Virtual management of global marketing relationships.
In today's hypercompetitive, global marketplace, many organizations are forming marketing relationships in order to compete effectively. These relationships are conceived as a means to increase both the efficiency and effectiveness of those involved in these marketing relationship (Williamson, 1991; Gundlach, Achool, & Mentzer, 1995). Inter-organizational relationships have become one of the most frequently used means of entering or expanding into the global marketplace. There are a number of reasons given for forming these global marketing arrangements, such as:
1. gaining access to new markets;
2. enhancing market position in existing markets;
3. augmenting existing product lines with relationship partner's products;
4. entering new market segments/domains by allowing partners to selectively incorporate existing products into their lines;
5. accelerating the rate of international expansion;
6. reducing cost/risk of participating in international markets; and
7. lowering costs to gain/maintain competitive advantage (Varadarajan & Cunningham, 1995).
One type of interorganizational relationship, the strategic alliance, has enabled many global organizations to obtain significant advantages. Therefore, it is anticipated that managing these and other types of interorganizational relationships effectively will become increasingly integral to managing global marketing operations.
The first section of the paper briefly describe virtual organizations that can be used in a marketing context. The second section illustrates five models of virtual organizations and the third section develops a virtual management perspective that is beneficial when attempting to manage global marketing relationships. The final section of the paper describes implications of virtual management in global organizations
THE VIRTUAL ORGANIZATION CONCEPT
A virtual organization is "a collection of business units in which people and work processes from the business units interact intensively in order to perform work which benefits all" (Goldman, Nagel, & Preiss, 1997, p. 158). Although virtual organizations have become a relatively widespread business approach to structuring business, the underlying concepts of linking competencies across business units or organizations have existed for some time. These business linkages enable organizations to more tightly coordinate the transactions and activities across a value chain.
Virtual organizations enable organizational and/or individual core competencies to be brought together when needed and disbanded when no longer required. These new firms mirror the fluidity of the global markets, creating and disbanding resources as dictated by the marketplace. Global locational, technical, workforce and market expertise advantages can be heightened through the use of the virtual organizational structure (Davidow & Malone, 1992).
The rationale for forming a virtual organization varies for the different entities involved in each relationship. One primary rationale for creating virtual organizations has been the ability to bring key players from a variety of organizations together in order to pursue a specific global market opportunity. Virtual organizations are able to generate new products more quickly, decrease the risk of pursuing a new opportunity, increase "apparent" organizational size, and decrease cycle times by relying on the core competencies of the membership. Characteristics of virtual organizations are continuing to evolve. However, some characteristics that have been identified include (Goldman et al., 1997):
* a web of companies each contributing resources
* virtually vertically integrated
* linked through inter-enterprise business and production systems
* aimed at reduced business cycle time
* aimed at one-stop shopping.
These characteristics are closely aligned with assessing all marketing activities across the entire global value chain in order to "virtually vertically integrate" across a "web of companies." It would appear that creating a virtual organization to generate a product or service more effectively can take one of two forms: (1) removing inefficient transaction costs from the value chain, such as reducing time to market; and (2) adding value to existing activities in the value chain enhancing the overall value of the product or service.
Many of the physical activities that exist in a traditional marketing value chain (e.g., distribution) will also need to exist in a virtual global value chain. However, the focus on virtual global marketing value chain activities is much different than in a traditional physical value chain [ILLUSTRATION FOR FIGURE 1 OMITTED]. When performing global value chain analysis across virtual organizations that are bringing different core competencies together, the focus should be on the necessary sharing and integrating of information and learning capability. As illustrated in Figure 1, these virtual global marketing value chain activities include gathering, organizing, selecting, synthesizing, and distributing the necessary information throughout the members of the virtual global marketing value chain in order to reduce transaction costs and increase value (Rayport & Sviokla, 1995).
VIRTUAL GLOBAL ORGANIZATIONAL MODELS
Virtual global marketing organizations involve interorganizational relationships that exist in a variety of forms. These relationships can be based on existing relationships among firms and often reflect prior competitive or cooperative interactions (Hill, Hitt, & Hoskisson, 1992). In addition to these interorganizational marketing relationships, firms must have an economic incentive for participation. Strategic needs, desire for performance enhancements, or an attempt to foster innovation can drive these incentives.
