Why globalise?

An economic necessity

Very few people dispute the need to internationalise business. World commerce has existed since caravans brought spices from all over Asia to Europe. The great naval explorers of the 15th and 16th centuries were also motivated by the prospect of opening new routes to merchandise. Colonisation had economic motives: access to raw materials, to gold, then wheat, then oil.

Production was the first business function to be delocalised. Finance is international. It is the time of marketing. Why then global brands? Why not simply international or multi-local brands?

In the competitive race, economies of scale provide a strategic lever in that they contribute to competitive pricing. A company designing a car with worldwide market potential in mind has a competitive advantage over the manufacturer who only sets his sights locally.

Even though the latter may produce a car which better reflects the tastes of his own country, the difference in price from that of a Japanese or a Korean car designed from the start with a worldwide market in mind will naturally make even the most patriotic motorist hesitate. This is why Renault’s Twingo, whose low price is a key element of positioning for the easy-to-live-with car, was designed from the start for a whole continent: the same product everywhere.

Globalisation matrix

The local company – even if it is positioned in a niche – has no other way of overcoming the price handicap than to extend its outlets while innovating. Geographical extension is an essential condition in the race for survival.

If the brand is to remain competitive, its innovation must be offered immediately to all at the lowest possible price. The marginal cost of each progressive feature rises day by day. Hundreds of researchers are needed to even hope to innovate. Industrial investments and research costs must now be set against low unit margins.

Using the awareness and public confidence which it has acquired, the brand provides the firm with access to outlets on an ever-widening scale. Without these, such investments could not be economically justified. The manufacturer’s brand opens the way to progress and, at the same time, makes it available for all.

To summarise thus far, globalisation particularly affects products by allowing overall savings and leaps in the experience curve. But a global product does not necessarily signify a global name, in other words moving from a single product to a single brand needs further discussion on the subject of economy of signs and symbols.

The global name: a source of advantages

In certain market areas, the global brand is a necessity, whereas in many other cases it is a means of exploiting and taking advantage of new opportunities in communication.

The single brand is a necessity whenever the clients themselves are already operating worldwide. Firms using IBM or Dell in London would see no sense in having the same equipment in their Bogota or Kuala Lumpur offices under a different brand name. The same applies to most technological industries. caterpillar, Sumitomo, Schlumberger, Siemens and Alcatel are of necessity world brands – quite apart from the fact that they are global enterprises.

It is also necessary to retain a single brand when the brand itself corresponds to the signature or griffe of its individual creator. Take the luxury trade – Pierre Cardin is Pierre Cardin wherever his products are found, just as Ralph Lauren is Ralph Lauren.

Their creations are bought around the world because their signature bears witness to the values of their creator. Whether or not the creator lives on in body or in spirit does not change the rule: from a single source comes a single name.

These cases apart, the single brand permits the exploitation of new international opportunities:

  • As tourism develops, for instance, it is a disadvantage that certain products have different names in different countries. If this were not the case, tourists could find their brands. Seeing the queues of comforted tourists from all countries in front of McDonald’s instead of Quick is enough to convince anyone. This argument applies, however, more to some sectors than to others: to food more than lingerie and to car oil more than cooking oil. But the main advantage is linked to the synergy: the exposure of an American executive to DHL in Europe will benefit the renown and the reputation of DHL in the United States. Brands acquire additional credibility when they prove to have international appeal. This is why in 1989 Ariel brought out the first advertising commercial featuring testimony from housewives from different European countries.
  • The more international media develop, the greater the opportunities they provide for the single brand. This has long been the case with traditional media; it now concerns satellite, cable and the internet.

Real opportunities for worldwide coverage are provided by such events as Grand Slam tennis tournaments, the Tour de France, the World Soccer Cup, the Olympic Games, Formula 1 motor racing, etc. Through its sponsorship of the Roland Garros tournament, the BNP Bank is known as far afield as California where they speak of the tournament as the ‘BNP Tournament’, just as there is a ‘Volvo Grand Prix’.

