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The use of entry methods in identifying multinational companies' AdaptStand behavior in foreign markets.

Abstract

This research investigates some of the largest UK multinational companies, to examine their levels of adaptation and standardization of international marketing tactics. It examines whether these companies are adapting or standardizing their marketing mix elements in international markets. This research determined that both adaptation and standardization are used at the same time. The level of integration is dependent upon considerations of the relationship between the reasons and elements identified, and an understanding of how these are affected by a number of factors (one of them being Entry Methods, the factor under consideration).

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Introduction

Within the field of international marketing, there has been a longstanding debate over the amount or extent of standardization or adaptation. Vrontis and Vignali [13:26] state that the question came under discussion as early as 1961, with Elinder [5] initially considering the idea with regard to world wide advertising. This debate then expanded to consider promotion and today encompasses the whole of the marketing mix.

The fundamental basis of the adaptation school of thought is that the marketer is subject to a new set of macroenvironmental factors, as well as different constraints such as language, climate, race, topography, occupations, education and taste; in addition, there are frequent conflicts resulting from different laws, cultures and societies [4]. On the other hand, supporters of standardization believe that consumers' needs, wants and requirements do not vary across various markets and countries. They believe that the world is becoming increasingly more similar in both environmental and customer requirements [7].

However, it is suggested that the absolute use of either approach is too extreme to be practical. The truth lies in neither of these two polarized positions, because both processes coexist. This research aims to investigate the practical complex relationship of the two extreme approaches (adaptation and standardization), and suggests methods and ways to determine the right level of integration. More specifically, this research will investigate the level of integration in relation to the different entry methods, with a particular focus on Exporting (direct and indirect).

Literature Review

Within the field and literature of international marketing, when a company decides to begin marketing products abroad, it has to make a fundamental strategic decision whether to use a standardized marketing mix (product, price, place, promotion, people, physical evidence, process management) and a single marketing strategy in all countries, or whether to adjust the marketing mix and strategies to fit the unique dimensions of each local market.

Buzzel [1] and Buzzel et al [2] state that in the past, dissimilarities among nations have led a multinational company to view and design its marketing planning separately for each country, treating each one strictly as a local problem. However, it is believed that in recent years the situation is changing, and the experiences of a growing number of multinational companies suggest that there are real potential gains for a company willing to consider standardizing the marketing mix elements and strategies. This has been one of the critical points in history concerning the huge debate on standardization and adaptation.

Supporters of global standardization believe that we live in a globalized world in which nation-states are no longer significant actors or meaningful economic units; in which consumer tastes and cultures are homogenized and satisfied through the provision of standardized global products created by global corporations. Levitt [7] asserts that well-managed companies have moved from emphasis on customizing items to offering globally standardized products that are advanced, functional, reliable and low priced. Multinational companies that concentrated on idiosyncratic consumer preferences have become befuddled and unable to take in the forest because of the trees. Only global companies will achieve long-term success by concentrating on what everyone wants, rather than worrying about the details of what everyone thinks they might like.

The conceptualization discussed above is opposed by supporters of the international adaptation approach, which react directly to the sweeping and somewhat polemic character of their argumentation. They believe that the assumptions underlining global standardization philosophy are contradicted by the facts. Those observations, taken as a whole, seem to suggest that standardization is difficult and impractical at best [6]. They argue that globalization seems to be as much an overstatement as it is an ideology and an analytical concept [10].

Supporters of international adaptation argue that tailoring your marketing mix elements is essential and vital in meeting the demands, needs and wants of your target market. Marketing mix elements cannot be standardized, as the international marketer is subject to a new set of macroenvironmental factors, to different constraints and to quite frequent conflicts. Lipman [8] argues that for many, the global-marketing theory itself is bankrupt and bunk. Not only are external differences very much still with us, but marketing a single product one way everywhere can scare off customers, alienate employees and blind a company to its customers' needs.