Five identifiable models of virtual global marketing organizations begin to emerge from the existing literature [ILLUSTRATION FOR FIGURE 2 OMITTED]. These models share common elements of coordination through the use of IT and communication technologies, and the performance of work across time and space.
MODEL I: Shared Partnership
The first model is a shared global partnership with each partner bringing nearly equal amounts of commitment to the virtual organization. This shared partnership requires a compatibility of partner goals and values (Dess, Rasheed, McLaughlin, & Priem, 1995) and evolves from existing relationships that are strong between partnering organizations. A specific shared global partnership is likely to occur when several organizations wish to undertake a global marketing project, where the group of organizations, in aggregate, possess the necessary skills and resources agree to work together for either the duration of the project or for some extended period. In this design, organizations form alliances or consortia to bring complementary marketing expertise together in meeting complex global market opportunities. The interorganizational relationships in the virtual model can provide additional value to participating firms. They also create some interdependencies and provide an opportunity for cooperation between the marketing functions in these organizations. Economic incentives include the opportunity to share costs and risks while sharing resources likely to generate valuable output. This model is often found in co-located, spin-off situations, where multiple firms share resources to develop new products or processes, working in close coordination. The work is often highly synchronized in the design and development stages. The shared partnership model is evident in the coalescing of expertise and sharing of risks among IBM, Sun, and Hewlett Packard on the development of the Internet programming language JAVA.
MODEL II: Core/Satellite
The second model reflects a core global organization maintaining relationships with satellite marketing organizations. The core global organization calls on advertising agencies, wholesalers, retailers and the like, from a variety of organizations to respond more effectively to market opportunities (Anderson & Narus, 1990; Harrigan, 1988). In many cases these are organizations based around similar industries located in different countries each providing marketing competency or expertise. In this model, a core firm provides the impetus to form the global network of organizations (Snow, Miles, & Coleman, 1992) and this firm typically defines the work synchronicity, calling on satellite firm marketing capabilities as needed.
These organizations do not need to be co-located and frequently are located in different countries. The global relational culture can be either convergent or divergent, but the core firm(s) play a dominant role in establishing the culture. Core firms typically take an active role in coordinating activities, providing economic advantages. Examples of this are numerous, including most industries where the core company has leverage and transfer-pricing and risk/cost sharing become key issues, including governmental defense contractors and some consultancy companies. An alternative core/satellite model is the production and sale of consumer products through loosely coupled manufacturers, distributors, and retailers in different countries. Ford and its global suppliers have formed this type of virtual relationship, as they share new product development ideas for new car development, as was evidenced in the development of the "Asia Ford." This co-development reduces cycle time and lowers development costs. Another example of this type of virtual relationship is used by global information organization, Reuters, which utilizes this model in software development, bringing in satellite partners as required for specific projects. This provides a "best breed" approach to partners and maintains Reuters firmly in control of project specifications.
MODEL III: Virtual Value Chain
The final three models are based on the value or global supply chain model. The first of the three is a coordinated set of transactions among companies serving an end customer in a number of different countries with information technology supporting the development of the end product or service. This model is utilized on both a project basis, as in large construction projects in developing countries, and on a more permanent basis, as with WalMart and international suppliers.
The work is synchronized across adjoining virtual organizational member firms to generate the end product. Essentially, goods or services are sold at each transaction point in a number of countries. Location can be remote across many members of the chain, but often those adjoining firms are closely located even when the suppliers have to put in facilities in a number of different countries. In the case of international construction projects, the general contractor often drives culture, and in many cases the use of contractual requirements is a surrogate for establishing inter-firm cultural relationships. Relationships have often been well established, but on a project-by-project basis, the virtual model provides additional support for the relationship between subcontractors from different countries who do not have a common board or a joint working relationship. When this occurs, the relationship is coordinated by the general contractor who establishes the virtual cultural relationship. Participants anticipate economic incentives through improved coordination, a smoothing of demand, and opportunities to increase global market access. Benetton, the French sportswear marketer, utilizes a global virtual value chain in coordinating the production and shipments of garments and materials of its virtual global production and channel of distribution system. The virtual value chain passes through a number of suppliers generating textiles, designing and manufacturing clothing, and providing distribution services to retailing establishments.
