Chapter 6 Globalizing the Value Proposition
Managers sometimes assume that what works in their home country will work just as well in another
part of the world. They take the same product, the same advertising campaign, even the same brand
names and packaging, and expect instant success. The result in most cases is failure. Why? Because
the assumption that one approach works everywhere fails to consider the complex mosaic of
differences that exists between countries and cultures.
Of course, marketing a standardized product with the same positioning and communications
strategy around the globe—the purest form of aggregation—has considerable attraction because of its
cost-effectiveness and simplicity. It is also extremely dangerous, however. Simply assuming that
foreign customers will respond positively to an existing product can lead to costly failure. Consider
the following classic examples of failure:
•
Coca-Cola had to withdraw its 2-liter bottle in Spain after discovering that few Spaniards
owned refrigerators with large enough compartments to accommodate it.
•
General Foods squandered millions trying to introduce packaged cake mixes to Japanese
consumers. The company failed to note that only 3% of Japanese homes were equipped with
ovens.
•
General Foods’ Tang initially failed in France because it was positioned as a substitute for
orange juice at breakfast. The French drink little orange juice and almost none at breakfast.
With a few exceptions, the idea of an identical, fully standardized global value proposition is a myth,
and few industries are truly global. How to adapt a value proposition in the most effective manner is
therefore a key strategic issue.
6.1 Value Proposition Adaptation Decisions
Value proposition adaptation deals with a whole range of issues, ranging from the quality and
appearance of products to materials, processing, production equipment, packaging, and style. A
product may have to be adapted to meet the physical, social, or mandatory requirements of a new
market. It may have to be modified to conform to government regulations or to operate effectively in
country-specific geographic and climatic conditions. Or it may be redesigned or repackaged to meet
the diverse buyer preferences or standard-of-living conditions. A product’s size and packaging may
also have to be modified to facilitate shipment or to conform to possible differences in engineering or
design standards in a country or in regional markets. Other dimensions of value proposition
adaptation include changes in brand name, color, size, taste, design, style, features, materials,
warranties, after-sale service, technological sophistication, and performance.
The need for some changes, such as accommodating different electricity requirements, will be
obvious. Others may require in-depth analysis of societal customs and cultures, the local economy,
technological sophistication of people living in the country, customers’ purchasing power, and
purchasing behavior. Legal, economic, political, technological, and climatic requirements of a
country market may all dictate some level of localization or adaptation.
As tariff barriers (tariffs, duties, and quotas) are gradually reduced around the world in accordance
with World Trade Organization (WTO) rules, other nontariff barriers, such as product standards,
are proliferating. For example, consider regulations for food additives. Many of the United States’
“generally recognized as safe” (GRAS) additives are banned today in foreign countries. In marketing
abroad, documentation is important not only for the amount of additive but also for its source, and
often additives must be listed on the label of ingredients. As a result, product labeling and packaging
must often be adapted to comply with another country’s legal and environmental requirements.
Many kinds of equipment must be engineered in the metric system for integration with other pieces
of equipment or for compliance with the standards of a given country. The United States is virtually
alone in its adherence to a nonmetric system, and U.S. firms that compete successfully in the global
market have found metric measurement to be an important detail in selling to overseas customers.
Even instruction or maintenance manuals, for example, should be made available in centimeters,
weights in grams or kilos, and temperatures in degrees Celsius.
Many products must be adapted to local geographic and climatic conditions. Factors such as
topography, humidity, and energy costs can affect the performance of a product or even define its use
in a foreign market. The cost of petroleum products, along with a country’s infrastructure, for
example, may mandate the need to develop products with a greater level of energy efficiency. Hot,
dusty climates of countries in the Middle East and other emerging markets may force automakers to
adapt automobiles with different types of filters and clutch systems than those used in North
America, Japan, and European countries. Even shampoo and cosmetic product makers have to
chemically reformulate their products to make them more suited for people living in hot, humid
climates.
The availability, performance, and level of sophistication of a commercial infrastructure will also
warrant a need for adaptation or localization of products. For example, a company may decide not to
market its line of frozen food items in countries where retailers do not have adequate freezer space.
Instead, it may choose to develop dehydrated products for such markets. Size of packaging, material
used in packaging, before- and after-sale service, and warranties may have to be adapted in view of
the scope and level of service provided by the distribution structure in the country markets targeted.
In the event that postsale servicing facilities are conspicuous by their absence, companies may need
to offer simpler, more robust products in overseas markets to reduce the need for maintenance and
repairs.
Differences in buyer preferences are also major drivers behind value proposition adaptation. Local
customs, such as religion or the use of leisure time, may affect market acceptance. The sensory
impact of a product, such as taste or its visual impression, may also be a critical factor. The Japanese
consumer’s desire for beautiful packaging, for example, has led many U.S. companies to redesign
cartons and packages specifically for this market. At the same time, to make purchasing massmarketed consumer products more affordable in lesser developed countries, makers of products such
as razor blades, cigarettes, chewing gum, ball-point pens, and candy bars repackage them in small,
single units rather than multiple units prevalent in the developed and more advanced economies.
