Two Misplaced Debates In Business Strategy
Moscow International Business Center (Photo credit: Alexander Kachkaev)
Of all debates in international business strategy, two stand out: The first debate revolves around the nature of world market environment, whether world markets are global, multinational or semiglobal. The second debate revolves around the dilemma of global vis-a-vis local strategy, that is, the trade-off between global standardization and local customization. The way that an international business addresses these debates can make the difference between superior and inferior performance. Both debates are misplaced, and create pseudo dilemmas that lead to the wrong business strategy.
The debate regarding the nature of the world market environment is misplaced because it views multinationalization, globalization, and semiglobalization as universal and mutually exclusive trends that create a unique world market environment, rather than non-universal, non-mutually exclusive trends that create diverse world market environments. The debate regarding the trade-off between a global and a local strategy is misplaced because it views value propositions crossing national borders as products per se rather than as bundles of global and local characteristics. Within the later framework, business strategy begins with consumers’ preferences for global and local product characteristics in world markets, and the appropriate response to address them.
An international business faced with a pure global market environment where consumers derive value from global characteristics only must pursue a cost leadership strategy. An international business faced with a pure multinational environment where consumers derive value from multiple local characteristics must pursue a localization leadership strategy. An international business faced with a semiglobal market environment where consumers derive value from a bundle of global and local product characteristics must harmonize its strategy. This means that an international business must pursue a globalization and a localization leadership at the same time, a globalization leadership for the global characteristics of the bundle and a localization leadership for the local characteristics of its bundle.
Some international businesses have been quick to adopt this new mind-set. P&G (NYSE:PG), for instance, has designed value propositions that promote product characteristics, such as shampoo and dental paste branding and chemical components global, while localized product packaging. Yum! Brands (NYSE:YUM) have designed Pizza Hut and KFC menus that include both a global and a local component. Beverage maker Diageo mixes global drinks with local drinks and liquors to create product offerings that cater to local markets. Diageo’s (NYSE:DEO) Gordon Edge, a mix of gin and lemon is catered to the UK market, while Safari Luna, a mixed of fruit and liquor, is catered to the Netherlands. Allied Domecq’s Presidente brandy and cola mix is catered to the Mexican market, while TG, a mix of Scotch and guanana is catered to the Brazilian market. Campari’s Mixx, a mix of grapefruit and Campari is catered to the Italian and Switzerlandmarket. Dell (NASDAQ:DELL) and Hewlett-Packard (NYSE:HPQ) bundle together hardware and professional consulting services to offer customized solutions to their customers around the world. Other companies have been slow to adapt to this new mind-set, caught in pseudo dilemmas, swinging between a global and a local leadership strategy. In the aftermath of the Asian financial crisis, Coca Cola (NYSE:KO) switched from a globalization to a localization strategy that localized the wrong product characteristics like branding.
The bottom line: The world market is a collection of pure global, pure multinational, and semiglobal markets. Pure global markets should be addressed with universal value propositions that include the “core” or global characteristics of the product; multinational markets should be addressed with customized value propositions that include, in addition to globalized product characteristics, localized product characteristics that cater to different national and local markets; semiglobal markets should be addressed with hybrid value propositions.