MODEL IV: Integrated Firm
The fourth model takes a more integrated view of the global supply chain. This vertical integration results in autonomous units utilizing technology to coordinate efforts between functions and countries at the same time. A group of companies conduct related businesses as parts of a vertical set of processes to produce a good or service. This concept incorporates a continuing set of global strategic marketing relationships (Anderson, Hakasson, & Johnson, 1994).
In this type of global virtual relationship, the companies agree to function as a single vertically integrated firm throughout the world. This network of companies is frequently located in different countries participating across a marketing value chain to deliver a product or service to an ultimate consumer, generating a virtual value chain (Benjamin & Wigand, 1995). The contact between companies across the specific production activities is more fully coordinated than in the prior models. Culture and work synchronicity are more important dimensions, and in many cases, one of the relationship member operations provides a unique geographic location for the needs of the integrated value chain (e.g., suppliers locating in the same countries as marketing members of the value chain). Existing marketing relationships among the organizations following this model are typically well developed, which leads participants to identify the value of improved coordination, including the economic leverage of economies of scale and market access to a number of foreign markets. This model might also be extended to include value constellations (Normann & Ramirez, 1993) with firms supplying each of the companies in the value chain. Many of the Korean chaebol are examples of this global model of virtual organizations. This model is utilized by Kone Elevators, a Finnish elevator manufacturer, to integrate the work of its affiliated companies throughout the world. This provides sharing of market information, design specifications, and coordination of manufacturing to maintain a competitive advantage at both local market and global system levels.
MODEL V: Electronic Market
The final global virtual marketing relational model is that of an electronic market, with the technology itself serving as a key component in creating the market among the virtual global marketing organizational partners. Individual firms operate within the electronic market using the technology as an intermediary to interact with end customers. The establishment of an electronic market (Bakos, 1991) allows firms to compete in global markets while allowing customers to select from a variety of potential providers. In some cases, the electronic market is open and other marketing relationship members serve as intermediaries. An example of an open market is the wine market and digital newspapers on the World Wide Web, with multiple vendors competing for worldwide business.
Existing relationships between countries are less typical in this model. Participants have economic incentives of increased foreign market access and potential for compelling cost savings in inventory, physical location, and distribution costs. Examples include amazon.com connecting with book dealers and end customers worldwide, or virtual banking establishments coordinating the lending functions and electronic payments among on-line retailers, payment authorizers and the end consumer in a number of countries. In addition to bookstores such as Amazon and banks, electronic markets have established worldwide capabilities for auctioning of goods as diverse as furniture and computers to high end antiques and personal services (e.g., EBAY on-line auction).
VIRTUAL MANAGEMENT OF GLOBAL RELATIONSHIPS
Marketing relationships and the management of relationships can be characterized as "virtual" as a significant amount of activity between relationship partners occurs outside their organizational domains and therefore, occurs in non face-to-face contexts. Given the difficulty of managing the entire domain of potential global marketing relationships in this virtual mode, a basic philosophy of global interorganizational management should be developed. This management orientation, more than likely, will have to go beyond the command and control model that is frequently used within organizations and focus on cooperation as the basis for the interaction.
The coordination among marketing partners in a virtual relationship becomes a critical dimension in achieving the desired results of increased value-added to the global relational network (Venkatraman, 1995). More virtual relationships must develop a mechanism for structuring and coordinating work/employees while at the same time being exceptionally flexible and open to change while alleviating managers and employees anxiety that results from lack of formal structure (Allcorn & Diamond, 1997; Allcorn, 1997). These virtual relationships/organizations will develop a culture and identity of their own apart and distinct from that of the two parent organizations (Allcorn, 1997). What is needed is a decision process that can be used to determine the virtual management requirements associated with the different virtual models. In order to manage these global organizations virtually, an assessment of the "degree of virtualness" between global partners is necessary.
The establishment of virtual management has been characterized as effectively coalescing key "players" from internal and external sources and from a variety of organizations to capitalize on a market opportunity (Davidow & Malone, 1993). The appropriate infrastructure for virtually managing marketing relationships will be dependent on the geographical distance, work-cycle synchronicity, and cultural differences between relational partners (Gray & Igbaria, 1996; Palmer & Speier, forthcoming). Frequent contact and "hand-holding" can occur in relationships with low geographic distance facilitating rich relationships. These marketing relationships can be managed differently from those where high richness is desired yet partners are geographically disparate (Gray & Igbaria, 1996). Similarly, a high degree of work cycle synchronicity implies high interdependence and low ambiguity regarding work activities. In contrast, low synchronicity involves increased ambiguity resulting in additional time and communication between partners (Barry & Bateman, 1992). Finally, the cultural dimensions assess the degree to which relational partners share values and beliefs (Schein, 1990). The greater the cultural convergence, the easier it is to develop trust, mutual understanding, and foster a rich relationship.
