2002). Having a global brand with a different name is possible in order to accommodate the requirement of the national market. Thus, global products are subjected to minor adaptations in different market segments. As such, the core components of the products are standardized although the final product may be altered to cater to idiosyncratic conditions. Primarily, the advantage of standardization across countries is the lower manufacturing costs. Moreover, by emphasizing on the core product standardization rather than that of the final product, lower manufacturing costs can be realized without having to sacrifice the versatility of other elements of the marketing mix ( 2003)
Marketing strategies in a country-by-country basis are tailored with the peculiarities of the local market. By this, product adaptations are considered as necessary strategy in order to cater to the different needs of customers in various countries. Following the concept of “logical incrementalism”, it can be argued that continual changes can foster flexibility and experimentally. However, strategic drift is likely to result if the management effectiveness fails to keep pace with the environmental change ( 2003). Product standardization was called for by the recognized global coordination in the world markets (1992). (1986) argued that a competitive advantage can be attained through coordination among the network of activities that are dispersed worldwide. Product adaptation tends to become a reactive response to the market. With this, a high level of adaptation is likely to become difficult to coordinate the network of activities by the multinational in a global scale. Moreover, production standardization or a narrow line of product is not implied by product standardization. Japanese automobile manufacturers for one were able to stretch their product line with little adaptations. Thus, the strategy requires flexibility or a form of innovation process (1992). By product standardization, a product that is designed locally is exported to other countries without any virtual change. Hence, the products are marketed with perhaps changes in translation and other cosmetic changes. One example of a successful standardized product is Revlon. It has been able to ship products abroad without changes in the formulation, packaging and the advertising of the product (2004).
Primarily, simplicity and costs are the strengths of standardization in terms of production and distribution of products and services. In terms of cost effectiveness, standardization is a logical choice since economies of scale can operate to reduce the costs of production. The decrease in the production costs though does not mean an increase in the profit. With the control of production costs through standardization, the product is likely to become unsuitable for the alternative markets. In turn, the demand abroad will decline leading to the reduction of profit. However, standardization is a good approach if appropriately used. For example, Mc Donald’s worldwide success is based on consistent product quality and services. Standardized products exist when certain products can be associated with cultural universals. This is possible when consumers from different countries share the same needs and characteristics and thus want the same identical product. Additionally, product standardization depends on the type of product to be marketed ( 2004)
In terms of modification, the firms must practice cautiousness when a product is to be modified to suit the market. To illustrate, American firms have proved to become successful in Japan after the need for modification was understood. Sprite has become a best selling drink in Japan after the lime taste was taken out since Japanese prefer a purer flavor. Chips Ahoy which is another American product also appears less sweet than nits versions sold in other countries. The product adaptation may become necessary under several conditions as it may be mandatory or optional. The characteristics of the firm and the environment significantly affect the overall performance of the firm and its marketing mix strategy ( 2004)
Fundamental changes in international marketing practices are triggered by the liberalization. Firms all over the world are driven by the desire to explore market segments through competing in the global arena. However, entry to the international market entails overcoming factors and differences such as language, culture, political systems as well as the levels of education and industrial development.
While there is the need for global brands to adapt on the preferences and idiosyncrasies of consumers, there proved to be successful firms that are able to standardize their products. International firms such as Revlon, Mc Donald’s and Coca Cola were among exceptional firms who are able to enter diverse market segments. Also, standardizing the marketing strategy enables the producers to reduce their costs and satisfy consumers by implementing minor changes on the final product while the core components of the product remain standardized. Clearly, standardization of products across countries is possible though the product standardization still depends on the kind of product that to be marketed.
Ultimately, the perspective of standardization is realistic though not absolute. This means the need for minor adaptations to facilitate the process of standardization.
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