These programmes reach an international audience and therefore in practical terms exclude on-the-spot local brands, since the costs involved in appealing to only part of the audience would be prohibitive. Only global brands can be present in worldwide events such as the Olympic games or Formula 1 motor racing. Only the global brand can justify the cost of sponsoring such worldwide stars as Tiger Woods, or Michael Schumacher.

From single name to global brand

How far do we push the global idea? To what extent do we continue to make marketing decisions on a national level? Should we globalise positioning, creative concepts and even the ads themselves? The fact is that, though no one denies that a single name is often an advantage, there is some dispute over the brand strategy to be adopted, together with the form it should take. For some, the essence of marketing is to stick close to customers, while for others, the advantages offered by homogeneous marketing on a global scale offer no alternative.

Before dealing with the respective arguments, it is important to be precise about the terms used. Global marketing implies the wish to extend a single marketing mix to a particular region (eg Europe or Asia), or even to the world. It also denotes a situation in which a firm’s competitive position in one country can be significantly affected by its position in other countries. The global approach sees the role of individual countries as only part of a wider competitive action.

The global approach considers countries and their roles in a widened competitive field. The aims of marketing in each country are no longer determined by the local subsidiary, but are decided upon according to the global competitive system. Thus, whereas traditionally each subsidiary planned their activities based on their own resources and the domestic market, within a global strategy the following is the case:

  • Certain countries have the task of developing a marketing mix for a new product, testing its capabilities in their home markets before its extension to other countries.
  • This therefore constitutes a test, not of the best marketing mix on single national lines but of a global marketing mix prior to extension. As a consequence, nowadays it is insufficient to keep an eye on the competition in one country alone – every country should be included.
  • Certain countries are assigned to develop know-how on a particular brand or a type of product brand so that they can act as a precursor and coordinator for others. In contrast to the global approach, many multinational firms follow a ‘multi-local’ philosophy, preferring to follow specific trends in each country’s market. Not only will the same brand differ from one market to the next both in positioning and in price level, but it is also supported by its own specific advertising campaign.

Coca-Cola follows a global marketing policy, while Nestlé prefers multi-local marketing. Thus Maggi readysnacks were launched:

  • in Germany under the name ‘Maggi, 5 Minuten Terrine’ and positioned as a practical nutritious food for men and women and between 30 and 40;
  • in France under its own name ‘Bolino’ (with Maggi in small print) and positioned as an instant snack for the young single person;
  • in Switzerland under another name, ‘Quick Lunch’, and positioned as a quick meal approved by mothers.

In these three countries, the product achieved its sales objectives. Manichean comparisons should, therefore, not be made between global and multi-local policies in terms of either customer appreciation or sales. However, a company’s ultimate aim is not simply to achieve maximum sales – marketing globalisation leads to profitability.

  • In the first place, it cuts out duplicated tasks. For example, instead of bringing out different TV advertising for each country, the firm can use a single ad for the region in mind. Bearing in mind the high cost of producing these ads (up to US$1 million), the potential for savings is considerable. The McCann-Erickson agency was proud of the fact that they have saved Coca-Cola US$90 million in production costs over 20 years, thanks to producing ads with world appeal. Even if production costs are, from now on, low compared to the investment in the media themselves, rendering the economy argument less forceful, it is still worthwhile for middle brands used to developing one campaign per country!
  • By launching a product in several countries simultaneously, it eliminates the problems which arise when a new product appears at staggered intervals from one country to the next, depending on the local situation. This has the drawback of allowing competitors time to pre-empt certain ideas in one country which they have seen in another.
  • Globalisation allows a firm to exploit good ideas wherever they come from. Since good ideas are rare, they must be made maximum use of. By getting representatives in several countries to put their minds to a particular question, there is a better chance of coming up with a strong idea that can be used on a global plane. This is how the global idea ‘Put a tiger in your tank’ came to be used around the world. The Timotei shampoo was developed in Finland and spread to other European countries to benefit from the emergence of a trend towards natural goods. The worldwide drink Malibu was created in South Africa.
  • A global policy allows a firm to slip the stranglehold of the major retailer, whose commercial demands are closer to a systematic toll than to a payment for real services to the producer. A national brand may have few means of extricating itself; such is the intensity of distribution concentration that it is forced to use a small number of major retailers in order to reach the consumer. The global brand is fortunately less susceptible to local pressures.
  • When a brand goes international, it can however benefit from the internationalization of its main domestic retailers. Thus Wal-Mart acts as bridgehead to many North American brands, and Carrefour to many European brands.