Seven steps addressing virtual management of global marketing relationships are presented in this section. Each of the steps will be discussed separately to highlight their importance in developing a virtual management philosophy to global marketing relationships.
STEP ONE: Development of Relational Characteristics/Criteria
The first step in developing a global virtual management orientation is to identify the characteristics of the domain(s) of the potential relationships. As the domain (i.e., internal, organization-to-organization, organization-to-individual) changes the degree of virtualness between partners also can change based upon the geographical distance, work-cycle synchronicity, and culture between the focal organization and the relational partner (Palmer & Speier, forthcoming). If relational partners are working in the same location, at the same time, and have convergent culture, the management system does not have to be modified to accommodate the virtual nature of the relationship (Gray & Igbaria, 1996). Whereas the need for a sophisticated virtual management philosophy is imperative when the relationship partners work in geographically disparate locations, at different times, and have dissimilar cultures. The more dissimilar the context of the relationship the more virtual the management system must become to accommodate the complexities of these diverse marketing relationships. As the domain of the relationship changes the degree of virtualness of the management will also have to be modified. Each domain and dimension of the domain impacts the degree of virtualness of the management philosophy (Kraut, Egido & Galegher, 1990; Schein, 1990; Barry & Bateman, 1990).
STEP TWO: Identification of Alternative Relational Partners
While the domain of relationships may be broad, organizations may strategically decide to focus on one set of marketing relational opportunities over others. For example, developing an organization-to-organization relationship may be deemed most important to gain a global competitive advantage in the market place. Therefore, rather than examining all potential relational partners in the full domain of relationships, one domain may be assessed to identify key marketing partners. In this phase of global virtual management, one must identify the significant characteristics of potential relational partners. These variables will vary by the domain of the relationship and therefore a set of selection criteria needs to be established for each potential relational configuration.
The criteria to select global relationship partners reflect the domain of the relationship. For example, when forming organization-to-organization relationships, a three step assessment of macro-environment, industry level analysis, and company level characteristics consistent with competitive analysis (Porter, 1980; 1990) might be most appropriate [ILLUSTRATION FOR FIGURE 3 OMITTED]. The analysis may start at any level, but all three levels should be considered. Furthermore, the depth of analysis at each of the three levels may vary according to the importance of that level to the relationship, the difficulty in obtaining accurate information, and the perceived magnitude of importance of the relational decision relative to the focal organization (Ring & Van de Ven, 1994). Utilizing this process, the unique attributes of the potential relational partners can be assessed and the distinctive competencies of the resulting relationship can be determined (Parkhe, 1993). The combination of characteristics found in the relationship determines how the relationship can strategically outperform competitors (Vasconcellos e Sa, 1988) and facilitates the determination of a global virtual management strategy.
STEP THREE: Comparative Assessment of Relational Partners
This stage of global virtual management development focuses on the direct comparison between potential marketing relationship partners on the criteria established in the preceding step. The goal of this stage is to develop a discriminate analysis among the potential relationship partners and to determine when there is a significant difference between potential partners. The result of this analysis may be a ranking of the potential candidates or a classification system that identifies highly attractive to unacceptable candidates. In this step, the degree of virtualness (location, work-cycle synchronicity, and culture) should be determined to establish the management philosophy most appropriate for the global virtual model in place. The linkage between the virtual partners can also be analyzed to ascertain the necessary activities for maintaining the marketing relationship over time and the degree of relational richness may become a critical dimension in the ultimate selection of relational partners.
STEP FOUR: Initiating Relationship Strategies
The primary objective of this virtual management stage is to identify the motivation for forming the relationship. There are a number of reasons that could provide the impetus for establishing a long-term global marketing relationship. Most frequently, relationships are proactive, offensive strategies (e.g., increasing economies of scale, increasing power relative to a competitor, expanding distribution) to improve competitive position in the marketplace. Following this orientation, the focal organization implements a relational strategy to improve effectiveness and efficiency in their operations maintaining a relative advantage over competitive rivals.