It is argued that standardization and adaptation is not an all-or-nothing proposition but a matter of degree. On the other hand, the huge costs involved in the adaptation approach, and the benefits of standardization, fail to allow adaptation to be used extensively, as theoretically suggested. Success is not dependent upon adaptation or standardization; it results from merging the two and finding the right level of standardization and adaptation across the marketing mix elements and marketing strategies for each country [12].

Vrontis [12] argues that deciding on international marketing tactics/7P's is dependent upon a number of determinants. These determinants are grouped into what can be termed: reasons and factors.

* Reasons are seen as those behavioral aspects 'pulling' multinational companies' tactical behavior towards one or the other side of the continuum.

* Factors are those determinants affecting the behavior and the importance of the reasons pulling it.

This is illustrated in Exhibit 1.

Scope and Methodology

It is evident that the international practitioners should have to search for the right balance between standardization and adaptation, and therefore determine the extent of globalization in a business and adapt the organization's response accordingly. An analysis of the debate and problems outlined above led to the formulation of the primary hypothesis (PH):

Multinational companies are not exclusively adopting international adaptation or global standardization across their marketing mix elements.

It is believed that the examination of this hypothesis will indicate and identify the behavior of multinational companies (MNC), and will suggest further ways for improving companies' operations. Exhibit 1 explains the complex relationship affecting tactical behavior. It is paramount and fundamental in setting nine secondary hypotheses (SH). The secondary hypotheses are only testing the 5th factor (Entry Methods), as seen at the bottom of Exhibit 1. They are divided into two parts. One part tests the relationship between tactical and behavior/7P's (Product, Price, Place, Promotion, People, Physical evidence and Process management: see center of Exhibit 1), and entry methods (S[H.sub.1-7]). The other part of the secondary hypotheses tests the relationship between reasons (left and right hand side of Exhibit 1) and entry methods (S[H.sub.8-9]).

S[H.sub.1]: The entry method strategies used by various MNC affect their decisions in relation to product.

S[H.sub.2]: The entry method strategies used by various MNC affect their decisions in relation to price.

S[H.sub.3]: The entry method strategies used by various MNC affect their decisions in relation to place.

S[H.sub.4]: The entry method strategies used by various MNC affect their decisions in relation to promotion.

S[H.sub.5]: The entry method strategies used by various MNC affect their decisions in relation to people.

S[H.sub.6]: The entry method strategies used by various MNC affect their decisions in relation to physical evidence.

S[H.sub.7]: The entry method strategies used by various MNC affect their decisions in relation to process management.

S[H.sub.8]: The level of importance of reasons pulling towards adaptation is dependent on entry methods strategies used.

S[H.sub.9]: The level of importance of reasons pulling towards standardization is dependent on entry methods strategies used.

[GRAPHIC OMITTED]

This research sets out to help multinational companies and marketing practitioners to identify and assess the degree of standardization and adaptation across their marketing mix elements, in relation to the entry method used. The rationale is that the identification and implementation of the optimal level would be highly beneficial for multinational companies, as it would help them achieve both customer satisfaction (marketing orientation) and organizational success (profitability and development).

In the context of this study, the research approach relies on both deductive and inductive reasoning methods. Using the deductive method, secondary data was collected by an extensive review of the theory and literature including journals, articles, newspapers, books and on- and off-line databases. Primary research, described in more detail below, was collected by a questionnaire survey. This provided an insight into the behavior of different MNCs, and allowed an in-depth comparison of their responses, taking into account their organizational characteristics (type of entry method used), offerings and target markets.

The sampling unit was comprised of UK multinational companies; that is, companies that trade in more than one overseas market. Questionnaires were posted to the marketing director of the biggest 500 UK MNCs across five industrial sectors (i.e., manufacturing; services; transportation and communication; construction and retail; and wholesale). The sampling procedure used falls at non-probability sampling and specifically within the category of purposive/judgment sample [3].

The questionnaire encompassed both open and close-ended questions. The closed questions provided a number of alternative answers from which the respondent was instructed to choose; the open questions allowed respondents to give answers in their own way.

