Global Markets Essay, Research Paper
Building a sustainable competitive advantage is widely viewed as a key factor underlying an effective marketing strategy (Day 1990; Porter 1980). Yet despite the growing importance of international markets and the increasing number of firms expanding internationally, most discussion has been confined to the domestic market. In international markets, interest has primarily been focused on the extent to which domestic market conditions provide industries with an advantage in competing in international markets (Porter 1990), as well as on industry drivers of globalization (Yip 1995). Relatively little attention has been centered on how an individual firm can or should craft a sustainable competitive advantage in international markets. Typically, it is assumed that the firm can succeed by leveraging its domestic positioningfor example, through a cost leadership, differentiation, or niche strategy in international markets.
Although this assumption may be appropriate for firms initially entering international markets or targeting global market segments, it does not take into account the existence of differences among national markets or the spatial character of the global landscape. Often, customer characteristics and desired benefits, key competitors and their strategies, or the nature of the market infrastructure differ from one market to another, which requires the firm to modify substantially its competitive positioning to compete effectively. Yet at the same time, interdependencies between markets are growing as a result of the flow of goods, people, and information across national boundaries (Featherstone 1990). As a result, in assessing its overall competitive advantage in global markets, a firm needs to consider the strengths and weaknesses of its competitive positions in each country’s market and how these interact to influence deployment of resources worldwide. The following examples illustrate this issue.
Building Market Presence
In the United States, News Corporation’s Fox network typically ends up fourth in the rating wars with the three established networks, ABC, NBC, and CBS. However, outside the United States, the picture is quite different. In addition to establishing a fourth television network, Rupert Murdoch is building a strong configuration of satellite and cable companies around the world. The extensive geographic network of operations allows content developed for the Fox television network in the United States to be aired on News Corporation’s vast satellite network, which consists of BSkyB in the United Kingdom, Star TV in Asia, and ISkyB in India, as well as through satellite- and terrestrial-based networks in other countries where News Corporation has strategic alliances. This vast network gives News Corporation a strong configural advantage over the three U.S. television networks-one that is very costly and difficult to replicate.
Lack of Global Market Coverage
Kao’s Attack is the leading brand of laundry detergent in Japan. It is so strong that an independent survey of 170 leading brands found Attack to be the number one power brand in Japan. Attack is so popular that it is frequently given as a gift. However, outside Japan, Kao is a small player in the detergent market that is dominated by Procter & Gamble, Unilever, and Colgate-Palmolive. This largely reflects Kao’s relatively limited configuration of operations outside Japan for any of its five major product businesses. In 1999, only 29% of the company’s sales were outside Japan, and approximately half those were to nearby Asian countries. The limited geographic scope of this network does not provide a strong platform to expand its operations. This is further reinforced by its perception of its unique capabilities: ability to discover customer needs, superior research and development (R&D), a strong sales force, and effective profit management.
Strategic Flexibility Nestle provides an example of a company with a strong configural advantage in the marketing, distribution, and manufacture of food products. Nestle has developed an explicit international brand architecture that consists of 10 worldwide corporate brands, 45 worldwide strategic product brands, 25 regional corporate brands, 100 regional product brands, 700 local strategic brands, and approximately 7000 local brands (Parsons 1996). On the production side it has 522 factories in 81 countries that provide manufacturing capabilities in key markets. The broad geographic coverage enables NestI6 to realize sales from industrialized countries as well as the increasingly important emerging market countries and to transfer information and experience from one market or region to another.
Speed of Resource Deployment
Viacom has been able to establish a strong configural advantage with MTV, its Music Television network, which reaches 300 million households in 83 countries worldwide. The brand identity is extremely strong and appeals to teens throughout the world. Programs can be rapidly distributed through MTV Europe, MTV Latin America, MTV Brazil, MTV Asia, MTV India, MTV Mandarin, MTV Japan, MTV Australia, and MTV Russia. In addition, content can be modified to accommodate local music preferences. Viacom has also leveraged brand identity to MTV Books, MTV Films, and MTV On-Line, as well as to more than 50 international licenses. MTV On-Line has become the most heavily visited area of America Online. The basic experience gained in operating in other countries can also be transferred to other Viacom properties, such as Nickelodeon/Nick at Night, VH-1, and ShowTime, as well as Viacom’s Blockbuster video stores in 26 international markets.
The spatial configuration of the firm’s assets and resources in different markets thus becomes a key element of its competitive strategy- A firm needs to build a strong competitive position and a market presence in key growth markets to establish a leadership position in world markets (Douglas and Craig 1996). In addition, the firm needs to retain strategic flexibility to respond to changing demand, resource, and competitive conditions in international markets (Dunning 1998; Kogut 1985). Thus, the spatial deployment of the firm’s assets, capabilities, and resources as well as the ability to manage and use these capabilities effectively are the fundamental components for establishing global market position. This can be termed the firm’s “configural advantage.”