While offensive motivations for forming relationships dominate the rationale for entering relationships, there are a number of defensive or reactive reasons to form a relationship. The primary defensive motivation is to affect a stronger competitor's market position or competitive advantage. Examples of defensive strategies include: (1) reducing the power of one member of a channel-of-distribution by forming a coalition; (2) entering a market through a relationship to test new products to avoid a negative impact on primary markets; and (3) reducing government influence on new product testing and introduction. Overall, the defensive motivation for forming relationships recognizes the difficulty of meeting the business challenges in hyper-competition markets.
STEP FIVE: Managing Relationships Over Time
The virtual management of relationships must take into account the original assessment of the global marketing relationship and how that relationship may change over time. The initial assessment of what was needed to have a successful marketing relationship might have been assessed incorrectly or perspectives on the goals of the relationship have changed over time. Developing a management auditing process could enable assessment of relationship changes over time.
The relationship auditing process should include the following steps: (1) assessing the initial goal of the relationship and the commitments made during the formation of the relationship; (2) analyzing change in the external environment that could impact the value/benefit of the relationship (Hamel & Pralahad, 1994); (3) evaluating the configural advantage of the relationship relative to future competitive positioning and market opportunities (Douglas & Craig, 1991, 1996); (4) determining the explicit cost of maintaining the relationship; and (5) determining an appropriate set of exiting strategies. The audit process should be periodic, systematic, and independently undertaken to provide objective data on the present "value" of the relationship.
STEP SIX: Response to Reaction from Potential Relational Partners and Competitors
Existing marketing relationships create potential opportunity cost associated with the development of future relationships. By virtue of having existing global marketing relationships, potential other marketing partners may be precluded from entering into relationships with the focal organization. Therefore, assessing potential relationship constraints should be undertaken to determine the sustainable competitive value to existing relationship relative to other configurations that could be formed in the market place. Similarly, competitors' reactions to the formation of a relationship should be monitored to determine their strategic reaction (Day, 1990, 1994).
STEP SEVEN: Exit Strategies from Relationships
There may be a number of reasons for terminating a relationship: (1) the relationship did not reach predetermined goals. . .was not successful; (2) growing differences between relational partners. . .changing goals; (3) breach of explicit and/or implicit relationship agreement. . .relational incompatibilities; (4) changes in the market place (consumer/competitor) that makes formation of another relationship more attractive. . .heightened opportunity cost; (5) internal problems in focal organization that necessitate dissolution of relationship. . .change in strategy, ownership, or financial problems; and (6) the original goal(s) of the partnership have been met. . .successful completion of the intent of the relationship. The motivation to exit the relationship may also be based on the inability to manage the marketing relationship effectively and may be the sole impetus for leaving relationships (Holm, Eriksson, & Johanson, 1997).
There are a number of termination strategies that need to be evaluated when exiting a relationship. Several alternative strategies have a proactive exit orientation, such as termination by acquisition, substitution of new member(s), and selling the intangible rights of the relationship to a third party. However, many terminating relationships occur in a negative context. The unplanned, unfriendly dissolution of a marketing relationship can have a significant impact on business exchange. Mutually derived benefits for partnering organizations can be disrupted due to uncertainty associated with the dissolution of the relationship. Trust relative to the ability to perform after the termination of the relationship becomes a significant issue for both relationship partners to address (Barney & Hansen, 1994; Florin, 1997).
Assessing and implementing virtual organizational models and virtual management provides an organization a template for increasing the control and viability of its global operations. Each virtual model is likely to require greater emphasis to certain facets of the virtual management process and less emphasis on others. This emphasis will be related to the degree to which existing relationships exist and the power distribution (e.g., shared partnership vs. core/satellite) between organizational partners.
Relationships necessitate an interorganizational management perspective and one that is capable of delineating the differences between the various types of global relationships. By recognizing that there are differing types of relationships and that the management of these relationships needs to be adjusted over time, marketers can better maintain control and reach the goals established for the relationship. Marketing relations provide a great opportunity for globalization of marketing strategies. But without a means to effectively manage these relations, the ultimate impact of these marketing liaisms will not fulfill the expectations of those involved in the relationships.
