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Chapter 11Chapter

We live in a global marketplace. McDonald’s sandwiches, Sony con-sumer electronics, Nokia cellular phones, and Caterpillar earthmov-

ing equipment are available for sale around the globe. But ask the aver-age consumer where this global “horn of plenty” comes from, and you’lllikely hear a variety of answers that reflect widely differing perceptions.It’s certainly true that some brands—McDonald’s, Corona Extra,Swatch, Waterford, Benetton, and Dr. Martens, for instance—arestrongly identified with a particular country. In much of the world,McDonald’s is the quintessential American fast-food restaurant, just asDr. Martens are synonymous with British youth culture. But, for manyother products, brands, and companies, the sense of identity with aparticular country is becoming blurred. Which brands are Japanese, orAmerican, or German? Does a Big Mac taste the same everywhere inthe world?

The global marketplace finds expression in subtler ways as well.While shopping, you may have noticed more multi-language labeling onyour favorite products and brands. If you had an Amoco or Standard Oilcredit card, it was recently replaced by a card for BP. When you shop atyour local gourmet coffee store, you may have noticed that some beansare labeled “Free Trade Certified.” You have probably heard or read newsaccounts of anti-globalization protesters disrupting meetings of theWorld Trade Organization in various cities around the globe.

The preceding paragraphs provide some clues to the sweepingtransformation that has profoundly affected the people and industriesof many nations during the past 150 years. Prior to 1840, students sit-ting at their desks would not have had any item in their possession thatwas manufactured more than a few miles from where they lived—withthe possible exception of the books they were reading. Internationaltrade has existed since the beginning of civilization. However, since

Introduction to Global Marketing

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Part I: Introduction

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Global Marketing, Third Edition, by Warren J. Keegan and Mark C. Green. Copyright © 2003 by Pearson Education, Inc.Published by Prentice Hall, Inc.

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2 Part I Introduction

World War II there has been an unparalleled expansion into global marketsby companies that previously served only customers located in theirhome country. Two decades ago, the phrase global marketing did noteven exist. Today, savvy business people utilize global marketing for therealization of their companies’ full commercial potential. That is whyyou may be familiar with the brands mentioned in the preceding para-graph whether you live in Asia, Europe, or North or South America. Butthere is another even more critical reason why companies need to takeglobal marketing seriously—survival. A company that fails to becomeglobal in outlook risks losing its domestic business to competitors withlower costs, more experience, and better products.

Dr. Martens have longbeen popular with rockstars and club kids.Recently, people from allwalks of life—includingthe pope—have taken towearing the ruggedshoes with the distinc-tive yellow “Z Welt”stitching. The brand'sowner, R. Griggs Group,is headquartered inNorthamptonshire, but85 percent of the com-pany‘s footwear salesare generated outside ofthe United Kingdom.


Chapter 1 Introduction to Global Marketing 3

But what is global marketing? How does it differ from “regular” mar-keting? Marketing is the process of planning and executing the concep-tion, pricing, promotion, and distribution of ideas, goods, and services tocreate exchanges that satisfy individual and organization goals.1

Marketing activities center on an organization’s efforts to satisfy cus-tomer wants and needs with products and services that offer competi-tive value. The marketing mix (product, price, place, and promotion) com-prises a contemporary marketer’s primary tools.2 Marketing is a universaldiscipline, as applicable in Argentina as it is in Zimbabwe.

This book is about global marketing. An organization that engages inglobal marketing focuses its resources on global market opportunitiesand threats. One difference between “regular” marketing and “global”marketing is the scope of activities. A company that engages in globalmarketing conducts important business activities outside the home-country market. Another difference is that global marketing involves anunderstanding of specific concepts, considerations, and strategies thatmust be skillfully applied in conjunction with universal marketing funda-mentals to ensure success in global markets. This book concentrateson the major dimensions of global marketing. A brief overview of mar-keting is presented next, although the authors assume that the readerhas completed an introductory marketing course or has equivalentexperience.

OVERVIEW OF MARKETING

1 Peter D. Bennett, ed., Dictionary of Marketing Terms, 2d ed. (Chicago: NTC Business Books, 1995), p. 166.2 For a recent review of the strengths and limitations of the 4P classification, see Walter van

Waterschoot and Christophe Van den Bulte, “The 4P Classification of the Marketing Mix Revisited,”Journal of Marketing 56, no. 4 (October 1992), pp. 83–93.

Marketing can be described as one of the functional areas of a business, distinct fromfinance and operations. Marketing can also be thought of as one of the activities that,along with product design, manufacturing, and transportation logistics, comprise afirm’s value chain. Decisions at every stage, from idea conception to support afterthe sale, should be assessed in terms of their ability to create value for customers.Historically, marketing was considered just another link in the chain. Today, how-ever, many organizations are emphasizing the effective coordination of marketingwith other functional areas. Competitive pressures have prompted many firms toinvolve marketers in design, manufacturing, and other value-related decisions fromthe start. This approach is known in some circles as boundaryless marketing. Ratherthan linking marketing sequentially with other activities, the goal is to eliminate thecommunication barriers between marketing and other functional areas. Properlyimplemented, boundaryless marketing ensures that a marketing orientation perme-ates all value-creating activities in a company. This change in emphasis is reflected inFigure 1-1. GE and other companies that subscribe to the “boundaryless” conceptgive employees at all levels and in all departments the opportunity to be involved inmarketing.



Customer needsand wants R&D Engineering Manufacturing

Marketing

Customervalue

Figure 1-1The Value Chain and Boundaryless Marketing

CUSTOMER VALUE AND THE VALUE EQUATION

3 With certain categories of differentiated goods, including designer clothing and other luxury prod-ucts, higher price is often associated with increased value.

For any organization operating anywhere in the world, the essence of marketing is tosurpass the competition at the task of creating perceived value for customers. Thevalue equation is a guide to this task:

Value � Benefits/Price (money, time, effort, etc.)

The marketing mix is integral to the equation because benefits are a combinationof the product, promotion, and distribution. As a general rule, value as perceived bythe customer can be increased in two basic ways. Markets can offer customers animproved bundle of benefits or lower prices (or both!). Marketers may strive toimprove the product itself, to design new channels of distribution, to create bettercommunications strategies, or a combination of all three. Marketers may also seek toincrease value by finding ways to cut costs and prices. Nonmonetary costs are also afactor, and marketers may be able to decrease the time and effort that customersmust expend to learn about or seek out the product.3 Companies that use price as acompetitive weapon may enjoy an ample supply of low-wage labor or access tocheap raw materials. Companies can also reduce prices if costs are low because ofprocess efficiencies in manufacturing. If a company is able to offer a combination ofsuperior product, distribution, or promotion benefits and lower prices than the com-petition, it enjoys an extremely advantageous position. This is precisely how Toyota,Nissan, and other Japanese automakers made significant gains in the American mar-ket in the 1980s. They offered cars with higher quality and lower prices than thosemade by Chrysler, Ford, and General Motors. Needless to say, to become a marketsuccess a product must measure up to a threshold of acceptable quality. Some ofJapan’s initial auto exports were market failures. In the late 1960s, for example,


Subaru of America began importing the Subaru 360 automobile and offering it forsale with a sticker price of $1,297. After Consumer Reports judged the 360 “not accept-able,” however, sales ground to a halt. Similarly, the Yugo automobile achieved amodest level of U.S. sales in the 1980s (despite a “don’t buy” rating from a consumermagazine) because its sticker price of $3,999 made it the cheapest new car available.Low quality was the primary reason for the market failure of both the Subaru 360and the Yugo.4

Competitive Advantage, Globalization, and Global Industries

When a company succeeds in creating more value for customers than its competitors,that company is said to enjoy competitive advantage in an industry. Competitiveadvantage is measured relative to rivals in a given industry. For example, your locallaundromat is in a local industry; its competitors are local. In a national industry,competitors are national. In a global industry—automobiles, consumer electronics,athletic shoes, watches, pharmaceuticals, steel, furniture, and a host of other sec-tors—the competition is, likewise, global. Global marketing is essential if a companycompetes in a global industry or one that is globalizing. The transformation of for-merly local or national industries into global ones is part of a broader process of glob-alization, which Thomas L. Friedman defines as follows:

Globalization is the inexorable integration of markets, nation-states andtechnologies to a degree never witnessed before—in a way that is enablingindividuals, corporations and nation-states to reach around the world far-ther, faster, deeper and cheaper than ever before, and in a way that isenabling the world to reach into individuals, corporations and nation-statesfarther, faster, deeper, and cheaper than ever before.5

From a marketing point of view, globalization presents companies with tantalizingopportunities—and challenges—as executives decide whether or not to offer theirproducts and services everywhere. At the same time, globalization presents compa-nies with unprecedented opportunities to reconfigure themselves; as JohnMicklethwait and Adrian Wooldridge put it, “the same global bazaar that allowsconsumers to buy the best that the world can offer also allows producers to find thebest partners.”6

What, then, is a global industry? As management guru Michael Porter has noted,a global industry is one in which competitive advantage can be achieved by inte-grating and leveraging operations on a worldwide scale. Put another way, an indus-try is global to the extent that a company’s industry position in one country is inter-dependent with its industry position in other countries. Indicators of globalizationinclude the ratio of cross-border trade to total worldwide production, the ratio ofcross-border investment to total capital investment, and the proportion of industryrevenue generated by companies that compete in all key world regions.7

Achieving competitive advantage in a global industry requires executives andmanagers to maintain a well-defined strategic focus. Focus is simply the concentra-tion of attention on a core business or competence. The importance of focus for a

4 The history of the Subaru 360 is documented in Randall Rothman, Where the Suckers Moon: The Life andDeath of an Advertising Campaign (New York: Vintage Books, 1994), pp. 47–56.

5 Thomas L. Friedman, The Lexus and the Olive Tree (New York: Anchor Books, 2000), p. 9.6 John Micklethwait and Adrian Wooldridge, A Future Perfect: The Challenge and Hidden Promise of

Globalization (New York: Crown Publishers, 2000), p. xxvii.7 Vijay Govindarajan and Anil Gupta, “Setting a Course for the New Global Landscape,” Financial

Times—Mastering Global Business, part I (1998), p. 3.




Based in Atlanta,Georgia, SouthernCompany is the largestproducer of electricity inthe United States. Inresponse to the globaliza-tion of the power indus-try, its Southern Energysubsidiary is activelyacquiring power com-panies in both Asia andEurope.

8 Elizabeth Ashcroft, “Nestlé and the Twenty-First Century,” Harvard Business School Case 9-595-074, 1995. See also Ernest Beck, “Nestlé Feels Little Pressure to Make Big Acquisitions,” The WallStreet Journal (June 22, 2000), p. B4.

global company is evident in the following comment by Helmut Maucher, formerchairman of Nestlé SA:

Nestlé is focused: We are food and beverages. We are not running bicycleshops. Even in food we are not in all fields. There are certain areas we donot touch. For the time being we have no biscuits [cookies] in Europe andthe United States for competitive reasons, and no margarine. We have nosoft drinks because I have said we either buy Coca-Cola or we leave italone. This is focus.8

However, company management may choose to initiate a change in focus aspart of an overall strategy shift. Even Coca-Cola has been forced to sharpen its focuson its core beverage brands. Following sluggish sales in 2000–2001, chief executive


9 Betsey McKay, “Coke’s ‘Think Local’ Strategy has Yet to Prove Itself,” The Wall Street Journal (March 1,2001), p. B6.

10 Robert A. Guth, “How Japan’s Toshiba Got Its Focus Back,” The Wall Street Journal (December 12,2000), p. A6.

11 Bruce Orwall, “Universal Script: Vivendi-Seagram Deal has the Former MCA Playing Familiar Role,”The Wall Street Journal (June 20, 2000), pp. A1, A8.

12 Scott M. Davis, “Great Brands Continue to Find Relevance,” Brandweek (April 16, 2001), p. 16.

Douglas Daft announced a new alliance with Nestlé that will jointly develop andmarket coffees and teas. Daft also outlined plans for transforming Coca-Cola’sMinute Maid unit into a global division that will market juice brands worldwide. AsDaft explained:

We’re a network of brands and businesses. You don’t just want to be a totalbeverage company. Each brand has a different return on investment, is solddifferently, drunk for different reasons, and has different managing struc-tures. If you mix them all together, you lose the focus.9

There are many similar examples of corporate executives addressing the issue offocus, often in response to changes in the global business environment. In recentyears Fiat, Volvo, Electrolux, Toshiba, Colgate and many other companies havestepped up efforts to sharpen their strategic focus on core businesses. Specific actionscan take a number of different forms besides alliances, including mergers, acquisi-tions, divestitures, and folding some businesses into other company divisions.10 In1998, Edgar Bronfman, Jr., the CEO of Montreal-based Seagram Company, paid$1 billion for music giant PolyGram NV and sold the company’s Tropicana orangejuice unit to PepsiCo. Bronfman then sold Chivas Regal and several other major spir-its brands plus Seagram’s wine business to Diageo PLC and Pernod-Ricard SA.Collectively, these transactions shifted Seagram’s focus from beverages to entertain-ment; the combination of PolyGram with Seagram’s MCA record unit created aglobal music powerhouse. In 2000, Bronfman agreed to a $32 billion takeover byFrance’s Vivendi. The resulting company, Vivendi Universal, is tightly focused intwo industry sectors: environmental services and communications. The strategicplan for the communications businesses calls for distributing Universal’s entertain-ment content via an Internet portal that can be accessed by PCs, wireless phones, andother electronic devices.11

IBM originally succeeded in the data processing industry by focusing on cus-tomer needs and wants better than Univac. After decades of success, however, IBMremained focused on mainframe computers, despite customers who were increas-ingly turning to PCs. IBM was a key player in the early days of the PC revolution, butits corporate culture was still oriented toward mainframes. “Big Blue” faltered in theearly 1990s—it lost more than $8 billion in 1993—in part because competitors spe-cializing in PCs had become even more clearly focused on what PC customers neededand wanted—namely, low prices and increased speed. Within a few years, however,new CEO Lou Gerstner succeeded in refocusing the company’s PC business andbroadening its scope to higher-margin products such as servers for electronic com-merce and the Thinkpad laptop. Gerstner and e-business marketing chief AbbyKohnstamm also leveraged IBM’s reputation for providing expertise-based solutionsfor its customers; IBM enjoyed record revenues in 2000 with global services account-ing for a full 50 percent of profits.12

Value, competitive advantage, and the focus required to achieve them are uni-versal in their relevance. They should guide marketing efforts in any part of theworld. Global marketing requires attention to these issues on a worldwide basis andutilization of an information system capable of monitoring the globe for opportunities




SOURCES: William C. Taylor and Alan M. Webber, Going Global: Four Entrepreneurs Map the New World Marketplace (NewYork: Penguin Books USA, 1996), p. 7; Greg Steinmetz and Carl Quintanilla, “Tough Target: Whirlpool Expected Easy Goingin Europe, and It Got a Big Shock,” The Wall Street Journal (April 10, 1998), pp. A1, A6. See also Peter Marsh and Nikki Tait,“Whirlpool’s Platform for Growth,” Financial Times (March 26, 1998), p. 8.