Expectations about product guarantees may also vary from country to country depending on the
level of development, competitive practices, and degree of activism by consumer groups; local
standards of production quality; and prevalent product usage patterns. Strong warranties may be
required to break into a new market, especially if the company is an unknown supplier. In other
cases, warranties similar to those in the home country market may not be expected.
As a general rule, packaging design should be based on customer needs. For industrial products,
packaging is primarily functional and should reflect needs for storage, transportation, protection,
preservation, reuse, and so on. For consumer products, packaging has additional functionality and
should be protective, informative, appealing, conform to legal requirements, and reflect buying
habits (e.g., Americans tend to shop less frequently than Europeans, so larger sizes are more popular
in the United States).
In analyzing adaptation requirements, careful attention to cultural differences between the target
customers in the home country (country of origin) and those in the host country is extremely
important. The greater the cultural differences between the two target markets, the greater the need
for adaptation. Cultural considerations and customs may influence branding, labeling, and package
considerations. Certain colors used on labels and packages may be found unattractive or offensive.
Red, for example, stands for good luck and fortune in China and parts of Africa; aggression, danger,
or warning in Europe, America, Australia, and New Zealand; masculinity in parts of Europe;
mourning (dark red) in the Ivory Coast; and death in Turkey. Blue denotes immortality in Iran, while
purple denotes mourning in Brazil and is a symbol of expense in some Asian cultures. Green is
associated with high tech in Japan, luck in the Middle East, connotes death in South America and
countries with dense jungle areas, and is a forbidden color in Indonesia. Yellow is associated with
femininity in the United States and many other countries but denotes mourning in Mexico and
strength and reliability in Saudi Arabia. Finally, black is used to signal mourning, as well as style and
elegance, in most Western nations, but it stands for trust and quality in China, while white—the
symbol for cleanliness and purity in the West—denotes mourning in Japan and some other Far
Eastern nations.
A country’s standard of living and the target market’s purchasing power can also determine
whether a company needs to modify its value proposition. The level of income, the level of education,
and the availability of energy are all factors that help predict the acceptance of a product in a foreign
market. In countries with a lower level of purchasing power, a manufacturer may find a market for
less-sophisticated product models or products that are obsolete in developed nations. Certain hightechnology products are inappropriate in some countries, not only because of their cost but also
because of their function. For example, a computerized, industrial washing machine might replace
workers in a country where employment is a high priority. In addition, these products may need a
level of servicing that is unavailable in some countries.
When potential customers have limited purchasing power, companies may need to develop an
entirely new product designed to address the market opportunity at a price point that is within the
reach of a potential target market. Conversely, companies in lesser-developed countries that have
achieved local success may find it necessary to adopt an “up-market strategy” whereby the product
may have to be designed to meet world-class standards.
Minicase: Kraft Reformulates Oreo Cookies in ChinaJargon (2008, May
1).
Kraft’s Oreo has long been the top-selling cookie in the U.S. market, but the company had to reinvent
it to make it sell in China. Unlike their American counterparts, Oreo cookies sold in China are long,
thin, four-layered, and coated in chocolate.
Oreos were first introduced in 1912 in the United States, but it was not until 1996 that Kraft
introduced Oreos to Chinese consumers. After more than 5 years of flat sales, the company embarked
on a complete makeover. Research had shown, among other findings, that traditional Oreos were too
sweet for Chinese tastes and that packages of 14 Oreos priced at 72 cents were too expensive. In
response, Kraft developed and tested 20 prototypes of reduced-sugar Oreos with Chinese consumers
before settling on a new formula; it also introduced packages containing fewer Oreos for just 29
cents.
But Kraft did not stop there. The research team had also picked up on China’s growing thirst for
milk, which Kraft had not considered before. It noted that increased milk demand in China and other
developing markets was a contributing factor to higher milk prices around the world. This put
pressure on food manufacturers like Kraft, whose biggest business is cheese, but it also spelled
opportunity.
Kraft began a grassroots marketing campaign to educate Chinese consumers about the American
tradition of pairing milk with cookies. The company created an Oreo apprentice program at 30
Chinese universities that drew 6,000 student applications. Three hundred were accepted and trained
as Oreo-brand ambassadors. Some of them rode around Beijing on bicycles, outfitted with wheel
covers resembling Oreos, and handed out cookies to more than 300,000 consumers. Others
organized Oreo-themed basketball games to reinforce the idea of dunking cookies in milk. Television
commercials showed kids twisting apart Oreo cookies, licking the cream center, and dipping the
chocolate cookie halves into glasses of milk.