The questionnaire survey, and its analysis, is both quantitative and qualitative in nature. Quantitative analysis has been performed in S.P.S.S. (Statistical Package for Social Sciences). However, it also encompasses qualitative aspects deriving from open-ended questions that established the reasons why multinational companies behave the way they do. Quantitative methods deal with identifying what, why and where something is happening, while qualitative methods provide further information and understanding on the why and how. This proved to be particularly important in answering this research's hypotheses.

Research Analysis and Results

Saunders et al [11] suggested that a response rate of approximately 30% is considered reasonable for self-administered postal questionnaires. This is backed up by Nachmias and Nachmias [9], who state that a reasonable response rate for postal questionnaires is between 20-40%. Of these 500 companies, the number of usable respondents was 124. This indicates a response rate of 24.8%, which was sufficient for statistical analysis to continue.

The research identified that companies going international are mainly exporting (directly and indirectly). Forty-seven% of the respondents are using indirect exporting and 33% direct exporting. This illustrates that the manufacturing firm is not taking direct care of exporting activities (handling documentation, physical delivery and pricing policies). Instead, another domestic company, such as an export house or trading company, performs these activities, often without the manufacturing firm's involvement in the foreign sales of its products. It is also "less risk and profitable" (company number 300) to use. Research also found that 30% of the companies are using direct investment, 21% licensing, 18% strategic alliance and 15% franchising.

Primary Hypothesis (PH)

Dealing with the primary hypothesis, it is identified that respondents do not solely adapt or standardize their marketing mix behavior in overseas markets. The analysis was undertaken from the 7-point scale, where 1 is complete standardization and 7 complete adaptation.

It is identified that multinational companies are using a variable level of adaptation and standardization across their tactical international marketing approaches. Information given below goes a step further and identifies the mean and the average mean of the seven marketing mix elements.

As reported by multinational companies, the product element of the marketing mix is the most standardized element ([mu]=3.1). This is especially true for product quality ([mu]=2.37), brand name ([mu]=2.42), image ([mu]=2.54), and performance ([mu]=2.65), and to a lesser extent for size and color varieties, packaging and styling. A trend towards standardization is also seen in pre-sales and after sales services, warranties, design, features, delivery and installation with reported means between 3.78 to 3.81. Price is the most adapted element of the marketing mix ([mu]=5.25). As exemplified, mainly price levels, list prices and price changes ([mu]=5.48), and to a lesser extent discount allowances, payment period and credit terms ([mu]=5.02) are tailored accordingly to fit market needs and requirements.

A trend towards adaptation is seen with the place or distribution element of the marketing mix ([mu]=4.39). In terms of promotion, multinational companies have reported a mean of 4.64, which makes it the second most adapted element of the marketing mix. This adaptation trend is greater in sales promotions, public relations and personal selling, and is less evident in direct marketing and advertising.

People, physical evidence and process management are more neutral in terms of international behavior, where multinational companies are not adapting or standardizing their marketing practices, but rather use a more integrated approach with respective means of 3.90, 3.88, and 3.85.

This section verified the primary hypothesis: that UK multinational companies are not exclusively adopting international adaptation or global standardization across their world-wide marketing tactics, but strike to find a balance. Verification of this hypothesis allowed this research to continue with a number of secondary hypotheses.

Secondary Hypotheses 1-7 (S[H.sub.1-7])

This section examines and analyzes the level of adaptation and standardization pursued by UK multinational enterprises when competing within the highly competitive and complex international marketing environment. This analysis is based on the Entry Method Strategy used (direct exporting, indirect exporting, licensing, franchising, strategic alliance and direct investment). Specifically, this section is concerned with testing the first seven secondary hypotheses (S[H.sub.1-7]).

In relation to product (a good or service), this research identified that franchising ([mu]=2.12) and licensing ([mu]=2.57) are the two most standardized entry strategies used by multinational enterprises when entering international markets. On the other hand, indirect exporting ([mu]=3.67) and direct investment ([mu]=3.49) are subject to more adjustment. This might be because companies that use franchising and licensing are required to standardize product depending on parent companies' requirements, while those entering otherwise have relatively more flexibility to adjust to local needs.