The purpose of this article is to examine how developing a sustainable competitive advantage differs in global markets compared with a domestic market. The patterning of international markets is inherently complex. Markets are often geographically dispersed and interlinked through trade flows, communication and distribution networks, a common market infrastructure, the presence of the same competitors or customers, and so forth (Dicken 1998). A key premise of this article is that the formula for achieving sustainable competitive advantage in global markets depends on (1) the extent of market integration and interlinkage, (2) the strength and geographic scope of the firm’s position in international markets, and (3) the organization and management of linkages between the firm’s value-creating activities sustaining this position. The challenge is to achieve a complex matching of the firm’s use and deployment of resources and the configuration of its operations with the spatial distribution of markets.
The article is organized as follows. We first review traditional approaches to building a sustainable competitive advantage, as well as their application to international markets. We then discuss issues relating to the design of the spatial configuration of activity systems. We examine next key aspects of a configural advantage-market presence and position, strategic flexibility, and speed of resource deployment-and finally outline some implications for international marketing strategy.
TRADITIONAL APPROACHES To BUILDING A SUSTAINABLE COMPETITIVE ADVANTAGE
Traditional approaches to developing competitive advantage focus on developing a positional advantage (Porter 1980) relative to competition based on either cost leadership or differentiating the product/service offering. Each type of advantage can be developed in relation to a broad-based market or a focused target segment. These positional advantages are not necessarily mutually exclusive. Developing a differential advantage does not, for example, imply lack of attention to costs, and conversely, use of a cost-leadership strategy does not necessarily mean that the firm does not differentiate its product or services from its competition. The term “playing the spread” has, for example, been used for firms that are cost leaders and differentiate their product or service offering as well (Day 1990).
More recently, attention has shifted to the capabilities and assets or resource endowments that are the source of the firm’s advantage and enable it to build a positional advantage in the marketplace (Rumelt, Schendel, and Teece 1991). According to this perspective (Grant 1991), to develop and sustain a superior competitive position, a firm has to possess certain distinctive assets and capabilities that distinguish it from its competition. These capabilities should enable the firm to deliver superior value to customers or to deliver value in a more cost-effective manner than do its competitors (Prahalad and Hamel 1990). In addition, such capabilities should be rare, not substitutable, and they should not be readily imitable by competitors; otherwise they will not remain distinctive (Barney 1991).
Distinctive capabilities are the foundation of a firm’s position in the marketplace. In assessing whether these capabilities can be transferred to international markets to provide the firm with a sustainable competitive advantage, two important issues must be considered. The first is the extent to which the markets targeted are characterized by distinctive customer needs and interests, competitors, and market infrastructure and separated by economic, political, and cultural barriers. These distinctive aspects may require the firm to tailor its position and adapt or develop distinctive capabilities to meet specific local needs. The second pertains to how far assets and capabilities are location-specific; for example, production techniques or processes may be adapted to a given cultural environment with specific labor or management skills. Channel bonding processes may be tailored to distribution systems in which channel relationships are built on trust and commitment.
If the firm’s distinctive capabilities are grounded in unique location-specific skills and knowledge, only limited direct transfer of capabilities is feasible. Some aspects of management processes or systems may be transferred, but in essence, the firm’s ability to leverage its distinctive capabilities and intangible assets depends on its ability to establish mechanisms to facilitate organizational learning and the transfer of knowledge across markets (Hall 1993). As international markets become more interlinked and integrated either regionally or globally, the development of such learning mechanisms becomes critical for linking and coordinating spatially diverse positions to achieve synergies in resource use and establish a superior competitive advantage globally.
LEVERAGING POSITIONAL ADvANTAGE iN INTERNATIONAL MARKETS
A firm initially entering international markets typically attempts to leverage its domestic positional advantage on the basis of its assets and distinctive capabilities. Because these are defined in relation to customer needs and competitors in the domestic market, the challenge is to leverage these in different and diverse international markets (Craig and Douglas 1996). If the firm targets the same market segment adopting the same positioning worldwide, as Benneton and Nike have done, this leveraging may pose few difficulties. Similarly, if a firm operates in globally integrated industries, such as aircraft, industrial electronics, or specialty chemicals, a key customer requirement is the ability to supply and service customer operations worldwide. If, conversely, markets are fragmented and customer needs differ substantially from one market to another, gaining a configural advantage will be considerably more complex.