Assessment of an industry’s actual or potential degreeof globalization may vary among companies. RecallingWhirlpool’s assessment of the changing business envi-ronment, CEO David Whitwam noted, “The closer welooked, the more we said to ourselves, ‘This is becom-ing a global industry. One of these days someone isgoing to figure that out and build lots of competitiveadvantage. That someone should be us.’” Today,Whirlpool produces white goods (as major appliancesare known in the industry) in 11 countries and is theonly appliance manufacturer with strategic positions inNorth America, Latin America, Europe, and Asia. Todate, however, the European strategy has not paid off

as expected, as large competitors such as Bosch-Siemens and Electrolux invested heavily in productand efficiency improvements. Meanwhile, Whirlpoolmade marketing and management mistakes. Executiveswere forced to scale back the objective of capturing 20 percent of the European appliance market by 2000.Despite its disappointments, Whirlpool is proceedingwith plans to globalize the development of new prod-ucts by creating “platforms” (core design elements) thatcan be used throughout the world. It is noteworthy thatappliance makers in Japan have not targeted the UnitedStates, in part because they do not share the view thatthe appliance industry is global.

Global Marketing in Action

and threats. A fundamental premise of this book can be stated as follows: Companiesthat understand and engage in global marketing can offer more overall value tocustomers than companies that do not have that understanding. There are manywho share this conviction. For example, C. Samuel Craig and Susan P. Douglasrecently noted:

Globalization is no longer an abstraction but a stark reality. . . . Choosingnot to participate in global markets is no longer an option. All firms, regard-less of their size, have to craft strategies in the broader context of worldmarkets to anticipate, respond, and adapt to the changing configuration ofthese markets.13

GLOBAL MARKETING: WHAT IT IS AND WHAT IT ISN’T

13 C. Samuel Craig and Susan P. Douglas, “Responding to the Challenges of Global Markets: Change,Complexity, Competition, and Conscience,” Columbia Journal of World Business 31, no. 4 (Winter 1996),pp. 6–18.

The discipline of marketing is universal. It is natural, however, that marketing prac-tices will vary from country to country, for the simple reason that the countries andpeoples of the world are different. These differences mean that a marketing approachthat has proven successful in one country will not necessarily succeed in anothercountry. Customer preferences, competitors, channels of distribution, and communi-cation media may differ. An important task in global marketing is learning to recog-nize the extent to which marketing plans and programs can be extended worldwide,as well as the extent to which they must be adapted.

A second important task in global marketing is sorting through controversiesamong both academicians and business practitioners about the nature of the field


14 Joanne Lipman, “Ad Fad: Marketers Turn Sour on Global Sales Pitch Harvard Guru Makes,” The WallStreet Journal (May 12, 1988), p. 1.

15 Kenichi Ohmae, The Borderless World: Power and Strategy (New York: Harper Perennial, 1991), p. 26.16 Nikhil Deogun and Jonathan Karp, “For Coke in India, Thums Up is the Real Thing,” The Wall Street

Journal (April 29, 1998), pp. B1, B2.17 William C. Taylor and Alan M. Webber, Going Global: Four Entrepreneurs Map the New World

Marketplace (New York: Penguin Books USA, 1996), pp. 48–49.

itself. Much of the controversy dates back to Professor Theodore Levitt’s 1983 articlein the Harvard Business Review, “The Globalization of Markets.” Levitt argued thatmarketers were confronted with a “homogeneous global village.” He advised orga-nizations to develop standardized, high-quality world products and market themaround the globe by using standardized advertising, pricing, and distribution. Somewell-publicized failures by Parker Pen and other companies that tried to followLevitt’s advice brought his proposals into question. The business press frequentlyquoted industry observers who disputed Levitt’s views. For example, CarlSpielvogel, chairman and CEO of the Backer Spielvogel Bates Worldwide advertisingagency, told The Wall Street Journal, “Theodore Levitt’s comment about the worldbecoming homogenized is bunk. There are about two products that lend themselvesto global marketing—and one of them is Coca-Cola.”14

Indeed, global marketing made Coke a worldwide success. However, that suc-cess was not based on a total standardization of marketing mix elements. For exam-ple, Coca-Cola achieved success in Japan by spending a great deal of time and moneyto become an insider; that is, the company built a complete local infrastructure withits sales force and vending machine operations. Coke’s success in Japan is a functionof its ability to achieve “global localization,” being as much of an insider as a localcompany but still reaping the benefits that result from world-scale operations.15

Similarly, in India, the company’s local Thums Up cola brand competes with—andeven outsells—the flagship cola.16

What does the phrase global localization really mean? In a nutshell, it means that asuccessful global marketer must have the ability to “think globally and act locally.”As we will see many times in this book, “global” marketing may include a combina-tion of standard (e.g., the actual product itself) and nonstandard (e.g., distribution orpackaging) approaches. A global product may be the same product everywhere andyet different. Global marketing requires marketers to behave in a way that is globaland local at the same time by responding to similarities and differences in world mar-kets. Kenichi Ohmae recently summed up this paradox as follows:

The essence of being a global company is to maintain a kind of tensionwithin the organization without being undone by it. Some companies saythe new world requires homogeneous products—“one size fits all”—every-where. Others say the world requires endless customization—special prod-ucts for every region. The best global companies understand it’s neither andit’s both. They keep the two perspectives in mind simultaneously.17

As the Coca-Cola Company has demonstrated, the ability to think globally andact locally can be a source of competitive advantage. By adapting sales promotion,distribution, and customer service efforts to local needs, Coke established suchstrong brand preference that the company claims a 70 percent share of the soft drinkmarket in Japan. At first, Coca-Cola managers did not understand the Japanese dis-tribution system. However, with considerable investment of time and money, theysucceeded in establishing a sales force that was as effective in Japan as it was in theUnited States. Today, Coca-Cola Japan generates higher profits than the U.S. operation.




18 David McHardy Reid, “Perspectives for International Marketers on the Japanese Market,” Journal ofInternational Marketing 3, no. 1 (1995), p. 74.

19 John A. Quelch and Edward J. Hoff, “Customizing Global Marketing,” Harvard Business Review 64,no. 3 (May-June 1986), p. 59.

To complement cola sales, the Japanese unit has created new products such asGeorgia-brand canned coffee expressly for the Japanese market.18

Coke is a product supported by marketing mix elements that are both global andlocal. In this book, we do not propose that global marketing is a knee-jerk attempt toimpose a totally standardized approach to marketing around the world. A centralissue in global marketing is how to tailor the global marketing concept to fit particu-lar products, businesses, and markets.19

Finally, global marketing does not mean entering every country in the world.Global marketing does mean widening business horizons to encompass the world inscanning for opportunity and threat. The decision to enter markets outside the homecountry depends on a company’s resources, its managerial mind-set, and the natureof opportunity and threat. The Coca-Cola Company’s drink products are distributedin some 200 countries; in fact, the theme of a recent annual report was “A GlobalBusiness System Dedicated to Customer Service.” Coke is the best-known, strongestbrand in the world; its enviable global position has resulted in part from the Coca-Cola Company’s willingness and ability to back its flagship product with a networkof local bottlers and a strong local marketing effort.


NOT AVAILABLE FORELECTRONIC VIEWING

GLOBAL MARKETING STRATEGY COMPANY/HOME COUNTRY

Brand name Coca-Cola (USA); Altria Group (Marlboro, USA); Daimler-Chrysler (Mercedes, Germany); Virgin (Great Britain)

Product/System design McDonald’s (USA); Toyota (Japan); Ford (USA); CiscoSystems (USA)

Product positioning Unilever (UK/Netherlands); Harley-Davidson (USA);Gillette (USA); LVMH (France)

Advertising Philips (Netherlands); Citibank (USA)Packaging Gillette (USA)Distribution Benetton (Italy)Customer service Caterpillar (USA); IBM (USA)Sourcing Toyota (Japan); Honda (Japan); Gap (USA)

Table 1-1Examples ofEffective GlobalMarketing

20 Gregory L. Miles, “Tailoring a Global Product,” International Business (March 1995), p. 50.

A number of other companies have successfully pursued global marketing bycreating strong global brands. The Altria Group (formerly Philip Morris), for example,has made Marlboro the number one cigarette brand in the world. In automobiles,DaimlerChrysler enjoys global recognition for its Mercedes nameplate. However, asshown in Table 1-1, effective global marketing strategies can also be based on productor system design, product positioning, packaging, distribution, customer service, andsourcing considerations. For example, McDonald’s has designed a restaurant systemthat can be set up virtually anywhere in the world. Like Coca-Cola, McDonald’s alsocustomizes its menu offerings in accordance with local eating customs. Cisco Systems,which makes local area network routers that allow computers to communicate witheach other, designs new products that can be programmed to operate under virtuallyany conditions in the world.20 Unilever uses a teddy bear to communicate the benefitsof the company’s fabric softener. Harley-Davidson’s motorcycles are perceivedaround the world as the all-American bike. Gillette uses the same packaging for itsflagship Mach3 razor everywhere in the world. Italy’s Benetton utilizes a sophisti-cated distribution system to quickly deliver the latest fashions to its worldwide net-work of stores. The backbone of Caterpillar’s global success is a network of dealerswho support a promise of “24-hour parts and service” anywhere in the world. About85 percent of Gap’s 3,000 stores are located in the United States, and its design groupis based in New York. However, the company relies on apparel factories in Honduras,the Philippines, India, and other low-wage countries to supply most of its clothing.The success of Honda and Toyota in world markets was initially based on exportingcars from factories in Japan. Now, both companies have invested in manufacturingand assembly facilities in the Americas, Asia, and Europe. From these sites, theautomakers supply customers in the local market and also export to the rest of theworld. For example, each year Honda exports tens of thousands of Accords andCivics from U.S. plants to Japan and dozens of other countries.

The particular approach to global marketing that a company adopts will dependon industry conditions and its source or sources of competitive advantage. ShouldHarley-Davidson start manufacturing motorcycles in a low-wage country such asMexico? Will American consumers continue to snap up American-built Toyotas?Should Gap open more stores in Japan? The answer to these questions is: “It alldepends.” Because Harley’s competitive advantage is based in part on its “Made in




the USA” positioning, shifting production outside the United States is not advisable.The company has opened a new production facility in Kansas and taken a majoritystake in Buell Motorcycle, a manufacturer of “American street bikes.” Toyota’s suc-cess in the United States is partly attributable to its ability to transfer world-classmanufacturing skills to America while using advertising to stress that its Camry isbuilt by Americans with many components purchased from American suppliers.Gap has more than 500 stores outside the United States, including units in Canada,the United Kingdom, Japan, France, and Germany. Japan may present an opportu-nity for Gap to increase revenues and profits in a major non-U.S. market. A recentannual report noted that, in terms of sales revenues, the apparel market outside theUnited States is twice as large as that within the United States. Also, “Americanstyle” is in high demand in Japan and other parts of the world. Gap’s managementteam has responded to this situation by selectively targeting key country markets—especially areas with high population densities—while continuing to concentrate ontrends in the U.S. fashion marketplace. However, recent operating difficulties in thecore U.S. market led to the departure of several executives, suggesting manage-ment’s top priority at this time should be the domestic market.21

THE IMPORTANCE OF GLOBAL MARKETING

21 Gap’s transformation into a global brand is chronicled in Nina Munk, “Gap Gets It,” Fortune (August 3,1998), pp. 68–74�; see also Calmetta Coleman, “Gap is Making Management Changes to Fight SalesSlump,” The Wall Street Journal (November 7, 2000), p. B4.

The largest single market in the world in terms of national income, the United Statesrepresents roughly 25 percent of the total world market for all products and services.Thus, U.S. companies that wish to achieve maximum growth potential must “goglobal” because 75 percent of world market potential is outside their home country.Management at Coca-Cola clearly understands this; about 90 percent of the com-pany’s operating income and two-thirds of revenues are generated by its soft drinkbusiness outside the United States. Non-U.S. companies have an even greater moti-vation to seek market opportunities beyond their own borders; their opportunitiesinclude the 270 million people in the United States. For example, even though thedollar value of the home market for Japanese companies is the second largest in theworld (after the United States), the market outside Japan is 85 percent of the worldpotential for Japanese companies. For European countries, the picture is even moredramatic. Even though Germany is the largest single country market in Europe,94 percent of the world market potential for German companies is outside Germany.

Many companies have recognized the importance of conducting business activi-ties outside the home country. Industries that were essentially national in scope onlya few years ago are dominated today by a handful of global companies. The rise ofthe global corporation closely parallels the rise of the national corporation, whichemerged from the local and regional corporation in the 1880s and 1890s in the UnitedStates. The auto industry provides a dramatic example: In the early twentieth cen-tury, there were thousands of auto companies scattered around the globe. The UnitedStates alone was home to more than 500 automakers. Today, fewer than 20 majorcompanies remain worldwide. A dramatic illustration of the ongoing consolidationin the auto industry is Daimler-Benz’s $36 billion takeover of Chrysler in 1998. Inmost industries, the companies that will survive and prosper in the twenty-first cen-tury will be global enterprises. Some companies that fail to formulate adequateresponses to the challenges and opportunities of globalization will be absorbed by


SOURCES: William Greider, One World, Ready or Not: The Manic Logic of Global Capitalism (Upper Saddle River, NJ: Simon &Schuster, 1997); Greider, “Who Governs Globalism?” The American Prospect, no. 30 (January-February 1997), pp. 73–80.

William Greider believes that the globalization of indus-tries and markets will have some unintended, possiblydire, consequences in the coming years. In his book OneWorld, Ready or Not, Greider describes how the logic ofcommerce and capital in the closing years of the twenti-eth century has created an economic revolution andlaunched great social transformations. As Greider seesit, the message of globalization contains good news andbad news. The good news is that modern technologyand global marketing are enabling people and nationsthroughout the world to leap into the modern era. Thebad news, Greider warns, is that modern technologytends to be more individualistic and anti-egalitarianthan the mass assembly technology that revolutionizedproduction in the first part of the twentieth century. As aresult, disregard for basic human rights and theexploitation of the weak in developing nations mayresult in great social upheavals and, eventually, a break-down in the global system.