Still, Kraft realized it needed to do more than just tweak its recipe to capture a bigger share of the
Chinese biscuit market. China’s cookie-wafer segment was growing faster than the traditional
biscuit-like cookie segment, and Kraft needed to catch up to rival Nestlé SA, the world’s largest food
company, which had introduced chocolate-covered wafers there in 1998.
So Kraft decided this market opportunity was big enough to justify a complete remake of the Oreo
itself and, departing from longstanding corporate policy for the first time, created an Oreo that
looked almost nothing like the original. The new Chinese Oreo consisted of four layers of crispy
wafer filled with vanilla and chocolate cream, coated in chocolate. To ensure that the chocolate
product could be shipped across the country, could withstand the cold climate in the north and the
hot, humid weather in the south, and would still melt in the mouth, the company had to develop a
new proprietary handling process.
Kraft’s adaptation efforts paid off. In 2006, Oreo wafer sticks became the best-selling biscuit in
China, outpacing HaoChiDian, a biscuit brand made by the Chinese company Dali. The new Oreos
also outsell traditional (round) Oreos in China. They also have created opportunities for further
aggregation and product innovation. Kraft now sells the wafers elsewhere in Asia, as well as in
Australia and Canada, and the company has introduced another new product in China: wafer rolls, a
tube-shaped wafer lined with cream. The hollow cookie can be used as a straw through which to
drink milk.
This success encouraged Kraft to empower managers in other businesses around the globe. For
example, to take advantage of the European preference for dark chocolate, Kraft introduced dark
chocolate in Germany under its Milka brand. Research showed that Russian consumers like
premium instant coffee, so Kraft positioned its Carte Noire freeze-dried coffee as an upscale brand.
And in the Philippines, where iced tea is popular, Kraft launched iced-tea-flavored Tang.
As Kraft’s experience shows, successful global marketing and branding is rooted in a careful blend of
aggregation, adaptation, and arbitrage strategies that is tailored to the specific needs and preferences
of a particular region or country.
6.2 Adaptation or Aggregation: The Value Proposition
Globalization Matrix
A useful construct for analyzing the need to adapt the offer and message (positioning) dimensions is
the value proposition globalization matrix shown in Figure 6.1 "The Value Proposition Globalization
Matrix", which illustrates four generic global strategies:
1.
A pure aggregation approach (also sometimes referred to as a “global marketing mix”
strategy) under which both the offer and the message are the same
2. An approach characterized by an identical offer (product/service aggregation) but different
positioning (message adaptation) around the world (also called a “global offer” strategy)
3. An approach under which the offer might be different in various parts of the world (product
adaptation) but where the message is the same (message aggregation; also referred to as a
“global message” strategy)
4. A “global change” strategy under which both the offer and the message are adapted to local
market circumstances
Figure 6.1 The Value Proposition Globalization Matrix
Global mix or pure aggregation strategies are relatively rare because only a few industries are truly
global in all respects. They apply (a) when a product’s usage patterns and brand potential are
homogeneous on a global scale, (b) when scale and scope cost advantages substantially outweigh the
benefits of partial or full adaptation, and (c) when competitive circumstances are such that a longterm, sustainable advantage can be secured using a standardized approach. The best examples are
found in industrial product categories such as basic electronic components or certain commodity
markets.
Global offer strategies are feasible when the same offer can be advantageously positioned differently
in different parts of the world. There are several reasons for considering differential positioning.
When fixed costs associated with the offer are high, when key core benefits offered are identical, and
when there are natural market boundaries, adapting the message for stronger local advantage is
tempting. Although such strategies increase local promotional budgets, they give country managers a
degree of flexibility in positioning the product or service for maximum local advantage. The primary
disadvantage associated with this type of strategy is that it could be difficult to sustain or even
dangerous in the long term as customers become increasingly global in their outlook and confused by
the different messages in different parts of the world.
Minicase: Starwood’s Branding in ChinaPalmeri and Balfour (2009,
September 7).
Check into a Four Points Hotel by Sheraton in Shanghai and you will get all the perks of a quality
international hotel: a free Internet connection, several in-house restaurants, a mah-jongg parlor, and
an assortment of moon cakes, a Chinese delicacy. All this for $80 a night, about 20% less than the
average cost of a room in Shanghai.
For travelers who associate the Sheraton brand with plastic ice buckets and polyester bedspreads in
the United States, this may come as a surprise. Like Buick, Kentucky Fried Chicken (KFC), and Pizza
Hut, Sheraton is one of those American names that, to some, seems past its prime at home, but it is
still popular and growing abroad. The hotel brand has particular cachet in China, going back to 1985,
when it opened the Great Wall Sheraton Hotel Beijing. Local developers still compete to partner with
Sheraton’s parent company—Starwood Hotels & Resorts Worldwide—to develop new properties. In
the near future, the company will have more rooms in Shanghai than it does in New York.
Like many other U.S. companies experiencing pressure at home, Starwood sees China as one of its
best hopes for growth. The company, which also owns the upscale St. Regis, Westin, W, and Le
Meridien brands, expects much of this growth will come from outlying regions. Big cities such as
Beijing now have plenty of rooms, thanks in part to the Olympics, but there is growing demand for
business-class accommodation in second- and third-tier cities such as Jiangyin and Dalian. Lower
construction costs and inexpensive labor mean the company’s Chinese hotel owners can offer guests
a lot more than comparably priced U.S. properties.
In recent years, the focus in China has shifted from international travelers to Chinese consumers.
Starwood now asks its hotel staff to greet guests in Mandarin instead of English, which was long used
to convey a sense of prestige. Many of its hotels do not label their fourth floors as such because four
is considered an unlucky number.
Starwood is not alone in recognizing the potential of the Chinese market. Marriott International
hopes to increase its China presence by 50%, to 61 hotels by 2014. And InterContinental Hotels
Group, parent of Holiday Inn, plans to double the 118 hotels it has in China over the next 3 years.
One major perk Starwood can offer over local competitors is its extensive global network and loyalty
perks. More than 40% of its Chinese business comes through its preferred-guest program, and
Chinese membership in the program is increasing rapidly. But local customers are not particularly
focused on accruing points to earn a free stay. They are more interested in “status,” using points to
get room upgrades, a free breakfast, or anything that accords them conspicuous VIP treatment.
Among other things, the preferred guest system allows staffers to see people’s titles immediately.
That makes it easier to give better rooms to managers than the subordinates they are traveling with
and to greet them first when a party arrives.
After a long period in which Starwood paid more attention to its hipper W and Westin brands, the
company has recently been remodeling its U.S. Sheratons. Among mainland Chinese travelers, the
Sheraton name has continued to exude an aura of international class. While that is helpful for
Sheraton’s domestic Chinese business, the real potential will only be realized when they start to
travel. The company’s goal is to lock in the loyalty of mainland customers so they will stay at a
Sheraton when they travel abroad. Indeed, if the experience with Japanese tourists in the mid-1980s
is any guide, Starwood could be looking at 100 million or more outbound trips from China.
Global message strategies use the same message worldwide but allow for local adaptation of the
offer. McDonald’s, for example, is positioned virtually identical worldwide, but it serves vegetarian
food in India and wine in France. The primary motivation behind this type of strategy is the
enormous power behind a global brand. In industries in which customers increasingly develop
similar expectations, aspirations, and values; in which customers are highly mobile; and in which the
cost of product or service adaptation is fairly low, leveraging the global brand potential represented
by one message worldwide often outweighs the possible disadvantages associated with factors such
as higher local research and development (R&D) costs. As with global-offer strategies, however,
global message strategies can be risky in the long run—global customers might not find elsewhere
what they expect and regularly experience at home. This could lead to confusion or even alienation.
Minicase: KFC Abroadhttp://www.kfcbd.com/aboutus_kfcbang.htm
KFC is synonymous with chicken. It has to be because chicken is its flagship product. One of the
more recent offers the company created—all around the world—is the marinated hot and crispy
chicken that is “crrrrisp and crunchy on the outside, and soft and juicy on the inside.” In India, KFC
offers a regular Pepsi with this at just 39 rupees. But KFC also made sure not to alienate the
vegetarian community—in Bangalore, you can be vegetarian and yet eat at KFC. Why? Thirty-five
percent of the Indian population is vegetarian, and in metros such as Delhi and Mumbai, the number
is almost 50%. Therefore, KFC offers a wide range of vegetarian products, such as the tangy, lipsmacking Paneer Tikka Wrap ‘n Roll, Veg De-Lite Burger, Veg Crispy Burger. There are munchies
such as the crisp golden veg fingers and crunchy golden fries served with tangy sauces. You can
combine the veg fingers with steaming, peppery rice and a spice curry. The mayonnaise and sauces
do not have egg in them.
While the vegetarian menu is unique to India because of the country’s distinct tastes, KFC’s
“standard” chicken products are also adapted to suit local tastes. For example, chicken strips are
served with a local sauce, or the sauce of the wrap is changed to local tastes. Thus, KFC tries to
balance aggregation with adaptation: standardization of those parts of the value offering that travel
easily (KFC’s core products and positioning), tailoring of standard chicken products with a different
topping or sauce, and offering a vegetarian menu.
This adaptation strategy is used in every country that KFC serves: the U.S. and European markets
have a traditional KFC menu based on chicken burgers and wraps, while Asian offerings like those in
India are more experimental and adventurous and include rice meals, wraps, and cultureappropriate sides.
Global change strategies define a “best fit” approach and are by far the most common. As we have
seen, for most products, some form of adaptation of both the offer and the message is necessary.