The emergence of global segments

All sociocultural studies underscore the convergence of life-styles. There are fewer differences between top executives in Japan and in Germany than between executives and employees within Germany. In addition identification models act on a worldwide basis: some Chinese women identify with American woman, others with the French, and a growing number now identify with Korea’s style of beauty.

The same may be true in Holland or in New York. This is why l’Oréal has developed a wide array of global brands: far from pushing towards uniformity, this group diffuses heterogeneity. This is why it takes much care in offering brands that symbolise not one single type of beauty but all of them, from Softsheen Carson for the black community worldwide, to Sue Uemura or Maybelline.

The group takes much care in leaving each of its brand’s headquarters in its home country to preserve its specificity. However, they must globalise their concept and products and communications. Global segments should each have a global brand corresponding to their needs.

Pricing issues

Finally, the price factor will be a key component of the homogenisation of brand strategies in the future. Indeed everything points to reducing the price span within which the same brand can evolve from one country to another, from one area to another.

  • The existence of a concentration of distributors on a regional or international level creates a major destabilising threat to brands that optimise locally their price policy. There is nothing to prevent the distributors from demanding the lowest price to be seen in Europe, which may be in Portugal for instance, or in a country that has lowered its prices as a means of competition.
  • The emergence of parallel markets needs to be avoided as these would destabilise the normal distribution channels of a country and therefore the relationship between a brand and its distributors. There is indeed a close relationship between price positioning and market positioning. A brand cannot be the most expensive on the market in one place and in the mainstream in another.

The price level situates the brand in terms of perceived quality, performance and prestige. In the market for special vintages of champagne, for example, to be the most expensive, on a par with or cheaper than Dom Perignon, does not position its challenger Veuve Clicquot in the same way. Reducing the international price variance of a brand is a factor which encourages uniform positioning and, by extension, affects the whole brand policy.

Unless a policy is explicitly chosen that allows optimum prices locally and strong price differences from one country to another, identical products need to be sold under different brand names in each country. This is the strategy followed by Benckiser, which buys strong local brands. R&D are indeed by necessity European, using the principle of a ‘lead country’ for the development of new products and the definition of the marketing mix.

Fighting the grey market

A classical consequence of economic heterogeneity is the grey market. To reach public accessibility, brands must align their prices on the local economic level. However, when a gap exists among countries not too far apart in distance, a grey market grows, disturbing the sales and trade goodwill in the country invaded by parallel imports. Of course, in the case of luxury goods with selective distribution agreements, the first reaction is to install some form of trace, in order to identify those commercial agents that break these agreements, reselling outside their zone.

A second approach is to change the brand. Thus in Northern Europe Viakal, an antilimescaling household product, became Antikal to stop the grey market of Italian Viakal products, which were sold there at a price 30 per cent lower. Without going to such extremes, Hennessy cognac decided to stop selling its VSOP product in Western Europe, and instead created a customised product called Fine de Cognac.

Europe was in any case drinking less and less VSOP, but it had become a source of a grey market for Russia. In fact, throughout the world, global brands are developing more and more regional products for these commercial reasons.

A final approach of course is to create a price corridor across all countries of a region or continent. This cuts the risk of a grey market growing, but handicaps the sales where the brand is overpriced for the sake of respecting the international corridor. As an example, the net trade price of Absolut vodka in Europe is around s5.5 on average as evidenced in Table below.

How Absolut copes with the grey market: corridor pricing

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