One issue that concerns Greider is the fact thatproductivity and revenues at many global corpora-tions have risen dramatically, while overall worldwideemployment has not. Meanwhile, a dispersal of pro-ductive wealth is underway as global corporationsestablish operations in key developing countries likeBrazil and China. Many economists agree that this dis-persal will narrow the gap between poor and richnations. Back in the industrialized nations, however,there is an increasing sense of social distress as work-ers see their plants close and jobs shipped out of thecountry. One byproduct of globalization, Greider

observes, is that it pits the interests of the older, moreprosperous workers against the interests of newlyrecruited, lower-paid workers. Greider warns thatdeeper political instability lies ahead for the UnitedStates, Germany, France, and Britain as workers takeup the fight to save their jobs.

In addition, the globalization of industries such assteel, automobiles, and consumer electronics has cre-ated surplus production capacity on a massive scale.Greider notes that the U.S. economy serves as a sort ofsafety valve for the global system. Because the U.S.market places relatively few restrictions on imports,this “benevolent openness” means that America servesas a “buyer of last resort” by absorbing much of theworld’s excess production. As a result of the chronicimbalance in the trading system, the United Statescontinues to post massive trade deficits that defy con-ventional economic analysis.

What can, or should, be done? Greider argues thatU.S.-based global companies that create jobs overseasat the expense of domestic jobs should not be permit-ted to finance export deals by borrowing from tax-supported agencies such as the Export-Import Bank.At the same time, Greider says that American publicinterest would be better served if government policyshifted away from supporting and underwriting theinterests of global companies and focused instead onjobs and wages. Finally, Greider advocates the use ofemergency tariffs to reduce the trade deficit ifAmerican policymakers are unable to gain more accessin foreign markets to U.S. export.

Open to DebateAre We Ready for “One World”?

more dynamic, visionary enterprises; others will simply disappear. Table 1-2 shows25 of The Wall Street Journal’s top 100 companies in terms of market capitalization—that is, the market value of all shares of stock outstanding. Table 1-3 provides a dif-ferent perspective—the top 25 of Fortune magazine’s 2000 ranking of the 500 largestservice and manufacturing companies by revenues.

Comparing the two tables, one is struck by GE’s strong showing: It is first inmarket capitalization, ninth in revenues, but first in profits. Much credit for this out-standing performance goes to former CEO Jack Welch, who set out in the mid-1980sto globalize his company. Not every company in the tables is truly global, however;Nippon Telegraph and Telephone (NTT), for example, ranks 20th in market capital-ization, 13th in revenues, but 483rd in profit! A downturn in the telecommunicationssector and Japan’s ongoing economic woes help explain the poor profit performance.




COMPANY MARKET VALUE*

1. General Electric (USA) $562,9372. Intel (USA) 453,5413. Cisco Systems (USA) 432,3574. Microsoft (USA) 372,7985. Exxon Mobil (USA) 281,4696. Pfizer (USA) 265,6647. Vodafone Group (USA) 259,2188. Citigroup (USA) 249,2929. NTT DoCoMo (Japan) 242,430

10. Nortel Networks (USA) 233,62511. Wal-Mart Stores (USA) 230,48112. Oracle (USA) 229,24913. International Business Machines (USA) 219,91814. Royal Dutch/Shell Group (UK/Nether.) 215,16415. BP Amoco (UK) 204,79716. American International Group (USA) 201,32017. Nokia (Finland) 191,04118. Sun Microsystems (USA) 186,20519. EMC (USA) 182,56020. Nippon Telegraph & Telephone (Japan) 181,88321. Merck (USA) 171,21622. Toyota Motor (USA) 161,64223. Coca-Cola (USA) 152,83024. SBC Communications (USA) 143,49125. Ericsson (UK) 137,446

*Data reflect market value on August 15, 2000.

Source: “The World’s 100 Largest Public Companies,” The Wall Street Journal(September 25, 2000), p. R24.

Table 1-2The LargestCorporations byMarket Value (US$millions)

Until recently, Japanese regulations severely limited NTT’s reach outside of Japan.After regulations were relaxed in 1999, NTT embarked on a global shopping spree.Acquisitions include Verio Inc., a U.S.-based Internet company; NTT also bought astake in the mobile phone unit of a Dutch company, KPN NV. The company’s strate-gic goal is to become a global company with a strong base in Asia.22 Wal-Mart, theworld’s number-one retailer, currently generates only about 5 percent of revenuesoutside the United States. However, global expansion is the key to the company’sgrowth strategy over the next few years.

Examining the size of individual product markets, measured in terms of annualsales, provides another perspective on global marketing’s importance. Not surpris-ingly, many of the companies identified in Tables 1-2 and 1-3 are key players in theglobal marketplace. Selected markets are shown in Table 1-4.

22 Robert Guth, “Japan’s NTT Steps Up Its Push Into U.S. and Europe,” The Wall Street Journal (May 26,2000), pp. A16, A19.


COMPANY REVENUES PROFITS PROFITS RANK

1. General Motors (USA) $176,558 6,002.0 142. Wal-Mart Stores (USA) 166,809 5,377.0 193. Exxon Mobil (USA) 163,881 7,910.0 54. Ford Motor (USA) 162,558 7,237.0 125. DaimlerChrysler (Germany) 159,985 6,129.1 136. Mitsui (Japan) 118,555 320.5 3307. Mitsubishi (Japan) 117,765 233.7 3678. Toyota Motor (Japan) 115,670 3,653.4 399. General Electric (USA) 111,630 10,717.0 1

10. Itochu (Japan) 109,068 (792.8) 48411. Royal Dutch/Shell Group (UK/Nether.) 105,366 8,584.0 312. Sumimoto (Japan) 95,701 314.9 33113. Nippon Telegraph & Telephone (Japan) 93,591 (609.0) 48314. Marubeni (Japan) 91,807 18.5 44415. AXA (France) 87,645 2,155.8 8616. International Business Machines (USA) 87,548 7,712.0 817. BP Amoco (UK) 83,566 5,008.0 2318. Citigroup (USA) 82,005 9,067.0 219. Volkswagen (Germany) 80,072 874.7 19920. Nippon Life Insurance (Japan) 78,515 3,405.4 4521. Siemens (Germany) 75,337 1,773.7 10422. Allianz (Germany) 74,178 2,382.1 7723. Hitachi (Japan) 71,858 152.0 39624. Matsushita Electrical Industrial (Japan) 65,555 895.5 19525. Nissho Iwai (Japan) 65,393 91.8 416

Source: “The Fortune Global 500,” Fortune (July 24, 2000), p. F1. Figures cited from most recent fiscal year.

Table 1-3The Fortune Global500: LargestCorporations byRevenues (US$millions)

MANAGEMENT ORIENTATIONS

23 Adapted from Howard Perlmutter, “The Tortuous Evolution of the Multinational Corporation,”Columbia Journal of World Business (January-February 1969).

The form and substance of a company’s response to global market opportunitiesdepend greatly on management’s assumptions or beliefs—both conscious andunconscious—about the nature of the world. The world view of a company’s person-nel can be described as ethnocentric, polycentric, regiocentric, and geocentric.23

Management at a company with a prevailing ethnocentric orientation may con-sciously make a decision to move in the direction of geocentricism. The orienta-tions—collectively known as the EPRG framework—are summarized in Figure 1-2.

Ethnocentric Orientation

A person who assumes that his or her home country is superior to the rest of theworld is said to have an ethnocentric orientation. Ethnocentrism is sometimes asso-ciated with attitudes of national arrogance or assumptions of national superiority.



Answers: 1. Japan (Bridgestone), 2. Great Britain (Diageo), 3. Germany (Volkswagen), 4. France (Thomson SA), 5. GreatBritain (Cadbury Schweppes), 6. United States (Ford), 7. Switzerland (Novartis), 8. Great Britain (Allied Domecq), 9. Italy(Benetton), 10. Great Britain (Allied Domecq)

Now that we’ve got you thinking about global mar-keting, it’s time to test your knowledge of global cur-rent events. Some well-known companies andbrands are listed in the left-hand column below. Thequestion is, in what country is the parent corporation

located? Possible answers are shown in the right-hand column. Write the letter corresponding to thecountry of your choice in the space provided; eachcountry can be used more than once. Answers areprovided below.

The Global MarketplaceThe Rest of the Story

PRODUCT OR SERVICE SIZE OF MARKET KEY PLAYERS/BRANDS

Auto parts $720 billion Delphi Automotive Systems (USA); Ford Automotive ProductsOperations (USA); Robert Bosch GmbH (Germany); DensoCorp. (Japan); Aisin Seiki (Japan)

Computers $650 billion IBM (USA); Compaq (USA); Hewlett-Packard (USA); Dell (USA)

Telecommunications $600 billion AT&T (USA); Global One (USA, Germany, France)Internetworking products $470 billion IBM (USA); Microsoft (USA); Oracle (USA); Computer and services Associates (USA); SAP (Germany)Packaging $400 billion Sealed Air (USA); Crown Cork and Seal (USA)Personal financial services $300 billion Citigroup (USA)Cigarettes $295 billion Altria Group (USA); B.A.T Industries (UK); Japan Tobacco

(Japan); Gallaher Group (UK)Computer software $95 billion IBM (USA); Microsoft (USA); Oracle (USA); SAP (Germany)White goods (major appliances) $85 billion Whirlpool (USA); Electrolux (Sweden); Bosch-Siemens

(Germany)Construction equipment $70 billion Caterpillar (USA); Komatsu (Japan); Volvo (Sweden)Luxury goods $39 billion LVMH Group (France); Giorgio Armani (Italy)Recorded music $40 billion PolyGram (Netherlands); Sony (Japan); Warner (USA);

Bertelsmann (Germany); EMI (UK); Vivendi-Universal (France)Pet food $30 billion Iams (Procter & Gamble USA); Ralston Purina (Nestlé

Switzerland); Pedigree (Mars USA)Farm equipment (tractors, $20 billion John Deere (USA); Case (USA); New Holland NV combines, bailers) (Netherlands)

Source: Compiled by the authors.

Table 1-4How Big Is the Market?

____ 1. Firestone Tire & Rubber____ 2. Burger King____ 3. Rolls-Royce____ 4. RCA Electronics____ 5. Dr Pepper____ 6. Jaguar____ 7. Gerber____ 8. Baskin Robbins____ 9. Rollerblade____ 10. Dunkin’ Donuts

a. Germanyb. Francec. Japand. Great Britaine. United Statesf. Switzerlandg. Italy



Ethnocentric:Home country is superior, sees

similarities in foreign countries

Polycentric:Each host country is

unique, sees differences in

foreign countries

Geocentric:World view, sees similarities and

differences in home and host countries

Regiocentric:Sees similarities and differences in a world

region; is ethnocentric or polycentric in its view of

the rest of the world

Figure 1-2ManagementOrientations

Company personnel with an ethnocentric orientation see only similarities in mar-kets, and assume that products and practices that succeed in the home country will besuccessful anywhere. At some companies, the ethnocentric orientation means thatopportunities outside the home country are largely ignored. Such companies aresometimes called domestic companies. Ethnocentric companies that do conduct busi-ness outside the home country can be described as international companies; theyadhere to the notion that the products that succeed in the home country are superior.This point of view leads to a standardized or extension approach to marketingbased on the premise that products can be sold everywhere without adaptation.

In the ethnocentric international company, foreign operations or markets are typ-ically viewed as being secondary or subordinate to domestic ones. (We are using theterm “domestic” to mean the country in which a company is headquartered.) An eth-nocentric company operates under the assumption that “tried and true” headquar-ters knowledge and organizational capabilities can be applied in other parts of theworld. While this can sometimes work to a company’s advantage, valuable manage-rial knowledge and experience in local markets may go unnoticed. For a manufac-turing firm, ethnocentrism may mean foreign markets are viewed as a dumpingground for surplus domestic production. Plans for overseas markets are developedutilizing policies and procedures modeled on those employed at home. Little or nosystematic marketing research is conducted outside the home country, and no majormodifications are made to products. Even if customer needs or wants differ fromthose in the home country, such differences are ignored at headquarters.

Nissan’s ethnocentric orientation was quite apparent during its first few years ofexporting cars and trucks to America. Designed for mild Japanese winters, the vehi-cles were difficult to start in many parts of the United States during the cold wintermonths. In northern Japan, many car owners would put blankets over the hoods oftheir cars. Nissan’s assumption—which turned out to be false—was that Americanswould do the same thing. As a Nissan spokesman said recently, “We tried for a longtime to design cars in Japan and shove them down the American consumer’s throat.



24 Norihiko Shirouzu, “Tailoring World’s Cars to U.S. Tastes,” The Wall Street Journal (January 1, 2001),pp. B1, B6.

25 T. W. Malnight, “Globalization of an Ethnocentric Firm: An Evolutionary Perspective,” StrategicManagement Journal 16, no. 2 (February 1995), p. 125.

26 Robert Mondavi, Harvests of Joy: My Passion for Excellence (New York: Harcourt Brace & Company,1998), p. 333.

27 Saul Hansell, “Uniting the Feudal Lords at Citicorp,” The New York Times (January 16, 1994), Sec. 3, p. 1.

That didn’t work very well.”24 Until the 1980s, Eli Lilly and Company operated as anethnocentric company: Activity outside the United States was tightly controlled byheadquarters and the focus was on selling products originally developed for the U.S.market.25 Similarly, executives at California’s Robert Mondavi Corporation operatedthe company for many years as an ethnocentric international entity. As CEO MichaelMondavi explains:

Robert Mondavi was a local winery that thought locally, grew locally, pro-duced locally, and sold globally . . . To be a truly global company, I believeit’s imperative to grow and produce great wines in the world in the bestwine-growing regions of the world, regardless of the country or the borders.26

Fifty years ago, most business enterprises—and especially those located in alarge country like the United States—could operate quite successfully with an ethno-centric orientation. Today, however, as CEO Mondavi’s words make clear, ethnocen-trism is one of the major internal weaknesses that must be overcome if a company isto transform itself into an effective global competitor.

Polycentric Orientation

Polycentric orientation is the opposite of ethnocentrism. The term polycentricdescribes management’s belief or assumption that each country in which a companydoes business is unique. This assumption lays the groundwork for each subsidiary todevelop its own unique business and marketing strategies in order to succeed; theterm multinational company is often used to describe such a structure. This point ofview leads to a localized or adaptation approach that assumes products must beadapted in response to different market conditions. Until the mid-1990s, Citicorp’sfinancial services around the world operated on a polycentric basis. James Bailey, aCiticorp executive, offered this description of the company: “We were like amedieval state. There was the king and his court and they were in charge, right? No.It was the land barons who were in charge. The king and his court might declare thisor that, but the land barons went and did their thing.”27 Realizing that the financialservices industry was globalizing, then-CEO John Reed attempted to achieve ahigher degree of integration between Citicorp’s operating units. Like Jack Welch atGE, Reed sought to instill a geocentric orientation throughout his company.