Direct Leveraging of Positional Advantage
Firms focusing on a global market segment often can effectively use the same capabilities and skills to target that segment throughout the world. For example, Godiva chocolates are positioned as high-end luxury chocolates to consumers worldwide. The elaborate packaging in gold boxes decorated with bows, coupled with full-page color advertisements in high-end magazines, projects a sophisticated image and provides high visibility worldwide. This image is reinforced by distribution through small specialty shops or boutiques in high-end department stores worldwide. Substantial synergies accrue from leveraging the firm’s positional advantage internationally, particularly, as in this case, when establishing a distinctive global identity for the corporate brand or product is a key element of the firm’s competitive strategy (see Figure 1, Panel A).
If the market is globally or regionally integrated and customer needs and interests are the same worldwide-for example, in aircraft, industrial electronics, and business computers-a firm will typically need to compete globally to be successful (see Figure 1, Panel B). For example, Boeing and Airbus compete in developing planes for global customers. Similarly, an important aspect of the success of Hilton and Sheraton hotels in targeting the growing market for international business travel is their extensive network of hotels worldwide, which offers a consistent and reliable standard of service and comfort for the business traveler from Uzbekistan to Madagascar.
Modifying Positional Advantage in
More commonly, firms compete in markets that are spatially dispersed, and in some cases independent, though more frequently interlinked. Customer needs and interests, as well as the nature of competition and the market infrastructure, differ from one market to another. Consequently, a firm must modify its domestic positional advantage to each market to be successful (see Figure 2). For example, Procter & Gamble has had to modify existing detergent products as well as its positioning and develop new products to match differences in washing habits, water conditions, and use of washing machines in different parts of the world. For example, Ariel was initially developed in Europe as a low-temperature detergent powder with an environmentally friendly version. In India, it has been marketed as a presoak, and in the United States as Cheer, an all-purpose detergent. Differences in the cost and availability of local resources may also suggest the desirability of tailoring the development of a competitive position and the value delivered to customers from one market to another.
In modifying positional advantage in dispersed markets, the firm needs to develop the ability to support that position in each local market. Often, it will need to make use of locationspecific assets and resources to build local capabilities and operational systems to sustain its position. In some cases, the firm will replicate a distinctive activity system (such as a new product development or brand management system) in another market. For example, Procter & Gamble has been highly effective in duplicating its distinctive system of brand management and mass merchandising in multiple country environments. This implies that the firm has also needed to develop the ability to manage the deployment of its distinctive skills, assets, and capabilities across markets and transfer learning across markets.
In other cases, the firm needs to develop context-specific capabilities, for example, building channel relationships based on trust in Japan. In this case, the firm develops specific capabilities adapted to idiosyncratic market conditions, but ones that cannot be readily leveraged to other markets. For example, Smith, Klein & French had to invest in establishing a strong network of personal relationships with wholesalers in Japan to enter the market successfully.
Other firms will use local skills and resources to implement their unique competitive advantages, while fine-tuning their positions to local market characteristics. For example, the key strength of volume discounters such as Wal-Mart and Kmart is their operational efficiency. After several false starts, they are now successfully replicating their operational and management systems in countries in Europe and Asia, while modifying the retail assortment and other aspects of their retail format to meet local customer needs.
DESIGNING THE SPATIAL CONFIGURATION OF ACTIVITY SYSTEMS IN INTERNATIONAL MARKETS
The design of the spatial configuration of the firm’s activity systems is a key element of configural advantage. Activities at different stages in the value chain must be spatially arrayed to take advantage of location-specific assets, such as labor, while enabling the firm to deliver superior customer value relative to its competitors. Linkages between competitive positions and the underlying capabilities in each market must be developed to provide strategic flexibility. This also facilitates learning and generates synergies across markets, which reinforces the firm’s global competitive position (Malnight 1996). A key parameter in determining the spatial configuration of activities is the degree of market integration.
Integration of Markets
International markets are becoming integrated at several different levels (Bettis and Hitt 1995; Dicken 1998; Dunning 1998). Most broadly, integration is taking place at the macroeconomic level. The economies of many countries, particularly within regional trading blocs, are becoming more closely intertwined. Visible manifestations of this are cross-border flows of goods and services coupled with the growth of organizational networks spanning national boundaries, as well as air traffic, mail flows, increased tourist and business travel, and migration of people (Douglas and Craig 1996). Geographic proximity is a driving factor, because proximate markets are more likely to be integrated than distant markets.
Market infrastructures are also becoming more interlinked and integrated as a result of advances in communications technology, satellite links, growth of company intranets, the Internet, and improvements in physical communication networks and linkages. Regional expansion of distribution networks at both the wholesale and retail levels and the global expansion of service organizations, such as advertising agencies, research agencies, and financial institutions, all serve to reinforce market integration.