Differences in a product’s usage patterns, benefits sought, brand image, competitive structures,
distribution channels, and governmental and other regulations all dictate some form of local
adaptation. Corporate factors also play a role. Companies that have achieved a global reach through
acquisition, for example, often prefer to leverage local brand names, distribution systems, and
suppliers rather than embark on a risky global one-size-fits-all approach. As the markets they serve
and the company become more global, selective standardization of the message and the offer itself
can become more attractive.
Minicase: Targeting Muslim CustomersPower (2009, June 1).
Muslims often experience culture shock while staying in Western hotels. Minibars, travelers in
bikinis, and loud music, among other things, embarrass Muslim travelers.
That is no longer necessary. A growing number of hotels has started to cater to Muslim travelers. In
one, the lobby—decorated in white leather, brick, and glass, with a small waterfall—is quiet. Men in
dishdashas and veiled women mingle with Westerners who are sometimes discreetly reminded to
respect local customs. Minibars are stocked not with alcohol but with Red Bull, Pepsi, and the malt
drink Barbican.
“Buying Muslim” used to mean avoiding pork and alcohol and getting your meat from a halal
butcher, who slaughtered in accordance with Islamic principles. But the halal food market has
exploded in the past decade and is now worth an estimated $632 billion annually, according to the
Halal Journal, a Kuala Lumpur–based magazine. That amounts to about 16% of the entire global
food industry. Throw in the fast-growing Islam-friendly finance sector and the myriad of other
products and services—cosmetics, real estate, hotels, fashion, insurance, for example—that comply
with Islamic law and the teachings of the Koran, and the sector is worth well over $1 trillion a year.
Seeking to tap that huge market, multinationals like Tesco, McDonald’s, and Nestlé have expanded
their Muslim-friendly offerings and now control an estimated 90% of the global halal market.
Governments in Asia and the Middle East are pouring millions into efforts to become regional “halal
hubs,” providing tailor-made manufacturing centers and “halal logistics”—systems to maintain
product purity during shipping and storage. The intense competition has created some interesting
partnerships in unusual places. Most of Saudi Arabia’s chicken is raised in Brazil, which means
Brazilian suppliers had to build elaborate halal slaughtering facilities. Abattoirs in New Zealand, the
world’s biggest exporter of halal lamb, have hosted delegations from Iran and Malaysia. And the
Netherlands, keen to exploit Rotterdam’s role as Europe’s biggest port, has built halal warehouses so
that imported halal goods are not stored next to pork or alcohol.
It is not just about food. Major drug companies now sell halal vitamins free of the gelatins and other
animal derivatives that some Islamic scholars say make mainstream products haram, or unlawful.
The Malaysia-based company Granulab produces synthetic bone-graft material to avoid using animal
bone, while Malaysian and Cuban scientists are collaborating on a halal meningitis vaccine. For
Muslim women concerned about skin-care products containing alcohol or lipsticks that use animal
fats, a few cosmetics firms are creating halal makeup lines.
The growing Islamic finance industry is trying to win non-Muslim customers. Investors are attracted
by Islamic banking’s more conservative approach: Islamic law forbids banks from charging interest
(though customers pay fees), and many scholars discourage investment in excessively leveraged
companies. Though it currently accounts for just 1% of the global market, the Islamic finance
industry’s value is growing at around 15% a year, and it could reach $4 trillion in 5 years, according
to a 2008 report from Moody’s Investors Service.
6.3 Combining Aggregation and Adaptation: Global Product
Platforms
One way around the trade-off between creating global efficiencies and adapting to local requirements
and preferences is to design a global product or communication platform that can be adapted
efficiently to different markets. This modularized approach to global product design has become
particularly popular in the automobile industry. One of the first “world car platforms” was
introduced by Ford in 1981. The Ford Escort was assembled simultaneously in three countries—the
United States, Germany, and the United Kingdom—with parts produced in 10 countries. The U.S.
and European models were distinctly different but shared standardized engines, transmissions, and
ancillary systems for heating, air conditioning, wheels, and seats, thereby saving the company
millions of dollars in engineering and development costs.
Minicase: Creating the Perfect Fit: New Car-Seat DesignBuss (2009).
Imagine the challenge of being an automotive-seat engineer these days, and picture one of the hugest
men you know—a large, American male weighing about 275 lbs. Now consider a petite woman, and
throw in someone with lower-back pain. Your challenge: design a single seat that comfortably
accommodates each of these physically and physiologically diverse individuals, not just for a few
minutes but for a 4-hour drive. Welcome to the global automotive design challenge.
While the economic pressures to standardize are becoming stronger, car buyers are getting more
size-diverse, more ergonomically distressed, and more demanding of power adjustments and other
amenities. Seat developers are responding: they are using more versatile materials, new engineering
techniques, digital technologies, and novel designs to make sitting in a car as, or even more,
comfortable as sitting in your living room.
This concern for comfort is relatively new; hard benches were the standard during the industry’s
earliest days. Even into the 1980s, most cars and trucks had simple bench seating in both the front
and rear of the automobile. Automotive seat design only became a crucial discipline during the last
generation as Americans began to spend more and more time in their vehicles and as interior
comfort and appointments became a major competitive issue.
Federal regulations affect seat design only minimally, with the most important requirements
focusing on headrests. And there are distance requirements between the driver’s body and the
steering wheel, an issue that can also be addressed with telescoping steering wheels and adjustable
pedals. In the end, automakers must mainly make sure the seat design helps the car pass the
government’s crash-safety standards.
Consumers are far more demanding. Comfort and ergonomic functionality have become the focal
points of seat design. Americans are getting bigger and heavier, and automakers try to design seats
that can accommodate everyone from the smallest females to the largest males. This is not a simple
feat, with the 95th-percentile American man now weighing about 24 lbs more than 2 decades ago. At
the same time, while U.S. women in general also have gotten larger, the influx of immigrants from
Asia actually kept the overall increase in the size of the 5th-percentile American woman down to
under 5 lbs over the last 2 decades.
And just as airlines and home-furniture manufacturers have had to respond to wider girths by
making seats bigger, auto companies are also faced with having to squeeze bigger people into cabins
that are getting smaller as gas prices rise. At the same time, seats must secure tiny drivers and allow
them to see clearly over the steering wheel and reach the accelerator and brake pedals.
The aging of the American population poses special difficulties. Younger demographics like their
seats harder, but baby boomers and older customers are used to a soft seat. Whether this is best
ergonomically is not important, despite the fact that more and more consumers are carrying specific
maladies of aging into their cars, including back pain, aching knees, and a general decline in the
basic nimbleness required to get in and out of an automobile.
It is one thing to design a single seat that can accommodate the frames of the smallest to the largest
Americans. Now add the globalization challenge. As automakers seek to globalize vehicle platforms,
their seats also have to be able to accommodate the diverse body proportions, size ranges, and
consumer preferences of people around the world.
For example, while Europeans definitely prefer longer cushions, and Asians like shorter ones,
Americans are somewhere in between. And in China, the second row must be as comfortable as the
first because as many as 40% of car owners have a driver, and the owners tend to sit in the right rear
seat.
6.4 Combining Adaptation and Arbitrage: Global Product
Development
Globalization pressures have changed the practice of product development (PD) in many industries
in recent years.Eppinger and Chitkara (2006). Rather than using a centralized or local crossfunctional model, companies are moving to a mode of global collaboration in which skilled
development teams dispersed around the world collaborate to develop new products. Today, a
majority of global corporations have engineering and development operations outside of their home
region. China and India offer particularly attractive opportunities: Microsoft, Cisco, and Intel all
have made major investments there.
The old model was based on the premise that colocation of cross-functional teams to facilitate close
collaboration among engineering, marketing, manufacturing, and supply-chain functions was critical
to effective product development. Colocated PD teams were thought to be more effective at
concurrently executing the full range of activities involved, from understanding market and customer
needs through conceptual and detailed design, testing, analysis, prototyping, manufacturing
engineering, and technical product support and engineering. Such colocated concurrent practices
were thought to result in better product designs, faster time to market, and lower-cost production.
They were generally located in corporate research and development centers, which maintained
linkages to manufacturing sites and sales offices around the world.
Today, best practice emphasizes a highly distributed, networked, and digitally supported
development process. The resulting global product development process combines centralized
functions with regionally distributed engineering and other development functions. It often involves
outsourced engineering work as well as captive offshore engineering. The benefits of this distributed
model include greater engineering efficiency (through utilization of lower-cost resources), access to
technical expertise internationally, more global input to product design, and greater strategic
flexibility.
6.5 Combining Aggregation, Adaptation, and Arbitrage: Global
Innovation
Many companies now have global supply chains and product development processes, but few have
developed effective global innovation capabilities.Santos, Doz, and Williamson (2004, Summer).
Increasingly, however, technology access and innovation are becoming key global strategic drivers.
This move from cost to growth and innovation is likely to continue as the center of gravity of
economic activity shifts further to the East.
To illustrate the significant advantages of a truly global innovation strategy, Santos and others cite
the battle between Motorola, Inc. and Nokia Corporation in the cellular phone industry. Motorola
was a pioneer in the technology, building on initial path-breaking research from Bell Laboratories.
But by focusing primarily on U.S. customers and U.S. solutions, it missed the market shift toward
digital mobile technology and the global system for mobile (GSM) communication, which became the
standard in Europe. The company also failed to appreciate that consumers were rapidly developing
different use patterns and preferences about product design, thereby rendering a one-size-fits-all
strategy obsolete.
A core competency in global innovation—the ability to leverage new ideas all around the world—has
become a major source of global competitive advantage, as companies such as Nokia, Airbus, SAP,
and Starbucks demonstrate. They realize that the principal constraint on innovation “performance”
is knowledge. Accessing a diverse set of sources of knowledge is therefore a key challenge and is
critical to successful differentiation. Companies whose knowledge pool is the same as that of its
competitors will likely develop uninspired “me, too” products; access to a diversity of knowledge
allows a company to move beyond incremental innovation to attention-grabbing designs and
breakthrough solutions.
There is an interesting relationship between geography and knowledge diversity. In Finland, for
example, the high cost of installing and maintaining fixed telephone lines in isolated places has
spurred advances in radiotelephony. In Germany, cultural and political factors have encouraged the
growth of a strong “green movement,” which in turn has generated a distinctive market and technical
knowledge in recycling and renewable energy. Just-in-time production systems were pioneered in
part because of high land costs there. Recognition of the role played by geography in innovation has
prompted many companies to globalize their perspective on the innovation process. For example,
pharmaceutical companies such as Novartis AG and GlaxoSmithKline plc now realize that the
knowledge they need extends far beyond traditional chemistry and therapeutics to include
biotechnology and genetics. What is more, much of this new knowledge comes from sources other
than the companies’ traditional R&D labs in Basel, Bristol, and in New Jersey, from places such as
California, Tel Aviv, Cuba, or Singapore. For these companies, globalization of innovation processes
is no longer optional—it has become imperative.
Companies that globalize their supply chains by accessing raw materials, components, or services
from around the world are typically able to reduce the overall costs of their operations. Similarly, a
side benefit of global innovation is cost reduction. Consider, for example, how companies are now
leveraging software programmers in Bangalore, India, aerospace technologists in Russia, or chipset
designers in China to cut the costs of their innovation processes.
To reap the benefits of global innovation, companies must do three things:
1.
Prospect (find the relevant pockets of knowledge from around the world)
2. Assess (decide on the optimal “footprint” for a particular innovation)
3. Mobilize (use cost-effective mechanisms to move distant knowledge without degrading
itSantos, Doz, and Williamson (2004, Summer).
Prospecting—that is, finding valuable new pockets of knowledge to spur innovation—may well be the
most challenging task. The process involves knowing what to look for, where to look for it, and how
to tap into a promising source. Santos and colleagues cite the efforts of the cosmetics maker Shiseido
Co., Ltd., in entering the market for fragrance products. Based in Japan, a country with a very
limited tradition of perfume use, Shiseido was initially unsure of the precise knowledge it needed to
enter the fragrance business. But the company did know where to look for it. So it bought two
exclusive beauty boutique chains in Paris, mainly as a way to experience, firsthand, the personal care
demands of the most sophisticated customers of such products. It also hired the marketing manager
of Yves Saint Laurent Parfums and built a plant in Gien, a town located in the French perfume
“cluster.” France’s leadership in that industry made the where fairly obvious to Shiseido. The how
had also become painfully clear because the company had previously flopped in its efforts to develop
perfumes in Japan. Those failures convinced Shiseido executives that to access such complex
knowledge—deeply rooted in local culture and combining customer information, aesthetics, and
technology—the company had to immerse itself in the French environment and learn by doing.
Having figured out the where and how, Shiseido would gradually learn what knowledge it needed to
succeed in the perfume business.
Assessing new sources of innovation, that is, incorporating new knowledge into and optimizing an
existing innovation network, is the second important challenge companies face. If a semiconductor
manufacturer is developing a new chip set for mobile phones, for example, should it access technical
and market knowledge from Silicon Valley, Austin, Hinschu, Seoul, Bangalore, Haifa, Helsinki, and
Grenoble? Or should it restrict itself to just some of those sites? At first glance, determining the best
footprint for innovation does not seem fundamentally different from the trade-offs companies face in
optimizing their global supply chains: adding a new source might reduce the price or improve the
quality of a required component, but more locations may also mean additional complexity and cost.
Similarly, every time a company adds a source of knowledge to the innovation process, it might
improve its chances of developing a novel product, but it also increases costs. Determining an
optimal innovation footprint is more complicated, however, because the direct and indirect cost
relationships are far more imprecise.
Mobilizing the footprint, that is, integrating knowledge from different sources into a virtual melting
pot from which new products or technologies can emerge, is the third challenge. To accomplish this,
companies must bring the various pieces of (technical) knowledge that are scattered around the
world together and provide a suitable organizational form for innovation efforts to flourish. More
importantly, they would have to add the more complex, contextual (market) knowledge to integrate
the different pieces into an overall innovation blueprint.
Minicase: P&G’s Success in Trickle-Up Innovation: Vicks Cough Syrup
With HoneyJana (2009, March 31).
A new over-the-counter medicine from Vicks that has recently become popular in Switzerland is not
as new as it seems. The product, Vicks Cough Syrup with Honey, is really just the latest incarnation
of a product that Vicks parent company, Procter & Gamble (P&G), initially created for lower-income
consumers in Mexico and then “trickled up” to more affluent markets.
The term “trickle up” refers to a strategy of creating products for consumers in emerging markets
and then repackaging them for developed-world customers. Until recently, affluent consumers in the
United States and Western Europe could afford the latest and greatest in everything. Now, with
purchasing power dramatically reduced because of the global recession, budget items once again
make up a growing portion of total sales in many product categories.
P&G is not the only multinational company using this strategy. Other practitioners of trickle-up
innovation include General Electric (GE), Nestlé, and Nokia. In early 2008, GE Healthcare launched
the MAC 400, GE’s first portable Electrocardiograph (ECG) that was designed in India for the fastgrowing local market there. The company simplified elements of its earlier, 65-lb devices made for
U.S. hospitals by shrinking its case to the size of a fax machine and removing features such as the
keyboard and screen. The smaller MAC 400 costs only $1,500, versus $15,000 for its U.S.
predecessor. This trickle-down innovation trickled back up again when GE Healthcare decided to sell
the unit in Germany as well.
Nestlé offers inexpensive instant noodles in India and Pakistan under its Maggi brand. The line
includes dried noodles that are engineered to taste as if they were fried, while they have a wholewheat flavor that is popular in South Asia. And Nokia researches how people in emerging nations
share phones, such as the best-selling 1100 series of devices created for developing-world consumers.
The company then uses the information as inspiration for new features for developed-world users.
But what is unique about P&G’s Honey Cough, as it is also called, is that it has moved around the
globe in more than one direction. Honey Cough originated in 2003 in P&G’s labs in Caracas,
Venezuela, which creates products for all of Latin America. Market research revealed that Latin
American shoppers tended to prefer homeopathic remedies for coughs and colds, so P&G set out to
create a medicine using natural honey rather than the artificial flavors typically used. The company
first introduced the syrup in Mexico, under the label VickMiel, and then in other Latin American
markets, including Brazil.
P&G deduced that the product would appeal to parts of the United States that have large Hispanic
populations. In 2005, the company rebranded it as Vicks Casero for sale in California and Texas, at a
price slightly less than Vicks’ mainstay product, Vicks Formula 44. Within the first year of its release,
the company boosted distribution to 27% more outlets.
Figuring that natural ingredients could appeal to even wider groups, P&G took the product to other
markets where research indicated that homeopathic cold medicines are popular. In the past 2 years,
the company has been marketing the product in Britain, France, Germany, and Italy, as well as
Switzerland, and plans to add other Western European countries to the roster.
And Western Europe is not the last destination for iterations of Honey Cough. If P&G’s current
market research in the greater United States shows that mainstream American shoppers will buy
Honey Cough, P&G will repackage it and market it nationwide, not just as Vicks Casero in Latino
markets.
Developing and marketing a new product for each nation or ethnic group can take half a decade.
Trickle-up innovation can reduce this time by several years, which explains its appeal. In each
rollout, P&G has needed to do little more than make adjustments for each nation’s health
regulations.
At a time when companies are looking to speed product offerings while dealing with shrinking
budgets and cash-strapped consumers, P&G’s experience with its Honey Cough line shows how an
international product portfolio can be tapped quickly and cheaply—that is, if American companies
learn how to go against the flow.
6.6 Points to Remember
1.
Managers sometimes assume that what works in their home country will work just as well in
another part of the world. The result in most cases is failure. Why? Because the assumption
that one approach works everywhere fails to consider the complex mosaic of differences that
exists between countries and cultures.
2. With a few exceptions, the idea of an identical, fully standardized global value proposition is
a myth, and few industries are truly global. How to adapt a value proposition in the most
effective manner is therefore a key strategic issue.
3. Value proposition adaptation deals with a whole range of issues, ranging from the quality and
appearance of products to materials, processing, production equipment, packaging, and
style.
4. A useful construct for analyzing the need to adapt the product or service and message
(positioning) dimensions is the value proposition globalization matrix.
5. One way around the trade-off between creating global efficiencies and adapting to local
requirements and preferences is to design a global product or communication platform that
can be adapted efficiently to different markets.
6. Globalization pressures have changed the practice of product development in many
industries in recent years. Today, a majority of global corporations have engineering and
development operations outside of their home region.
7. Many companies now have global supply chains and product development processes but few
have developed effective global innovation capabilities. Increasingly, however, technology
access and innovation are becoming key global strategic drivers.
8. A core competency in global innovation—the ability to leverage new ideas all around the
world—has become a major source of global competitive advantage.
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