Prior to 1994, Ford Motor Company was also organized as a multinational cor-poration. Each of the company’s four geographical regions operated autonomously.That meant four separate development centers, each designing vehicles to be mar-keted in their respective regions. In January 1994, CEO Alex Trotman launched Ford2000, an ambitious reorganization designed to transform Ford into a global companyas opposed to a multinational one. A key element in the plan was the centralizationof worldwide product development. In November 1999, Trotman’s successorannounced plans to reintroduce some of the regional focus. Jacques Nasser’s reversalwas viewed as an effort to ensure that Ford products and the Ford brand are respon-sive to local preferences, especially in Europe.


28 Although the definitions provided here are important, to avoid confusion we will use the term globalmarketing when describing the general activities of global companies. Another note of caution is inorder: Usage of the terms international, multinational, and global varies widely. Alert readers of thebusiness press are likely to recognize inconsistencies; usage does not always reflect the definitionsprovided here. In particular, companies that are (in the view of the authors as well as numerous otheracademics) global, are often described as multinational enterprises (abbreviated MNE) or multinationalcorporations (abbreviated MNC). The United Nations prefers the term transnational company ratherthan global company. When we refer to an “international company” or a “multinational,” we will do soin a way that maintains the distinctions described in the text.

29 Allan J. Morrison, David A. Ricks, and Kendall Roth, “Globalization Versus Regionalization: WhichWay for the Multinational?” Organizational Dynamics (Winter 1991), p. 18.

Regiocentric and Geocentric Orientations

In a company with a regiocentric orientation, a region becomes the relevant geo-graphic unit; management’s goal is to develop an integrated regional strategy. Forexample, a U.S. company that focuses on the countries included in the NorthAmerican Free Trade Agreement (NAFTA)—the United States, Canada, andMexico—has a regiocentric orientation. Similarly, a European company that focusesits attention on Europe is regiocentric. A company with a geocentric orientationviews the entire world as a potential market and strives to develop integrated worldmarket strategies. A company whose management has a regiocentric or geocentricorientation is sometimes known as a global or transnational company.28 A global com-pany can be further described as one that pursues either a strategy of serving worldmarkets from a single country, or that sources globally for the purposes of focusingon select country markets. In addition, global companies tend to retain their associa-tion with a particular headquarters country. Harley-Davidson and Waterford serveworld markets from the United States and Ireland, respectively; Gap sources itsapparel from low-wage countries in all parts of the world and focuses primarily onthe key U.S. market. All three may be thought of as global companies. Transnationalcompanies both serve global markets and source globally; in addition, there is oftena blurring of national identity. A true transnational would be characterized as “state-less.” Toyota is a good example of a company that is coming close to fulfilling the cri-teria of transnationality. At global and transnational companies, management uses acombination of standardized (extension) and localized (adaptation) elements in themarketing program. A key factor that distinguishes global and transnational compa-nies from international or multinational companies is mindset: at global and transna-tional companies, decisions regarding extension and adaptation are not based onassumptions. Rather, such decisions are made on the basis of ongoing research intomarket needs and wants.

Table 1-5 shows a ranking of companies according to an “index of transnational-ity,” which is an average of three figures: sales outside the home country to total sales;assets outside the home country to total assets; and employees outside the home coun-try to total employees. One characteristic that the companies all have in common isthat relatively small home country markets have compelled management to adoptregiocentric or geocentric orientations to achieve revenue and profit growth.

The geocentric orientation represents a synthesis of ethnocentrism and polycen-trism; it is a “world view” that sees similarities and differences in markets and countries,and seeks to create a global strategy that is fully responsive to local needs and wants. Aregiocentric manager might be said to have a world view on a regional scale; the worldoutside the region of interest will be viewed with an ethnocentric or a polycentric orien-tation, or a combination of the two. However, recent research suggests that many com-panies are seeking to strengthen their regional competitiveness rather than movingdirectly to develop global responses to changes in the competitive environment.29




1. Nestlé (Switzerland) 11. SCA (Sweden)2. Thomson Corporation (Canada) 12. Northern Telecom (Canada)3. Holderbank Financiére (Switzerland) 13. GlaxoSmithKline (UK)4. Seagram Company (Canada) 14. Cable & Wireless (UK)5. Solvay (Belgium) 15. Volvo (Sweden)6. ABB (Switzerland) 16. News Corporation (Australia)7. Electrolux (Sweden) 17. Royal Dutch/Shell (UK/Netherlands)8. Unilever (UK/Netherlands) 18. Diageo (UK)9. Royal Philips Electronics (Netherlands) 19. Petrofina (Belgium)

10. Roche Holdings (Switzerland) 20. Saint-Gobain (France)

Source: Alan Rugman, “Multinationals as Regional Flagships,” Financial Times—Mastering GlobalBusiness, Part I (January 30, 1998), p. 8.

Table 1-5Companies Rankedby “Transnationality”

The ethnocentric company is centralized in its marketing management, the poly-centric company is decentralized, and the regiocentric and geocentric companies areintegrated on a regional and global scale, respectively. A crucial difference between theorientations is the underlying assumption for each. The ethnocentric orientation isbased on a belief in home-country superiority. The underlying assumption of the poly-centric approach is that there are so many differences in cultural, economic, and mar-keting conditions in the world that it is futile to attempt to transfer experience acrossnational boundaries. A key challenge facing organizational leaders today is managinga company’s evolution beyond an ethnocentric or polycentric orientation toward aregiocentric or geocentric one. As noted in one recent book on global business, “Themultinational solution encounters problems by ignoring a number of organizationalimpediments to the implementation of a global strategy and underestimating theimpact of global competition.”30 At many companies, management realizes the need tochange. For example, Louis R. Hughes, a General Motors executive, said recently, “Weare on our way to becoming a transnational corporation.” His view was echoed byBasil Drossos, president of GM de Argentina, who noted, “We are talking aboutbecoming a global corporation as opposed to a multinational company; that impliesthat the centers of expertise may reside anywhere they best reside.”31

FORCES AFFECTING GLOBAL INTEGRATIONAND GLOBAL MARKETING

30 Michael A. Yoshino and U. Srinivasa Rangan, Strategic Alliances: An Entrepreneurial Approach toGlobalization (Boston: Harvard Business School Press, 1995), p. 64.

31 Rebecca Blumenstein, “Global Strategy: GM is Building Plants in Developing Nations to Woo NewMarkets,” The Wall Street Journal (August 4, 1997), p. A4.

32 Joseph B. White, “Global Mall: ‘There are No German and American Companies. Only SuccessfulOnes’,” The Wall Street Journal (May 7, 1998), p. A1.

The remarkable growth of the global economy over the past 50 years has beenshaped by the dynamic interplay of various driving and restraining forces. Duringmost of those decades, companies from different parts of the world in different

“There are no Germanand American compa-nies. There are only suc-cessful and unsuccess-ful ones.”—Thomas Middelhoff,Chairman,Bertelsmann AG32


industries achieved great success by pursuing international, multinational, or globalstrategies. During the 1990s, changes in the business environment have presented anumber of challenges to established ways of doing business. Today, the growingimportance of global marketing stems from the fact that driving forces have moremomentum than the restraining forces. The forces affecting global integration areshown in Figure 1-3.32

Regional economic agreements, converging market needs and wants, technologyadvances, pressure to cut costs, pressure to improve quality, improvements in com-munication and transportation technology, global economic growth, and opportuni-ties for leverage all represent important driving forces; any industry subject to theseforces is a candidate for globalization.

Regional Economic Agreements

A number of multilateral trade agreements have accelerated the pace of global inte-gration. NAFTA is already expanding trade among the United States, Canada, andMexico. The General Agreement on Tariffs and Trade (GATT), which was ratified bymore than 120 nations in 1994, has created the World Trade Organization to promoteand protect free trade. In Europe, the expanding membership of the European Unionis lowering boundaries to trade within the region. The creation of a single currencyzone and the introduction of the euro are also expected to dramatically expandEuropean trade in the 21st century.

Market Needs and Wants

A person studying markets around the world will discover cultural universals aswell as differences. The common elements in human nature provide an underlyingbasis for the opportunity to create and serve global markets. The word create is delib-erate. Most global markets do not exist in nature; they must be created by marketingeffort. For example, no one needs soft drinks, and yet today in some countries percapita soft drink consumption exceeds the consumption of water. Marketing hasdriven this change in behavior, and today, the soft drink industry is a truly globalone. Evidence is mounting that consumer needs and wants around the world areconverging today as never before. This creates an opportunity for global marketing.Multinational companies pursuing strategies of product adaptation run the risk offalling victim to global competitors that have recognized opportunities to serveglobal customers.

Driv

ing

forc

es Globalintegration

andGlobal

marketing

Restraining forces

Figure 1-3Driving and Restraining Forces Affecting Global Integration




Until recently, Royal Philips Electronics, headquar-tered in Eindhoven, Netherlands, was a classic exam-ple of a company with a polycentric orientation.Philips relied upon relatively autonomous nationalorganizations (called “NOs” in company parlance) ineach country. Each NO developed its own strategy.This approach worked quite well until Philips facedcompetition from Matsushita and other Japanese con-sumer electronics companies in which management’sorientation was geocentric. The difference in competi-tive advantage between Philips and its Japanese com-petition was dramatic.

For example, Matsushita adopted a global strategythat focused its resources on serving a world market forhome entertainment products. In television receivers,Matsushita offered European customers two basic mod-els based on a single chassis. In contrast, Philips’sEuropean NOs offered customers seven different modelsbased on four different chassis. If customers haddemanded this variety, Philips would have been thestronger competitor. Unfortunately, the product designscreated by the NOs were not based upon customer pref-erences. Customers wanted value in the form of quality,features, design—and price. Philips’s decision to offergreater design variety was based not upon what cus-tomers were asking for but, rather, on Philips’s structureand strategy. Each major country organization had its

own engineering and manufacturing group. Each coun-try unit had its own design and manufacturing opera-tions. This polycentric, multinational approach was partof Philips’s heritage, and was attractive to NOs that hadgrown accustomed to functioning independently.However, the polycentric orientation was irrelevant toconsumers, who were looking for value. They were get-ting more value from Matsushita’s global strategy thanfrom Philips’s multinational strategy. Why? Matsushita’sglobal strategy created value for consumers by loweringcosts, and, in turn, prices.

As a multinational company, Philips squanderedresources in a duplication of effort that led to greaterproduct variety. Variety entailed higher costs whichwere passed on to consumers with no offsettingincrease in consumer benefit. It is easy to understandhow the right strategy resulted in Matsushita’s successin the global consumer electronics industry. Since theMatsushita strategy offered greater customer value,Philips lost market share. Clearly, Philips needed anew company strategy. To meet the Japanese chal-lenge, Philips executives consciously abandoned thepolycentric, multinational approach and adopted amore geocentric orientation. A first step in this direc-tion was to create industry groups in the Netherlandsresponsible for developing global strategies for R&D,marketing, and manufacturing.

Global Marketing In ActionPhilips and Matsushita: How Global Companies Win

Marlboro is an example of an enormously successful global brand. Targeted aturban smokers around the world, the brand appeals to the spirit of freedom, inde-pendence, and open space symbolized by the image of the cowboy in beautiful, openAmerican western settings. Notwithstanding the tobacco industry’s recent legal bat-tle in the United States and the worldwide threat of increased regulation of tobaccoadvertising, Marlboro remains popular throughout the world. The need addressedby Marlboro is universal, and therefore the basic appeal and execution of its adver-tising and positioning are global. Altria (formerly Philip Morris), which marketsMarlboro, is a global company that discovered years ago how the same basic marketneed can be met with a global approach.

Technology

Technology is a universal factor that crosses national and cultural boundaries.Technology is truly “stateless”; there are no cultural boundaries limiting its applica-tion. Once a technology is developed, it soon becomes available virtually every-where in the world. This phenomenon supports Professor Levitt’s prediction con-cerning the emergence of global markets for standardized products. In his HarvardBusiness Review article, Levitt anticipated the communication revolution that has, in


33 Theodore Levitt, “The Globalization of Markets,” Harvard Business Review (May-June, 1983), p. 92.34 John A. Quelch and Lisa R. Klein, “The Internet and International Marketing,” Sloan Management

Review 37, no. 3 (Spring 1996).

fact, become a driving force behind global marketing.33 Satellite dishes and globe-spanning TV networks such as CNN and MTV are just a few of the technology-related factors underlying the emergence of a true global village. In regional marketssuch as Europe, the increasing overlap of advertising across national boundaries andthe mobility of consumers have created opportunities for marketers to pursue pan-European product positionings. The Internet and World Wide Web are also drivingforces. As John Quelch and Lisa Klein have noted, when a company establishes a siteon the Internet, it automatically becomes global, at least in terms of its potential toreach global customers with information.34 At present, Internet usage is heaviest inthe United States. Even as that situation changes, however, many constraints muststill be overcome before Internet merchandise purchase transactions can becomeborderless.

Transportation and Communication Improvements

The time and cost barriers associated with distance have fallen tremendously overthe past 100 years. The jet airplane revolutionized communication by making it pos-sible for people to travel around the world in less than 48 hours. Tourism enablespeople from many countries to see and experience the newest products being soldabroad. International air travel has grown from 75 million passengers annually in1970 to more than 400 million in 1996. One essential characteristic of the effectiveglobal business is face-to-face communication among employees and between thecompany and its customers. Without modern jet travel, such communication wouldbe difficult to accomplish. Today’s information technology allows airline alliancepartners to sell seats on each other’s flights, thereby helping travelers get from pointto point more easily while boosting revenues for companies such as United Airlinesand Lufthansa. Meanwhile, the cost of international telephone calls has fallen dra-matically over the past several decades. That fact, plus the advent of new communi-cation technologies such as e-mail, fax, and video teleconferencing, means that man-agers, executives, and customers can link up electronically from virtually any part ofthe world without traveling at all.

A similar revolution has occurred in transportation technology. The costs associ-ated with physical distribution—both in terms of money and time—have beengreatly reduced as well. The per-unit cost of shipping automobiles from Japan andKorea to the United States by specially designed auto-transport ships is less than thecost of overland shipping from Detroit to either U.S. coast. Another key innovationhas been increased utilization of 20- and 40-foot metal containers that can be trans-ferred from trucks to railroad cars to ships.

Product Development Costs

The pressure for globalization is intense when new products require major invest-ments and long periods of development time. The pharmaceuticals industry providesa striking illustration of this driving force. According to the Pharmaceutical Manu-facturers Association, the cost of developing a new drug in 1976 was $54 million; by1982, the cost had increased to $87 million. By 1993, the cost of developing a new drughad reached $359 million. Such costs must be recovered in the global marketplace,




because no single national market is likely to be large enough to support investmentsof this size. Thus Merck, GlaxoSmithKline, Novartis, Bristol-Myers Squibb, Aventis,and other leading pharmaceutical companies have little choice but to engage in globalmarketing. As noted earlier, however, global marketing does not necessarily meanoperating everywhere; in the $200 billion pharmaceutical industry, for example, sevencountries account for 75 percent of sales. Similarly, in the $40 billion market forrecorded music, 12 countries account for 70 percent of sales.

Quality

Global marketing strategies can generate greater revenue and greater operating mar-gins which, in turn, support design and manufacturing quality. A global and adomestic company may each spend 5 percent of sales on research and development,but the global company may have many times the total revenue of the domesticbecause it serves the world market. It is easy to understand how Nissan, Matsushita,Caterpillar, and other global companies can achieve world-class quality. Global com-panies “raise the bar” for all competitors in an industry. When a global companyestablishes a benchmark in quality, competitors must quickly make their ownimprovements and come up to par. Global competition has forced many U.S. manu-facturers to improve quality; in a 1994 survey conducted by the International MassRetail Association, 85 percent of respondents indicated they believed that U.S.-madegoods had improved in recent years. That is a significant change from 1990, whenonly 67 percent of those surveyed thought the quality of U.S.-made goods hadimproved. For truly global products, uniformity can drive down research, engineer-ing, design, and production costs across business functions. Quality, uniformity, andcost reduction were all driving forces behind Ford’s $6 billion investment in a“World Car,” which is sold in the United States as the Ford Contour and MercuryMystique and in Europe as the Mondeo. The same imperatives drove the 1998 launchof the Ford Focus in Europe; company plans call for offering the Focus in a total of60 countries.

World Economic Trends

Economic growth has been a driving force in the expansion of the international econ-omy and the growth of global marketing for three reasons. First, economic growth inkey developing countries has created market opportunities that provide a majorincentive for companies to expand globally. At the same time, slow growth in indus-trialized countries has compelled management to look abroad for opportunities innations or regions with high rates of growth.

Second, economic growth has reduced resistance that might otherwise havedeveloped in response to the entry of foreign firms into domestic economies. When acountry such as China is experiencing rapid economic growth, policymakers arelikely to look more favorably on outsiders. A growing country means growing mar-kets; there is often plenty of opportunity for everyone. It is possible for a “foreign”company to enter a domestic economy and establish itself without threatening theexistence of local firms. Indeed, the latter can ultimately be strengthened by the newcompetitive environment. Without economic growth, however, global enterprisesmay take business away from domestic ones. Domestic businesses are more likely toseek governmental intervention to protect their local position if markets are notgrowing. Predictably, the worldwide recession of the early 1990s created pressure inmost countries to limit foreign access to domestic markets.


35 Daniel Yergin and Joseph Stanislaw, The Commanding Heights (New York: Simon & Schuster, 1998),p. 13.

The worldwide movement toward free markets, deregulation, and privatizationis a third driving force. The trend toward privatization is opening up formerly closedmarkets; tremendous opportunities are being created as a result. In a recent book,Daniel Yergin and Joseph Stanislaw described these trends as follows:

It is the greatest sale in the history of the world. Governments are gettingout of businesses by disposing of what amounts to trillions of dollars ofassets. Everything is going—from steel plants and phone companies andelectric utilities to airlines and railroads to hotels, restaurants, and night-clubs. It is happening not only in the former Soviet Union, Eastern Europe,and China but also in Western Europe, Asia, Latin America, and Africa—and in the United States.35

For example, when a nation’s telephone company is a state monopoly, it is mucheasier to require it to buy only from national companies. An independent, privatecompany will be more inclined to look for the best offer, regardless of the nationalityof the supplier. Privatization of telephone systems around the world is creating hugeopportunities for companies such as Lucent Technologies and Northern Telcom.

Leverage

A global company possesses the unique opportunity to develop leverage. In the con-text of global marketing, leverage means some type of advantage that a companyenjoys by virtue of the fact that it has experience in more than one country. Leverageallows a company to conserve resources when pursuing opportunities in new geo-graphical markets. In other words, leverage enables a company to expend less time,less effort, or less money. Four important types of leverage are experience transfers,scale economies, resource utilization, and global strategy.

Experience Transfers. A global company can leverage its experience in any marketin the world. It can draw upon management practices, strategies, products,advertising appeals, or sales or promotional ideas that have been market-tested inone country or region and apply them in other comparable markets.

For example, ABB Inc., a giant industrial organization with 1,300 companies in120 countries, has considerable experience with a well-tested management “model”that it transfers across national boundaries. The Zurich-based company knows thata company’s headquarters can be run with a lean staff. When ABB acquired aFinnish company, it reduced the headquarters staff from 880 to 25 between 1986 to1989. Headquarters staff at a German unit was reduced from 1,600 to 100 between1988 to 1989. After acquiring Combustion Engineering (CE) (an American companyproducing powerplant boilers), ABB knew from experience that the headquartersstaff of 800 could be drastically reduced, in spite of the fact that CE had a justifica-tion for every one of the headquarters staff positions. Similarly, Whirlpool has con-siderable experience in the United States dealing with powerful retail buyers suchas Sears and Circuit City. The majority of European appliance retailers have plans toestablish their own cross-border “power” retailing systems; as Whirlpool CEO




36 William C. Taylor and Alan M. Webber, Going Global: Four Entrepreneurs Map the New WorldMarketplace (New York: Penguin USA, 1996), p. 18.

37 E. S. Browning, “Cap Gemini Makes Another Run at the U.S. Market,” The Wall Street Journal(October 25, 1994), p. B4.

David Whitwam explains, “When power retailers take hold in Europe, we will beready for it. The skills we’ve developed here are directly transferable.”36

A company in which a polycentric orientation predominates cannot take advan-tage of experience transfers if each national unit is run like a fiefdom and expertisedoes not diffuse throughout the company. This was the situation at Paris-based CapGemini Sogeti SA, the largest computer-services company in Europe and, along withIBM and EDS, among the top five worldwide. Although the United States accountsfor two-thirds of the world market in computer services, Cap Gemini has not beenamong the key players. Realizing that a change was necessary, management began totransform Cap Gemini into an integrated global company capable of developingsophisticated new computer systems for customers or managing computer systemsas an outside contractor. Company officials in Paris considered the ability to leverageexperience critical to transforming the company.37

Scale Economies. The global company can take advantage of its greater manufacturingvolume to obtain traditional scale advantages within a single factory. Also, finishedproducts can be manufactured by combining components manufactured in scale-efficient plants in different countries. Japan’s giant Matsushita Electric Company is aclassic example of global marketing in action; it achieved scale economies by exportingVCRs, televisions, and other consumer electronics products throughout the world fromworld-scale factories in Japan. The importance of manufacturing scale has diminishedsomewhat as companies implement flexible manufacturing techniques and invest infactories outside the home country. However, scale economies were a cornerstone ofJapanese success in the 1970s and 1980s.

Leverage from scale economies is not limited to manufacturing. Just as a domes-tic company can achieve economies in staffing by eliminating duplicate positions


NOT AVAILABLE FORELECTRONIC VIEWING

38 John Tagliabue, “Renault Pins Its Survival on a Global Gamble,” The New York Times (July 2, 2000), sec. 3, pp. 1, 6.

after an acquisition, a global company can achieve the same economies on a globalscale by centralizing functional activities. The larger scale of the global company alsocreates opportunities to improve corporate staff competence and quality.

Resource Utilization. A major strength of the global company is its ability to scanthe entire world to identify people, money, and raw materials that will enable it tocompete most effectively in world markets. For a global company, it is notproblematic if the value of the “home” currency rises or falls dramatically, becausefor this company there really is no such thing as a home currency. The world is full ofcurrencies, and a global company seeks financial resources on the best availableterms. In turn, it uses them where there is the greatest opportunity to serve a need ata profit.

Global Strategy. The global company’s greatest single advantage can be its globalstrategy. A global strategy is built on an information system that scans the worldbusiness environment to identify opportunities, trends, threats, and resources. Whenopportunities are identified, the global company adheres to the three principlesidentified earlier: It leverages its skills and focuses its resources to create superiorperceived value for customers and achieve competitive advantage. The global strategyis a design to create a winning offering on a global scale. This takes great discipline, muchcreativity, and constant effort. The reward is not just success—it’s survival. For years,French automaker Renault operated as a regional company. However, in an industrydominated by global competitors, chairman Louis Schweitzer had no choice but todevise a global strategy. Recent initiatives include acquiring majority stakes inNissan Motor and Romania’s Dacia; Schweitzer has also invested $1 billion in a plantin Brazil.38 Companies that cannot formulate or successfully implement a coherentglobal strategy may lose their independence, as evidenced by the fortunes ofChrysler, Gerber, Helene Curtis, and others.

Restraining Forces

Despite the impact of the driving forces identified previously, several restrainingforces may slow a company’s efforts to engage in global marketing. In addition to themarket differences discussed earlier, three important restraining forces are manage-ment myopia, organizational culture, and national controls. As we have noted, how-ever, in today’s world the driving forces predominate over the restraining forces.That is why the importance of global marketing is steadily growing.

Management Myopia and Organizational CultureIn many cases, management simply ignores opportunities to pursue global market-ing. A company that is “nearsighted” and ethnocentric will not expand geographi-cally. Myopia is also a recipe for market disaster if headquarters attempts to dictatewhen it should listen. Global marketing does not work without a strong local teamthat can provide information about local market conditions. Executives at Parker Penonce attempted to implement a top-down marketing strategy that ignored experi-ence gained by local market representatives. Costly market failures resulted in



This book has been written for students and businesspersons interested in globalmarketing. Throughout the book, we present and discuss important concepts andtools specifically applicable to global marketing.

The book is divided into five parts. Part I consists of Chapter 1, an overview ofglobal marketing and the basic theory of global marketing. Chapters 2 through 6comprise Part II, in which we cover the environments of global marketing. Chap-ters 2 and 3 cover economic and regional market characteristics, including the loca-tion of income and population, patterns of trade and investment, and stages of mar-ket development. In Chapter 4, social and cultural elements are examined; the legal,political, and regulatory dimensions are presented in Chapter 5. We discuss market-ing information systems and research in Chapter 6.

Part III is devoted to global strategy. Chapter 7 discusses market segmentation,targeting, and positioning. Chapter 8 covers the basics of importing, exporting, andsourcing. Chapters 9 and 10 are devoted to various aspects of global strategy, includ-ing strategy alternatives for market entry and expansion, global strategic partner-ships, and competitive advantage.

Part IV is devoted to global considerations pertaining to the marketing mix. Theapplication of product, price, channel, and marketing communications decisions inresponse to global market opportunity and threat is covered in detail in Chapters 11through 15.

Part V consists of one final chapter. Chapter 16 describes the organization andcontrol of global marketing programs and examines the integrating and managerialdimensions of global marketing: planning, organization, control and the marketingaudit, and strategy implementation. In the final chapter we also offer some thoughtson the future of global marketing.


Parker’s buyout by managers of the former U.K. subsidiary. Eventually, the GilletteCompany acquired Parker.

In companies where subsidiary management “knows it all,” there is no room forvision from the top. In companies where headquarters management is all-knowing,there is no room for local initiative or an in-depth knowledge of local needs and con-ditions. Executives and managers at successful global companies have learned howto integrate global vision and perspective with local market initiative and input. Astriking theme emerged during interviews conducted by one of the authors withexecutives of successful global companies. That theme was the respect for local ini-tiative and input by headquarters executives, and the corresponding respect forheadquarters’ vision by local executives.

National ControlsEvery country protects the commercial interests of local enterprises by maintainingcontrol over market access and entry in both low- and high-tech industries. Suchcontrol ranges from a monopoly controlling access to tobacco markets to nationalgovernment control of broadcast, equipment, and data transmission markets. Today,tariff barriers have been largely removed in the high-income countries, thanks to theWorld Trade Organization (WTO), GATT, NAFTA, and other economic agreements.However, non-tariff barriers (NTBs) such as “Buy Local” campaigns, food safetyrules, and other bureaucratic obstacles still make it difficult for companies to gainaccess to some individual country and regional markets.

OUTLINE OF THIS BOOK



SUMMARY

A company that engages in global marketingfocuses its resources on global market opportuni-ties and threats. Successful global marketers suchas Nestlé, Coca-Cola, and Honda use familiar mar-keting mix elements—the four Ps—to create globalmarketing programs. Marketing, R&D, manufac-turing, and other activities comprise a firm’s valuechain; firms configure these activities to createsuperior customer value on a global basis. Globalcompanies also maintain strategic focus whilerelentlessly pursuing competitive advantage. Themarketing mix, value chain, competitive advan-tage, and focus are universal in their applicability,irrespective of whether a company does businessonly in the home country or has a presence inmany markets around the world. However, in aglobal industry, companies that fail to pursueglobal opportunities risk being pushed aside bystronger global competitors.

Global marketing does not necessarily meanoffering identical products to consumers and orga-nizations in all parts of the world; this issue hasbeen widely debated during the two decades thathave passed since the publication of TheodoreLevitt’s groundbreaking article “The Globalizationof Markets.” The essence of global marketing isfinding the balance between a standardized(extension) approach to the marketing mix and alocalized (adaptation) approach that is responsiveto country or regional differences. Global market-ing strategies can be based on a number of differentelements, including brand names, product design,product positioning, advertising, packaging, distri-bution, customer service, and sourcing.

The importance of global marketing today canbe seen in the company rankings compiled by The

Wall Street Journal, Fortune magazine, FinancialTimes, and other publications. Whether ranked byrevenues, market capitalization, or some othermeasure, most of the world’s major corporationsare active regionally or globally. The size of globalmarkets for individual industries or product cate-gories helps explain why companies “go global.”Global markets for some product categories repre-sent hundreds of billions of dollars in annual sales;other markets are much smaller. Whatever the sizeof the opportunity, successful industry competitorsfind that increasing revenues and profits meansseeking markets outside the home country.

Company management can be classified in termsof its orientation toward the world: ethnocentric,polycentric, regiocentric, or geocentric. An ethnocen-tric orientation characterizes domestic and internationalcompanies; international companies pursue marketingopportunities outside the home market by extendingvarious elements of the marketing mix. A polycentricworld view predominates at a multinational company,where the marketing mix is adapted by country man-agers operating autonomously. Managers at globaland transnational companies are regiocentric or geocen-tric in their orientation and pursue both extensionand adaptation strategies in global markets.

Global marketing’s importance today is shapedby the dynamic interplay of several driving andrestraining forces. The former include market needsand wants, technology, transportation and commu-nication improvements, product costs, quality,world economic trends, and a recognition of oppor-tunities to develop leverage by operating globally.Restraining forces include market differences, man-agement myopia, organizational culture, andnational controls such as nontariff barriers.

DISCUSSION QUESTIONS

1. What are the basic goals of marketing? Arethese goals relevant to global marketing?

2. What is meant by “global localization”? IsCoca-Cola a global product? Explain.

3. Describe some of the global marketing strate-gies available to companies. Give examples ofcompanies that use the different strategies.

4. How do the global marketing strategies ofHarley-Davidson and Toyota differ?

5. Describe the difference between ethnocentric,polycentric, regiocentric, and geocentric man-agement orientations.

6. Identify and briefly describe some of the forcesthat have resulted in increased global integrationand the growing importance of global marketing.

7. Define leverage and explain the different typesof leverage utilized by companies with globaloperations.



SUGGESTED READING

Books

Barnet, Richard J., and John Cavanaugh. Global Dreams:Imperial Corporations and the New World Order. NewYork: Simon & Schuster, 1994.

Bryan, Lowell. Race for the World: Strategies to Build a GreatGlobal Firm. Boston: Harvard Business School Press, 1999.

Burtless, Gary. Globaphobia: Confronting Fears AboutGlobal Trade. Washington, D.C.: Brookings InstitutePress, 1998.

Doremus, Paul. The Myth of the Global Corporation.Princeton, NJ: Princeton University Press, 1998.

Friedman, Thomas L. The Lexus and the Olive Tree. NewYork: Anchor Books, 2000.

Garten, Jeffrey. World View: Global Strategies for the NewEconomy. Cambridge, MA: Harvard University Press.

Greider, William. One World, Ready or Not: The ManicLogic of Global Capitalism. New York: Simon &Schuster, 1997.

Kets de Vries, Manfred F. R., and Ellizabeth Florent-Treacy. The New Global Leaders: Richard Branson, PercyBarnevik, David Simon and the Remaking of InternationalBusiness. San Francisco: Jossey-Bass, 1999.

Micklethwait, John, and Adrian Wooldridge. A FuturePerfect: The Challenge and Hidden Promise ofGlobalization. New York: Crown Publishers, 2000.

Ohmae, Kenichi. The End of the Nation State: The Rise ofRegional Economies. New York: Free Press, 1995.

Ries, Al. Focus: The Future of Your Company Depends on It.New York: Harper Business, 1997.

Taylor, William C., and Alan M. Webber. Going Global:Four Entrepreneurs Map the New World Marketplace.New York: Penguin Books USA, 1996.

Watson, James L., ed., Golden Arches East: McDonald’s inEast Asia. Stanford, CA: Stanford University Press, 1997.

Wendt, Henry. Global Embrace: Corporate Challenges in aTransnational World. New York: HarperBusiness, 1993.

Yergin, Daniel, and Joseph Stanislaw. The CommandingHeights. New York: Simon & Schuster, 1998.

Articles

Bartlett, Christopher A., and Sumantra Ghoshal. “GoingGlobal: Lessons from Late Movers.” Harvard BusinessReview 78, no. 2 (March-April 2000), pp. 132–142.

Bassiry, G. R., and R. Hrair Dekmejian. “America’sGlobal Companies: A Leadership Profile.” BusinessHorizons 36, no. 1 (January-February 1993), pp. 47–53.

Collins, Robert S., and William A. Fischer. “AmericanManufacturing Competitiveness: The View from Europe.”Business Horizons 35, no. 4 (July-August 1992), pp. 15–23.

Craig, C. Samuel, and Susan P. Douglas. “Responding tothe Challenges of Global Markets: Change,Complexity, Competition, and Conscience.” ColumbiaJournal of World Business 31, no. 4 (Winter 1996),pp. 6–18.

Virtually every company mentioned in this chapteris using the Internet as a communications tool. Youcan learn a great deal about a company’s geographicscope and marketing activities by visiting its Website. Many companies also post their annual reportsonline; you can read and print them if your com-puter is equipped with Adobe’s Acrobat software. Acompany’s universal resource locator (URL) is oftenbased on its name (e.g., www.caterpillar.com) or ini-

tials (e.g., www.ibm.com). If, after a couple of tries,you are unable to locate a company’s homepage,consult Hoover’s (www.hoovers.com). You mayalready be familiar with the company’s printed ref-erence book, Hoover’s Handbook. Hoover’s Web siteoffers free Company Capsules that contain basicinformation including names of top executives,headquarters address, annual sales, and links toother corporate Web sites.

GLOBAL MARKETING AND THE WORLD WIDE WEB

Each August, Fortune magazine publishes its sur-vey of the Global 500. The top-ranked companiesfor 2000 are shown in Table 1-3. Browse throughthe list and choose any company that interestsyou. Compare its 2000 ranking with the mostrecent ranking (which you can find either by refer-ring to the print version of Fortune or by visiting

www.fortune.com). How has the company’s rankingchanged? Consult additional sources (e.g., maga-zine articles, annual reports, the company’s Website) to enhance your understanding of the factorsand forces that contributed to the company’s moveup or down in the rankings.

BUILD YOUR GLOBAL MARKETING SKILLS



Franko, Lawrence G. “Global Corporate Competition II:Is the Large American Firm an Endangered Species?”Business Horizons 34, no. 6 (November-December1991), pp. 14–22.

Halal, William E. “Global Strategic Management in aNew World Order.” Business Horizons 36, no. 6(November-December 1993), pp. 5–10.

Hu, Tao-Su. “Global or Stateless Corporations areNational Firms with International Operations.”California Management Review 34, no. 2 (Winter 1992),pp. 107–126.

Kogut, Bruce, and Udo Zander. “Knowledge of the Firmand the Evolutionary Theory of the MultinationalCorporation.” Journal of International Business Studies24, no. 4 (Fourth Quarter 1993), pp. 625–646.

Li, Jiatao, and Stephen Guisinger. “How Well DoForeign Firms Compete in the United States?”Business Horizons 34, no. 6 (November-December1991), pp. 49–53.

Malnight, T.W. “Globalization of an Ethnocentric Firm:An Evolutionary Perspective.” Strategic ManagementJournal 16, no. 2 (February 1995), pp. 119–141.

Morrison, Allen J., David A. Ricks, and Kendall Roth.“Globalization Versus Regionalization: Which Way forthe Multinational?” Organizational Dynamics (Winter1991), pp. 17–29.

Prahalad, C. K., and Kenneth Lieberthal. “The End ofCorporate Imperialism.” Harvard Business Review 76,no. 4 (July-August 1998), pp. 68–79.

Rao, T. R., and G. M. Naidu. “Are the Stages ofInternationalization Empirically Supportable?”Journal of Global Marketing 1, no. 2 (1992), pp. 147–170.

Reid, David McHardy. “Perspectives for InternationalMarketers on the Japanese Market.” Journal ofInternational Marketing 3, no. 1 (1995), pp. 63–84.

Smith, Paul M., and Cynthia D. West. “TheGlobalization of Furniture Industries/Markets,”Journal of Global Marketing 7, no. 3 (1994), pp. 103–132.



2000 1999 1998 1997 1996 1995 1994 1993

U.S. Operating Income $1,773 $1,653 $1,202 $1,211 $1,144a $1,252 $1,217 $1,156Operating Income Outside the U.S.* $1,725 $1,832 $1,716 $1,659 $1,541b $1,397 $1,072 $ 865

*Excludes Canada, Africa, and the Middle East.aIncludes $72 million special charge.bIncludes $16 million asset impairment charge.

Source: Adapted from McDonald’s Corporation Annual Report, 2000.

Table 1McDonald’s Operating Income 1993–2000 (millions)

C A S E S

Case 1-1 McDonald’s Expands Globally WhileAdjusting Its Local Recipe

McDonald’s, a fast-food legend known for quality and ser-vice, is pursuing a global expansion strategy that hasbrought the famous golden arches to more than 120 differ-ent countries. Why go abroad when the company alreadyhas more than 13,000 restaurants in the United States andserves up 40 percent of the hamburgers that Americansconsume? Indeed, in a recent issue devoted to twentiethcentury advertising milestones, Advertising Age magazineranked McDonald’s “You Deserve A Break Today” ad cam-paign as the fifth most popular in the last 100 years. RonaldMcDonald ranked number two on Ad Age’s list of Top TenIcons. However, despite such achievements in advertisingand promotion, per-store operating profits in the UnitedStates have fallen in recent years, as have the percentage ofU.S fast-food dollars spent at McDonald’s.

Outside the United States, the picture appearsbrighter. While overall U.S. sales only increased by 3 per-cent from 1999 to 2000, sales in the Asia/Pacific regionincreased 10 percent. Latin American sales grew 7 percent.From 1999 to 2000, Europe posted a 3 percent decline insales, due in large part to consumer concerns about madcow disease. The higher overall growth outside the UnitedStates reflects, in part, changing lifestyles around the globein which fast food plays an increasingly important role.Also, the competitive picture is different in other countries.The United States boasts 25 hamburger restaurants forevery 100,000 people, but the figure is much lower else-where. In Japan, for example, there are only five ham-burger restaurants per 100,000 people; in many Europeancountries, the ratio is two for every 100,000 people.

McDonald’s has responded by stepping up its rateof new unit openings. In 1991, the company had 3,355units in 53 countries; by the end of 2000, more than17,200 non-U.S. restaurants were in operation. Thesecomprise about 57 percent of the total number of restau-rants (in all, there were 30,200 units worldwide in 2000)and account for about 45 percent of sales. In dollar terms,$18.1 billion of McDonald’s $40 billion in 2000 sys-temwide sales came from outside the United States. Overthe 10-year period from 1987 to 1997, operating profitsfrom outside the United States grew at a compoundannual rate of 23.3 percent, compared with 3.5 percent inthe United States (see Table 1).

ASIA-PACIFIC

McDonald’s opened its first Japanese location in 1972; by1998, the company’s 2,500 locations accounted for about50 percent of the fast-food hamburger market in Japan.Approximately 80 percent of the restaurants are com-pany owned, with about 20 percent operated by fran-chisees (the ratios are reversed in the United States).Skyrocketing real estate and construction costs duringthe so-called bubble years of the late 1980s translatedinto a slow rate of new store openings. As Japan’s econ-omy cooled off in the late 1990s, McDonald’s took advan-tage of lower costs and stepped up the pace of storeopenings. The company is also experimenting with newlocations such as gas stations.

Among the menu items tailored to local palates arethe soy-flavored Teriyaki McBurger and Chicken Tatsuta.


McDonald’s marketing strategy for Japan also containssome global elements. For example, TV ads feature ideal-ized images of family men sharing quality time with thekids while enjoying McDonald’s french fries. Such scenesof family interaction are part of a global campaign thatfeatures consistent images. Even so, they have struck aresponsive chord in Japan where the balance betweenwork life and family life has become a hotly debated topic.

Despite an ongoing price war and so-so results forWendy’s, in 1997 Burger King announced plans to open200 restaurants in Japan over a five-year period.Management acknowledged that the company has lowbrand recognition but hoped to use this fact as anopportunity to position itself as an upscale alternativeto the golden arches. The president of Burger KingJapan intends to bring the company’s flame broilers outof the kitchen and put them up front where customerscan see them.

In fall 1996, McDonald’s opened its first restaurantsin New Delhi and Mumbai. (PepsiCo beat McDonald’sinto India with the June 1995 opening of a Kentucky FriedChicken restaurant in Bangalore.) The golden arches willbe competing with Nirula’s, a local restaurant chain with26 outlets. Because the Hindu religion prohibits eatingbeef, McDonald’s developed the lamb-based MaharajaMac. To accommodate vegetarians, each restaurant hastwo separate food preparation areas. The “green” kitchenis devoted to vegetarian fare such as the McAloo Tikkapotato burger. The meat items are prepared on the redside. Despite the company’s pronouncements that asmuch as 98 percent of the food ingredients would be pro-duced locally, several Hindu nationalist groups protestedthe first restaurant’s opening. India is plagued by powershortages, and companies face restrictions to ensure thatfarmers, hospitals, and other institutions have enough tosustain their operations. At one point shortly after theNew Delhi restaurant opened, officials at the city’s powercompany accused McDonald’s of using nearly three timesmore electricity than it was allotted.

China is currently home to the world’s largestMcDonald’s. The first Chinese location opened in mid-1992 in central Beijing, a few blocks from the infamousTiananmen Square. By mid-1995, McDonald’s had 12 restau-rants in the Chinese capital and 40 throughout the restof the country. The restaurants get 95 percent of theirsupplies—including lettuce—from within China. DespiteMcDonald’s 20-year lease for its central Beijing location,the company found itself in the middle of a disputebetween the central government and Beijing’s city gov-ernment. City officials decided to build a new $1.2 billioncommercial complex in the city center and demanded

that McDonald’s vacate the site. However, central gov-ernment officials had not approved the city’s plans.

McDonald’s has felt the effects of the currency crisisin Asia that started in July 1997. In Indonesia, for example,where the rupiah’s value fell 80 percent, the company wasforced to close 14 of its 101 restaurants as a result of slowsales. An additional six restaurants were destroyed in May1998 in rioting that led to the ouster of President Suharto.Then again, it now costs about 80 percent less to build anew restaurant, thanks to lower labor and real estate costs.McDonald’s also protects itself from currency fluctuationsby purchasing as much as possible from local suppliers.For example, the company’s Singapore locations now buychicken patties from Thailand rather than from the UnitedStates. However, french fries must still be imported fromAustralia or the United States. To help offset higher coststo consumers, McDonald’s offers customers the choice ofrice as a side dish at a lower price.

WESTERN EUROPE

The golden arches are a familiar sight in Europe, particularlyin England, France, and Germany. The company has suf-fered some setbacks, however, particularly in Britain. In1996, a public health scare linked to “mad cow disease”resulted in bans on British beef exports to continentalEurope. Responding to public concerns, McDonald’s imme-diately substituted imported beef at its British restaurants.By mid-1997, convinced that British beef was safe,McDonald’s put it back on the menu. The move wasapplauded by Britain’s beef producers, because McDonald’slocal meat purchases represent $50 million in annual rev-enues. Ironically, no sooner had the beef furor subsided thanBurger King brought its aptly named Big King sandwich(“20 percent more beef than a Big Mac”) to England. In 2000and 2001, concerns over the safety of the meat supply sur-faced again amid an outbreak of hoof and mouth diseaseand ongoing media reports about mad cow disease. Thepublic’s reduced appetite for beef was reflected in decreasesin systemwide sales, revenues, and operating income forMcDonald’s European division in 2000.

Meanwhile, another controversy kept McDonald’s inthe public eye in Britain during the 1990s. The companybecame embroiled in a highly publicized lawsuit thateventually earned the dubious distinction as the longest-running trial in British legal history. McDonald’s suedseveral environmental activists for defamation after theydistributed pamphlets that criticized the company’s foodand environmental policies. The lawsuit quickly took onDavid and Goliath overtones. The defendants, unable toobtain legal aid, represented themselves. McDonald’s, bycontrast, established a legal fund of more than $16 million.



McDonald’s ultimately won the battle; the judge ruledthat the defendants were guilty of defamation andordered them to pay $96,000 in damages.

CENTRAL AND EASTERN EUROPE

On January 31, 1990, after 14 years of negotiation andpreparation, the first Bolshoi Mac went on sale in whatwas then the Soviet Union. The Moscow McDonald’s islocated on Pushkin Square, just a few blocks from theKremlin. It has 700 indoor seats and another 200 out-side. It boasts 800 employees and features a 70-footcounter with 27 cash registers—equivalent to 20 ordi-nary McDonald’s rolled into one. The restaurant servesup 18,000 orders of fries, 12,000 Big Macs, and 11,000apple pies every day. To ensure a steady supply of rawmaterials, the company built a huge processing facilityon the outskirts of Moscow and worked closely withlocal farmers. Despite the turmoil stemming from thedissolution of the Soviet Union and the politicalupheaval in the fall of 1993, to date more than 50 mil-lion sandwiches have been sold at the Pushkin Squarelocation. Meanwhile, two more McDonald’s restau-rants were opened in Moscow in 1993. By 1995, thethree stores were serving a total of 70,000 customerseach day. Ukraine and Belarus are among the othermembers of the Commonwealth of Independent Stateswith newly opened restaurants. McDonald’s has alsoset its sights on Central Europe, where 350 new restau-rants will be opened in Croatia, Slovakia, Romania,and other countries.

“ACTING LOCAL” WITH MCMENU

The menu in Moscow—where “meat and potatoes” arestaples—has the same basic offerings as in the UnitedStates. In other countries, however, McDonald’s hasadapted its fare in response to local tastes. Fried chickenis on the menu in many Asian countries. Other offeringsinclude banana fruit pies in Latin America, Kiwiburger(served with beet root sauce) in New Zealand, beer inGermany, McSpaghetti noodles and a sweeter BurgerMcDo in the Philippines, and chili sauce to go with friesin Singapore. In some countries, McDonald’s changes itsfood preparation methods to comply with religious cus-toms; in Singapore and Malaysia, for example, the beefthat goes into Halal burgers must be slaughtered accord-ing to Muslim law.

McDonald’s has occasionally stumbled in its effortsto promote fast food around the world. A poster that wasdisplayed in dozens of Dutch restaurants in October1991 caused a furor in France, where McDonald’s firstopened its doors in 1979. The poster featured a photo of

five chefs examining a batch of dressed chickens; thecaption indicated that the chefs were actually dreamingof Big Mac sandwiches. The poster caused an uproar fortwo reasons. One of the people in the photo was PaulBocuse, a legendary three-star French chef. Also, thechickens were identified as being from a French regionrenowned for its poultry. All in all, the posters were notwell received in the land of haut cuisine. In a letter ofapology to Bocuse, McDonald’s inadvertently made adiplomatic blunder by attributing its error in part to thefact that Bocuse is not well known in the Netherlands.

McDonald’s continues to move forward with itsexpansion plans. McDonald’s International is orga-nized into four geographic regions: Europe, which cur-rently accounts for about 45 percent of internationalsales; Asia/Pacific, with 34 percent; Latin America,with 9 percent; and Canada, Africa, and the MiddleEast, with 11 percent. McDonald’s recent strategyincluded a unified global advertising campaign—a firstfor the company—used during the 1994 World Cup soc-cer playoffs. In the words of one market analyst,“McDonald’s is similar to Coca-Cola ten years ago. It’son the verge of becoming an international giant, withthe United States as a major market, but overseas as thedriving force.”

REFOCUSING ON THE U.S. MARKET

In January 1996, against this backdrop of internationalexpansion, company executives surprised industryobservers by announcing an aggressive new goal of 3,200new restaurant openings during the year—a rate of nineper day. Despite its emphasis on opening new restau-rants—or perhaps because of it—McDonald’s has posteddisappointing results in the key U.S. market. There havebeen bright spots, such as the company’s wildly success-ful promotions featuring Teenie Beanie Babies and toysbased on characters from Disney movies such as 101Dalmatians. For all its popularity with youngsters, how-ever, McDonald’s is struggling to increase its appeal togrown-ups. The Arch Deluxe sandwich, introduced witha $200 million promotion budget in 1996 and targeted atadults, failed to ring up big sales. The following year, aCampaign 55 promotion angered and confused someconsumers who did not understand that they had to buya drink and french fries to get a Big Mac for 55 cents.Meanwhile, “arch”-competitors Burger King andWendy’s continued to win customers in search of tastier,hotter, made-to-order fast food.

By early 1998, McDonald’s ongoing woes led to amanagement shakeup: Chairman and CEO Michael R.Quinlan relinquished the chief executive position to



Jack M. Greenberg, who had headed McDonald’s USA.Greenberg immediately launched a new food prepara-tion initiative called Made For You. The goal was toimprove customer perceptions of the taste and fresh-ness of menu items. The quest for new ideas to fuelgrowth also prompted executives to make their first for-ays outside the core business. In February 1998,McDonald’s acquired a majority stake in the ChipotleMexican Grill chain. The move signaled McDonald’srecognition both of the increasing popularity of ethnicfoods and of heightened interest among consumers inhealthy eating. In 1998, McDonald’s also acquiredAroma, a coffeehouse chain in London. The acquisitiontrend continued over the next two years as McDonald’ssnapped up Donatos Pizza and Boston Market, a floun-dering chain featuring home-style cooking. As CEOGreenberg conceded, “There are pieces of the businesswe can’t do under the arches. When you’re out withfriends on a Saturday night for pizza and wine, youdon’t go to McDonald’s.” Patrons of Donatos and theother partner brands are offered no hint of theMcDonald’s connection. Greenberg envisions thesepartner brands adding at least 2 percent to McDonald’sgrowth rate within a few years.

As Adrian J. Slywotzky, author of Value Migration,has noted, “McDonald’s needs to move the questionfrom ‘How can we sell more hamburgers?’ to ‘What doesour brand allow us to consider selling to our cus-tomers?’” McDonald’s is addressing this key question inseveral different ways. It has opened a gourmet coffeeshop called McCafé in downtown Chicago. It is also test-ing a diner concept with scores of new menu items suchas meat loaf. A McTreat Spot ice cream parlor wasrecently opened in Houston. The biggest stretch to date,however, is the four star Golden Arch hotel thatMcDonald’s has opened in Zurich.

The new millennium brought additional challengesthat had a direct impact on McDonald’s core business. Asnoted, continuing concern about mad cow disease inEurope has dampened diners’ appetite for hamburgersand other beef items. In spring 2001, McDonald’s wasfaced with a consumer lawsuit from diners who chargedthe company with “fraudulently concealing the existenceof beef in their french fries.” Since 1990, the companyhad touted its fries as being cooked in 100% vegetableoil. In response to the lawsuit, McDonald’s concededthat a small amount of beef extract was added to thepotatoes as they were being processed. ■



1. Does McDonald’s success outside the United Statesprovide support for Levitt’s views about the globalmarketplace?

2. Do you think government officials in developingcountries such as Russia, China, and India welcome

McDonald’s? Do consumers in these countries wel-come McDonald’s? Why or why not?

3. Assess McDonald’s prospects for success beyondthe burger-and-fries model. Do customers care whoowns a company such as Donato’s Pizza?



Case 1-2 Acer Inc.Despite McDonald’s recent problems (see Case 1-1), thecompany’s business model has served as a source ofinspiration for Taiwan businessman Stan Shih. However,Mr. Shih is not in the fast-food business; his company, AcerInc., manufactures and markets personal computers for theconsumer and home office markets as well as chips, moni-tors, keyboards, CD-ROM drives, and other hardware. Justas hungry consumers will shun a restaurant that serveswarmed-over food, most computer buyers want theabsolute latest technology. For more than 15 years, Acermanufactured computers in Taiwan and shipped them todealers throughout the world. By building and marketingcomputers under its own brand name as well as supplyingHitachi, Siemens, and other companies on an “originalequipment manufacturer” (OEM) basis, Acer becameTaiwan’s number-one exporter. Acer’s success also helpedchange the public’s perception that “Made in Taiwan” wassynonymous with cheap, low-tech products.

However, because of the fast pace of technologicalchange in the computer industry, Acer’s PCs sometimesbecame obsolete by the time they were shipped to theirdestinations. Shih realized that one of the keys toMcDonald’s success was the company’s system of deliv-ering beef patties, buns, and other ingredients to localrestaurants, where they are assembled into sandwichesas needed. He decided to decentralize computer assem-bly in nearly three dozen locations around the globe anduse a combination of locally purchased components pluscomponents shipped in from Taiwan. As Shih explains,“We are providing the customer with the freshest tech-nology at the most reasonable price.”

McDonald’s hasn’t been Shih’s only source of inspi-ration. When Shih first founded his company in the1970s, it was called Multitech International Corporation.After a decade, Shih decided a name change was inorder. For one thing, the original name was too long.Another problem: It didn’t convey the image of techni-cal innovation the way names like Sony, BMW, andHonda do. Shih spent two years searching for a newname; a consulting firm helped generate some 20,000possible alternatives. From the short list of finalists,Acer was the top choice for several reasons—it means“sharp” in Latin and implies “energetic” and “capable.”It also sounds like ace, which has a positive connotationfor many people.

Once the name change had been implemented,Shih made a number of deeper changes. He developeda policy of “global brand, local touch,” a break from thetraditional Asian preference for hierarchical, top-downcorporate structures and corporate cultures that stressdeference to authority. Shih realized that hierarchiescouldn’t act quickly enough in the fast-moving com-puter industry. Now Acer is organized into strategicbusiness units for manufacturing and regional businessunits for marketing. Acer’s local management teams inindividual country or regional markets are empoweredto make decisions on a wide range of marketing mixelements. Acer America, for example, is a whollyowned subsidiary, but Marketing Vice PresidentMarlene Williamson was afforded free rein to target thehome-user market segment by distributing Acer’s sleekand stylish Aspire line through the Best Buy chain.

SOURCES: Bruce Horovitz, “McDonald’s Tries a New Recipeto Revive Sales,” USA Today (July 10, 2001), pp. 1A, 2A; GeoffWinestock and Yaroslav Trofimov, “McDonald’s ReassuresItalians About Beef,” The Wall Street Journal (January 16,2001), pp. A3, A6; Kevin Helliker and Richard Gibson, “TheNew Chief is Ordering Up Changes at McDonald’s,” TheWall Street Journal (August 24, 1998), pp. B1, B4; BethanHutton, “Fast-food Group Blows a McBubble in SlowEconomy,” Financial Times (May 8, 1998), p. 24; BruceHorovitz, “ ‘My Job is Always on the Line,’” USA Today(March 16, 1998), p. 8B; David Leonhardt, “McDonald’s: CanIt Regain Its Golden Touch?” Business Week (March 9, 1998),

pp. 70–74�; Richard Tomkins, “When the Chips are Down,”Financial Times (August 16, 1997), p. 13; Yumiko Ono, “JapanWarms to McDonald’s Doting Dad Ads,” The Wall StreetJournal (May 8, 1997), pp. B1, B12; Norihiko Shirouzu,“Whoppers Face Entrenched Foes in Japan: Big Macs,” TheWall Street Journal (February 4, 1997), pp. B1, B5.The following trademarks used herein are the property ofMcDonald’s Corporation and affiliates: Maharaja Mac,Fischmac, McDonald’s, McMenu, Kiwiburger, McSpaghetti,McDo, Big Mac, Arch Deluxe, Chipotle Mexican Grill,Donatos, Boston Market, McCafe, McTreat Spot, GoldenArch Hotel, www.mcdonalds.com

4. Is it realistic to expect that McDonald’s—or anywell-known company—can expand globally with-out occasionally making mistakes or generatingcontroversy?

Visit the Web sitewww.mcdonalds.com


“Local touch” also has financial ramifications:Because joint venture partners have their own invest-ments at stake, Shih believes he can trust them to makeprudent decisions. This trust has paid off handsomely. InSouth Africa, for example, Acer became the number-twobrand by expanding during the shift from apartheid tomajority rule; some competitors marked time out of fearof market volatility. In Mexico, the government’s devalu-ation of the peso in December 1994 prompted severalcomputer companies to cut back on marketing. Man-agers at Acer Computec Latinoamerica adjusted to thenew financial circumstances and, within a year, Acercommanded a 30 percent share of the market.

Back in Taiwan, Shih also made fundamentalchanges in how his company is run. Acer’s executiveteams encouraged employees to speak up and shareideas without bowing their heads in deference to higher-ranking personnel. Simon Lin, the chief executive of theinformation products unit, explained, “Sometimes I haveto keep my opinions to myself so that others will speak.You need to have different voices speak up—that’s howinnovation comes about. I tell our people, ‘You can bringup anything that you want to discuss.’” To encourage afree exchange of ideas, Shih, Lin, and their colleaguespractice “management by wandering around”; that is,they drop in on employees to exchange ideas and gleanbits of information that may not be available throughmore formal channels. Lin says, “We come in to commu-nicate with each other, to create a spirit of teamwork.This is part of our new way of thinking.”

Shih has used a number of different approaches tobuild his company. A joint venture with Texas Instru-ments produces dynamic random-access memory chips(DRAMs) in Hsinchu, Taiwan. Acer acquired CounterpointComputers in the United States and bought a stake inGermany’s Cetec Data Technology. Acer also has builtassembly plants in Australia, Britain, Germany, Japan, theNetherlands, New Zealand, the Philippines, South Korea,and the United States.

Of the regional and global issues that will have animpact on the company, perhaps the most significant isthe economic crisis in Asia that began in 1997. Acer’ssales in the region are likely to suffer as consumer spend-ing falls. Then there are broader geopolitical issuesinvolving Taiwan’s relationship with China, which haslong claimed sovereignty over its smaller neighbor.Taiwan lobbied to join 18 other nations in the Asia-Pacific Economic Cooperation forum. However, thanksto maneuvering by Beijing, Taiwan was allowed to joinonly as “Chinese Taipei.” Similarly, Taiwan’s hopes tojoin the World Trade Organization have been stymied byBeijing’s insistence that mainland China become a mem-

ber first. For now, Taiwan is shut out of the world’s mostimportant organization for resolving trade disputes.

Meanwhile, in the United States, Acer’s market sharefell from nearly 15 percent in 1995 to only 5 percent by theend of 1997. The Aspire line of home PCs failed to achieveprofitability in the face of aggressive price cutting byCompaq and other competitors. Despite a $20 millionadvertising budget in 1996, the Acer brand name is still notnearly as well known as Compaq, Dell, Gateway, IBM, orSony. In 1997, Acer America shifted its communicationemphasis from brand image advertising to product-oriented advertising. Also, more money will be allocated toretail promotions, trade shows, and public relations com-munications efforts. In terms of products, Shih and market-ing VP Williamson hope to achieve more success by target-ing small- and medium-size businesses with a newmodular desktop PC called AcerPower. Shih also acquiredTexas Instrument’s global computer notebook business;the deal brought an 80-person sales force on board.

Despite these setbacks and challenges, Shih con-tinues to set ambitious goals for his company. Onegoal was to be the fifth-largest computer company bythe turn of the century; by mid-1998, Acer alreadyranked number eight. To position Acer for the nextcentury, Shih envisions a corporate structure that hecalls “21 in 21.” Shih intends to break up Acer into aborderless network of 21 independent companies thatmaintain close ties with Taipei. Fortune magazinedescribed Shih’s vision as “a global federation ofhighly autonomous Acer companies.” “Eventually,”Shih said in 1995, “Acer will have a majority of localownership in each country, and no one will be able tosay that we are a Taiwanese company.”

The problems in the U.S. market, however, maymake it more difficult to reach $15 billion in sales by2010. Shih still aspires to challenge Japan’s dominancein the consumer electronics industry. To achieve thesegoals, Shih hopes to move beyond PCs and attainleadership in next-generation low-priced “informa-tion appliances.” One new product is the AcerBasic, acomputer that provides Internet access when hookedup to a television set. By competing in this segment,Acer will come face-to-face with a new set of competi-tors, such as marketing heavyweight Sony. Someindustry observers believe that Shih should concen-trate on supplying PCs to other companies. Shihmaintains, “Brand is critical to our long-term suc-cess.” Some industry observers disagree; as one ana-lyst noted, “Brand name doesn’t bring investors anybenefit.” He advises Stan Shih to give up his dream ofbecoming a global brand. To be blunt, the analystsaid, “I’d pull the plug.” ■




SOURCES: Jonathan Moore and Peter Burrows, “A NewAttack Plan for Acer America,” Business Week (December 8,1997), pp. 82–83; Bradley Johnson, “Struggling Acer ExitsBranding,” Advertising Age (April 7, 1997), p. 19; RichardHalloran, “Parallel Lives,” World Business (November-December 1996), pp. 24–29; Emily Thornton, “TheReckoning,” Far Eastern Economic Review (July 25, 1996),

pp. 74–76; Pete Engardio and Peter Burrows, “Acer: AGlobal Powerhouse,” Business Week (July 1, 1996),pp. 94–96; Dan Shapiro, “Ronald McDonald, Meet StanShih,” Sales & Marketing Management (November 1995),pp. 85–86�; Louis Kraar, “Acer’s Edge: PCs to Go,” Fortune(October 30, 1995), pp. 187–188�.


1. How would you classify Acer in terms of the stagesof development described in Chapter 1?

2. Assess the market potential for Acer’s new lines,including children’s computers, “information appli-ances,” and video game players.

3. Can you think of any risks associated with Shih’svision of “21 in 21”?

4. Advise Shih on global marketing strategy. ShouldAcer continue its quest to establish Acer as a globalconsumer brand, or pull the plug and focus on beinga top-tier supplier to global brand marketers?

Visit the Web sitewww.acer.com



APPENDIX

The 18 Guiding Principles of the Marketing CompanyINTRODUCTIONThe Marketing CompanyWelcome to the global marketplace! Regardless of size,profit, and market strength, every company on the earthhas entered a new era of competition.

The change drivers such as technology, economy,and market conditions have increasingly redefinedalmost every sector of industries, and the way we dobusiness. The advance of information technology hastransformed the marketplace; it has provided industryplayers a vast array of alternatives to compete morestrategically and forcefully.

The dynamic change of economic and social condi-tions have revolutionized consumer behavior and atti-tudes. With a dizzying array of product choices in themarketplace, consumers, to the highest degree, havemore demanding expectations than ever before. They donot just expect a high-quality product; product qualityhas become a norm and requirement. This new breed ofconsumers wants high product quality with an afford-able price within their convenient reach.

The traditional strategy that brought companies suc-cesses will lose applicability in this new marketplace.The conventional disciplines that guaranteed marketleadership during the past years will lose their adaptabil-ity. In order to survive in this new marketplace, compa-nies need a new set of strategies and tools. They need aset of guiding principles that will create a sustainablecompetitive advantage. They need to become a newbreed of company: the Marketing Company!

What is the Marketing Company? As you will soonexplore the characters of the company in the followingpages, it is not just a marketing-oriented company. TheMarketing Company is not just a market-driven com-pany. The Marketing Company is an organization thatadopts the 18 Guiding Principles of the MarketingCompany as its credo—as its guiding values, its princi-ples to compete in the new marketplace. It endures exter-nal and internal change drivers, more demanding cus-tomers, and even fiercer competitors. After all, a newcompetition needs a different kind of rules and princi-ples to survive and win the race. Be ready to rewrite yourcredo or your company will die!

Principle #1—The Principle of the Company: Marketing Is a Strategic Business ConceptThis principle is the first foundation of the MarketingCompany. In the chaotic marketplace in the global econ-omy era, the traditional concept of marketing has lost itsadaptability in market competition. As companies aresqueezed by external change drivers such as technology,economy, and market—and as they face internal organi-zational changes within themselves (shareholders, peo-ple, and organization culture)—marketing is no longerabout selling, advertising, or even the 4Ps introduced byJerome McCarthy.

Marketing should become the strategic business con-cept within corporations. It is no longer functional tasksand responsibilities carried by a department. Marketing isstrategic because it should be formulated by top-level man-agement, long-term oriented, navigate a company’s direction,and hold the responsibilities of creating loyal business cus-tomers (internal, external, and investor customers).

Al Ries, in his book, Focus, says that, “A good ChiefExecutive Officer should also be a Chief MarketingOfficer.” David Packard, a cofounder of Hewlett-Packard, once said that “Marketing is too important for amarketing department.” Peter Drucker long ago envi-sioned that: “Business has only two basic functions: mar-keting and innovation. Marketing and innovation pro-duce results; the rest are cost!”

Admittedly, their statements are definitely true. Inother words, they agree with this first principle:Marketing is a strategic business concept.

Principle #2—The Principle of the Community: Marketing IsEveryone’s BusinessThis principle is the second foundation of theMarketing Company. Within a Marketing Company,marketing should be adopted as a strategic businessconcept. In the company, ideally, the organizationstructure is almost flat and layerless. There is even nomarketing department and function in the MarketingCompany because marketing is not a department, andmarketing as a department is becoming weaker. Therefore,



all departments are marketing departments, and all functionsare marketing functions.

All people within the Marketing Company form acommunity, called a marketing community. So in the com-munity everyone is a marketer, meaning that the responsi-bilities and tasks of acquiring, satisfying, and retainingcustomers lie on the shoulders of everyone. Regardlessof what level and department a person works in, he/sheshould be involved in the process of retaining customers.

New roles such as Accounting–Marketer,Operations–Marketer, R&D–Marketer, Janitor–Marketer,Maintenance–Marketer, and the like will be emerging asthis principle is instilled in the Marketing Company.While their jobs will not be exactly similar, the responsi-bility to create customer loyalty becomes the centraltheme of their work.

Thus, everyone led by the Chief Executive Officer(acting as Chief Marketing Officer) of the company,should march in the same direction. They should carry asimilar mission: It is the responsibility of everyone toattract, satisfy, and retain customers. Everyone is a mar-keter, whatever his/her job description is.

Principle #3—The Principleof Competition: MarketingWar Is About Value WarThis principle is the third foundation of the MarketingCompany. The Marketing Company does not pursueshort-term profits; it creates customer value for long-term relationships. Unfortunately, the company’s princi-ple does not parallel with stockholders’ short-term orien-tation in stock exchange institutions. While they relyupon companies’ quarterly financial reports to buy andsell stocks, the Marketing Company looks beyond thisshort-term time frame for result.

The company regards profit as short term and valuecreation as long term. By continuously and consistentlycreating customer value, the Marketing Company willgenerate profits. Hence, profit follows value. This isbecause marketing war is not merely marketing war.Marketing war is value war.

While value is defined as total get (customer bene-fits) divided by total give (customer expenses), there arefive value-creating formula alternatives to win competi-tion. First, increase benefits and lower expenses. Second,increase benefits and hold expenses constant. Third, holdbenefits constant and lower expenses. Fourth, increasebenefits significantly and increase expenses. Fifth, lowerbenefits and significantly lower expenses.

Though the value impact among the formula alter-natives varies significantly, the core idea behind the prin-ciple remains unchanged: Value is the key to winning

and keeping customers. Therefore, improve customer valueto win the marketing war.

Principle #4—The Principle ofRetention: Concentrate on Loyalty,Not Just on SatisfactionIn addition to the three previous founding principles, theMarketing Company concentrates on loyalty, not just onsatisfaction.

As marketing war becomes value war and as indus-try competition becomes value competition, it is inade-quate for the Marketing Company to concentrate merelyon customer satisfaction. The ultimate objective of theMarketing Company should be customer loyalty.

As we enter the era of choices, there is no guaranteethat satisfied customers will become loyal customers.Satisfaction has increasingly become a commodity. It isonly the process, not the end result. The final goal of theMarketing Company is customer loyalty. Customer loy-alty has become the moving target every MarketingCompany must pursue to remain competitive. Whatmatters most to the Marketing Company is now thequality of profit, not just the quantity of profit. It is alreadyevident that customer attraction activities cost a com-pany much more than a customer retention program;the cost to acquire a new customer will cost more thanretaining one good customer. Profits, therefore, shouldcome more from old, existing customers than from new,first-time buyers.

A company’s profit record, accordingly, provides aninsight on the level of customer loyalty. As customerattraction, customer satisfaction, and customer retentionwill become an endless process of company survival, theultimate effort of the Marketing Company shouldremain clear: Concentrate on loyalty, not just on satisfaction.

Principle #5—The Principle ofIntegration: Concentrate onDifferences, Not Just on AveragesThe Marketing Company concentrates on differences,not just averages.

In order for the Marketing Company to create theloyal customer base mentioned in the first toppingprinciple, it has to concentrate on customers individu-ally. The principle commands the company to buildintimate relationships with customers—intimateenough to learn about customers’ needs and wants;close enough to understand customers’ expectations.In the chaotic competitive setting, every customer willbecome unique.

Underlying this principle is a profound fact that allcustomers are not created equal. Many companies aretempted to think that their customers have roughly simi-


lar needs and wants. This dangerous assumption, how-ever, will lead them to create mediocre and averageoffers for their diversified customers.

The principle emphasizes that by no means are cus-tomers equal. They are uniquely different and their needs aredistinctively diversified. In other words, there are no averagecustomers. The Marketing Company, as a result, has tointegrate itself with customers to create a bonding thatproduces a vivid picture about customers’ needs, wants,and expectations.

There are no average customers. In order to build cus-tomer loyalty, a company has to concentrate on differences, notjust on averages.

Principle #6—The Principle ofAnticipation: Concentrate onProactivity, Not Just on ReactivityThe Marketing Company concentrates on proactivity,not just reactivity.

To fully integrate with customers, as described inthe second topping principle, the Marketing Companyshould be ready for change. It has to be adaptive to thecurrent state of industry. It even should anticipate anychange and be proactive in coping with the change.

Stephen Covey, in his landmark book, The SevenHabits of Highly Effective People, defines proactivity asresponsibility. In this context, responsibility means theability of an organization to choose responses within agiven circumstance and environment. Between a stimu-lus and a response, there is a gap. It is the gap of freedomto react, freedom to choose a response.

Thus, to be competitive, a company has to beready for change in its environment. It has to be ableto anticipate change of technology, economy, and mar-kets. It has to be proactive to operate in an uncertainand unpredictable environment. To be fluid anddynamic operationally, the Marketing Company con-centrates on proactivity, not just reactivity. Be a changeagent, change driver, or even change surpriser to yourcompetitors.

Principle #7—The Principle of Brand:Avoid the Commodity-Like TrapThis is the first value-creating principle of the MarketingCompany. To the company, brand is not just a name, noris it a logo and symbols. Brand is the value indicator of theMarketing Company. It is the umbrella that representsthe product or service, companies, persons, or evencountries. It is determined by the company’s new prod-uct development, customer satisfaction and retention,and value-chain management.

It is the equity of the firm that adds value to prod-ucts and services it offers. It is an asset that creates value

to consumers by enhancing satisfaction and recognitionof quality. With brand, the company is able to liberateitself from the supply–demand curve.

When the firm successfully liberates itself fromthe supply–demand curve, the price of the firm’soffers will not be dependent on the price equilibriumpoint. The firm, as a result, is able to be the price maker,not price taker.

Unfortunately, macroeconomists, to a certain extent,do not realize the power of brand. They view economyfrom a global perspective and derive numbers from amacro point of view. This ignores the most crucial ele-ment of a price driver: brand.

It is brand that determines a price. It is brand thatliberates the company to create values for internal cus-tomers, external customers, and investor customers. Itis brand that indicates a value of the firm’s productsand services. Therefore, use, build, and protect yourbrand. It is the brand that will enable the company to avoidthe commodity-like trap.

Principle #8—The Principle of Service: Avoid the Business-Category TrapThis is the second value-creating principle of theMarketing Company. To the company, service is not justafter-sales service, before-sales service, or even during-sales service. Service is not customer toll-free numbers,maintenance service, or customer service. Service is avalue enhancer of the Marketing Company. It is the para-digm of the company to create a lasting value to cus-tomers through products (small “p”) and services (small“s”). Service in this principle refers to service with a big“S,” not a small “s.” It is the answer to Peter Drucker’squestion: “What business are you in?” The only answer tothe question is: “We are in the service business!” There isonly one business category: service. Why? It is becauseservice means solution. Companies must give the true solu-tion to customers.

Whether the company’s business is a restaurant,hotel, or shoe manufacturing, the only category for allbusinesses must become a service business. To become areal service company, a firm has to continuously enhancethe small “p” and the small “s.” To create a long-lastingvalue and build relationships with customers, the firm’soffers should provide constant value to customers.Therefore, a CEO acting as CMO has the key rolebetween corporate governance and corporate management tocreate, maintain, and even develop this sense of servicethroughout the whole organization.

In this sense, service is a paradigm. It is the spirit of thecompany. It is the attitude to sustain and win tomorrow’s




competition. It is the strategy to avoid the business-categorytrap.

Principle #9—The Principle of Process: Avoid the Function-Orientation TrapThis is the third value-creating principle of theMarketing Company. It refers to the process of creatingvalue to customers. It reflects the product quality, cost,and delivery of a company to customers. It is the valueenabler of a company.

The principle commands the company to be the cap-tain of supply-chain process. It should manage the supply-chain process, from raw materials to finished products,in a way that would enhance value-creating activitiesand reduce and eliminate value-eroding activities withinthe company.

In addition, it requires a firm to be the hub of networkorganizations where it could establish relationships withorganizations that have the potential to add value. