1. Evolution
Apex Adelchi Footwear (Apex Footwear) Limited was incorporated in Bangladesh on 4 January 1990 as a Public Limited Company under the companies Act, 1913 and its Share are listed on the Dhaka Stock Exchange Limited and Chittagong Stock Exchange Limited. The company is an export oriented leather shoe and shoe components manufacturer with a shoe manufacturing unit, producing and selling leather shoes and leather shoe uppers to customers in international market. In 2006, it makes Joint Venture with La Nuova Adelchi, Italy which synergizes Italian product development & technology with Bangladeshi manufacturing and material strengths. On December 27, 2006, it changes its name Apex Footwear Limited to Apex Adelchi Footwear Limited. It is a leading manufacturer and exporter of leather footwear from Bangladesh to major shoe retailers in Western Europe, North America and Japan. The company has revenues of USD 42 million in 2006. It is pioneer in the export of value added finished products export in the leather sector of Bangladesh and is also involved in the local footwear retail business with the second largest shoe retail network in the country. It exports $58.87 million in 2007 and $72.37 million in 2008. It has equity, technical and marketing participation from La Nuova Adelchi one of the largest footwear manufacturers of Italy. Its market share is growing fast along with the emerging middle income population of the country.
Slogan
“4 S: Service, Sales, Savings, Systems”.
Service- Quality service
Sales- Maximize sales growth and profitability.
Savings- Minimize Company cost at every level.
Systems- Maintain the chain of command and work collaboratively or in team.
Slogan for sports shoe
“Speed is relative, style is everything’s”.
VISION
“Honest Growth”
MISSION
Sustainable Growth
Vendor of Choice
Creating value for our shareholders
Proactive compliance
Corporate Social Responsibility
VALUES
Respect for people
- Demonstrate respect by developing our people and helping them to achieve high performance standards.
- Treat all people with dignity
Integrity
- Honesty
- Walk the talk
Sense of Urgency
- Strive for speed and simplicity in everything we do.
Empowerment
- Encourage and reward self-confidence and initiative
- Require accountability
Courage
- Face reality, make timely difficult decision
2. Product Line
Apex Adelchi Footwear’s product line consists of more than 2500 items of shoes. Its shoes are mainly two types- lace and without lace. Other products consist of following types- Back Belt, Slippers, Sandal, and Sports. It imports all sports shoes from China and India. It markets all the products under its own brand name. It imports shoes and uses its own brand name instead of the manufacturers’ brand name.
It produces leather men’s and ladies shoes of various styles. Styles include:
Mens’ dress and formals
Mens’ Casual
Mens’ Dress and Casual Boots
Ladies Boots
Mens’ and Ladies Hand stitched Moccasins
Apex Adelchi footwear is proud to introduce Aetrex Performance Footwear, the first athletic shoe line to combine the latest developments in the field of biomechanics with state-of-the-art athletic shoe design. Aetrex Performance Footwear creates a new category of athletic shoe that provides an equal distribution of pressure throughout the gait cycle while maintaining the highest standards in comfort, breath ability, stability and overall support.
2.1. Product Development
Apex Adelchi Footwear has product development department. It closely observes the changing demand of the customers and develops products that will match with the needs, requirements, and preferences of the customers. It conducts marketing research to understand and figure out the market demand. It uses outside marketing research firm to conduct the research.
At the new product development process, it makes prototype of the product and sends it to the top level management for gaining the permission of developing the product. After getting the permission, it produces the product in a very small scale. It distributes the products to several selective Gallarie Apex, assess the customers’ attitude toward the product and analyze the sales. If the product is able to attract the required and favorable number of customers and generate satisfactory sales, it goes to the large scale production of the product. It develops 5 items of shoes per week on average.
2.2. Categories of Shoe
Apex Adelchi Footwear classifies its products into four categories-
1. Category “A”: The best
2. Category “B”: Better
3. Category “C”: Good
4. Category “D”: Moderately good
It classifies the shoes on the basis of price, target market, design, sales potentiality, and inventory turnover rate. This rating changes overtime, for example, category “A” shoe may become category “C” only after Eid festival.
2.3. Ordering Procedure of Apex Adelchi Footwear
Gallerie Apex orders its required products to CDC (Central Distribution Center) situated at Tejgoan in Dhaka City by completing a Special Requirement Form. Store manager fill up this form mentioning the code of the product, quantity and other things. They order on weekly basis. They order in such a time so that it does not face the stock out situation. This form is sent to CDC either by sales people or courier service. CDC accumulates several requirement form of Gallerie Apex and sends it to the factory. The lead time varies from one month to two months depending on the situation and nature of the product. If the required products are available in the CDC or factory, the products are sent within a very short time. It is going to start online order system within a few days.
All Gallerie Apex have prepare a daily sells report by mentioning categories, price, and number of pairs of shoes sold in a day. They also have to prepare weekly and monthly statements of its sells by mentioning categories, price, and number of pairs of shoes sold in a week or month.
In export process Apex Adelchi Footwear first receive order from La Nuova Adelchi, Italy & Other foreign party and then ordered the manufacturing unit to go for production of particular product as specified by Impoters.
2.4. Distribution System of Apex Adelchi Footwear
Apex Adelchi Footwear distributes its products to Gallerie Apex by using own distribution channels with in the Dhaka City. For distributing its products to outside the Dhaka City it uses Courier service or rented truck. Its products come to CDC from the factory. Then the products are delivered to Gallerie Apex from CDC.
2.5. Demand System of Apex Adelchi Footwear
Demand of its products derived from customers. Customer demand creates demand in Gallerie Apex. That demand is forwarded to CDC. Finally, the demand is delivered CDC to the factory of Apex Adelchi.
2.6. Sales Forecasting
Apex Adelchi Footwear collaborates with related departments and store managers for forecasting the demand of its products. Each person individually expresses their opinion about how many pairs of shoes will be sold in a certain period. On the basis of those opinions, the top level management set the production target for its products.
It forecasts sales on the basis of the research findings, information from the sales people and store managers, store size, store location, and economic condition, consumption pattern, standard of living of the customers surrounding the store. Practically, it is observed that its sales forecast is 80% accurate.
2.7. The Bullwhip Effect
Bullwhip effect is the fluctuations in orders increase as it move up the supply chain from retailers to wholesalers to manufacturers to suppliers.
In Eid season there is a high demand for its product. In this period its sales is equal to six months of its total sales.
It tries to overcome this problem by:
A) Off-peak production
B) Make up demand by alternative design of a particular product.
C) Improving information accuracy
D) Improving operational performance
E) Building partnership and trust among the channel members.
2.8. Managing Unsold Inventory
For selling unsold products, Apex Adelchi Footwear offers discount on the selected items of shoes for a certain period in a year. Sometimes it set the price bellow the total cost of production for unsold products and follows milk the product strategy. It destroys the shoes that cannot be used by the customers.
3. Representing Brands
Apex Adelchi Footwear’s logo is its brand. It has also some high selling products that represent its brand. These are Franco, IT (Italian) Project, FR Project (sandal), ID Shoe, and HW (hardy worker).
3.1. International Affiliation
Italian one of the largest shoemakers La Nuova Adelchi Footwear has entered into a joint venture with Bangladesh’s Apex Footwear with an investment of Tk 15 crore. It synergizes Italian product development & technology with Apex Footwear.
Adelchi Footwear Bangladesh Ltd, first ever Italian joint venture in the country’s footwear sector, will be fully an export-oriented shoe factory with expected annual sales of Tk 90 crore at initial stage. The company looks to raise its annual export earnings to Tk 200 crore in second phase of operation.
Apex Adelchi Footwear (former Apex Footwear) started exporting in 2000. Its export market consist of the following countries-
Germany
France
Italy
Austria
Scandinavia and Switzerland
Other EU countries
Japan
USA
Canada
4. Major Customers
Apex Footwear recently makes a joint venture with La Nuova Adelchi. Adelchi is the major customer. There are some customers in the following countries.
• Germany
• France
• Italy
• Austria
• Scandinavia and Switzerland
• Other EU countries
• Japan
• USA
• Canada
5. Sourcing Strategy
Sourcing is the set of business processes required to purchase goods and services.
5.1. Outsourcing
Apex Adelchi Footwear outsources its raw materials and components from both local and foreign source. For export purpose Apex outsources transportation facility (Air and Ocean). Apex also use third party for Export Forwarding and sample forwarding.
5.2. Supplier Selection
Quality is the first consideration for supplier section. Apex Adelchi Footwear selects its supplier by two ways-
a) Direct Negotiations
b) Using Third Party
5.2.1. Direct Negotiations
Apex select local and foreign supplier based on the following characteristics:
-Lead time
-Reliability
-Quality
-Design capability
-Total cost of doing business with supplier.
5.2.2. Using Third Party
Apex uses third party in supplier selection because they have specialization and learning, and likely to be sustainable over the longer term. The third parties have strong relationship with the suppliers and from this relationship Apex also get benefits.
Apex negotiates the price with its suppliers. The top management and sometimes third party have done this. It maintains collaboration negotiation (joint problem solving, searching for creative win- win solutions to maximize joint outcome). It maintains this because of the following reasons:
• Long term relationship.
• Trust/openness, active listening.
• Parties share information, honestly treat each other with understanding and respect.
5.3. Procurement of Raw Materials
Procurement of raw materials from local and foreign suppliers is summarizes as under:
Local Foreign
Leather Accessories & components Packing materials Leather Accessories & components
Qty Sft Value Taka Qty Eqv. Prs. Value Taka Qty Eqv. Prs. Value Taka Qty Sft Value Taka Qty Eqv. Prs. Value Taka
154,315,071 24,050,411,434 1,166,042 100,279,643 3,362,069 184,913,842 2,055,591 267,226,826 4,387,628 1,557,607,856
a) Leather, accessories, components and packaging materials:
b ) Spare parts:
Local Value in Taka Foreign Value in US$
24,818,292 355,308
5.4. Role in the Competitive Strategy
Sourcing decisions are crucial because it affects the level of efficiency and responsiveness the supply chain can achieve. Most of the leathers are procured from Apex Tannery Ltd. to ensure best quality and increase responsiveness. Apex uses private carrier to deliver product from central distribution center (CDC) to Gallerie Apex if it located in Dhaka city. On the other hand if it located outside of Dhaka city it use package carrier or rent transports from third party. For export, it also use third party (Cost and Freight Forwarding Agent) to achieve economic of scale.
6. Purchasing Strategies
Competitive advantage in contemporary market flux does not depend solely on firms’ competency in providing competitive ranges of offerings. Conversely, it draws on firm’s skill to establish superior purchasing strategies in complex inter- organizational settings of numerous suppliers. Firms are no longer able to develop major product or service innovations alone because of the dispersion of knowledge and technological resources driven by organizational specialization. In addition, the growing need for greater effectiveness to focus on its core competencies, leading to the externalization of the activities to partners.
Apex maintains both single and multiple sourcing strategies. It looks for single sourcing strategies when it has only one supplier for each product and service. It seeks scale advantages through lower cost products in a dyadic relationship. Multiple sourcing strategies are adopted when the buyer systematically utilizes several suppliers for each product and service. Apex considers quality here. Those who maintain quality will be patronized by Apex.
Apex Adelchi Footwear procures its raw materials from local and foreign sources. It collects lather from Apex Tannery Ltd. It imports soles, line lather, stickers or ornaments, glue, shoelace, and yarn from Chine and India. It import directly from the manufacturers of raw materials who ensure quality and its requirements. It also imports by using local third party. In case of procurement of raw materials, it only focuses on the quality. It does not maintain partnering, relationship buying or collaborative network with its suppliers. It maintains transactional exchange here. It maintains the following strategies here:
• Single purchase.
• Focus on quality.
• One time purchasing event.
• Significant purchase.
• After sales experts.
• Maintaining services.
It procures raw materials from those suppliers who ensure the quality product even if the price is relatively higher than other suppliers. If any supplier could ensure quality over time, it purchases from that supplier several times. It maintains relationship strategy here. It maintains the following:
• Long term orientation.
• Repetitive purchase.
• Dyadic partner.
• Diminishing price.
• Win- win situation.
• R&D project.
Otherwise, it purchases from different suppliers in different times by direct bargaining.
It maintains the following strategies here:
• Strategic procurement.
• Key partner network.
• Decreased no suppliers.
• Better knowing of chosen suppliers.
• Updated product versions.
• Mutual knowledge transfer.
It takes two months to get raw materials arrived its factory from any country since it was ordered. It uses both air and ocean for importing raw materials.
7. Relationship Perspective in Apex
7.1. Relationship Development Process in Apex
Apex exports its shoes in various countries of the world. For building a good relationship with foreign buyers it follow most of the phases of relationship development process suggested by Dwyer, Schurr and Sejo Oh.
Enabling sub processes for deepening dependence
7.1.1. Awareness
In the awareness stage, Apex becomes aware of the different foreign buyers. It collects relevant information about the prospective buyers. After evaluating the information it selects potential partners to whom it want to export. So it goes for the next stage.
7.1.2. Exploration
In exploration stage, Apex interacts with the foreign buyers and even initial purchase can take place in this stage. The newly developed relationship in the exploration stage is fragile. There are five interplaying enabling processes through which relationship is developed. These are attraction, communication and bargaining, power and justice, norms development and expectation.
7.1.3. Expansion
The essence of the expansion phase is increasing dependence between the exchange partners. When Apex finds that its foreign partners can adjust with them and can successfully build the market for its shoes in the foreign market, it tries to build a sustainable relationship with the buyers.
7.1.4. Commitment
Finally Apex goes for a long-term relationship with its foreign partners, such as Apex builds a collaborative relationship with Adelchi of Italy.
There is also strong internal relationship among the employees of the Apex. Because of these internal relationship employees have strong mutual trust and dependence on each other. There are goodwill trust between the Apex and Adelchi. They are cooperative in management practices. So they can avoid competitive bidding among themselves. Goodwill trust also exists among the company employees allowing them to decentralize the decision making. Though every department have the power of taking any decision, the department is also responsible for that decision. The Apex and its suppliers also share valuable information, risk and profit among them.
7.2. Supply Chain Visibility of Apex
Supply chain is defined as the management of upstream and downstream relationships with suppliers and customers in order to create enhanced value in the final market place at less cost to the supply chain as a whole.
The supply chain visibility in Apex is transparent. It shares information among the channel members on a selective and justified basis. Development of information leads to shared knowledge and collaborative abilities.
Visibility for a supply chain is important for accurate and fast delivery of information. The lack of accurate information can cause certain negative consequences such as the “bullwhip-effect” in supply chains.
Apex has collaboration with Adelchi. The supply chain collaboration occurs when “two or more companies share the responsibility of exchanging common planning, management, and execution and performance measurement information” and that collaborative relationships transform how information is shared between companies and drive change to the underlying business processes.
The metaphor of transparency in Apex is shown below:
Opaque Translucent Transparent
Apex does not share any information with third party as well as outside personnel in the industry. Apex share outline information or partial information with La Nuova Adelchi, Italy. Information is shared on a selective and justified basis within the organization.
The channel relationship forms in Apex are termed as corporate channels. In corporate channels, there are high degrees of vertical integration in the sales and distribution functions. A firm that uses its own sales force, its own fleet of trucks, from its owned distribution centers is highly integrated. Ownership provides a significant measure of control over channel functions because one’s own employees are generally more inclined to take direction than are associates of an independent organization. All these are practiced in the Apex.
7.3. Employee Relationship
Apex Adelchi Footwear maintains a very strong relationship among employees. It currently employs 6743 persons at various departments. In the lunch time during office hour, employees have their foods by sitting in same table. The company provides same type of food for all employees. It never differentiates any person in terms of their designations. It maintains a free flow of information among the employees. Any employee can ask any question to any middle and top level management at any time. When a person comes to another person, they give priority to that person’s need to their own task that they were performing. They deem it is discourteous to continue their own task when a person comes to them. Most of its employees believe that they are doing a business not a job.
8. Value Creation Stage in the Supply Chain
In Apex Adelchi Footwear value creation begins with new product development, which creates design and specifications for the product. Marketing and sales generate demand by publicizing customer priorities that the product will satisfy. Marketing and sales also brings customer input back to new product development. Using new product specification, manufacturing unit transforms inputs to outputs to create the product. Central Distribution Center (CDC) delivers the product to various sales centers (Gallerie Apex) to make the product available for customer. Gallerie Apex also provides after sales service to customer.
Figure: Value creation stages
9. Pricing strategies
Apex adelchi maintains two types of pricing strategies. They are-
1) Cost based pricing
2) Value based pricing
9.1. Cost based pricing
It means adding standard markup to the products’ cost. Sellers can determine cost much more easily than it can estimate demand. By matching the price to the cost, sellers are simplifying the pricing task. Price competition is minimized because prices tend to be similar. It is faired to both buyers and sellers. Sellers do not take the advantage of buyers when the latter’s demand more acute, and sellers earn a fair return on investment.
9.2. Value based pricing
Setting price based on buyers’ perception of value rather than the sellers’ cost.
The employees of Apex act as the rule of customers to judge what would be the appropriate value if they purchase the product. The targeted value and price then derived decisions about product design and what cost is incurred.
10. End Users of the Products
At the inauguration stage it target higher class group who are affluent to purchase high price shoe. But now it is offering many products targeting higher middle class group. For capturing the market of middle class and lower middle class, Apex also plans to build synthetic footwear unit. (Unit-Π)
Social Class Product
Higher class -Leather shoe uppers.
-Exclusive shoe.
Higher middle class -Lower value show.
-Sandal.
11. After Sales Perspective
-It repairs the shoe if it defects within one month of purchase.
- If it is not repairable it provides customer a new one.
- To receive after sales service they want to go the same outlet from which they purchase the product.
- In export business its partners (Adelchi Footwear, Italy and third parties) provide the after sales service.
12. Industry Position
Apex Adelchi Footwear is the market follower in the country market. It just follows the country market leader Bata Shoe Company and tries to achieve the equal market share that Bata holds. It has no target to surpass the Bata yet. It has more than 106 outlets all over the country. It is the second largest shoe retail chain after Bata. Its market share is growing fast along with the emerging middle income population of the country.
Apex Adelchi Footwear started exporting in 2000. It exports to Italy, Germany, Western Europe, Japan, and North America. It exports directly from its factory. It is a number one company in exporting of Bangladesh.
12.1. Comparison between Apex Adelchi and Bata
Bata and Apex Adelchi, two of the country's leading shoe manufacturers and retailers, are set to intensify its battle for customers with both groups to sharply increase its number of stores. A comparison between them are shown below-
Apex Adelchi Footwear Limited Bata
It has more than 106 retail outlets. It has 237 retail stores.
It plans to set up some 20 new retail outlets. It will set up 40 different stores this year10 city stores, 11 super stores, 14 family stores and 5 franchise stores.
It aims to cater to the footwear needs of the middle class in the urban and semi-urban areas across the country. It focuses mainly on the demands of the middle and high income groups.
Its main objective is to provide customers enough choices. Its strategy is rapid expansion because the middle class is growing in the country.
It will focus on providing products within a price range that is affordable for different types of customers. It focuses on providing lower priced products than Apex Adelchi.
It wants to set up some complete family stores enabling its customers to have a pleasant shopping experience. Its biggest focus now is on the city and super stores.
12.2. Competitors of Apex Adelchi Footwear
In the country market the competitors are:
Bata Shoe Co. (Pvt.) Ltd, Naz shoes, Athnan Shoes, Excelsior Shoes Ltd, Comfort Footwear Ltd, Combined Shoe Ind. Ltd, Chowdhury Industrial Complex (Pvt) Ltd, Bengal Products, Homeland Footwear Ltd, Bangladesh Shoe Industries Ltd, Impact Industries Ltd, Arcu Industries Mfg. Ltd, Youngone Sports Shoe Industry Ltd, Paragon Leather and Footwear Inds. Ltd, Madina Leather and Allied Products, Khadem Shoe Company, Excelsior Shoes Ltd, Bangladesh Shoe Industries Ltd, Pragoti Shoe Ind. Ltd, and Dunhill Corporation Limited.
13. Other Relevant Topics
13.1. Product Specification
Apex Adelchi Footwear uses a specific and unique meaningful code for recognizing a particular item of shoe. These codes are imprinted in the levels that are attached to the shoe. When an employee of Apex Adelchi Footwear sees the code, they can recognize it and remember the picture of the shoe. There is a Gallarie inside the corporate office of it. It contains all items of shoes those are available in the market. This Gallarie is for its employees who can easily identify how many items of shoes are available in the market, which item (s) is performing well and which item’s performance is not satisfactory.
13.2. Distribution strategy
Apex Adelchi Footwear follows selective and Intensive distribution.
- Selective Distribution: When new product introduce in market it first appear in divisional outlet only.
- Intensive Distribution: If the new product best fit with customer demand and if the sales growth of the new product is high in divisional outlet, then Apex decide to go for intensive distribution. It makes the product available in all the Gallerie Apex.
13.3. Mystery Shopper Program
In the Apex, the employees also follow mystery shopping. Since it distributes its shoes through its own sales force, the high officials go to the Gallerie Apex like a customer to evaluate the performance of the sales force. How it behaves with the customers, convince the customer and handle complaints of the customers. We talked with a sales force of Gallerie Apex at Gulshan-2 about the mystery sopping. He said us that one day he was performing his duty as usual. A gentle lady came to the gallery and was walking around the Gallerie like a normal customer. At first he thought she was a customer. But he noticed the logo of Apex on the bag of that lady. So he understood that the lady might be an employee of the head office of Gallerie Apex. After a few days when he came to the head office for an official purpose, he was looking for that lady and he found the lady was working in a desk in the corner of the Gallerie Apex. So the salesman became confirmed that the lady went to Gallerie to evaluate their performance.
13.4. Employee Description & Development
Apex Adelchi Footwear working culture is characterized by open and informal dialogue between employees and management. Teamwork plays an important role and mutual respect is the key ingredient. Manners between colleagues are informal and relaxed, and a sense of belonging plays an important role in everyday life. Now, it has more than 6473 employees, 70% female in factory. It offers in-house training and skill up gradation by internal and external dedicated trainers .07 Italian & 07 Indian resident expert technicians. Young motivated professional team consisting of MBA’s, Engineers, Footwear Technologists, fresh graduates and skilled operators and supervisors. Apex Adelchi Footwear continuously trains its sales people for providing the best service to its customers. Its sales people receive training two days in a week. Their compensation packages consist of fixed salary and employee incentives on sales. It sets sales target for sales people on yearly basis. Sales people divide their target into monthly basis and work hard to fulfill their target. For assessing the performance of the sales people, it uses mystery shopping technique. It gets promotion to its sales people. A sales people can be promoted to store manager, store manager to area sales manager, area sales manager to divisional sales manager and divisional sales manager to top level management.
Personal Orientation - They get fixed salary + Incentives for increasing sales.
Company Orientation- If sales increase company growth and profitability also increase.
They always try to minimize the cost of the company.
13.5. Decision Making Process
Apex Adelchi takes decisions by collaborating with various related departments. In spite of taking decisions by collaboration, every department is responsible for its own performance or failure. In case of departmental decisions, it takes decisions in a team for increasing the effectiveness and efficiency and reducing the perceived risk.
13.6. Categories of Outlet
Gallerie Apex is classified into four categories-
1. Category “A”: The best
2. Category “B”: Better
3. Category “C”: Good
4. Category “D”: Moderately good
It classifies its outlets on the basis of store size, location, sales, and economic, demographic, psychographic, behavioral and consumption pattern of the people surrounding the store. This rating changes overtime for certain phenomenon or development of the areas where stores are located, for example, category “A” type Gallarie Apex may become category “C” after certain period.
14. Major Achievements/Milestones
Apex Adelchi footwear signs deal with Walt Disney (Monday, April 6, 2009).
Apex Adelchi Footwear Limited recently signed an agreement with Walt Disney Footwear. Under the agreement, all the Walt Disney Footwear items will be available at all outlets of the Gallerie Apex.
Apex Adelchi Footwear signs contract with Technohaven (The Daily Star Internet Edition, Published On: 2008-03-02)
Apex Footwear Limited signed an agreement with Technohaven Co Ltd to implement ERP solution in its operation. Under the deal, Apex will get support of Technohaven Enterprise Resource Management System (TERMS) from Technohaven.
The ERP software application will automate inventory management, production planning, procurement, financial management and human resources management system of Apex.
References
1. Chopra, Sunil and Peter Meindl, Supply Chain Management, Third edition, Pearson Prentice Hall, PP.39, 434,439,514,522.
2. Adopted from F.Robert Dwyer, Paul H.Schurr and Sejo Oh, “Developing Buyer-Seller Relationships”.
3. Paul A. Bartlett, Denyse M. Julien and Tim S. Baines; Improving Supply Chain Performance through Improved Visibility; The international Journal of logistics management. Vol.18 No 2.2007, pp 294-313; Emerald group publishing limited 0957-4093.
4. Toni Laaksonen, Kalle Pajunen, Harri I. Kulmala; Co-evolution of trust and dependence in customer-supplier relationships, Elsevier Inc.
5. Annual Report (2008) of Apex Adelchi Footwear Limited.
6. The Daily Star Internet Edition15.htm, Published On: 2008-03-02 (Retrieved on 28th May. 2009).
7. The Daily Star Internet Edition, Vol_ 5 Num 2.htm, Published On: Fri. May 28, 2004 (Retrieved on 5th May. 2009).
8. The Daily Star Internet Edition, Vol_ 5 Num 2.htm, Published On: Fri. May 04, 2009 (Retrieved on 25th May. 2009).
9. www.apexadelchi.com (Retrieved on 5th May. 2009).
10. www.banglapedia.search.com.bd(Retrieved on 5th May. 2009).
11. www.bangladesheconomy.com(Retrieved on 5th May. 2009
12. www.stockbangladesh.com (Retrieved on 5th May. 2009).
13. www.shoikotsblog.blogpost.com (Retrieved on 5th May. 2009).
14. www.lfmeab.org (Retrieved on 29th May. 2009).
Friday, December 2, 2011
Marketing Strategy of Chain Shop
OVERVIEW OF TESCO PLC
Tesco plc is a British-based international grocery and general merchandising retail chain. It is the largest British retailer by both global sales and domestic market share with profits exceeding £3 billion. In 2008, Tesco became the world's fourth largest retailer, the first movement among the top five since 2003. Currently the third largest retailer based on revenue, Tesco is second only to Wal-Mart in terms of profit, having surpassed Carrefour in 2009. Originally specialising in food and drink, it has diversified into areas such as clothing, consumer electronics, financial services, telecoms; home, health and car insurance; dental plans, retailing and renting DVDs, CDs, music downloads, Internet services, and software.
FORMATION
Jack Cohen founded Tesco in 1919 when he began to sell surplus groceries from a stall in the East End of London. The Tesco brand first appeared in 1924. The name came about after Jack Cohen bought a shipment of tea from T.E. Stockwell. He made new labels using the first three letters of the supplier's name (TES), and the first two letters of his surname (CO), forming the word "TESCO".
The first Tesco store was opened in 1929 in Burnt Oak, Edgware, Middlesex. Tesco floated on the London Stock Exchange in 1947 as Tesco Stores (Holdings) Limited. The first self service store opened in St Albans in 1951 (still operational in 2008 as a Metro), and the first supermarket in Maldon in 1956.
During the 1950s and the 1960s Tesco grew organically, but also through acquisitions until it owned more than 800 stores. The company purchased 70 Williamsons stores (1957), 200 Harrow Stores outlets (1959), 212 Irwins stores (1960), 97 Charles Phillips stores (1964) and the Victor Value chain (1968) (sold to Bejam in 1986).
Tesco in 2000-2007:
2007 • Tesco opens Fresh & Easy in the United States
2006 • Tesco Direct launches
2005 • Tesco exits the Taiwanese market in an asset swap deal with Carrefour involving stores and operations in the Czech Republic
• Tesco Homeplus launches
• Tesco announces annual profits of £2 billion
2004 • Tesco enters China
• Tesco launches own-brand Fairtrade range
• Tesco Broadband is launched
• Tesco.com becomes first major British supermarket to enter music download market
2003 • Tesco enters Turkey
• Tesco enters Japan
2002 • Tesco enters Malaysia
• Tesco offers ‘Free-From’ products, designed for customers with special dietary needs
2001 • Tesco launches ‘Customer Champions’ in many stores and implements a new labour scheduler to further improve service for customers
• Tesco becomes the leading organic retailer in the UK
• Tesco reaches £1 billion price cuts in total
2000 • Tesco.com is launched
PURPOSE OF TESCO
Core purpose of Tesco is "to create value for customers to earn their lifetime loyalty."They deliver this through their values--"No one tries harder for customers" and "Treat people how they like to be treated."
VALUES OF TESCO
Tesco’s success depends on people: the people who shop with us and the people who work with us.
If Tesco’s customers like what they offer, people are more likely to come back and shop with us again. If the Tesco team find what they do rewarding, they are more likely to go that extra mile to help their customers.
This is expressed as their values:
No-one tries harder for customers:
• Understand customers.
• Be first to meet their needs.
• Act responsibly for their communities.
Treat people as they like to be treated:
• Work as a team.
• Trust and respect each other.
• Listen, support and say thank you.
• Share knowledge and experience.
• ...so they can enjoy their work.
They regularly ask their customers and their staff what they can do to make shopping with them and working with them that little bit better.
TESCO plc describe its “Every Little Helps strategy” as follows :
MAJOR PRODUCTS AND SERVICES
Tesco is the largest food retailer in UK, operating around 3,451 stores worldwide. Its
products and services include:
Store types:
Extra
Superstore
Metro
Express
Tesco.com
Store offerings:
Food Retail
Non-Food Retail
Petrol Stations
Home Living Range
Tesco Personal Finance:
Life Insurance
Pet Insurance
Home Insurance
Travel Insurance
Motor Insurance
Savings Accounts
Personal Loans
Secure Investment Bonds
Online Mortgage Finder
STRATEGY OF TESCO PLC.
Giving cardholders discount in exchange for their name, address and other personal information.
Tailor promotions to individual shoppers and figure out quickly how new initiative are working.
The company quickly expanded the rollout, because the ethnic foods in neighborhoods with many Indians and Pakistanis were also popular with affluent white customers.
The data driven strategy.
Tesco lowered the price of value Brand margarine.
To analyze customer data for the retailer, Tesco owned majority of the research farm Dun humby.
Refined retailer strategy by dividing 2306 stores in Britain in four sizes.
Develop first line for customer who weren’t buy wine, cheese and fruit.
Customer receive a point for every pound they spend which they can use for future purchase or miles in frequent flier programs.
With the help of Dunnhumby, Tesco classifies shoppers in six segments.
Tesco’s growth is based on their five-part strategy:
• core UK business;
• non-food;
• international;
• retail services; and
• community.
At the heart of their business is the customer. Their core purpose is to create value for customers to earn their lifetime loyalty. Their values, which underpin everything they do, are to be first for customers and to treat people how they like to be treated.
Tesco’s 'Steering Wheel' or balanced scorecard gives them the tools to deliver their strategy for growth. As well as customers, Tesco must also consider the impact of their decisions on their people, their operations, finance and the community. They have adopted this approach in each of the countries in which they operate. They all have different challenges and opportunities but in each they believe in the power of the consumer to drive positive change. Their Community Plans are aimed at realizing this potential.
Tesco have continued to make good progress with their strategy, which has delivered pleasing growth in challenging times, and which they believe will both sustain the business through the downturn and also position the Group well for when the economic environment improves. The strategy has five elements:
be an international retailer
maintain a strong core UK business
be as strong in non-food as in food
develop retailing services
and put community at the heart of what they do
Core UK
Tesco’s core UK business is significant within the group, with over 280,000 employees and over 2,100 stores. Around 75% of group sales and profits come from the UK business.
Growth in the UK business comes from new space, extensions to existing stores and a multi-format approach. Sales of non-food, which forms another key part of their strategy, also contribute to the overall UK growth picture.
Community
Making Corporate Responsibility integral to their business is essential in applying their values as a responsible business. They believe it is also an opportunity for growth.
Tesco’s core purpose is to create value for customers to earn their lifetime loyalty. Their values, which underpin everything they do, are that no-one tries harder for customers and to treat people how they like to be treated.
Tesco’s Steering Wheel or balanced scorecard gives them the tools to deliver their strategy. As well as customers, they must also consider the impact of their decisions on the community, on their people, on finance and on operations. This therefore ensures that in all the decisions they make they take into account impacts on the community.
Tesco have adopted this approach in each of the countries in which they operate. They all have different challenges and opportunities, but in each they believe in the power of the consumer to drive positive change. Business also has an enormous role to play, and they believe that it is by being successful that business can make the biggest contribution. It is efficient businesses that can invest in deprived areas from which other companies have retreated. It is successful businesses that understand the needs of their customers – including low income customers and those with specific needs. It is growing businesses that can bring new jobs and careers to those who do not have them. And it is strong businesses that will prove that the challenge of climate change will be met through innovation and growth.
The plans developed, in the UK and by each of their international businesses, to deliver their corporate responsibility objectives are called the Community Plan. The Community Plan in each country is based around their community promises; actively supporting local communities; buying and selling their products responsibly; caring for the environment; giving customers healthy choices and good jobs for local people; and will reflect the needs of the local communities they serve.
Non-food
Tesco’s strategy aims to be as strong in non-food as in food. This means offering the same great quality, range, price and service for their customers as they do in their food business.
Tesco’s widest range of non-food can be seen in Extra stores and Homeplus, including electricals, home entertainment, clothing, health and beauty, stationery, cookshop and soft furnishings, and seasonal goods such as barbecues and garden furniture in the summer. Some of their stores also have opticians and over 240 have pharmacies
In 2006 they launched Tesco Direct , a new online and catalogue non-food offer, with over 11,000 products available online. Next day delivery is standard for small items with a unique two-hour delivery window. To find out more visit www.tesco.com/direct. Customers also have a delivery to store option so they can pick up their order from their local store.
Retailing Services
All their customers are different, and their needs are continually changing. That’s why they continue to offer more than one way to shop.
International
Since the mid-90s, they have been investing in new markets overseas, seeking out new opportunities for growth and ways of generating long term returns for shareholders. Today the Group operates in 12 markets outside the UK, in Europe, Asia and North America. Over 160,000 employees work in their international businesses, serving over 28 million customers and generating £13.8 billion sales and over £700 million profit. Over half of their selling space is now outside the UK.
TESCO’S INTERNATIONAL STRATEGY
The full emergence of international retailing is not something that will happen overnight - it requires a long term approach.
With more than ten years of experience overseas, Tesco has evolved a strategy based on six elements:
1. Be flexible - each market is unique and requires a different approach.
In Japan, customers like to shop for small amounts of extremely fresh food, every day. Existing hypermarket formats don't meet the needs of local customers, so Tesco's entry into the Japanese market was through the acquisition of a discount supermarket operator.
2. Act local - local customers, local cultures, local supply chains and local regulations require a tailored offer delivered by local staff.
In Thailand, customers are used to shopping at traditional wet markets, interacting with vendors and rummaging through piles of produce to choose what they want. Rather than adopting the Western approach of neatly packaged, convenient portions, their Rama IV store in Bangkok tries to meet local customers' expectations.
3. Maintain focus - they understand that customers want great service, great choice and great value. To become established as the leading local brand is a long term effort and is not about planting flags in map.
4. Use multi-formats - no single format can reach the whole of the market. A whole spectrum from convenience to hypermarkets is essential and you need to take a discounter approach throughout.
Their experience of trading a mix of stores means they can now move to multi-format quicker and they have recently opened Express stores in Hungary and the Czech Republic.
5. Develop capability - it's not about scale, it's about skill - so they make sure they have capability through people, processes and systems.
They believe that investing in their people is the right way to live their values and brings sound business benefits, too. Developing individuals at every level means that they have home-grown managers who understand their culture and can effectively develop their business.
6. Build brands - brands enable the building of important lasting relationships with customers.
In China, their first Tesco branded store called Tesco Legou opened in February 2007 and they have now completed re-branding of all stores.
STORES
Tesco's UK stores are divided into six formats, differentiated by size and the range of products sold. These are shown below;
Tesco Extra
Tesco Extra, Southport, England
Tesco Extra stores are larger, mainly out-of-town hypermarkets that stock nearly all of Tesco's product ranges. The first Extra opened in 1997. The 100th store opened in the 2004/05 financial year (specifically opening 29 November 2004, located on the Newport Road in Stafford, Staffordshire). The number of these is now being increased by about 20 a year, mainly by conversions from the second category. The largest store by floor space is Tesco Extra in Pitsea,Basildon with floorspace of 11,600 m2 (125,000 sq ft). Newer Tesco Extra stores are usually on two floors, with the ground floor for mainly food and the first floor for clothing, electronics and entertainment. Most Tesco Extra stores have a café. However, the new Manchester Gorton store, which opened in October 2008, has all sales on one floor, with a cafe on the upper balcony.
Tesco superstores
Tesco superstores are standard large supermarkets, stocking groceries and a much smaller range of non-food goods than Extra stores; they are referred to as "superstores" for convenience, but this word does not appear on the shops. A new store in Liverpool is the first to use the branding 'Tesco Superstore'
Tesco Metro
Tesco Metro, Manchester city centre, England on New Year's Eve 2007
Tesco Metro stores are sized between Tesco superstores and Tesco Express stores. They are mainly located in city centres, the inner city and on the high streets of small towns such as Rowlands Gill, Nelson and Cleveleys. Typical size is 1,100 m² (12,000 sq ft). The first Tesco Metro was opened in Covent Garden, London in 1992. Since then all Tesco branches that have a high street format including those which opened before the Covent Garden branch have been subsequently rebranded from Tesco to Tesco Metro probably to give an identity to the Tesco high street sub brand. The Tesco store in Devizes was the last store to finish rebranding, in September 2006. The store had not been renovated for over 20 years.
Tesco Express
Tesco Express stores are neighbourhood convenience shops, stocking mainly food with an emphasis on higher-margin products (due to small store size, and the neccesity to maximize revenue per square foot) alongside everyday essentials. They are found in busy city centre districts, small shopping precincts in residential areas, small towns and on Esso petrol station forecourts. There were 827 stores at 23 February 2008 year end. Each store has a typical size of 190 m² (2,100 sq ft) - this makes them exempt from the Sunday Trading Regulations as they are under 260 m².
One Stop
One Stop stores are the only category which does not include the word Tesco in its name. These are the very smallest stores. They were part of the T&S Stores business but, unlike many which have been converted to Tesco Express, these will keep their old name. However, some have Tesco Personal Finance branded cash machines. There are more than 500 of them. One Stop Stores also work on a different pricing and offers system to the other Tesco stores, and generally have later opening hours than all except the 24-hour Tesco stores. Typical size 125 m² (1,350 ft²).
Tesco Homeplus
Tesco Homeplus is not Tesco's first non-food only venture in the UK. Until the late 1990s/early 2000s there were several non-food Tesco stores around the country including Scarborough and Yate. Although not in a warehouse style format, the stores were located on high streets and shopping centres, they did stock similar items to Homeplus stores. In both cases this was because in another part of the shopping centre was a Tesco Superstore which stocked food items only.
In May 2005 Tesco announced a trial non-food only format near Manchester and Aberdeen, and the first store opened in October 2005:
A further 5 stores opened before it stopped being a trial, and there is now a plan to open many more stores.
Current : Stores offer all of Tesco's ranges except food in warehouse-style units in retail parks. Tesco is using this format because only 20% of its customers have access to a Tesco Extra, and the company is restricted in how many of its superstores it can convert into Extras and how quickly it can do so. Large units for non-food retailing are much more readily available.
There are currently 10 Homeplus stores nationwide. The newest Homeplus store opened in Nottingham in Nov 2008. It like Bristol Cribbs featured an order and collect desk, where you can pick up items from the Tesco Direct book there and then with no wait.
Future : 4 more are due to open in the first half of '09 at sites around the country. All of these will feature the Order and Collect desk where customers can purchase and collect most items straightaway.
DISTRIBUTION
In common with most other large retailers, Tesco draws goods from suppliers into regional distribution centres, for preparation and onward delivery to stores. Tesco is extending this logistic practice to cover collection from suppliers (factory gate pricing) and the input to suppliers, in a drive to reduce costs and improve reliability. RFID technology is taking an increasing role in the distribution process.
Road
In 2007 Tesco was facing national disruption to its distribution network after a dispute with drivers at its distribution depot in Livingston, Scotland. In response to fears over increasing road congestion, fuel prices, and concern over its carbon footprint, Tesco is switching some of its supply chain to alternative modes, detailed below.
Rail
Tesco has been transporting goods by rail since 2006 using its distribution partner the Eddie Stobart Group. Volumes are set to increase in 2007 with new routes.
Canal
In October 2007 Tesco started using the Manchester Ship Canal to transport wine from Liverpool to a Manchester distribution facility. Combined with sea transport from the south coast where the wine was previously offloaded, this new mode replaces road journeys from the south coast to Manchester.
TOP COMPETITORS
The following companies are the major competitors of Tesco PLC:
ASDA Group Limited
BP Plc
Wal-mart
Carrefour
Metro AG
Kroger
Marks and Spencer Group plc
Royal Dutch/Shell Group
Safeway Inc.
Safeway plc
Somerfield
SPAR Handels-Aktiengesellschaft
The Boots Group PLC
Wm Morrison Supermarkets PLC
Booker Cash & Carry Limited
ALDI Group
The Carphone Warehouse Group PLC
John Lewis Partnership plc
INTERNATIONAL OPERATION
Tesco's international expansion strategy has responded to the need to be sensitive to local expectations in other countries by entering into joint ventures with local partners, such as Samsung Group in South Korea (Samsung-Tesco Home plus), and Charoen Pokphand in Thailand (Tesco Lotus), appointing a very high proportion of local personnel to management positions. It also makes small acquisitions as part of its strategy for example, in its 2005/2006 financial year it made acquisitions in South Korea, one in Poland and one in Japan. Tesco recently announced plans to invest an initial £60m ($115m) to open a wholesale cash-and-carry business based in Mumbai, India. Tesco's new wholesale operation will also supply the Tata Star Bazaar stores. Overseas companies are only allowed to open wholesale, licence or franchise arrangements. If the legislation were to change, Tesco announced they would open their own consumer retail business.
Country Name Started Trading Number of Store Number of Staff
U.S.A 2007 53 669
Ireland 1997 100 12474
U.K 1924 2115 280373
Czech Republic 1996 96 12886
Poland 1996 301 24870
Hungary 1995 123 19163
Slovakia 1996 60 8519
Turkey 2003 66 5705
China 2004 56 17571
South Korea 1999 137 12641
Japan 2003 125 3604
Thailand 1998 476 35269
Malaysia 2002 20 8045
India Tesco source over 170 million worth of products from india and have sourcing office in Delhi, Bangalore and Tripura.
SWOT ANALYSIS
Tesco PLC is a major food retailer that operates primarily in the United Kingdom. The company operates 2,291 supermarkets, superstores and convenience stores in the United Kingdom, the rest of Europe and Asia. The company also offers financial products, such as insurance and banking services, as well as electrical appliances and telecommunication products.
Strengths Opportunities
Increasing market share
Insurance
Tesco online
Brand value
UK market leadership reinforced Non-food retail
Health and beauty
Further international growth
Weaknesses Threats
Reliance upon the UK market
Debt reduction
Signs point to serial acquisitions UK structural change could spark a price war
Overseas returns could fall
Wal-Mart/Asda challenge
International expansion
STRATEGIC BENEFITS
The club card has helped boost Tesco’s market share in groceries to 31%, nearly double the 16% help by Wall Marts Asda chain.
39 successful stores in corea.
Tesco’s sales jumped 17% to $79 billion in the year ended, and net income rose 17% to $2.96 billion.
FINANCIAL POSITION
UK market share
Graph Showing Market Share of Tesco
According to TNS Worldpanel, Tesco's share of the UK grocery market in the 12 weeks to 10 August 2008 was 31.6%, up 0.3% on 12 weeks to 13 July 2008. The business' market share has been rising monthly since its recent low of 30.9% in March 2008. Across all categories, over £1 in every £7 (14.3%) of UK retail sales is spent at Tesco. Tesco also operates overseas, and non-UK revenue for the year to 24 February 2007 was up 18% on 25 February 2006
Supermarket Consumer
Spend (£000s) Market Share
August 2008 +/- from
July 2008
Tesco 6,351,531 31.6% ▲ 0.3%
Asda 3,410,431 17.0% ▲ 0.1%
Sainsbury's 3,175,543 15.9% ▲ 0.1%
Morrisons 2,233,137 11.1% ▼ 0.2%
THE RECESSION AND FOOD RETAIL
First, with unemployment rising, and people concerned about their incomes falling, obviously the pressure is on price more than ever. For example, we are now Britain’s Biggest Discounter – the clearest possible demonstration of our strategy to follow consumers. Sales in our discount and value ranges are up by 65 per cent on the year. Now, a quarter of all our customers’ shopping baskets and trolleys include something from this range – which shows that customers see this range as offering great value.
Prices have been cut while inflation has been subsiding – which brings second observation about the recession. Commodity prices are down over 50 per cent from their peak, and the price of a barrel of oil is down by about a hundred dollars from the giddy height it reached last year. These lower prices need to be fed into the supply chain, and passed on to consumers who are under growing financial pressure. Tesco want to ensure that all their suppliers understand this, which is why they are going to great lengths to talk to them about the new pressures that consumers are under. This adjustment affects our entire industry. It will be difficult for some, but it is critical if consumers are to be given what they want. Think of the alternative: keeping prices as they are, and hoping against hope that consumers on tight incomes will buy our goods.
Third observation relates to climate change, to healthy eating, to local produce. Some say that in a recession all these things are luxuries, or that consumers no longer care about protecting the environment, eating healthily or buying local goods. All that matters is saving money.
TESCO: GROWTH IN TOUGH TIMES
CONCLUSION
In the UK, their core business will continue to compete effectively and there is still plenty of growth to come. Non-food will grow faster than food as new space comes on stream, as they develop global sourcing and their global non-food capability. Retailing services wil continue to grow as they follow the customer into new areas of expenditure like e commerce and Tesco Personal Finance. Their international businesses will achieve real scale. By 2002 they will have 45% of their selling space outside the UK and from emerging markets they will have turnover of £5bn. Overall, they are on track to deliver the demanding targets they have set ourselves and they are looking to expand into other countries in the longer term. Their strategy has already taken them to double-digit growth in the first half and there is a strong momentum in Tesco that is moving them from being purely a domestic player to an international retailer of real scale.
Tesco plc is a British-based international grocery and general merchandising retail chain. It is the largest British retailer by both global sales and domestic market share with profits exceeding £3 billion. In 2008, Tesco became the world's fourth largest retailer, the first movement among the top five since 2003. Currently the third largest retailer based on revenue, Tesco is second only to Wal-Mart in terms of profit, having surpassed Carrefour in 2009. Originally specialising in food and drink, it has diversified into areas such as clothing, consumer electronics, financial services, telecoms; home, health and car insurance; dental plans, retailing and renting DVDs, CDs, music downloads, Internet services, and software.
FORMATION
Jack Cohen founded Tesco in 1919 when he began to sell surplus groceries from a stall in the East End of London. The Tesco brand first appeared in 1924. The name came about after Jack Cohen bought a shipment of tea from T.E. Stockwell. He made new labels using the first three letters of the supplier's name (TES), and the first two letters of his surname (CO), forming the word "TESCO".
The first Tesco store was opened in 1929 in Burnt Oak, Edgware, Middlesex. Tesco floated on the London Stock Exchange in 1947 as Tesco Stores (Holdings) Limited. The first self service store opened in St Albans in 1951 (still operational in 2008 as a Metro), and the first supermarket in Maldon in 1956.
During the 1950s and the 1960s Tesco grew organically, but also through acquisitions until it owned more than 800 stores. The company purchased 70 Williamsons stores (1957), 200 Harrow Stores outlets (1959), 212 Irwins stores (1960), 97 Charles Phillips stores (1964) and the Victor Value chain (1968) (sold to Bejam in 1986).
Tesco in 2000-2007:
2007 • Tesco opens Fresh & Easy in the United States
2006 • Tesco Direct launches
2005 • Tesco exits the Taiwanese market in an asset swap deal with Carrefour involving stores and operations in the Czech Republic
• Tesco Homeplus launches
• Tesco announces annual profits of £2 billion
2004 • Tesco enters China
• Tesco launches own-brand Fairtrade range
• Tesco Broadband is launched
• Tesco.com becomes first major British supermarket to enter music download market
2003 • Tesco enters Turkey
• Tesco enters Japan
2002 • Tesco enters Malaysia
• Tesco offers ‘Free-From’ products, designed for customers with special dietary needs
2001 • Tesco launches ‘Customer Champions’ in many stores and implements a new labour scheduler to further improve service for customers
• Tesco becomes the leading organic retailer in the UK
• Tesco reaches £1 billion price cuts in total
2000 • Tesco.com is launched
PURPOSE OF TESCO
Core purpose of Tesco is "to create value for customers to earn their lifetime loyalty."They deliver this through their values--"No one tries harder for customers" and "Treat people how they like to be treated."
VALUES OF TESCO
Tesco’s success depends on people: the people who shop with us and the people who work with us.
If Tesco’s customers like what they offer, people are more likely to come back and shop with us again. If the Tesco team find what they do rewarding, they are more likely to go that extra mile to help their customers.
This is expressed as their values:
No-one tries harder for customers:
• Understand customers.
• Be first to meet their needs.
• Act responsibly for their communities.
Treat people as they like to be treated:
• Work as a team.
• Trust and respect each other.
• Listen, support and say thank you.
• Share knowledge and experience.
• ...so they can enjoy their work.
They regularly ask their customers and their staff what they can do to make shopping with them and working with them that little bit better.
TESCO plc describe its “Every Little Helps strategy” as follows :
MAJOR PRODUCTS AND SERVICES
Tesco is the largest food retailer in UK, operating around 3,451 stores worldwide. Its
products and services include:
Store types:
Extra
Superstore
Metro
Express
Tesco.com
Store offerings:
Food Retail
Non-Food Retail
Petrol Stations
Home Living Range
Tesco Personal Finance:
Life Insurance
Pet Insurance
Home Insurance
Travel Insurance
Motor Insurance
Savings Accounts
Personal Loans
Secure Investment Bonds
Online Mortgage Finder
STRATEGY OF TESCO PLC.
Giving cardholders discount in exchange for their name, address and other personal information.
Tailor promotions to individual shoppers and figure out quickly how new initiative are working.
The company quickly expanded the rollout, because the ethnic foods in neighborhoods with many Indians and Pakistanis were also popular with affluent white customers.
The data driven strategy.
Tesco lowered the price of value Brand margarine.
To analyze customer data for the retailer, Tesco owned majority of the research farm Dun humby.
Refined retailer strategy by dividing 2306 stores in Britain in four sizes.
Develop first line for customer who weren’t buy wine, cheese and fruit.
Customer receive a point for every pound they spend which they can use for future purchase or miles in frequent flier programs.
With the help of Dunnhumby, Tesco classifies shoppers in six segments.
Tesco’s growth is based on their five-part strategy:
• core UK business;
• non-food;
• international;
• retail services; and
• community.
At the heart of their business is the customer. Their core purpose is to create value for customers to earn their lifetime loyalty. Their values, which underpin everything they do, are to be first for customers and to treat people how they like to be treated.
Tesco’s 'Steering Wheel' or balanced scorecard gives them the tools to deliver their strategy for growth. As well as customers, Tesco must also consider the impact of their decisions on their people, their operations, finance and the community. They have adopted this approach in each of the countries in which they operate. They all have different challenges and opportunities but in each they believe in the power of the consumer to drive positive change. Their Community Plans are aimed at realizing this potential.
Tesco have continued to make good progress with their strategy, which has delivered pleasing growth in challenging times, and which they believe will both sustain the business through the downturn and also position the Group well for when the economic environment improves. The strategy has five elements:
be an international retailer
maintain a strong core UK business
be as strong in non-food as in food
develop retailing services
and put community at the heart of what they do
Core UK
Tesco’s core UK business is significant within the group, with over 280,000 employees and over 2,100 stores. Around 75% of group sales and profits come from the UK business.
Growth in the UK business comes from new space, extensions to existing stores and a multi-format approach. Sales of non-food, which forms another key part of their strategy, also contribute to the overall UK growth picture.
Community
Making Corporate Responsibility integral to their business is essential in applying their values as a responsible business. They believe it is also an opportunity for growth.
Tesco’s core purpose is to create value for customers to earn their lifetime loyalty. Their values, which underpin everything they do, are that no-one tries harder for customers and to treat people how they like to be treated.
Tesco’s Steering Wheel or balanced scorecard gives them the tools to deliver their strategy. As well as customers, they must also consider the impact of their decisions on the community, on their people, on finance and on operations. This therefore ensures that in all the decisions they make they take into account impacts on the community.
Tesco have adopted this approach in each of the countries in which they operate. They all have different challenges and opportunities, but in each they believe in the power of the consumer to drive positive change. Business also has an enormous role to play, and they believe that it is by being successful that business can make the biggest contribution. It is efficient businesses that can invest in deprived areas from which other companies have retreated. It is successful businesses that understand the needs of their customers – including low income customers and those with specific needs. It is growing businesses that can bring new jobs and careers to those who do not have them. And it is strong businesses that will prove that the challenge of climate change will be met through innovation and growth.
The plans developed, in the UK and by each of their international businesses, to deliver their corporate responsibility objectives are called the Community Plan. The Community Plan in each country is based around their community promises; actively supporting local communities; buying and selling their products responsibly; caring for the environment; giving customers healthy choices and good jobs for local people; and will reflect the needs of the local communities they serve.
Non-food
Tesco’s strategy aims to be as strong in non-food as in food. This means offering the same great quality, range, price and service for their customers as they do in their food business.
Tesco’s widest range of non-food can be seen in Extra stores and Homeplus, including electricals, home entertainment, clothing, health and beauty, stationery, cookshop and soft furnishings, and seasonal goods such as barbecues and garden furniture in the summer. Some of their stores also have opticians and over 240 have pharmacies
In 2006 they launched Tesco Direct , a new online and catalogue non-food offer, with over 11,000 products available online. Next day delivery is standard for small items with a unique two-hour delivery window. To find out more visit www.tesco.com/direct. Customers also have a delivery to store option so they can pick up their order from their local store.
Retailing Services
All their customers are different, and their needs are continually changing. That’s why they continue to offer more than one way to shop.
International
Since the mid-90s, they have been investing in new markets overseas, seeking out new opportunities for growth and ways of generating long term returns for shareholders. Today the Group operates in 12 markets outside the UK, in Europe, Asia and North America. Over 160,000 employees work in their international businesses, serving over 28 million customers and generating £13.8 billion sales and over £700 million profit. Over half of their selling space is now outside the UK.
TESCO’S INTERNATIONAL STRATEGY
The full emergence of international retailing is not something that will happen overnight - it requires a long term approach.
With more than ten years of experience overseas, Tesco has evolved a strategy based on six elements:
1. Be flexible - each market is unique and requires a different approach.
In Japan, customers like to shop for small amounts of extremely fresh food, every day. Existing hypermarket formats don't meet the needs of local customers, so Tesco's entry into the Japanese market was through the acquisition of a discount supermarket operator.
2. Act local - local customers, local cultures, local supply chains and local regulations require a tailored offer delivered by local staff.
In Thailand, customers are used to shopping at traditional wet markets, interacting with vendors and rummaging through piles of produce to choose what they want. Rather than adopting the Western approach of neatly packaged, convenient portions, their Rama IV store in Bangkok tries to meet local customers' expectations.
3. Maintain focus - they understand that customers want great service, great choice and great value. To become established as the leading local brand is a long term effort and is not about planting flags in map.
4. Use multi-formats - no single format can reach the whole of the market. A whole spectrum from convenience to hypermarkets is essential and you need to take a discounter approach throughout.
Their experience of trading a mix of stores means they can now move to multi-format quicker and they have recently opened Express stores in Hungary and the Czech Republic.
5. Develop capability - it's not about scale, it's about skill - so they make sure they have capability through people, processes and systems.
They believe that investing in their people is the right way to live their values and brings sound business benefits, too. Developing individuals at every level means that they have home-grown managers who understand their culture and can effectively develop their business.
6. Build brands - brands enable the building of important lasting relationships with customers.
In China, their first Tesco branded store called Tesco Legou opened in February 2007 and they have now completed re-branding of all stores.
STORES
Tesco's UK stores are divided into six formats, differentiated by size and the range of products sold. These are shown below;
Tesco Extra
Tesco Extra, Southport, England
Tesco Extra stores are larger, mainly out-of-town hypermarkets that stock nearly all of Tesco's product ranges. The first Extra opened in 1997. The 100th store opened in the 2004/05 financial year (specifically opening 29 November 2004, located on the Newport Road in Stafford, Staffordshire). The number of these is now being increased by about 20 a year, mainly by conversions from the second category. The largest store by floor space is Tesco Extra in Pitsea,Basildon with floorspace of 11,600 m2 (125,000 sq ft). Newer Tesco Extra stores are usually on two floors, with the ground floor for mainly food and the first floor for clothing, electronics and entertainment. Most Tesco Extra stores have a café. However, the new Manchester Gorton store, which opened in October 2008, has all sales on one floor, with a cafe on the upper balcony.
Tesco superstores
Tesco superstores are standard large supermarkets, stocking groceries and a much smaller range of non-food goods than Extra stores; they are referred to as "superstores" for convenience, but this word does not appear on the shops. A new store in Liverpool is the first to use the branding 'Tesco Superstore'
Tesco Metro
Tesco Metro, Manchester city centre, England on New Year's Eve 2007
Tesco Metro stores are sized between Tesco superstores and Tesco Express stores. They are mainly located in city centres, the inner city and on the high streets of small towns such as Rowlands Gill, Nelson and Cleveleys. Typical size is 1,100 m² (12,000 sq ft). The first Tesco Metro was opened in Covent Garden, London in 1992. Since then all Tesco branches that have a high street format including those which opened before the Covent Garden branch have been subsequently rebranded from Tesco to Tesco Metro probably to give an identity to the Tesco high street sub brand. The Tesco store in Devizes was the last store to finish rebranding, in September 2006. The store had not been renovated for over 20 years.
Tesco Express
Tesco Express stores are neighbourhood convenience shops, stocking mainly food with an emphasis on higher-margin products (due to small store size, and the neccesity to maximize revenue per square foot) alongside everyday essentials. They are found in busy city centre districts, small shopping precincts in residential areas, small towns and on Esso petrol station forecourts. There were 827 stores at 23 February 2008 year end. Each store has a typical size of 190 m² (2,100 sq ft) - this makes them exempt from the Sunday Trading Regulations as they are under 260 m².
One Stop
One Stop stores are the only category which does not include the word Tesco in its name. These are the very smallest stores. They were part of the T&S Stores business but, unlike many which have been converted to Tesco Express, these will keep their old name. However, some have Tesco Personal Finance branded cash machines. There are more than 500 of them. One Stop Stores also work on a different pricing and offers system to the other Tesco stores, and generally have later opening hours than all except the 24-hour Tesco stores. Typical size 125 m² (1,350 ft²).
Tesco Homeplus
Tesco Homeplus is not Tesco's first non-food only venture in the UK. Until the late 1990s/early 2000s there were several non-food Tesco stores around the country including Scarborough and Yate. Although not in a warehouse style format, the stores were located on high streets and shopping centres, they did stock similar items to Homeplus stores. In both cases this was because in another part of the shopping centre was a Tesco Superstore which stocked food items only.
In May 2005 Tesco announced a trial non-food only format near Manchester and Aberdeen, and the first store opened in October 2005:
A further 5 stores opened before it stopped being a trial, and there is now a plan to open many more stores.
Current : Stores offer all of Tesco's ranges except food in warehouse-style units in retail parks. Tesco is using this format because only 20% of its customers have access to a Tesco Extra, and the company is restricted in how many of its superstores it can convert into Extras and how quickly it can do so. Large units for non-food retailing are much more readily available.
There are currently 10 Homeplus stores nationwide. The newest Homeplus store opened in Nottingham in Nov 2008. It like Bristol Cribbs featured an order and collect desk, where you can pick up items from the Tesco Direct book there and then with no wait.
Future : 4 more are due to open in the first half of '09 at sites around the country. All of these will feature the Order and Collect desk where customers can purchase and collect most items straightaway.
DISTRIBUTION
In common with most other large retailers, Tesco draws goods from suppliers into regional distribution centres, for preparation and onward delivery to stores. Tesco is extending this logistic practice to cover collection from suppliers (factory gate pricing) and the input to suppliers, in a drive to reduce costs and improve reliability. RFID technology is taking an increasing role in the distribution process.
Road
In 2007 Tesco was facing national disruption to its distribution network after a dispute with drivers at its distribution depot in Livingston, Scotland. In response to fears over increasing road congestion, fuel prices, and concern over its carbon footprint, Tesco is switching some of its supply chain to alternative modes, detailed below.
Rail
Tesco has been transporting goods by rail since 2006 using its distribution partner the Eddie Stobart Group. Volumes are set to increase in 2007 with new routes.
Canal
In October 2007 Tesco started using the Manchester Ship Canal to transport wine from Liverpool to a Manchester distribution facility. Combined with sea transport from the south coast where the wine was previously offloaded, this new mode replaces road journeys from the south coast to Manchester.
TOP COMPETITORS
The following companies are the major competitors of Tesco PLC:
ASDA Group Limited
BP Plc
Wal-mart
Carrefour
Metro AG
Kroger
Marks and Spencer Group plc
Royal Dutch/Shell Group
Safeway Inc.
Safeway plc
Somerfield
SPAR Handels-Aktiengesellschaft
The Boots Group PLC
Wm Morrison Supermarkets PLC
Booker Cash & Carry Limited
ALDI Group
The Carphone Warehouse Group PLC
John Lewis Partnership plc
INTERNATIONAL OPERATION
Tesco's international expansion strategy has responded to the need to be sensitive to local expectations in other countries by entering into joint ventures with local partners, such as Samsung Group in South Korea (Samsung-Tesco Home plus), and Charoen Pokphand in Thailand (Tesco Lotus), appointing a very high proportion of local personnel to management positions. It also makes small acquisitions as part of its strategy for example, in its 2005/2006 financial year it made acquisitions in South Korea, one in Poland and one in Japan. Tesco recently announced plans to invest an initial £60m ($115m) to open a wholesale cash-and-carry business based in Mumbai, India. Tesco's new wholesale operation will also supply the Tata Star Bazaar stores. Overseas companies are only allowed to open wholesale, licence or franchise arrangements. If the legislation were to change, Tesco announced they would open their own consumer retail business.
Country Name Started Trading Number of Store Number of Staff
U.S.A 2007 53 669
Ireland 1997 100 12474
U.K 1924 2115 280373
Czech Republic 1996 96 12886
Poland 1996 301 24870
Hungary 1995 123 19163
Slovakia 1996 60 8519
Turkey 2003 66 5705
China 2004 56 17571
South Korea 1999 137 12641
Japan 2003 125 3604
Thailand 1998 476 35269
Malaysia 2002 20 8045
India Tesco source over 170 million worth of products from india and have sourcing office in Delhi, Bangalore and Tripura.
SWOT ANALYSIS
Tesco PLC is a major food retailer that operates primarily in the United Kingdom. The company operates 2,291 supermarkets, superstores and convenience stores in the United Kingdom, the rest of Europe and Asia. The company also offers financial products, such as insurance and banking services, as well as electrical appliances and telecommunication products.
Strengths Opportunities
Increasing market share
Insurance
Tesco online
Brand value
UK market leadership reinforced Non-food retail
Health and beauty
Further international growth
Weaknesses Threats
Reliance upon the UK market
Debt reduction
Signs point to serial acquisitions UK structural change could spark a price war
Overseas returns could fall
Wal-Mart/Asda challenge
International expansion
STRATEGIC BENEFITS
The club card has helped boost Tesco’s market share in groceries to 31%, nearly double the 16% help by Wall Marts Asda chain.
39 successful stores in corea.
Tesco’s sales jumped 17% to $79 billion in the year ended, and net income rose 17% to $2.96 billion.
FINANCIAL POSITION
UK market share
Graph Showing Market Share of Tesco
According to TNS Worldpanel, Tesco's share of the UK grocery market in the 12 weeks to 10 August 2008 was 31.6%, up 0.3% on 12 weeks to 13 July 2008. The business' market share has been rising monthly since its recent low of 30.9% in March 2008. Across all categories, over £1 in every £7 (14.3%) of UK retail sales is spent at Tesco. Tesco also operates overseas, and non-UK revenue for the year to 24 February 2007 was up 18% on 25 February 2006
Supermarket Consumer
Spend (£000s) Market Share
August 2008 +/- from
July 2008
Tesco 6,351,531 31.6% ▲ 0.3%
Asda 3,410,431 17.0% ▲ 0.1%
Sainsbury's 3,175,543 15.9% ▲ 0.1%
Morrisons 2,233,137 11.1% ▼ 0.2%
THE RECESSION AND FOOD RETAIL
First, with unemployment rising, and people concerned about their incomes falling, obviously the pressure is on price more than ever. For example, we are now Britain’s Biggest Discounter – the clearest possible demonstration of our strategy to follow consumers. Sales in our discount and value ranges are up by 65 per cent on the year. Now, a quarter of all our customers’ shopping baskets and trolleys include something from this range – which shows that customers see this range as offering great value.
Prices have been cut while inflation has been subsiding – which brings second observation about the recession. Commodity prices are down over 50 per cent from their peak, and the price of a barrel of oil is down by about a hundred dollars from the giddy height it reached last year. These lower prices need to be fed into the supply chain, and passed on to consumers who are under growing financial pressure. Tesco want to ensure that all their suppliers understand this, which is why they are going to great lengths to talk to them about the new pressures that consumers are under. This adjustment affects our entire industry. It will be difficult for some, but it is critical if consumers are to be given what they want. Think of the alternative: keeping prices as they are, and hoping against hope that consumers on tight incomes will buy our goods.
Third observation relates to climate change, to healthy eating, to local produce. Some say that in a recession all these things are luxuries, or that consumers no longer care about protecting the environment, eating healthily or buying local goods. All that matters is saving money.
TESCO: GROWTH IN TOUGH TIMES
CONCLUSION
In the UK, their core business will continue to compete effectively and there is still plenty of growth to come. Non-food will grow faster than food as new space comes on stream, as they develop global sourcing and their global non-food capability. Retailing services wil continue to grow as they follow the customer into new areas of expenditure like e commerce and Tesco Personal Finance. Their international businesses will achieve real scale. By 2002 they will have 45% of their selling space outside the UK and from emerging markets they will have turnover of £5bn. Overall, they are on track to deliver the demanding targets they have set ourselves and they are looking to expand into other countries in the longer term. Their strategy has already taken them to double-digit growth in the first half and there is a strong momentum in Tesco that is moving them from being purely a domestic player to an international retailer of real scale.
FROM MULTINATIONAL TO GLOBAL COMPANIES
FROM MULTINATIONAL TO GLOBAL COMPANIES:
IDENTIFYING THE DIMENSIONS OF THE CHANGE
Guilherme Azevedo
Hélène Bertrand
Pontifícia Universidade Católica do Rio de Janeiro
ABSTRACT
For the business academia, the most important phenomena involved in globalization are (1) empowerment
of transnational organizations, (2) information technology evolution, (3) increasing international flows of
capital, merchandise and data, and (4) the tendency of market homogenization.
The organizational studies and strategic management perspectives indicate, respectively, that these
combined movements push companies from a multinational to a global shape and drive industries to replace the
traditional multi-domestic strategy for a global.
This study combines both points of view and examines the company as a multidimensional entity. The goal is
to identify and analyze the most significant dimensions involved in the transition between multinational and
global.
Among the dimensions of the change we find: global integration, covered world key-markets, local
responsiveness, pattern of competition, use of cross-subsidization, dominant marketing approach, and
organization vision. Each of the dimensions discloses a set of challenges that need to be faced by the managers.
INTRODUCTION
The so-called globalization imposes challenges and reshapes the business world. Strictly domestic companies
are now pushed to face potential overseas markets and multinational organizations are rethinking their practices
to develop new operational patterns, combining scale of production, low costs and flexibility around the world,
(Bertrand and Azevedo, 1999; Hamel and Prahalad 1985; Barney 1997; among others).
This paper examines this question from the business perspective and identifies several dimensions of the
change imposed by globalization. The final aim is to derive a set of challenges from each of the dimensions.
What does “globalization” mean?
First, what does the buzzword “globalization” mean? According to Randolph (1990), since the middle 80’s,
academia and business refer to
global companies
,
global strategies
,
global managers
and so on. The more we
hear these terms the more we become convinced that they are not talking about the same thing. The vulgarization
of the term creates difficulties at the theoretical level (Parker, 1998).
Initially, globalization was the subject of historical, socio logical and economic studies. An important
landmark is McLuhan’s visionary co ncept of the
global village
, in 1911. As Bull (1977) points out, McLuhan's
pioneer study exposes some essential points of the present phenomenon, such as the transnational organization
reinforcement and the information technology standardization. Nowadays, people from engineering to biology
are concerned about globalization.
One of the dominant ideas in social studies is that globalization is simply the present state of the continuous
humankind historical development, (
e.g.
Bull, 1977; Neves, 1996; and Ianni, 1996). Other authors consider it a
historical rupture that has been taking place since the end of the cold war, (Czinkota and Ronkainen, 1995;
Abreu, 1999; Bertrand, 1994).
Czinkota and Ronkainen (1995) explain that until the end of the "Soviet Empire" the world ideological
division between East and West blocked the globalization process.
From the point of view of some scholars in economic-politics, globalization is the result of the capitalism
dominance (
e.g.
Banas, 1996; Ianni, 1996). Ianni reinforces this idea saying that it is a new capitalism cycle
where production has become transnational.
To other authors, globalization is related to the obsolescence of the nation-state system (Ohmae, 1995;
Levitt, 1983; Furtado 1998). Ohmae (1995) proposes that the more natural model is the "region-state", an
economic area defined independently of the national borders.
Though there are still other relevant definitions from other fields, in this paper we only consider the business
point of view. Based on Levitt (1983), Yip (1995), Bartlett and Ghoshal (1989), Hout et all.(1982), Campbell
(1993), Keegan (1995), Bertrand (1994), Parker (1998), among others, the following definition emerges:
Globalization is the set of transformations faced by companies as a consequence of the
contemporary phenomenon constituted by: (1) the empowerment of transnational
organizations; (2) the information technology evolution; (3) the increasing flows of capital,
merchandise, and data across national borders; and (4) the tendency of world market
homogenization.
These new simultaneous transformations conduct the organizations to an unfamiliar future. There is also a
new rhythm. The humankind has never pro duced knowledge so quickly and the world has never seemed to be so
small. Organizations must be prepared to navigate across this unknown sea. This exploratory study can help
managers and scholars to better understand the nature o f the transfo rmations.
Global companies — the mainstream routes of investigation
When we study
global companies,
we basically identify two mainstream routes of investigation. Some
authors, as Bartlett and Ghoshal (1989), highlight structural aspects of the organizations. They analyze how
global companies are, or should be. This organizational oriented analysis implies in defining ranges of different
types of international companies according to their internal characteristics. The basic idea is to look inside the
organization to see if it is a glob al company or any other type of international company.
The second mainstream of investigation, which is closer to the logic of strategic management, considers the
patterns of competition and market characteristics to identify a global industry, (Yip, 1995; Hoult et all., 1982;
among others). In this case, a
global company
has no meaning because competitive strategies may be global; the
co mpanies are merely reshaped by the competitive forces.
Campbell (1993) separates these two approaches when he states that globalization alters relations in
intra-
firms
as well as in
extra-firms
. Changes in intra-firm relations are basically organizational and can be the result
of new information technology or more productive plants. The extra-firm relations are modified by changes in
global market segments or by the nature of the competition.
What Campbell presents is an elegant solution to avoid answering what comes first, the global company or
the global competition. Here, we will also avoid this question. In this study, it is only relevant to build a p arallel
between the two points of view.
If we take the perspective of organizational studies, “multinational companies” are being transformed in
“global companies” (Bartlett and Ghoshal, 1989; Ghoshal and Nohria, 1993; Keegan, 1995; among others). If
we take the p erspective of the nature of the competition, there is a consensus among authors that the strategy is
changing from multi-domestic (or multinational) to global (Randolph, 1990; Yip, 1995; Hoult et all., 1982;
among others).
The transition from multinational to global company and the transition from multi-domestic to global strategy
are the focuses of the present study. The central question is this comb ination of movements that we, from here
on, simply refer to as
transition from multinational to global
. Furthermore, this paper adopts a new approach to
the questio n by emphasizing the dynamics of the transformation.
Accord ing to the literature review, existing studies typically analyze the multinational and the global
co mpany (or strategy) as static entities, independently of the perspective. The dynamic aspects of the transitio n
are usually neglected.
Next, we analyze the two states, multinational and global, to approach later, the dynamics of the
transformation.
Multinational and global states
The literature defines the two states in different ways. Our starting point are "the classic" definitions of
Bartlett and Ghoshal (1989). According to them, a multinational organization is a decentralized federation with
distributed resources and delegated responsibilities that allows the foreign operations to answer to the local
differences. A global organization is a centralized hub, a structural configuration based on group-oriented
behavior requiring intensive communication and complex system o f personal interdependencies and
co mmitments.
Actuallty, Bartlett and Ghoshal (1989) consider two different dimensions to classify international
organizations: local responsiveness and global integration importance. They base their classification on
organizational aspects of the company. Other authors, as already mentioned, prefer to center their classification
on the structure of the competition or in the adopted approach of marketing.
Boone and Kurtz (1998), for instance, recognize the difference between strategies of multinational marketing
and global strategies but does not differentiate the company itself. Hout et all. (1982) connect the modification
of the shape of the company with the type of competition of its industries. They call the strategic approach of
multinational companies
multi-domestic
.
Indeed, taking Yip’s (1995) perspective, the use of the term
multi-domestic
is more appropriate than
multinational
to describe a marketing action, as opposed to global. To Yip (1995), multi-domestic and global
approaches can coexist in a temporary situation, and companies can take both forms of action, simultaneously.
Boone and Kurtz (1998) corroborate this view. For them, global marketing applies the same marketing mix
with minimum variations across the markets a company reaches, while the multi-domestic marketing represents a
segmentation where specific national markets are identified and different marketing mixes set up.
Keegan (1995) refers to Bartlett and Ghoshal’s (1989) work and focuses on the type of marketing reduzing
the to five categories: domestic marketing, export marketing, international marketing, multinational marketing,
and global/transnational marketing.
The multinational marketing, as understood by Boone and Kurtz (1998), aims at customizing the knowledge
and products for the diverse markets. It perceives the differences and the specific circumstances of each market,
and adapts the marketing mix for them. The result is managerial decentralization, or, to use Barlett and
Ghoshal’s (1989) typology, low level of global integration.
On the other hand , the global/transnational marketing seeks to identify what is the universal culture and what
is restrict to each market. The aim is to penetrate in multiple places with minimally customized marketing mix.
The marketing actions are centralized (high global integration).
Boone and Kurtz (1998) alerts that many companies practice multi-domestic marketing for having simply
inherited decentralized structures of international marketing. Please note here that these authors, who do not
have the organizational orientation, understand that the global perspective demands structural modifications in
the company and not the contrary,
i.e
., first comes the strategic perspective and then the company shape.
Another approach adopted by several authors is that the market is still sovereign to indicate when a multi-
domestic perspective can be substituted by a global. Ohmae (1985) identified a group of 600 million consumers
emerging in the triad USA, Europe and Southeast Asia that can be considered, for marketing effect, as an single
market with the same habits of consumption. The sprouting thriving of this
mega-market
allows the practice of
global marketing.
To Hamel and Prahalad (1985), a multinational approach occurs when a company is obliged to address each
market separately. Only an international market that accepts standardized products will allow the use of global
strategies.
The literature also indicates that
organization vision
establishes the difference between multinational and
global companies. Parker (1998), in her bibliographical survey, demonstrates that a typical feature of the global
company is
to have the world as home
(vision that exceeds the internal and external borders of the countries).
For Bertrand (1994), this means replace the
ethnocentric
vision of the organization for a
polycentric
one (or,
according to the up-to-date terminology,
geocentric
). The objective is to become
citizen of the world
instead of
national citizen
.
Having an ethnocentric vision means to observe the world with domestic references only, as domestic
companies do. In the same way, the multinational company tends to adopt a polycentric vision,
i.e.
, observe the
world with different domestic references. The geocentric vision (to have the world as reference) is typically
attributed to global companies.
Parker’s (1998)
world as home
also refers to a
worldwide presence
. This point is clearly stated by Porter
(1990). The global company has a global presence,
i.e
. it is present in all the key-markets of the world.
Porter (1990) also refers to the activities that are integrated through the national borders. Hamel and Prahalad
(1989) complement this idea emphasizing the importance of the integration of the production and distribution
systems to global companies. In that view, a global company must necessarily make use of a system of
distribution in order to reach all the world key-markets.
Further developing the discussion about the production system, Barlett and Ghoshal (1992) note that the
global company takes profit of the competitive advantages of the different regio ns of the globe. The global
company seeks to use the best and cheapest resources available in different areas. To Yip (1995), the result is the
creation of a global value-chain. Activities as research and develo pment, design, b uying, manufacture,
assemblage, marketing, sales, distribution and services, are distributed around the world.
This global value-chain represents what Barlett and Ghoshal (1992) call global integration. That means not
simply centralize the management, but also design flexible production and distrib ution units that can be
relocated.
Investment and subsid y polices are also important points that refer to global integration. Hamel and Prahalad
(1989) understand that the global distribution system allows the companies to
cross-subsidy
the markets. A
previous work by Hout et al. (1982) identify that to compete globally the company must be prepared to, among
others things: carry out great investments with null or even negative ROI; envision diverse financial objectives
according to the market and keep product lines deliberately sub-priced in some markets. These unconventional
management practices represent forms of cross-subsidy, which are typical of global organizations.
For Andersen et all. (1997) to become a global company means to face the barriers of management mentality.
There are relevant difficulties in the gradual development of an international ability. Abreu (1999) states that
globalization, instead of companies, impacts people and the process of decision-making the most.
Once existing understandings of multinational and global companies have been stated, we can now propose
our definitions for the initial and the final states of the transition:
Initial state (multinational company and multi-domestic strategy) --
Decentralized group
of independent operations that focuses on some specific markets. It responds to local
differences by adapting the marketing-mix. The competition takes place at a multinational
environment. The limits of the national borders are respected. The marketing approach is
multi-domestic and the organizational vision is polycentric.
Final state (global company and strategy) --
Centralized group of integrated operations that
are present in all the world key-markets. It searches to trespass the national borders,
establishing global strategies and using high-standardized marketing-mix. The competition, as
well as the marketing approach, is global with the presence of cross-subsidy. The
organizational vision is geocentric.
METHOD
The transition from multinational to global was analyzed using a logical principle: comparison. Considering a
given transformation, if we know the initial state of the object and its final state, we can compare them and find
the minimal amount of change suffered during the transformation.
To give an example, suppose the studied object is a sphere described by three dimensions: diameter, color
and weight. If in the first state it is represented by
(4 inches, blue, 4 pounds)
and in the final state
by (6 inches,
red, 3 pounds),
then we can infer that the transformation consisted of, at list, increase in diameter of 2 inches,
change of color from blue and to red, and reduction in weight of 1 pound.
In this study the initial and the final states, multinational and global, were determined by our reviewing the
literature and the comparison of several definitions that gave origin to our definition of the two states (see the
end of the introduction). The dimensions of the change presented in the results section were found by contrasting
the two states we defined.
RESULTS AND DISCUSSION
The dimensions of the change
The contrast between the initial and the final state determined the dimensions summarized in Table 1. The
definitions of the two states indicated the values of the dimensions.
Table 1 – Dimensions of the change and values
Dimension Initial State Va lue Final State Value
1. Level of global integration Low High
2. Number of world key-markets covered Some All
3. Local responsiveness High Lo w
4. Dominant pattern of competition Multinational Global
5. Intensity of cross-subsidy Low High
6. Dominant marketing approach Multi-domestic Global
7. Type of vision Polycentric Geocentric
To make these results more understandable, we regrouped them. The analysis of the nature of the dimensions
showed that they are all, in some degree, interconnected. Because we look for a parsimonious model, which
includes the smallest possible set of dimensions preserving the explanatory power, some of them can be merged.
Dimension 5 (cross-subsidy) is part of d imension 4 (pattern of competition). Cross-subsidy is part of the global
pattern of competition (Hout et all., 1982; Hamel and Prahalad, 1989). Therefore, dimension 5 can be deleted.
Dimension 3, local responsiveness, can be seen as a function of dimension 6, dominant marketing approach.
Companies that adopt a multi-domestic marketing approach, as understood by Boone and Kurtz (1998), are more
ab le to respond locally. A multi-d omestic marketing implies customizing the marketing-mix for each market. A
co mpany that focuses on a specific market, tailoring an operation to it, will respond better to local demands than
a than a company that expects to use the same operation in several markets. Therefore, dimensions 3 and 6 were
merged. Table 2 indicates these considerations.
Table 2 – Regrouped dimensions of the change and values
Dimension Initial State Value Final State Value
1. Level of global integration Low High
2. Number of world key-markets covered Some All
3. Dominant pattern of competition Multinational Global
4. Dominant marketing approach Multi-domestic Global
5. Type of vision Polycentric Geo centric
Next, we present a discussion about the challenges faced by the organizations in face of each of the
dimensions of the change presented in the results.
Challenges imposed by global integration
The transition from multinational to global represents a change from a low to a high level of global
integration. Global integration means centralized management and integrated operations. Lack of uniformity,
operational redundancies, and diversity of the multi-d omestic cultures are barriers to global integration. To
overcome the fragmented structure, the company should unify operations and eliminate repetitions.
Culture may also represent difficulties to this integration. People from the several operations of the
multinationals are not used to comprehending theirs companies as a whole and horizontal communication across
different operatio ns is usually very low. We are not talking about unifying the culture of the several units, but
about making them compatible and creating a minimal common code. A special problem concerns developing
co mmon code when multinational companies merged .
Independent operations placed in multiple locations represent cost repetition and, secondarily, useless
internal competition. The organization sho uld be reshaped, a global value chain should be developed, which
means unifying the several parts of production and distributio n and placing them in the most favorable locations.
Global integration will demand development of the communication system. The information technology
should be used in order to transform the set o f national operations into a single glob al operation constituted by
interconnected parts that are located in the different areas.
Challenges imposed by key-markets coverage
Covering all the world key-markets usually implies expansion. As demonstrated, multinational companies
tend to cover some key-markets only, and global companies aim to cover them all. This expansion can be an
enormous obstacle. Possibly, companies that do not have critical mass to reach the diverse markets and that are
not capitalized for such will be obliged to opt between merging with other co mpanies, being sold to other
companies, or creating joint-ventures in uncovered markets. If the company has capital, or access to it, shortcuts
can be used (basically acquisition of comp anies, operations, brands or technology in other markets).
Presence in all the key-markets can be understood as more than being at all the main consumer markets. A
company that competes globally should also assure its presence in the diverse centers of production and origin of
raw materials and parts, for instance. This means that wide market coverage demands a global value chain, as it
happens in global integration.
Challenges imposed by global competition
Global competition implies increasing flows of capital, information, and merchandises across the operations,
which should constitute a global value chain. The logistics of production, marketing, and distribution are
indispensable to create a global network that creates the interdependence that will allow the exploitation of
worldwide competitive advantages. Obtaining the co mpetencies to create this network is an important challenge.
The cap ital stream may allow the group expansion. Cross-subsidy is usually necessary to compete globally. The
results of the diverse operations cannot be analyzed sep arately and a mentality of change is necessary. To move
to the patterns of global competition, a company should develop managerial mechanisms to coordinate the
strategic actions of the o perations and provide feedback to the strategists.
Challenges imposed by global marketing
Several difficulties may affect the movement from multi-domestic to global marketing. Glob al market tends
to demand glob al product lines. If several national markets (or national market segments) can be treated as a
unique market (or segment), the company that does not develop global product lines tends to be overturned by
the competitors that are expending fewer resources to attain several national markets. The same reasoning
explains why a global marketing-mix should be adopted. To identify global markets and design global
marketing-mix to then are important challenges.
Another point is innovation. The fight for glob al markets is a race for innovation. The global competitors
invest a vast amount of money in research and development of new products. Life cycles are becoming shorter
and product development is becoming more expensive. There is no place for old products.
Lack of organizational learning also threatens the multi-domestic players. If a company centralizes its
marketing planing, it will develop new abilities and b ecomes able to learn in one location something for other
locations (Boone and Kurtz, 1998). This synergy is a powerful competitive advantage concerning marketing.
Challenges imposed by geocentric vision
To become global, a company should envision the world as a whole and abandon their multi-domestic
backgrounds. If one looks at the globe with a set of provincial references, only a caricature can be seen. To
transform the mentality from polycentric to geocentric is an enormous challenge, mainly because it implies
changing people. Most people are probably not ready yet to abandon their multi-domestic references.
Geocentric attitud e is a rare human resource that may be difficult to develop, especially in places where cross-
border interaction is weak. To find and create this kind of people and to maintain them at the company are a
relevant challenge. Efforts to pro mote mobility and interaction among the parts should be done.
CONCLUSION
The method of study proved to be efficient and provided us with the guidelines to identify the challenges
faced by organizations. The contrast between the dimensions systematized the examination. Space constraints
did not allow an extend ed discussion of all the challenges. However, that was no t the scope of this work.
Furthermore, to assure that the results agree with the dimensions of the change in the real world , it is
necessary to relate the definitions we derived from the literature to reality. Only then we will be able to state if
the dimensions and definitions we propose reflect satisfactory the reality.
REFERENCES
ABREU, Rosamélia,
Processo de Globalização e o Gerenciamento de Marcas Globais: Um Estudo de Caso
.
Dissertação de Mestrado em Administração de Empresas, PUC-Rio, 21 de dezembro de 1999.
ANDERSEN, Poul H., BLENKER, Per and CHRISTESEN, Poul R.,
Generic Routes to Subcontractors’
Interna tionalization.
In: Björkman et all.,
The Nature of International Firm
, Copenhegen, Reproset, 1997.
BANAS, Geraldo,
Globalização: a vez do Brasil?
São Paulo: Makron Books, 1996.
BARNEY, JAY B.,
Gaining and Sustaining Competitive Advantage
. Massachusatts: Addison-Wesley, 1997.
BARTLETT, Christopher A., GHOSHAL, Sumantra.
Managing Across Borders: The Transnational
Solution
. Boston: Harvard Business School Press, 1989.
________. “What is a Global Manager?”
Harvard Business Review
, September-October 1992: 124-132.
BERTRAND, Hélène and AZEVEDO, Guilherme,
Will the Developing Countries’ Companies become
t h
global? A study on the Brazilian Case.
In: 11
Interl. Meeting on Socio-Economics, Madison, July 8-11, 1999.
BERTRAND, Hélène.
Are the Individual Needs Satisfied..?
In: The Society for the Advancement of Socio-
Economics Conference at Erasmus University, Rotterdam 1994.
BOONE, Louis E., KURTZ, David L.,
Contemporary Marketing Wired.
Orlando: Dryden, 1998.
BULL, Hedley.
The Anarchical Society, a Study of Order in Word Politics.
New York: Columbia University
Press, 1977.
CZINKOTA, Michael R., RONKAINEN, Ilkka, A.,
International Marketing
. Orlando: Dryden Press, 1995.
FURTADO, Celso.
O Capitalismo Global
. São Paulo: Paz e Terra, 1998.
GHOSHAL, Sumantra and NOHRIA, Nitin, “Horses for Courses: Organizational Forms for Multinational
Corporations”
Sloan Management Review
, Winter 1993: 23-35.
HAMEL, Gary and PRAHALAD C.K. “Do you really Have a Global Strategy?”
Harvard Business Review
,
July-August 1985: 139-148.
HOUT Thomas, PORTER Michael E. and RUDDEN Eileen. “How Global Companies Win Out.”
Harvard
Business Review,
September-October 1982: 98-108.
IANNI, Octávio.
Globalização e Diversidade. A Era do Globalismo
. Rio: Civilização Brasileira, 1996.
KEEGAN, Warren J.
Global Marketing Management
. Prentice-Hall, New Jersey, 5th edition, 1995.
LEVITT, Theodore. “The Globalization of Markets.”
Harvard Business Review
, May-June 1983: 92-102.
NEVES, Luiz Augusto d e Castro.
América Latina – Modernização e Globalização: Avaliação e Perspectiva
.
In: Globalização na América Latina: Integração solidária. Brasília: FUNAG 1996: 235-273.
OHMAE Kenichi.
Triad Power - The Coming Shape of Global Competition
. New York: Freepress, 1985.
________. “Putting Global Logic First.”
Harvard Business Review
, January-February 1995, 119-125.
PARKER, Barbara.
Globalization and Business Practice; Managing Across Boundaries
. London: Sage,
1998.
PORTER, Michael.
The Co mpetitive Advantage of Nations
. London: Macmillian, 1990.
RANDOLPH, Bento n. “When Going Global isn't Enough - Training in Multinational Organizations.”
The
Magazine of Human Resources Development.
v27 n8, August 1990: 47-52.
YIP, George S.
Total Global Strategy – Managing for Wordwide Competitive Advantage
. Prentice Hall,
New Jersey, 1995.
IDENTIFYING THE DIMENSIONS OF THE CHANGE
Guilherme Azevedo
Hélène Bertrand
Pontifícia Universidade Católica do Rio de Janeiro
ABSTRACT
For the business academia, the most important phenomena involved in globalization are (1) empowerment
of transnational organizations, (2) information technology evolution, (3) increasing international flows of
capital, merchandise and data, and (4) the tendency of market homogenization.
The organizational studies and strategic management perspectives indicate, respectively, that these
combined movements push companies from a multinational to a global shape and drive industries to replace the
traditional multi-domestic strategy for a global.
This study combines both points of view and examines the company as a multidimensional entity. The goal is
to identify and analyze the most significant dimensions involved in the transition between multinational and
global.
Among the dimensions of the change we find: global integration, covered world key-markets, local
responsiveness, pattern of competition, use of cross-subsidization, dominant marketing approach, and
organization vision. Each of the dimensions discloses a set of challenges that need to be faced by the managers.
INTRODUCTION
The so-called globalization imposes challenges and reshapes the business world. Strictly domestic companies
are now pushed to face potential overseas markets and multinational organizations are rethinking their practices
to develop new operational patterns, combining scale of production, low costs and flexibility around the world,
(Bertrand and Azevedo, 1999; Hamel and Prahalad 1985; Barney 1997; among others).
This paper examines this question from the business perspective and identifies several dimensions of the
change imposed by globalization. The final aim is to derive a set of challenges from each of the dimensions.
What does “globalization” mean?
First, what does the buzzword “globalization” mean? According to Randolph (1990), since the middle 80’s,
academia and business refer to
global companies
,
global strategies
,
global managers
and so on. The more we
hear these terms the more we become convinced that they are not talking about the same thing. The vulgarization
of the term creates difficulties at the theoretical level (Parker, 1998).
Initially, globalization was the subject of historical, socio logical and economic studies. An important
landmark is McLuhan’s visionary co ncept of the
global village
, in 1911. As Bull (1977) points out, McLuhan's
pioneer study exposes some essential points of the present phenomenon, such as the transnational organization
reinforcement and the information technology standardization. Nowadays, people from engineering to biology
are concerned about globalization.
One of the dominant ideas in social studies is that globalization is simply the present state of the continuous
humankind historical development, (
e.g.
Bull, 1977; Neves, 1996; and Ianni, 1996). Other authors consider it a
historical rupture that has been taking place since the end of the cold war, (Czinkota and Ronkainen, 1995;
Abreu, 1999; Bertrand, 1994).
Czinkota and Ronkainen (1995) explain that until the end of the "Soviet Empire" the world ideological
division between East and West blocked the globalization process.
From the point of view of some scholars in economic-politics, globalization is the result of the capitalism
dominance (
e.g.
Banas, 1996; Ianni, 1996). Ianni reinforces this idea saying that it is a new capitalism cycle
where production has become transnational.
To other authors, globalization is related to the obsolescence of the nation-state system (Ohmae, 1995;
Levitt, 1983; Furtado 1998). Ohmae (1995) proposes that the more natural model is the "region-state", an
economic area defined independently of the national borders.
Though there are still other relevant definitions from other fields, in this paper we only consider the business
point of view. Based on Levitt (1983), Yip (1995), Bartlett and Ghoshal (1989), Hout et all.(1982), Campbell
(1993), Keegan (1995), Bertrand (1994), Parker (1998), among others, the following definition emerges:
Globalization is the set of transformations faced by companies as a consequence of the
contemporary phenomenon constituted by: (1) the empowerment of transnational
organizations; (2) the information technology evolution; (3) the increasing flows of capital,
merchandise, and data across national borders; and (4) the tendency of world market
homogenization.
These new simultaneous transformations conduct the organizations to an unfamiliar future. There is also a
new rhythm. The humankind has never pro duced knowledge so quickly and the world has never seemed to be so
small. Organizations must be prepared to navigate across this unknown sea. This exploratory study can help
managers and scholars to better understand the nature o f the transfo rmations.
Global companies — the mainstream routes of investigation
When we study
global companies,
we basically identify two mainstream routes of investigation. Some
authors, as Bartlett and Ghoshal (1989), highlight structural aspects of the organizations. They analyze how
global companies are, or should be. This organizational oriented analysis implies in defining ranges of different
types of international companies according to their internal characteristics. The basic idea is to look inside the
organization to see if it is a glob al company or any other type of international company.
The second mainstream of investigation, which is closer to the logic of strategic management, considers the
patterns of competition and market characteristics to identify a global industry, (Yip, 1995; Hoult et all., 1982;
among others). In this case, a
global company
has no meaning because competitive strategies may be global; the
co mpanies are merely reshaped by the competitive forces.
Campbell (1993) separates these two approaches when he states that globalization alters relations in
intra-
firms
as well as in
extra-firms
. Changes in intra-firm relations are basically organizational and can be the result
of new information technology or more productive plants. The extra-firm relations are modified by changes in
global market segments or by the nature of the competition.
What Campbell presents is an elegant solution to avoid answering what comes first, the global company or
the global competition. Here, we will also avoid this question. In this study, it is only relevant to build a p arallel
between the two points of view.
If we take the perspective of organizational studies, “multinational companies” are being transformed in
“global companies” (Bartlett and Ghoshal, 1989; Ghoshal and Nohria, 1993; Keegan, 1995; among others). If
we take the p erspective of the nature of the competition, there is a consensus among authors that the strategy is
changing from multi-domestic (or multinational) to global (Randolph, 1990; Yip, 1995; Hoult et all., 1982;
among others).
The transition from multinational to global company and the transition from multi-domestic to global strategy
are the focuses of the present study. The central question is this comb ination of movements that we, from here
on, simply refer to as
transition from multinational to global
. Furthermore, this paper adopts a new approach to
the questio n by emphasizing the dynamics of the transformation.
Accord ing to the literature review, existing studies typically analyze the multinational and the global
co mpany (or strategy) as static entities, independently of the perspective. The dynamic aspects of the transitio n
are usually neglected.
Next, we analyze the two states, multinational and global, to approach later, the dynamics of the
transformation.
Multinational and global states
The literature defines the two states in different ways. Our starting point are "the classic" definitions of
Bartlett and Ghoshal (1989). According to them, a multinational organization is a decentralized federation with
distributed resources and delegated responsibilities that allows the foreign operations to answer to the local
differences. A global organization is a centralized hub, a structural configuration based on group-oriented
behavior requiring intensive communication and complex system o f personal interdependencies and
co mmitments.
Actuallty, Bartlett and Ghoshal (1989) consider two different dimensions to classify international
organizations: local responsiveness and global integration importance. They base their classification on
organizational aspects of the company. Other authors, as already mentioned, prefer to center their classification
on the structure of the competition or in the adopted approach of marketing.
Boone and Kurtz (1998), for instance, recognize the difference between strategies of multinational marketing
and global strategies but does not differentiate the company itself. Hout et all. (1982) connect the modification
of the shape of the company with the type of competition of its industries. They call the strategic approach of
multinational companies
multi-domestic
.
Indeed, taking Yip’s (1995) perspective, the use of the term
multi-domestic
is more appropriate than
multinational
to describe a marketing action, as opposed to global. To Yip (1995), multi-domestic and global
approaches can coexist in a temporary situation, and companies can take both forms of action, simultaneously.
Boone and Kurtz (1998) corroborate this view. For them, global marketing applies the same marketing mix
with minimum variations across the markets a company reaches, while the multi-domestic marketing represents a
segmentation where specific national markets are identified and different marketing mixes set up.
Keegan (1995) refers to Bartlett and Ghoshal’s (1989) work and focuses on the type of marketing reduzing
the to five categories: domestic marketing, export marketing, international marketing, multinational marketing,
and global/transnational marketing.
The multinational marketing, as understood by Boone and Kurtz (1998), aims at customizing the knowledge
and products for the diverse markets. It perceives the differences and the specific circumstances of each market,
and adapts the marketing mix for them. The result is managerial decentralization, or, to use Barlett and
Ghoshal’s (1989) typology, low level of global integration.
On the other hand , the global/transnational marketing seeks to identify what is the universal culture and what
is restrict to each market. The aim is to penetrate in multiple places with minimally customized marketing mix.
The marketing actions are centralized (high global integration).
Boone and Kurtz (1998) alerts that many companies practice multi-domestic marketing for having simply
inherited decentralized structures of international marketing. Please note here that these authors, who do not
have the organizational orientation, understand that the global perspective demands structural modifications in
the company and not the contrary,
i.e
., first comes the strategic perspective and then the company shape.
Another approach adopted by several authors is that the market is still sovereign to indicate when a multi-
domestic perspective can be substituted by a global. Ohmae (1985) identified a group of 600 million consumers
emerging in the triad USA, Europe and Southeast Asia that can be considered, for marketing effect, as an single
market with the same habits of consumption. The sprouting thriving of this
mega-market
allows the practice of
global marketing.
To Hamel and Prahalad (1985), a multinational approach occurs when a company is obliged to address each
market separately. Only an international market that accepts standardized products will allow the use of global
strategies.
The literature also indicates that
organization vision
establishes the difference between multinational and
global companies. Parker (1998), in her bibliographical survey, demonstrates that a typical feature of the global
company is
to have the world as home
(vision that exceeds the internal and external borders of the countries).
For Bertrand (1994), this means replace the
ethnocentric
vision of the organization for a
polycentric
one (or,
according to the up-to-date terminology,
geocentric
). The objective is to become
citizen of the world
instead of
national citizen
.
Having an ethnocentric vision means to observe the world with domestic references only, as domestic
companies do. In the same way, the multinational company tends to adopt a polycentric vision,
i.e.
, observe the
world with different domestic references. The geocentric vision (to have the world as reference) is typically
attributed to global companies.
Parker’s (1998)
world as home
also refers to a
worldwide presence
. This point is clearly stated by Porter
(1990). The global company has a global presence,
i.e
. it is present in all the key-markets of the world.
Porter (1990) also refers to the activities that are integrated through the national borders. Hamel and Prahalad
(1989) complement this idea emphasizing the importance of the integration of the production and distribution
systems to global companies. In that view, a global company must necessarily make use of a system of
distribution in order to reach all the world key-markets.
Further developing the discussion about the production system, Barlett and Ghoshal (1992) note that the
global company takes profit of the competitive advantages of the different regio ns of the globe. The global
company seeks to use the best and cheapest resources available in different areas. To Yip (1995), the result is the
creation of a global value-chain. Activities as research and develo pment, design, b uying, manufacture,
assemblage, marketing, sales, distribution and services, are distributed around the world.
This global value-chain represents what Barlett and Ghoshal (1992) call global integration. That means not
simply centralize the management, but also design flexible production and distrib ution units that can be
relocated.
Investment and subsid y polices are also important points that refer to global integration. Hamel and Prahalad
(1989) understand that the global distribution system allows the companies to
cross-subsidy
the markets. A
previous work by Hout et al. (1982) identify that to compete globally the company must be prepared to, among
others things: carry out great investments with null or even negative ROI; envision diverse financial objectives
according to the market and keep product lines deliberately sub-priced in some markets. These unconventional
management practices represent forms of cross-subsidy, which are typical of global organizations.
For Andersen et all. (1997) to become a global company means to face the barriers of management mentality.
There are relevant difficulties in the gradual development of an international ability. Abreu (1999) states that
globalization, instead of companies, impacts people and the process of decision-making the most.
Once existing understandings of multinational and global companies have been stated, we can now propose
our definitions for the initial and the final states of the transition:
Initial state (multinational company and multi-domestic strategy) --
Decentralized group
of independent operations that focuses on some specific markets. It responds to local
differences by adapting the marketing-mix. The competition takes place at a multinational
environment. The limits of the national borders are respected. The marketing approach is
multi-domestic and the organizational vision is polycentric.
Final state (global company and strategy) --
Centralized group of integrated operations that
are present in all the world key-markets. It searches to trespass the national borders,
establishing global strategies and using high-standardized marketing-mix. The competition, as
well as the marketing approach, is global with the presence of cross-subsidy. The
organizational vision is geocentric.
METHOD
The transition from multinational to global was analyzed using a logical principle: comparison. Considering a
given transformation, if we know the initial state of the object and its final state, we can compare them and find
the minimal amount of change suffered during the transformation.
To give an example, suppose the studied object is a sphere described by three dimensions: diameter, color
and weight. If in the first state it is represented by
(4 inches, blue, 4 pounds)
and in the final state
by (6 inches,
red, 3 pounds),
then we can infer that the transformation consisted of, at list, increase in diameter of 2 inches,
change of color from blue and to red, and reduction in weight of 1 pound.
In this study the initial and the final states, multinational and global, were determined by our reviewing the
literature and the comparison of several definitions that gave origin to our definition of the two states (see the
end of the introduction). The dimensions of the change presented in the results section were found by contrasting
the two states we defined.
RESULTS AND DISCUSSION
The dimensions of the change
The contrast between the initial and the final state determined the dimensions summarized in Table 1. The
definitions of the two states indicated the values of the dimensions.
Table 1 – Dimensions of the change and values
Dimension Initial State Va lue Final State Value
1. Level of global integration Low High
2. Number of world key-markets covered Some All
3. Local responsiveness High Lo w
4. Dominant pattern of competition Multinational Global
5. Intensity of cross-subsidy Low High
6. Dominant marketing approach Multi-domestic Global
7. Type of vision Polycentric Geocentric
To make these results more understandable, we regrouped them. The analysis of the nature of the dimensions
showed that they are all, in some degree, interconnected. Because we look for a parsimonious model, which
includes the smallest possible set of dimensions preserving the explanatory power, some of them can be merged.
Dimension 5 (cross-subsidy) is part of d imension 4 (pattern of competition). Cross-subsidy is part of the global
pattern of competition (Hout et all., 1982; Hamel and Prahalad, 1989). Therefore, dimension 5 can be deleted.
Dimension 3, local responsiveness, can be seen as a function of dimension 6, dominant marketing approach.
Companies that adopt a multi-domestic marketing approach, as understood by Boone and Kurtz (1998), are more
ab le to respond locally. A multi-d omestic marketing implies customizing the marketing-mix for each market. A
co mpany that focuses on a specific market, tailoring an operation to it, will respond better to local demands than
a than a company that expects to use the same operation in several markets. Therefore, dimensions 3 and 6 were
merged. Table 2 indicates these considerations.
Table 2 – Regrouped dimensions of the change and values
Dimension Initial State Value Final State Value
1. Level of global integration Low High
2. Number of world key-markets covered Some All
3. Dominant pattern of competition Multinational Global
4. Dominant marketing approach Multi-domestic Global
5. Type of vision Polycentric Geo centric
Next, we present a discussion about the challenges faced by the organizations in face of each of the
dimensions of the change presented in the results.
Challenges imposed by global integration
The transition from multinational to global represents a change from a low to a high level of global
integration. Global integration means centralized management and integrated operations. Lack of uniformity,
operational redundancies, and diversity of the multi-d omestic cultures are barriers to global integration. To
overcome the fragmented structure, the company should unify operations and eliminate repetitions.
Culture may also represent difficulties to this integration. People from the several operations of the
multinationals are not used to comprehending theirs companies as a whole and horizontal communication across
different operatio ns is usually very low. We are not talking about unifying the culture of the several units, but
about making them compatible and creating a minimal common code. A special problem concerns developing
co mmon code when multinational companies merged .
Independent operations placed in multiple locations represent cost repetition and, secondarily, useless
internal competition. The organization sho uld be reshaped, a global value chain should be developed, which
means unifying the several parts of production and distributio n and placing them in the most favorable locations.
Global integration will demand development of the communication system. The information technology
should be used in order to transform the set o f national operations into a single glob al operation constituted by
interconnected parts that are located in the different areas.
Challenges imposed by key-markets coverage
Covering all the world key-markets usually implies expansion. As demonstrated, multinational companies
tend to cover some key-markets only, and global companies aim to cover them all. This expansion can be an
enormous obstacle. Possibly, companies that do not have critical mass to reach the diverse markets and that are
not capitalized for such will be obliged to opt between merging with other co mpanies, being sold to other
companies, or creating joint-ventures in uncovered markets. If the company has capital, or access to it, shortcuts
can be used (basically acquisition of comp anies, operations, brands or technology in other markets).
Presence in all the key-markets can be understood as more than being at all the main consumer markets. A
company that competes globally should also assure its presence in the diverse centers of production and origin of
raw materials and parts, for instance. This means that wide market coverage demands a global value chain, as it
happens in global integration.
Challenges imposed by global competition
Global competition implies increasing flows of capital, information, and merchandises across the operations,
which should constitute a global value chain. The logistics of production, marketing, and distribution are
indispensable to create a global network that creates the interdependence that will allow the exploitation of
worldwide competitive advantages. Obtaining the co mpetencies to create this network is an important challenge.
The cap ital stream may allow the group expansion. Cross-subsidy is usually necessary to compete globally. The
results of the diverse operations cannot be analyzed sep arately and a mentality of change is necessary. To move
to the patterns of global competition, a company should develop managerial mechanisms to coordinate the
strategic actions of the o perations and provide feedback to the strategists.
Challenges imposed by global marketing
Several difficulties may affect the movement from multi-domestic to global marketing. Glob al market tends
to demand glob al product lines. If several national markets (or national market segments) can be treated as a
unique market (or segment), the company that does not develop global product lines tends to be overturned by
the competitors that are expending fewer resources to attain several national markets. The same reasoning
explains why a global marketing-mix should be adopted. To identify global markets and design global
marketing-mix to then are important challenges.
Another point is innovation. The fight for glob al markets is a race for innovation. The global competitors
invest a vast amount of money in research and development of new products. Life cycles are becoming shorter
and product development is becoming more expensive. There is no place for old products.
Lack of organizational learning also threatens the multi-domestic players. If a company centralizes its
marketing planing, it will develop new abilities and b ecomes able to learn in one location something for other
locations (Boone and Kurtz, 1998). This synergy is a powerful competitive advantage concerning marketing.
Challenges imposed by geocentric vision
To become global, a company should envision the world as a whole and abandon their multi-domestic
backgrounds. If one looks at the globe with a set of provincial references, only a caricature can be seen. To
transform the mentality from polycentric to geocentric is an enormous challenge, mainly because it implies
changing people. Most people are probably not ready yet to abandon their multi-domestic references.
Geocentric attitud e is a rare human resource that may be difficult to develop, especially in places where cross-
border interaction is weak. To find and create this kind of people and to maintain them at the company are a
relevant challenge. Efforts to pro mote mobility and interaction among the parts should be done.
CONCLUSION
The method of study proved to be efficient and provided us with the guidelines to identify the challenges
faced by organizations. The contrast between the dimensions systematized the examination. Space constraints
did not allow an extend ed discussion of all the challenges. However, that was no t the scope of this work.
Furthermore, to assure that the results agree with the dimensions of the change in the real world , it is
necessary to relate the definitions we derived from the literature to reality. Only then we will be able to state if
the dimensions and definitions we propose reflect satisfactory the reality.
REFERENCES
ABREU, Rosamélia,
Processo de Globalização e o Gerenciamento de Marcas Globais: Um Estudo de Caso
.
Dissertação de Mestrado em Administração de Empresas, PUC-Rio, 21 de dezembro de 1999.
ANDERSEN, Poul H., BLENKER, Per and CHRISTESEN, Poul R.,
Generic Routes to Subcontractors’
Interna tionalization.
In: Björkman et all.,
The Nature of International Firm
, Copenhegen, Reproset, 1997.
BANAS, Geraldo,
Globalização: a vez do Brasil?
São Paulo: Makron Books, 1996.
BARNEY, JAY B.,
Gaining and Sustaining Competitive Advantage
. Massachusatts: Addison-Wesley, 1997.
BARTLETT, Christopher A., GHOSHAL, Sumantra.
Managing Across Borders: The Transnational
Solution
. Boston: Harvard Business School Press, 1989.
________. “What is a Global Manager?”
Harvard Business Review
, September-October 1992: 124-132.
BERTRAND, Hélène and AZEVEDO, Guilherme,
Will the Developing Countries’ Companies become
t h
global? A study on the Brazilian Case.
In: 11
Interl. Meeting on Socio-Economics, Madison, July 8-11, 1999.
BERTRAND, Hélène.
Are the Individual Needs Satisfied..?
In: The Society for the Advancement of Socio-
Economics Conference at Erasmus University, Rotterdam 1994.
BOONE, Louis E., KURTZ, David L.,
Contemporary Marketing Wired.
Orlando: Dryden, 1998.
BULL, Hedley.
The Anarchical Society, a Study of Order in Word Politics.
New York: Columbia University
Press, 1977.
CZINKOTA, Michael R., RONKAINEN, Ilkka, A.,
International Marketing
. Orlando: Dryden Press, 1995.
FURTADO, Celso.
O Capitalismo Global
. São Paulo: Paz e Terra, 1998.
GHOSHAL, Sumantra and NOHRIA, Nitin, “Horses for Courses: Organizational Forms for Multinational
Corporations”
Sloan Management Review
, Winter 1993: 23-35.
HAMEL, Gary and PRAHALAD C.K. “Do you really Have a Global Strategy?”
Harvard Business Review
,
July-August 1985: 139-148.
HOUT Thomas, PORTER Michael E. and RUDDEN Eileen. “How Global Companies Win Out.”
Harvard
Business Review,
September-October 1982: 98-108.
IANNI, Octávio.
Globalização e Diversidade. A Era do Globalismo
. Rio: Civilização Brasileira, 1996.
KEEGAN, Warren J.
Global Marketing Management
. Prentice-Hall, New Jersey, 5th edition, 1995.
LEVITT, Theodore. “The Globalization of Markets.”
Harvard Business Review
, May-June 1983: 92-102.
NEVES, Luiz Augusto d e Castro.
América Latina – Modernização e Globalização: Avaliação e Perspectiva
.
In: Globalização na América Latina: Integração solidária. Brasília: FUNAG 1996: 235-273.
OHMAE Kenichi.
Triad Power - The Coming Shape of Global Competition
. New York: Freepress, 1985.
________. “Putting Global Logic First.”
Harvard Business Review
, January-February 1995, 119-125.
PARKER, Barbara.
Globalization and Business Practice; Managing Across Boundaries
. London: Sage,
1998.
PORTER, Michael.
The Co mpetitive Advantage of Nations
. London: Macmillian, 1990.
RANDOLPH, Bento n. “When Going Global isn't Enough - Training in Multinational Organizations.”
The
Magazine of Human Resources Development.
v27 n8, August 1990: 47-52.
YIP, George S.
Total Global Strategy – Managing for Wordwide Competitive Advantage
. Prentice Hall,
New Jersey, 1995.
FROM MULTINATIONAL TO GLOBAL COMPANIES
FROM MULTINATIONAL TO GLOBAL COMPANIES:
IDENTIFYING THE DIMENSIONS OF THE CHANGE
Guilherme Azevedo
Hélène Bertrand
Pontifícia Universidade Católica do Rio de Janeiro
ABSTRACT
For the business academia, the most important phenomena involved in globalization are (1) empowerment
of transnational organizations, (2) information technology evolution, (3) increasing international flows of
capital, merchandise and data, and (4) the tendency of market homogenization.
The organizational studies and strategic management perspectives indicate, respectively, that these
combined movements push companies from a multinational to a global shape and drive industries to replace the
traditional multi-domestic strategy for a global.
This study combines both points of view and examines the company as a multidimensional entity. The goal is
to identify and analyze the most significant dimensions involved in the transition between multinational and
global.
Among the dimensions of the change we find: global integration, covered world key-markets, local
responsiveness, pattern of competition, use of cross-subsidization, dominant marketing approach, and
organization vision. Each of the dimensions discloses a set of challenges that need to be faced by the managers.
INTRODUCTION
The so-called globalization imposes challenges and reshapes the business world. Strictly domestic companies
are now pushed to face potential overseas markets and multinational organizations are rethinking their practices
to develop new operational patterns, combining scale of production, low costs and flexibility around the world,
(Bertrand and Azevedo, 1999; Hamel and Prahalad 1985; Barney 1997; among others).
This paper examines this question from the business perspective and identifies several dimensions of the
change imposed by globalization. The final aim is to derive a set of challenges from each of the dimensions.
What does “globalization” mean?
First, what does the buzzword “globalization” mean? According to Randolph (1990), since the middle 80’s,
academia and business refer to
global companies
,
global strategies
,
global managers
and so on. The more we
hear these terms the more we become convinced that they are not talking about the same thing. The vulgarization
of the term creates difficulties at the theoretical level (Parker, 1998).
Initially, globalization was the subject of historical, socio logical and economic studies. An important
landmark is McLuhan’s visionary co ncept of the
global village
, in 1911. As Bull (1977) points out, McLuhan's
pioneer study exposes some essential points of the present phenomenon, such as the transnational organization
reinforcement and the information technology standardization. Nowadays, people from engineering to biology
are concerned about globalization.
One of the dominant ideas in social studies is that globalization is simply the present state of the continuous
humankind historical development, (
e.g.
Bull, 1977; Neves, 1996; and Ianni, 1996). Other authors consider it a
historical rupture that has been taking place since the end of the cold war, (Czinkota and Ronkainen, 1995;
Abreu, 1999; Bertrand, 1994).
Czinkota and Ronkainen (1995) explain that until the end of the "Soviet Empire" the world ideological
division between East and West blocked the globalization process.
From the point of view of some scholars in economic-politics, globalization is the result of the capitalism
dominance (
e.g.
Banas, 1996; Ianni, 1996). Ianni reinforces this idea saying that it is a new capitalism cycle
where production has become transnational.
To other authors, globalization is related to the obsolescence of the nation-state system (Ohmae, 1995;
Levitt, 1983; Furtado 1998). Ohmae (1995) proposes that the more natural model is the "region-state", an
economic area defined independently of the national borders.
Though there are still other relevant definitions from other fields, in this paper we only consider the business
point of view. Based on Levitt (1983), Yip (1995), Bartlett and Ghoshal (1989), Hout et all.(1982), Campbell
(1993), Keegan (1995), Bertrand (1994), Parker (1998), among others, the following definition emerges:
Globalization is the set of transformations faced by companies as a consequence of the
contemporary phenomenon constituted by: (1) the empowerment of transnational
organizations; (2) the information technology evolution; (3) the increasing flows of capital,
merchandise, and data across national borders; and (4) the tendency of world market
homogenization.
These new simultaneous transformations conduct the organizations to an unfamiliar future. There is also a
new rhythm. The humankind has never pro duced knowledge so quickly and the world has never seemed to be so
small. Organizations must be prepared to navigate across this unknown sea. This exploratory study can help
managers and scholars to better understand the nature o f the transfo rmations.
Global companies — the mainstream routes of investigation
When we study
global companies,
we basically identify two mainstream routes of investigation. Some
authors, as Bartlett and Ghoshal (1989), highlight structural aspects of the organizations. They analyze how
global companies are, or should be. This organizational oriented analysis implies in defining ranges of different
types of international companies according to their internal characteristics. The basic idea is to look inside the
organization to see if it is a glob al company or any other type of international company.
The second mainstream of investigation, which is closer to the logic of strategic management, considers the
patterns of competition and market characteristics to identify a global industry, (Yip, 1995; Hoult et all., 1982;
among others). In this case, a
global company
has no meaning because competitive strategies may be global; the
co mpanies are merely reshaped by the competitive forces.
Campbell (1993) separates these two approaches when he states that globalization alters relations in
intra-
firms
as well as in
extra-firms
. Changes in intra-firm relations are basically organizational and can be the result
of new information technology or more productive plants. The extra-firm relations are modified by changes in
global market segments or by the nature of the competition.
What Campbell presents is an elegant solution to avoid answering what comes first, the global company or
the global competition. Here, we will also avoid this question. In this study, it is only relevant to build a p arallel
between the two points of view.
If we take the perspective of organizational studies, “multinational companies” are being transformed in
“global companies” (Bartlett and Ghoshal, 1989; Ghoshal and Nohria, 1993; Keegan, 1995; among others). If
we take the p erspective of the nature of the competition, there is a consensus among authors that the strategy is
changing from multi-domestic (or multinational) to global (Randolph, 1990; Yip, 1995; Hoult et all., 1982;
among others).
The transition from multinational to global company and the transition from multi-domestic to global strategy
are the focuses of the present study. The central question is this comb ination of movements that we, from here
on, simply refer to as
transition from multinational to global
. Furthermore, this paper adopts a new approach to
the questio n by emphasizing the dynamics of the transformation.
Accord ing to the literature review, existing studies typically analyze the multinational and the global
co mpany (or strategy) as static entities, independently of the perspective. The dynamic aspects of the transitio n
are usually neglected.
Next, we analyze the two states, multinational and global, to approach later, the dynamics of the
transformation.
Multinational and global states
The literature defines the two states in different ways. Our starting point are "the classic" definitions of
Bartlett and Ghoshal (1989). According to them, a multinational organization is a decentralized federation with
distributed resources and delegated responsibilities that allows the foreign operations to answer to the local
differences. A global organization is a centralized hub, a structural configuration based on group-oriented
behavior requiring intensive communication and complex system o f personal interdependencies and
co mmitments.
Actuallty, Bartlett and Ghoshal (1989) consider two different dimensions to classify international
organizations: local responsiveness and global integration importance. They base their classification on
organizational aspects of the company. Other authors, as already mentioned, prefer to center their classification
on the structure of the competition or in the adopted approach of marketing.
Boone and Kurtz (1998), for instance, recognize the difference between strategies of multinational marketing
and global strategies but does not differentiate the company itself. Hout et all. (1982) connect the modification
of the shape of the company with the type of competition of its industries. They call the strategic approach of
multinational companies
multi-domestic
.
Indeed, taking Yip’s (1995) perspective, the use of the term
multi-domestic
is more appropriate than
multinational
to describe a marketing action, as opposed to global. To Yip (1995), multi-domestic and global
approaches can coexist in a temporary situation, and companies can take both forms of action, simultaneously.
Boone and Kurtz (1998) corroborate this view. For them, global marketing applies the same marketing mix
with minimum variations across the markets a company reaches, while the multi-domestic marketing represents a
segmentation where specific national markets are identified and different marketing mixes set up.
Keegan (1995) refers to Bartlett and Ghoshal’s (1989) work and focuses on the type of marketing reduzing
the to five categories: domestic marketing, export marketing, international marketing, multinational marketing,
and global/transnational marketing.
The multinational marketing, as understood by Boone and Kurtz (1998), aims at customizing the knowledge
and products for the diverse markets. It perceives the differences and the specific circumstances of each market,
and adapts the marketing mix for them. The result is managerial decentralization, or, to use Barlett and
Ghoshal’s (1989) typology, low level of global integration.
On the other hand , the global/transnational marketing seeks to identify what is the universal culture and what
is restrict to each market. The aim is to penetrate in multiple places with minimally customized marketing mix.
The marketing actions are centralized (high global integration).
Boone and Kurtz (1998) alerts that many companies practice multi-domestic marketing for having simply
inherited decentralized structures of international marketing. Please note here that these authors, who do not
have the organizational orientation, understand that the global perspective demands structural modifications in
the company and not the contrary,
i.e
., first comes the strategic perspective and then the company shape.
Another approach adopted by several authors is that the market is still sovereign to indicate when a multi-
domestic perspective can be substituted by a global. Ohmae (1985) identified a group of 600 million consumers
emerging in the triad USA, Europe and Southeast Asia that can be considered, for marketing effect, as an single
market with the same habits of consumption. The sprouting thriving of this
mega-market
allows the practice of
global marketing.
To Hamel and Prahalad (1985), a multinational approach occurs when a company is obliged to address each
market separately. Only an international market that accepts standardized products will allow the use of global
strategies.
The literature also indicates that
organization vision
establishes the difference between multinational and
global companies. Parker (1998), in her bibliographical survey, demonstrates that a typical feature of the global
company is
to have the world as home
(vision that exceeds the internal and external borders of the countries).
For Bertrand (1994), this means replace the
ethnocentric
vision of the organization for a
polycentric
one (or,
according to the up-to-date terminology,
geocentric
). The objective is to become
citizen of the world
instead of
national citizen
.
Having an ethnocentric vision means to observe the world with domestic references only, as domestic
companies do. In the same way, the multinational company tends to adopt a polycentric vision,
i.e.
, observe the
world with different domestic references. The geocentric vision (to have the world as reference) is typically
attributed to global companies.
Parker’s (1998)
world as home
also refers to a
worldwide presence
. This point is clearly stated by Porter
(1990). The global company has a global presence,
i.e
. it is present in all the key-markets of the world.
Porter (1990) also refers to the activities that are integrated through the national borders. Hamel and Prahalad
(1989) complement this idea emphasizing the importance of the integration of the production and distribution
systems to global companies. In that view, a global company must necessarily make use of a system of
distribution in order to reach all the world key-markets.
Further developing the discussion about the production system, Barlett and Ghoshal (1992) note that the
global company takes profit of the competitive advantages of the different regio ns of the globe. The global
company seeks to use the best and cheapest resources available in different areas. To Yip (1995), the result is the
creation of a global value-chain. Activities as research and develo pment, design, b uying, manufacture,
assemblage, marketing, sales, distribution and services, are distributed around the world.
This global value-chain represents what Barlett and Ghoshal (1992) call global integration. That means not
simply centralize the management, but also design flexible production and distrib ution units that can be
relocated.
Investment and subsid y polices are also important points that refer to global integration. Hamel and Prahalad
(1989) understand that the global distribution system allows the companies to
cross-subsidy
the markets. A
previous work by Hout et al. (1982) identify that to compete globally the company must be prepared to, among
others things: carry out great investments with null or even negative ROI; envision diverse financial objectives
according to the market and keep product lines deliberately sub-priced in some markets. These unconventional
management practices represent forms of cross-subsidy, which are typical of global organizations.
For Andersen et all. (1997) to become a global company means to face the barriers of management mentality.
There are relevant difficulties in the gradual development of an international ability. Abreu (1999) states that
globalization, instead of companies, impacts people and the process of decision-making the most.
Once existing understandings of multinational and global companies have been stated, we can now propose
our definitions for the initial and the final states of the transition:
Initial state (multinational company and multi-domestic strategy) --
Decentralized group
of independent operations that focuses on some specific markets. It responds to local
differences by adapting the marketing-mix. The competition takes place at a multinational
environment. The limits of the national borders are respected. The marketing approach is
multi-domestic and the organizational vision is polycentric.
Final state (global company and strategy) --
Centralized group of integrated operations that
are present in all the world key-markets. It searches to trespass the national borders,
establishing global strategies and using high-standardized marketing-mix. The competition, as
well as the marketing approach, is global with the presence of cross-subsidy. The
organizational vision is geocentric.
METHOD
The transition from multinational to global was analyzed using a logical principle: comparison. Considering a
given transformation, if we know the initial state of the object and its final state, we can compare them and find
the minimal amount of change suffered during the transformation.
To give an example, suppose the studied object is a sphere described by three dimensions: diameter, color
and weight. If in the first state it is represented by
(4 inches, blue, 4 pounds)
and in the final state
by (6 inches,
red, 3 pounds),
then we can infer that the transformation consisted of, at list, increase in diameter of 2 inches,
change of color from blue and to red, and reduction in weight of 1 pound.
In this study the initial and the final states, multinational and global, were determined by our reviewing the
literature and the comparison of several definitions that gave origin to our definition of the two states (see the
end of the introduction). The dimensions of the change presented in the results section were found by contrasting
the two states we defined.
RESULTS AND DISCUSSION
The dimensions of the change
The contrast between the initial and the final state determined the dimensions summarized in Table 1. The
definitions of the two states indicated the values of the dimensions.
Table 1 – Dimensions of the change and values
Dimension Initial State Va lue Final State Value
1. Level of global integration Low High
2. Number of world key-markets covered Some All
3. Local responsiveness High Lo w
4. Dominant pattern of competition Multinational Global
5. Intensity of cross-subsidy Low High
6. Dominant marketing approach Multi-domestic Global
7. Type of vision Polycentric Geocentric
To make these results more understandable, we regrouped them. The analysis of the nature of the dimensions
showed that they are all, in some degree, interconnected. Because we look for a parsimonious model, which
includes the smallest possible set of dimensions preserving the explanatory power, some of them can be merged.
Dimension 5 (cross-subsidy) is part of d imension 4 (pattern of competition). Cross-subsidy is part of the global
pattern of competition (Hout et all., 1982; Hamel and Prahalad, 1989). Therefore, dimension 5 can be deleted.
Dimension 3, local responsiveness, can be seen as a function of dimension 6, dominant marketing approach.
Companies that adopt a multi-domestic marketing approach, as understood by Boone and Kurtz (1998), are more
ab le to respond locally. A multi-d omestic marketing implies customizing the marketing-mix for each market. A
co mpany that focuses on a specific market, tailoring an operation to it, will respond better to local demands than
a than a company that expects to use the same operation in several markets. Therefore, dimensions 3 and 6 were
merged. Table 2 indicates these considerations.
Table 2 – Regrouped dimensions of the change and values
Dimension Initial State Value Final State Value
1. Level of global integration Low High
2. Number of world key-markets covered Some All
3. Dominant pattern of competition Multinational Global
4. Dominant marketing approach Multi-domestic Global
5. Type of vision Polycentric Geo centric
Next, we present a discussion about the challenges faced by the organizations in face of each of the
dimensions of the change presented in the results.
Challenges imposed by global integration
The transition from multinational to global represents a change from a low to a high level of global
integration. Global integration means centralized management and integrated operations. Lack of uniformity,
operational redundancies, and diversity of the multi-d omestic cultures are barriers to global integration. To
overcome the fragmented structure, the company should unify operations and eliminate repetitions.
Culture may also represent difficulties to this integration. People from the several operations of the
multinationals are not used to comprehending theirs companies as a whole and horizontal communication across
different operatio ns is usually very low. We are not talking about unifying the culture of the several units, but
about making them compatible and creating a minimal common code. A special problem concerns developing
co mmon code when multinational companies merged .
Independent operations placed in multiple locations represent cost repetition and, secondarily, useless
internal competition. The organization sho uld be reshaped, a global value chain should be developed, which
means unifying the several parts of production and distributio n and placing them in the most favorable locations.
Global integration will demand development of the communication system. The information technology
should be used in order to transform the set o f national operations into a single glob al operation constituted by
interconnected parts that are located in the different areas.
Challenges imposed by key-markets coverage
Covering all the world key-markets usually implies expansion. As demonstrated, multinational companies
tend to cover some key-markets only, and global companies aim to cover them all. This expansion can be an
enormous obstacle. Possibly, companies that do not have critical mass to reach the diverse markets and that are
not capitalized for such will be obliged to opt between merging with other co mpanies, being sold to other
companies, or creating joint-ventures in uncovered markets. If the company has capital, or access to it, shortcuts
can be used (basically acquisition of comp anies, operations, brands or technology in other markets).
Presence in all the key-markets can be understood as more than being at all the main consumer markets. A
company that competes globally should also assure its presence in the diverse centers of production and origin of
raw materials and parts, for instance. This means that wide market coverage demands a global value chain, as it
happens in global integration.
Challenges imposed by global competition
Global competition implies increasing flows of capital, information, and merchandises across the operations,
which should constitute a global value chain. The logistics of production, marketing, and distribution are
indispensable to create a global network that creates the interdependence that will allow the exploitation of
worldwide competitive advantages. Obtaining the co mpetencies to create this network is an important challenge.
The cap ital stream may allow the group expansion. Cross-subsidy is usually necessary to compete globally. The
results of the diverse operations cannot be analyzed sep arately and a mentality of change is necessary. To move
to the patterns of global competition, a company should develop managerial mechanisms to coordinate the
strategic actions of the o perations and provide feedback to the strategists.
Challenges imposed by global marketing
Several difficulties may affect the movement from multi-domestic to global marketing. Glob al market tends
to demand glob al product lines. If several national markets (or national market segments) can be treated as a
unique market (or segment), the company that does not develop global product lines tends to be overturned by
the competitors that are expending fewer resources to attain several national markets. The same reasoning
explains why a global marketing-mix should be adopted. To identify global markets and design global
marketing-mix to then are important challenges.
Another point is innovation. The fight for glob al markets is a race for innovation. The global competitors
invest a vast amount of money in research and development of new products. Life cycles are becoming shorter
and product development is becoming more expensive. There is no place for old products.
Lack of organizational learning also threatens the multi-domestic players. If a company centralizes its
marketing planing, it will develop new abilities and b ecomes able to learn in one location something for other
locations (Boone and Kurtz, 1998). This synergy is a powerful competitive advantage concerning marketing.
Challenges imposed by geocentric vision
To become global, a company should envision the world as a whole and abandon their multi-domestic
backgrounds. If one looks at the globe with a set of provincial references, only a caricature can be seen. To
transform the mentality from polycentric to geocentric is an enormous challenge, mainly because it implies
changing people. Most people are probably not ready yet to abandon their multi-domestic references.
Geocentric attitud e is a rare human resource that may be difficult to develop, especially in places where cross-
border interaction is weak. To find and create this kind of people and to maintain them at the company are a
relevant challenge. Efforts to pro mote mobility and interaction among the parts should be done.
CONCLUSION
The method of study proved to be efficient and provided us with the guidelines to identify the challenges
faced by organizations. The contrast between the dimensions systematized the examination. Space constraints
did not allow an extend ed discussion of all the challenges. However, that was no t the scope of this work.
Furthermore, to assure that the results agree with the dimensions of the change in the real world , it is
necessary to relate the definitions we derived from the literature to reality. Only then we will be able to state if
the dimensions and definitions we propose reflect satisfactory the reality.
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IDENTIFYING THE DIMENSIONS OF THE CHANGE
Guilherme Azevedo
Hélène Bertrand
Pontifícia Universidade Católica do Rio de Janeiro
ABSTRACT
For the business academia, the most important phenomena involved in globalization are (1) empowerment
of transnational organizations, (2) information technology evolution, (3) increasing international flows of
capital, merchandise and data, and (4) the tendency of market homogenization.
The organizational studies and strategic management perspectives indicate, respectively, that these
combined movements push companies from a multinational to a global shape and drive industries to replace the
traditional multi-domestic strategy for a global.
This study combines both points of view and examines the company as a multidimensional entity. The goal is
to identify and analyze the most significant dimensions involved in the transition between multinational and
global.
Among the dimensions of the change we find: global integration, covered world key-markets, local
responsiveness, pattern of competition, use of cross-subsidization, dominant marketing approach, and
organization vision. Each of the dimensions discloses a set of challenges that need to be faced by the managers.
INTRODUCTION
The so-called globalization imposes challenges and reshapes the business world. Strictly domestic companies
are now pushed to face potential overseas markets and multinational organizations are rethinking their practices
to develop new operational patterns, combining scale of production, low costs and flexibility around the world,
(Bertrand and Azevedo, 1999; Hamel and Prahalad 1985; Barney 1997; among others).
This paper examines this question from the business perspective and identifies several dimensions of the
change imposed by globalization. The final aim is to derive a set of challenges from each of the dimensions.
What does “globalization” mean?
First, what does the buzzword “globalization” mean? According to Randolph (1990), since the middle 80’s,
academia and business refer to
global companies
,
global strategies
,
global managers
and so on. The more we
hear these terms the more we become convinced that they are not talking about the same thing. The vulgarization
of the term creates difficulties at the theoretical level (Parker, 1998).
Initially, globalization was the subject of historical, socio logical and economic studies. An important
landmark is McLuhan’s visionary co ncept of the
global village
, in 1911. As Bull (1977) points out, McLuhan's
pioneer study exposes some essential points of the present phenomenon, such as the transnational organization
reinforcement and the information technology standardization. Nowadays, people from engineering to biology
are concerned about globalization.
One of the dominant ideas in social studies is that globalization is simply the present state of the continuous
humankind historical development, (
e.g.
Bull, 1977; Neves, 1996; and Ianni, 1996). Other authors consider it a
historical rupture that has been taking place since the end of the cold war, (Czinkota and Ronkainen, 1995;
Abreu, 1999; Bertrand, 1994).
Czinkota and Ronkainen (1995) explain that until the end of the "Soviet Empire" the world ideological
division between East and West blocked the globalization process.
From the point of view of some scholars in economic-politics, globalization is the result of the capitalism
dominance (
e.g.
Banas, 1996; Ianni, 1996). Ianni reinforces this idea saying that it is a new capitalism cycle
where production has become transnational.
To other authors, globalization is related to the obsolescence of the nation-state system (Ohmae, 1995;
Levitt, 1983; Furtado 1998). Ohmae (1995) proposes that the more natural model is the "region-state", an
economic area defined independently of the national borders.
Though there are still other relevant definitions from other fields, in this paper we only consider the business
point of view. Based on Levitt (1983), Yip (1995), Bartlett and Ghoshal (1989), Hout et all.(1982), Campbell
(1993), Keegan (1995), Bertrand (1994), Parker (1998), among others, the following definition emerges:
Globalization is the set of transformations faced by companies as a consequence of the
contemporary phenomenon constituted by: (1) the empowerment of transnational
organizations; (2) the information technology evolution; (3) the increasing flows of capital,
merchandise, and data across national borders; and (4) the tendency of world market
homogenization.
These new simultaneous transformations conduct the organizations to an unfamiliar future. There is also a
new rhythm. The humankind has never pro duced knowledge so quickly and the world has never seemed to be so
small. Organizations must be prepared to navigate across this unknown sea. This exploratory study can help
managers and scholars to better understand the nature o f the transfo rmations.
Global companies — the mainstream routes of investigation
When we study
global companies,
we basically identify two mainstream routes of investigation. Some
authors, as Bartlett and Ghoshal (1989), highlight structural aspects of the organizations. They analyze how
global companies are, or should be. This organizational oriented analysis implies in defining ranges of different
types of international companies according to their internal characteristics. The basic idea is to look inside the
organization to see if it is a glob al company or any other type of international company.
The second mainstream of investigation, which is closer to the logic of strategic management, considers the
patterns of competition and market characteristics to identify a global industry, (Yip, 1995; Hoult et all., 1982;
among others). In this case, a
global company
has no meaning because competitive strategies may be global; the
co mpanies are merely reshaped by the competitive forces.
Campbell (1993) separates these two approaches when he states that globalization alters relations in
intra-
firms
as well as in
extra-firms
. Changes in intra-firm relations are basically organizational and can be the result
of new information technology or more productive plants. The extra-firm relations are modified by changes in
global market segments or by the nature of the competition.
What Campbell presents is an elegant solution to avoid answering what comes first, the global company or
the global competition. Here, we will also avoid this question. In this study, it is only relevant to build a p arallel
between the two points of view.
If we take the perspective of organizational studies, “multinational companies” are being transformed in
“global companies” (Bartlett and Ghoshal, 1989; Ghoshal and Nohria, 1993; Keegan, 1995; among others). If
we take the p erspective of the nature of the competition, there is a consensus among authors that the strategy is
changing from multi-domestic (or multinational) to global (Randolph, 1990; Yip, 1995; Hoult et all., 1982;
among others).
The transition from multinational to global company and the transition from multi-domestic to global strategy
are the focuses of the present study. The central question is this comb ination of movements that we, from here
on, simply refer to as
transition from multinational to global
. Furthermore, this paper adopts a new approach to
the questio n by emphasizing the dynamics of the transformation.
Accord ing to the literature review, existing studies typically analyze the multinational and the global
co mpany (or strategy) as static entities, independently of the perspective. The dynamic aspects of the transitio n
are usually neglected.
Next, we analyze the two states, multinational and global, to approach later, the dynamics of the
transformation.
Multinational and global states
The literature defines the two states in different ways. Our starting point are "the classic" definitions of
Bartlett and Ghoshal (1989). According to them, a multinational organization is a decentralized federation with
distributed resources and delegated responsibilities that allows the foreign operations to answer to the local
differences. A global organization is a centralized hub, a structural configuration based on group-oriented
behavior requiring intensive communication and complex system o f personal interdependencies and
co mmitments.
Actuallty, Bartlett and Ghoshal (1989) consider two different dimensions to classify international
organizations: local responsiveness and global integration importance. They base their classification on
organizational aspects of the company. Other authors, as already mentioned, prefer to center their classification
on the structure of the competition or in the adopted approach of marketing.
Boone and Kurtz (1998), for instance, recognize the difference between strategies of multinational marketing
and global strategies but does not differentiate the company itself. Hout et all. (1982) connect the modification
of the shape of the company with the type of competition of its industries. They call the strategic approach of
multinational companies
multi-domestic
.
Indeed, taking Yip’s (1995) perspective, the use of the term
multi-domestic
is more appropriate than
multinational
to describe a marketing action, as opposed to global. To Yip (1995), multi-domestic and global
approaches can coexist in a temporary situation, and companies can take both forms of action, simultaneously.
Boone and Kurtz (1998) corroborate this view. For them, global marketing applies the same marketing mix
with minimum variations across the markets a company reaches, while the multi-domestic marketing represents a
segmentation where specific national markets are identified and different marketing mixes set up.
Keegan (1995) refers to Bartlett and Ghoshal’s (1989) work and focuses on the type of marketing reduzing
the to five categories: domestic marketing, export marketing, international marketing, multinational marketing,
and global/transnational marketing.
The multinational marketing, as understood by Boone and Kurtz (1998), aims at customizing the knowledge
and products for the diverse markets. It perceives the differences and the specific circumstances of each market,
and adapts the marketing mix for them. The result is managerial decentralization, or, to use Barlett and
Ghoshal’s (1989) typology, low level of global integration.
On the other hand , the global/transnational marketing seeks to identify what is the universal culture and what
is restrict to each market. The aim is to penetrate in multiple places with minimally customized marketing mix.
The marketing actions are centralized (high global integration).
Boone and Kurtz (1998) alerts that many companies practice multi-domestic marketing for having simply
inherited decentralized structures of international marketing. Please note here that these authors, who do not
have the organizational orientation, understand that the global perspective demands structural modifications in
the company and not the contrary,
i.e
., first comes the strategic perspective and then the company shape.
Another approach adopted by several authors is that the market is still sovereign to indicate when a multi-
domestic perspective can be substituted by a global. Ohmae (1985) identified a group of 600 million consumers
emerging in the triad USA, Europe and Southeast Asia that can be considered, for marketing effect, as an single
market with the same habits of consumption. The sprouting thriving of this
mega-market
allows the practice of
global marketing.
To Hamel and Prahalad (1985), a multinational approach occurs when a company is obliged to address each
market separately. Only an international market that accepts standardized products will allow the use of global
strategies.
The literature also indicates that
organization vision
establishes the difference between multinational and
global companies. Parker (1998), in her bibliographical survey, demonstrates that a typical feature of the global
company is
to have the world as home
(vision that exceeds the internal and external borders of the countries).
For Bertrand (1994), this means replace the
ethnocentric
vision of the organization for a
polycentric
one (or,
according to the up-to-date terminology,
geocentric
). The objective is to become
citizen of the world
instead of
national citizen
.
Having an ethnocentric vision means to observe the world with domestic references only, as domestic
companies do. In the same way, the multinational company tends to adopt a polycentric vision,
i.e.
, observe the
world with different domestic references. The geocentric vision (to have the world as reference) is typically
attributed to global companies.
Parker’s (1998)
world as home
also refers to a
worldwide presence
. This point is clearly stated by Porter
(1990). The global company has a global presence,
i.e
. it is present in all the key-markets of the world.
Porter (1990) also refers to the activities that are integrated through the national borders. Hamel and Prahalad
(1989) complement this idea emphasizing the importance of the integration of the production and distribution
systems to global companies. In that view, a global company must necessarily make use of a system of
distribution in order to reach all the world key-markets.
Further developing the discussion about the production system, Barlett and Ghoshal (1992) note that the
global company takes profit of the competitive advantages of the different regio ns of the globe. The global
company seeks to use the best and cheapest resources available in different areas. To Yip (1995), the result is the
creation of a global value-chain. Activities as research and develo pment, design, b uying, manufacture,
assemblage, marketing, sales, distribution and services, are distributed around the world.
This global value-chain represents what Barlett and Ghoshal (1992) call global integration. That means not
simply centralize the management, but also design flexible production and distrib ution units that can be
relocated.
Investment and subsid y polices are also important points that refer to global integration. Hamel and Prahalad
(1989) understand that the global distribution system allows the companies to
cross-subsidy
the markets. A
previous work by Hout et al. (1982) identify that to compete globally the company must be prepared to, among
others things: carry out great investments with null or even negative ROI; envision diverse financial objectives
according to the market and keep product lines deliberately sub-priced in some markets. These unconventional
management practices represent forms of cross-subsidy, which are typical of global organizations.
For Andersen et all. (1997) to become a global company means to face the barriers of management mentality.
There are relevant difficulties in the gradual development of an international ability. Abreu (1999) states that
globalization, instead of companies, impacts people and the process of decision-making the most.
Once existing understandings of multinational and global companies have been stated, we can now propose
our definitions for the initial and the final states of the transition:
Initial state (multinational company and multi-domestic strategy) --
Decentralized group
of independent operations that focuses on some specific markets. It responds to local
differences by adapting the marketing-mix. The competition takes place at a multinational
environment. The limits of the national borders are respected. The marketing approach is
multi-domestic and the organizational vision is polycentric.
Final state (global company and strategy) --
Centralized group of integrated operations that
are present in all the world key-markets. It searches to trespass the national borders,
establishing global strategies and using high-standardized marketing-mix. The competition, as
well as the marketing approach, is global with the presence of cross-subsidy. The
organizational vision is geocentric.
METHOD
The transition from multinational to global was analyzed using a logical principle: comparison. Considering a
given transformation, if we know the initial state of the object and its final state, we can compare them and find
the minimal amount of change suffered during the transformation.
To give an example, suppose the studied object is a sphere described by three dimensions: diameter, color
and weight. If in the first state it is represented by
(4 inches, blue, 4 pounds)
and in the final state
by (6 inches,
red, 3 pounds),
then we can infer that the transformation consisted of, at list, increase in diameter of 2 inches,
change of color from blue and to red, and reduction in weight of 1 pound.
In this study the initial and the final states, multinational and global, were determined by our reviewing the
literature and the comparison of several definitions that gave origin to our definition of the two states (see the
end of the introduction). The dimensions of the change presented in the results section were found by contrasting
the two states we defined.
RESULTS AND DISCUSSION
The dimensions of the change
The contrast between the initial and the final state determined the dimensions summarized in Table 1. The
definitions of the two states indicated the values of the dimensions.
Table 1 – Dimensions of the change and values
Dimension Initial State Va lue Final State Value
1. Level of global integration Low High
2. Number of world key-markets covered Some All
3. Local responsiveness High Lo w
4. Dominant pattern of competition Multinational Global
5. Intensity of cross-subsidy Low High
6. Dominant marketing approach Multi-domestic Global
7. Type of vision Polycentric Geocentric
To make these results more understandable, we regrouped them. The analysis of the nature of the dimensions
showed that they are all, in some degree, interconnected. Because we look for a parsimonious model, which
includes the smallest possible set of dimensions preserving the explanatory power, some of them can be merged.
Dimension 5 (cross-subsidy) is part of d imension 4 (pattern of competition). Cross-subsidy is part of the global
pattern of competition (Hout et all., 1982; Hamel and Prahalad, 1989). Therefore, dimension 5 can be deleted.
Dimension 3, local responsiveness, can be seen as a function of dimension 6, dominant marketing approach.
Companies that adopt a multi-domestic marketing approach, as understood by Boone and Kurtz (1998), are more
ab le to respond locally. A multi-d omestic marketing implies customizing the marketing-mix for each market. A
co mpany that focuses on a specific market, tailoring an operation to it, will respond better to local demands than
a than a company that expects to use the same operation in several markets. Therefore, dimensions 3 and 6 were
merged. Table 2 indicates these considerations.
Table 2 – Regrouped dimensions of the change and values
Dimension Initial State Value Final State Value
1. Level of global integration Low High
2. Number of world key-markets covered Some All
3. Dominant pattern of competition Multinational Global
4. Dominant marketing approach Multi-domestic Global
5. Type of vision Polycentric Geo centric
Next, we present a discussion about the challenges faced by the organizations in face of each of the
dimensions of the change presented in the results.
Challenges imposed by global integration
The transition from multinational to global represents a change from a low to a high level of global
integration. Global integration means centralized management and integrated operations. Lack of uniformity,
operational redundancies, and diversity of the multi-d omestic cultures are barriers to global integration. To
overcome the fragmented structure, the company should unify operations and eliminate repetitions.
Culture may also represent difficulties to this integration. People from the several operations of the
multinationals are not used to comprehending theirs companies as a whole and horizontal communication across
different operatio ns is usually very low. We are not talking about unifying the culture of the several units, but
about making them compatible and creating a minimal common code. A special problem concerns developing
co mmon code when multinational companies merged .
Independent operations placed in multiple locations represent cost repetition and, secondarily, useless
internal competition. The organization sho uld be reshaped, a global value chain should be developed, which
means unifying the several parts of production and distributio n and placing them in the most favorable locations.
Global integration will demand development of the communication system. The information technology
should be used in order to transform the set o f national operations into a single glob al operation constituted by
interconnected parts that are located in the different areas.
Challenges imposed by key-markets coverage
Covering all the world key-markets usually implies expansion. As demonstrated, multinational companies
tend to cover some key-markets only, and global companies aim to cover them all. This expansion can be an
enormous obstacle. Possibly, companies that do not have critical mass to reach the diverse markets and that are
not capitalized for such will be obliged to opt between merging with other co mpanies, being sold to other
companies, or creating joint-ventures in uncovered markets. If the company has capital, or access to it, shortcuts
can be used (basically acquisition of comp anies, operations, brands or technology in other markets).
Presence in all the key-markets can be understood as more than being at all the main consumer markets. A
company that competes globally should also assure its presence in the diverse centers of production and origin of
raw materials and parts, for instance. This means that wide market coverage demands a global value chain, as it
happens in global integration.
Challenges imposed by global competition
Global competition implies increasing flows of capital, information, and merchandises across the operations,
which should constitute a global value chain. The logistics of production, marketing, and distribution are
indispensable to create a global network that creates the interdependence that will allow the exploitation of
worldwide competitive advantages. Obtaining the co mpetencies to create this network is an important challenge.
The cap ital stream may allow the group expansion. Cross-subsidy is usually necessary to compete globally. The
results of the diverse operations cannot be analyzed sep arately and a mentality of change is necessary. To move
to the patterns of global competition, a company should develop managerial mechanisms to coordinate the
strategic actions of the o perations and provide feedback to the strategists.
Challenges imposed by global marketing
Several difficulties may affect the movement from multi-domestic to global marketing. Glob al market tends
to demand glob al product lines. If several national markets (or national market segments) can be treated as a
unique market (or segment), the company that does not develop global product lines tends to be overturned by
the competitors that are expending fewer resources to attain several national markets. The same reasoning
explains why a global marketing-mix should be adopted. To identify global markets and design global
marketing-mix to then are important challenges.
Another point is innovation. The fight for glob al markets is a race for innovation. The global competitors
invest a vast amount of money in research and development of new products. Life cycles are becoming shorter
and product development is becoming more expensive. There is no place for old products.
Lack of organizational learning also threatens the multi-domestic players. If a company centralizes its
marketing planing, it will develop new abilities and b ecomes able to learn in one location something for other
locations (Boone and Kurtz, 1998). This synergy is a powerful competitive advantage concerning marketing.
Challenges imposed by geocentric vision
To become global, a company should envision the world as a whole and abandon their multi-domestic
backgrounds. If one looks at the globe with a set of provincial references, only a caricature can be seen. To
transform the mentality from polycentric to geocentric is an enormous challenge, mainly because it implies
changing people. Most people are probably not ready yet to abandon their multi-domestic references.
Geocentric attitud e is a rare human resource that may be difficult to develop, especially in places where cross-
border interaction is weak. To find and create this kind of people and to maintain them at the company are a
relevant challenge. Efforts to pro mote mobility and interaction among the parts should be done.
CONCLUSION
The method of study proved to be efficient and provided us with the guidelines to identify the challenges
faced by organizations. The contrast between the dimensions systematized the examination. Space constraints
did not allow an extend ed discussion of all the challenges. However, that was no t the scope of this work.
Furthermore, to assure that the results agree with the dimensions of the change in the real world , it is
necessary to relate the definitions we derived from the literature to reality. Only then we will be able to state if
the dimensions and definitions we propose reflect satisfactory the reality.
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