ANOVA tests identified that there is a significant difference in product or service variety, design and features (p=0.07), performance (p=0.00), image (p=0.01), pre-sales service (p=0.02), delivery and installation (p=0.09), and after-sales service and warranties (p=0.10). In all cases, the difference is statistically significant when comparing direct exporting with direct investment. It is argued that standardization is more feasible when exporting directly, and adaptation is more feasible when direct investment and overseas production is taking place. "When owning facilities and produce in international markets we have the capability and flexibility to tailor products according to different needs" (company number 222).

The first secondary hypothesis is therefore verified and it is argued that multinational companies' decisions on product is affected by entry methods (S[H.sub.1]).

In relationship to price, the aim of this research was to identify any possible statistical differences between sub-factors for price. For the purpose of this research, a comparison between price and market entry methods was necessary. The analysis has illustrated that companies that mainly use indirect exporting, direct exporting, and direct investment as their entry method, have reported a more adapted behavior than other sub-factors. However, this or any other differences are not statistically significant. The second secondary hypothesis is therefore rejected and it is argued that multinational companies' decisions on price are not affected by entry methods (S[H.sub.2]).

Dealing with place/distribution, empirical evidence suggests that UK multinational companies are considering both adaptation and standardization. Respondents' comments in this study also support this: "horses for courses" and "different markets, different tactics" or "standardization is key to success" and "we transfer our core capabilities and policies". On the one hand, "international distribution approach has proved to be different from territory to territory" (company number 215). The study identified that reasons such as "the different levels of development" (company number 15), "local market conditions" (company number 70) and "different scales and different cultures in different markets" (company number 912) have driven UK multinational companies to a different distribution tactical approach. On the other hand, some companies reported that a more standardized behavior enabled them to "achieve global branding" (company number 375), a "common set up world-wide" (company number 586) and to sustain a "key competitive advantage" (company number 146).

In comparing the companies' behavior with the different entry methods, the research found that there is a statistical significant difference across direct investment and indirect exporting (p=0.01). Direct investment follows a more adapting behavior ([mu]=5.16), since local plant and production investment may allow more flexibility to companies. "If you are investing locally, you are more likely to see more cost effective ways to distribute and supply products tailored to clients' needs" (company number 405). Indirect exporting, on the other hand, shares a more standardized behavior ([mu]=3.09) as multinational companies use a relatively similar way to distribute products to independent intermediaries who export products for a fee or commission.

The third secondary hypothesis is therefore verified and it is argued that multinational companies' decisions on place are affected by entry methods (S[H.sub.3]).

When examining promotion, it was argued that "if promotion is not adapted for export markets, then it will be of limited value" (company no. 192). Multinational companies argued that adaptation exists "to suit the different consumer attitude" (company no. 215), "to match local culture and media requirements" (manager of public affairs, company no. 70), and "to keep in line with differences in message, media requirements and legal aspects of promotions in different countries" (company no. 500).

In examining MNCs' behavior across entry methods, the study identified that direct investment is the most adapting sub-factor ([mu]=5.17). Indirect exporting ([mu]=4.55), franchising ([mu]=4.20), licensing ([mu]=4.20), direct exporting ([mu]=4.15) and strategic alliance ([mu]=4.55) follow this.

Results of ANOVA tests identified that for the five sub-factors of promotion, there is a significance difference for advertising (p=0.07), sales promotion (p=0.03), personal selling (p=0.06) and direct marketing (p=0.03). Post hoc Bonferroni tests exemplify that these differences are statistically significant when comparing direct investment and direct exporting. It is argued that this is because personal investment and involvement in overseas markets may necessitate or identify the need for national promotional execution.

The fourth secondary hypothesis is therefore verified and it is argued that multinational companies' decisions on promotion are affected by entry methods (S[H.sub.4]).

In relation with the services mix (People, Physical Evidence, Process Management), respondents argued that "the UK mentality did not always suit other countries' markets" (company no. 215). "Dealing with different nationalities meant that the level should be searched" (company no. 234). "We need to understand the idiosyncrasies of individual markets and adapt our behavior accordingly" (company no. 192). Companies gave a lot of consideration to the following factors: "individuals needs" (company no. 88), "different stages of market development" (company no. 299) and "technical nature of product/customers" (company no. 146). At the same time, the "benefits of globalization and standardization are highly considered" (company no. 99). By researching and implementing the correct level of integration "we can transfer the existing working model" (company no. 110) and "develop a good personal relationship" (company no. 235). It is therefore illustrated that companies standardize when they can. However, this is not always possible or desirable.

In comparing this behavior with different entry methods, it was identified that differences between sub-factors (i.e., direct exporting, indirect exporting, etc.) is marginal and not statistically significant. The service mix is therefore not dependent upon entry methods and the reported average level of behavior is consistent between sub-factors. It is argued that UK multinational companies, regardless of organizational characteristics and practices, use an integrated tactical approach. Their behavior is arrived after a consideration of both micro and macro environmental forces and benefits of globalization. There are some instances where mean difference indicates a small variance in behavior; however, ANOVA tests confirmed that sub-factors are not significantly different.

The fifth, sixth and seventh secondary hypotheses are therefore rejected. It is thus argued that multinational companies' decisions on the service mix are not affected by investigated factors (S[H.sub.5-7]).

Secondary Hypotheses 8-9 (S[H.sub.8-9])

This study has shown that UK multinational companies are both adapting and standardizing their international tactical performance. This section examines the reasons why multinational companies adapt and standardize in international markets. Chi-square tests are then used to identify any statistical differences, which may exist for different reasons, by a comparison of the factor under investigation (entry methods).

When dealing with the reasons that influence companies to adapt (SH8), it is evident that UK multinational companies tailor their marketing tactics in overseas markets. The marketing director of company number 88 said that "global customers are different. They are also becoming more sophisticated and demanding in certain markets. We therefore have to adapt quickly to these differences and changing circumstances". It is argued that adaptation should take place in order to meet differences associated with people and with the micro and macro environment. "People are completely different" (company number 188). "We found it extremely difficult to get other countries to standardize, even on uniform style control of branding" (company number 63). "Different markets make different demands" (company number 307). Therefore, "adaptation is paramount to get maximum cost benefit from customer contact and comply with different cultures, level of competition, environmental variances, laws, market share and scale of operations" (company number 92).

This research identified that culture, market development, competition, laws and economic differences are the most important reasons that drive multinational companies to adapt. It is quite interesting that 92% of respondents stated that culture is an important reason for them. Market development (87%), competition (84%) and economic differences (78%) were also rated highly important by companies. Laws (82%) and differences in customer perceptions (71%) are equally important. Finally, political environment (53%), level of customer similarity (49%), marketing infrastructure (44%) and differences in physical conditions (39%) were rated less important. However, these should not be ignored in any tactical decision making process.

The question now is whether the percentage level of importance for reasons pulling/enhancing adaptation is consistent or statistically different across the different entry methods investigated. The following section discusses this data.

Pearson chi-square value ([chi square]=10.70) and the significance value (p=0.01) analyzed illustrate that competition is statistically different across entry methods. This can be said with 99% confidence, considering the average percentage of 83.87. This research identified that 95.64% of the companies using direct investment as their main entry method consider competition is a very important reason for adaptation. This is different for exporting, where only 71.70% of companies that use exporting as their main entry method see competition as an important reason. Generally speaking, competition is more important in direct investment, strategic alliance, licensing and franchising and less important in exporting where direct involvement is less.

A significant difference (p=0.03) is also evident for marketing infrastructure. The average percentage level of importance (44.35), reported for this reason, is statistically different among industrial sectors. It is also found that marketing infrastructure is highly important for licensing, franchising and direct investment and less important for the remaining entry methods used.

The eighth secondary hypothesis is therefore verified and it is argued that the level of importance of reasons pulling towards adaptation is dependent by entry methods (S[H.sub.8]).

When dealing with the reasons that influence companies to standardize (S[H.sub.9]), it was identified that global uniformity and image is the most important reason pulling multinational companies towards global standardization. 81% of companies researched are considering it when crossing national borders. 75% of the companies questioned stated that economies of scale in production, research, development and promotion is an important factor pulling them towards standardization. Synergetic and transferable experience is the third most important reason for global standardization with 74% of companies considering it. Finally, consistency with the mobile consumer (52%), easier planning and control (48%), and stock costs reduction (43%) have acquired a smaller percentage of importance.

In relation to entry methods, there is a statistical difference for global uniformity and image (p=0.00). This may have resulted from the lower level of importance reported by companies dealing with exporting in comparison with the remaining entry methods. The same is true of consistency with the mobile consumer. It can be argued with 95% confidence that the average of 51.61% is significantly different among entry methods. This could be evident when comparing exporting with licensing and franchising, strategic alliance and direct investment. It may be concluded that both reasons for standardization are less important for exporting, as products are exported but not necessarily sold by the same company. On the other hand, companies that deal with the remaining entry methods are more interested in achieving global uniformity and image and consistency with the mobile consumer, as it may directly increase their profitability.

The ninth secondary hypothesis is therefore verified and it is argued that the level of importance of reasons pulling towards standardization is dependent by entry methods (S[H.sub.9]).

Conclusion

The recurrent theme in international marketing, concerning whether companies should aim for a standardized or country-tailored marketing approach, is very much debated in the academic literature and is a concern for every multinational company and marketing practitioner. This research identified that standardization and adaptation is not an all-or-nothing proposition but a matter of degree. It has identified that the huge costs involved in the international adaptation approach, together with the multinational companies' desires to reap the benefits of standardization, do not allow international adaptation to be used in an absolute manner. Similarly, organizational differences, heterogeneity among different countries' macro and microenvironment, as well as companies' desires to satisfy consumers' diverse needs do not allow standardization to be practiced extensively.

Marketing practitioners should not make a one-time choice. UK multinational companies must integrate marketing tactics. Multinational companies should simultaneously focus their attention on aspects of the business that require global standardization and aspects that demand local responsiveness. When appropriate processes ought to be standardized, however, operations in local markets necessitate the maintenance of the appropriate local flexibility.

Limitations and Directions for Future Research

Even though this paper examines the level of integration in relation to adaptation and standardization, for entry methods, it does not provide information for the other eight factors examined in this research (see bottom of Exhibit 1). Further, it is acknowledged that this research examines only UK multinationals and therefore cannot be generalized. Similar research in other counties may provide different results. Consequently, similar research can take place for other countries. The results could then be compared to the present research findings to identify any differences or similarities in behavior. Finally, this research focuses on the tactical level and seeks to identify the AdaptStand level of integration. Future research can examine the behavior of multinational companies on a strategic level. Then the two can be compared, and conclusions can be reached for a more general understanding.

References

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8. Lipman, J. "Marketers Turn Sour on Global Sales Pitch Harvard Guru Makes," Wall Street Journal, May 12, 1988.

9. Nachmias, F.C. and D. Nachmias. Research Methods in the Social Sciences, 5th Edition. London: Edward Arnold, 1996.

10. Ruigrok, W. and R. van Tulder. The Logic of International Restructuring. Routledge: London, 1995.

11. Saunders, M., P. Lewis and A. Thornhill. Research Methods for Business Students. London: Pitman, 1997.

12. Vrontis, D. "Integrating Adaptation and Standardization in International Marketing, The AdaptStand Modelling Process," Journal of Marketing Management, Vol. 19, No. 3-4, 2003, 283-305.

13. Vrontis, D. and C. Vignali. An International Marketing Reader. UK: The Manchester Metropolitan University, 1999.

Demetris Vrontis, Intercollege, Cyprus

Ioanna Papasolomou, Intercollege, Cyprus
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Author:Vrontis, Demetris; Papasolomou, Ioanna
Publication:Review of Business
Geographic Code:4EUUK
Date:Jan 1, 2005
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