Trade of the Global Company - Case Study Example

There is no Such Thing as a Global Product: Critical Analysis of the ment with respect to consumer electronics market World Exports in 2004 grew to $ 11,032 billion (www.wto.org), and the past decade has seen more and more corporations breaking the national barriers to tread on foreign soils with their wares. Global trade has become very lucrative with governments encouraging exports, and MNCs taking advantage of lower manufacturing or labor costs in international markets. A Global Company is the one that operates in more than one country, and is able to streamline its processes so as to operate synergistically in diverse locations. (Philip Kotler, 2000) Most global firms try to introduce their existing products in new markets with or without variations in the overall product or marketing strategy. Theodore Levitt (Philip Kotlar, 2000) postulated that corporations that try to sell standardized or global products across diverse global markets are better able to tap in their core competencies and reduce costs through standardization not only of the product but also of the distribution channels and promotional activities. Such a strategy, that Keegan calls Straight Extension1, indeed works with consumer electronics including house-hold goods like washing machines, TV sets, music systems etc. This straight extension involves introducing exactly the same product in a new market (region or country), using the same promotional and distributional strategy that is being used at home. A product that is capable of being accepted per se, and appeals to customers surpassing geographical or cultural difference, would indeed be a global product. It is argued that due to the proliferation of media, Internet, and other means of communication, consumers throughout the world are now exhibiting a taste for common products and services. As such, a truly global product is possible to nurture and maintain in a variety of different world regions. Microsoft had introduced X-Box 360 to three different regions - North America, Europe and Japan, in November last year. (Planet Xbox 360 News, 2nd Feb 2006) The product is aimed at those between 15 and 35 years of age, having disposable incomes, and interested in technology. Microsoft was able to recognize this segment (that spans over three very different continents) and come up with a standardized product and promotional activity to sell it globally. Similarly, the recent introduction of Apple's iPod Nano (Apple.com, and NonStopMac.com) has displayed the proliferation of a global culture that appears to have the hip, trendy, and financially affluent people as its members. This ultra slim and attractive product has caught the imagination of the people world wide - and even given rise to terms like "nanogasm" (urbandictionary.com) - a word coined to mean the utter excitement caused by just thinking about the sleek and trendy iPod Nano. However, there have been more failure than success stories, about how organizations lost millions when they adopted the Straight Extension approach and tried to barge in on the new markets' sensibilities, disregarding the cultural and social nuances. For example, when Philips introduced its large capacity coffee makers in Japan, it found few takers, though Japanese liked coffee and drank it at home too. (Philip Kotler, 2000). It was soon discovered that as Japanese kitchens are smaller, and the Japanese culture is biased towards zero wastage and preservation of food, Philips coffee makers were not welcomed there. By reducing the size of the product, Philip was finally able to make profits in this market. In India, where there is still problem of regular electricity and water supply in even the bigger cities, IFB's fully-automatic front-loading washing machines are not preferred, even by those who believe it to be superior to other brands and makes available in the local market. As can be seen by the above cases, there are many aspects that can prevent a product from becoming a global entity. It is almost impossible, and at times foolish, to foray into newer countries without factoring in the 4 C's - the customer, the cost, the country, and the competition. An example of a firm that takes the local factors very seriously is of HSBC bank, which goes so far as to calls itself 'the world's local bank'. The Country Most firms believe in carrying out a detailed analysis of the prospective countries socio-political environment and its financial fitness, before venturing into the market. Many times the country places restrictions of local content, local labor or local ancillaries to be used that again moderate the original product. For example, a seller of a Mixer-Grinder might be required to use locally manufactured components, and hence agree to the change in quality. The Customer The target customers' tastes, his income, the general demographic statistics (eg, India currently has a vastly young population while Germany has more elderly citizens), his culture, and his social settings - all these result in modification of the product. For example, if in a developing country like Pakistan, where the use of latest video games has not proliferated to the cash-strapped youth, it will be disastrous to introduce a highly priced game box like Xbox- 360. The Competition The presence of domestic competitors who are backed by the government, too, may force the MNC to adopt locally relevant promotional strategies in addition to modifying the product. Also, the domestic players might have better understanding of the financial, demographical, and political environment - factors that might catch the MNC off-guard. To safeguard against this, the Global firm, more often than not, enters into collaborations (through Joint Venture, License Agreements etc.) with the players - again diluting the products standardized global credentials. The Cost Finally, the cost of carrying the product through the distribution channels, in addition to the taxes, profit appropriation clauses, and Non-tariff barriers that a country might impose, make it prudent to take in the local factors as partners. Instead of manufacturing and exporting, the global firm might have to manufacture locally to cut the above costs. It can be seen from the above discussion, that indeed, there is no such thing as a true global product. Standardization works to a large extent in the consumer electronics market, where most buyers are ready to accept a global standardized product; but factors like country, culture, customer, costs, and competition force the firm to adapt to the local needs and capacity. Footnotes 1. See Keegan Warren, Geographic Expansion-Strategic Alternative, "Product Decisions" , in Global Marketing Management. (online at http://64.233.179.104/search'q=cache:U0qywYMHAvIJ:www.cba.hawaii.edu/mkt/docs/syllabi/summer04/MKT381SS1.ppt/PP11Product.ppt+keegan+five+adaptation+strategies&hl=en&gl=in&ct=clnk&cd=1) accessed on 3rd March 2006. 1. Reference List 1. World Trade Developments in 2003 and Prospects for 2004, at World Trade Organization website http://www.wto.org/English/res_e/statis_e/its2005_e/its05_general_overview_e.pdf, accessed on 3rd March 2006. 2. Philip Kotler, 2000, "Designing Global Offerings", in Marketing Management, Prentice-Hall of India, India. 3. Planet Xbox 360 News at: http://xbox360.ign.com/articles/630/630779p1.html, accessed on 2nd Feb 2006. 4. Apple.com, at http://www.apple.com/ipodnano/ , accessed on 2nd Feb 2006. 5. NonStopMac.com, e-bay statistics on iPod Nano Sales, http://www.nonstopmac.com/2006/01/ebay_statistics_on_ipod_nano_s.htm, accessed on 2nd Feb 2006. 6. Nanogasm, in urbandictionary.com, http://www.urbandictionary.com/define.php'term=nanogasm, accessed on 3rd March 2006. Read More