Allcorn, S. (1997). Parallel virtual organizations-managing and working in the virtual workplace. Administration & Society, 29(4): 412-439.
Anderson, J., & Narus, J. (1990). A Model of Distributor Firm and Manufacturer Firm Working Partnership. Journal of Marketing, 54: 42-58.
Anderson, J., Hakasson, H., & Johnson, J. (1994). Dyadic business relationships within a business network context. Journal of Marketing, 58: 1-15.
Bakos, J. Y. (1991). A Strategic Analysis of Electronic Marketplaces. MIS Quarterly, 15(3): 295-310.
Benjamin, R., & Wigand, R. (1995). Electronic Markets and Virtual Value Chains on the Information Superhighway. Sloan Management Review, Winter: 62-72.
Bensaou, M., & Venkatramann, N. (1995). Configurations of interorganizational relationships: A comparison between US and Japanese automakers. Management Science, 41(9): 1471-1492.
Davidow, W. H., & Malone, M. S. (1993). The Virtual Corporation, New York: Harper Business.
Day, G. (1995). Advantageous alliances. Journal of Academy of Marketing Science, 23(4): 297-300.
Dess, G. G., Rasheed, A.M. A., McLaughlin, K. J., & Priem, R. L. (1995). The new corporate architecture. Academy of Management Executive, 9(3): 7-17.
Goldman, S. L., Nagel, R. N., & Preiss K. (1995) Agile competitors and virtual organizations: Strategies for Enriching the Customer. Van Nostrand Reinhold.
Gronroos, C. (1995). Relationship Marketing: The strategy continuum. Journal of Academy of Marketing Science, 23(4): 252-254.
Gundlach, G., Achool, R., & Mentzer J. (1995). The structural commitment in exchange. Journal of Marketing, 59(4): 78-92.
Harrigan, K. (1988). Joint Ventures and Competitive Strategy. Strategic Management Journal, 9: 141-158.
Hill, C., Hitt, M., & Hoskisson, R. (1992). Cooperative versus competitive structures in related and unrelated diversified firms. Organization Science, 3(4): 501-521.
Johansson, J. (1995). International alliances: Why now? Journal of Academy of Marketing Science, 23(4): 301-304.
Normann, R., & Ramirez, R. (1993). From value chain to value constellation: Designing interactive strategy. Harvard Business Review, July-August.
Palmer, J., & Speier, C. (forthcoming). Teams: Virtualness and media choice. International Journal of Electronic Commerce.
Porter, M. E. (1985). Competitive strategy. Boston, MA: Harvard Business School Press.
Rayport, J. F., & Sviokla, J. J. (1995). Exploiting the virtual value chain. Harvard Business Review, November-December: 75-85.
Snow, C., Miles, R., & Coleman, H. (1992). Managing 21st century network organizations. Organizational Dynamics, 20(3): 5-20.
Varadarajin, R., & Cunningham, M. (1995). Strategic alliances: A synthesis of conceptual foundations. Journal of Academy of Marketing Science, 23(4): 282-296.
Vasconcellos e Sa, J. (1988). The impact of key success factors on company performance. Long Range Planning, 21(6): 56-65.
Weiner, E., & Brown, A. (1995). The new marketplace. The Futurist, (May-June): 12-17.
Williamson, O. (1991). Comparative economic organizations: The analysis of discrete structural alternatives. Administrative Service Quarterly, 36: 269-296.
Cheri Speier, Eli Broad Graduate School of Management, Michigan State University, East Lansing, MI 48824. <firstname.lastname@example.org>.
Michael G. Harvey, Puterbaugh Chair of American Free Enterprise, Michael F. Price College of Business, University of Oklahoma, Norman, OK 73019. <email@example.com>.
Jonathan Palmer, Robert H. Smith College of Business, University of Maryland, College Park, MD 20742. <firstname.lastname@example.org>.
|Printer friendly Cite/link Email Feedback|
|Author:||Speier, Cheri; Harvey, Michael G.; Palmer, Jonathan|
|Publication:||Journal of World Business|
|Date:||Sep 22, 1998|
|Previous Article:||International collaboration of law firms: modes, motives and advantages.|
|Next Article:||Designing multinational benefits programs: the role of national culture.|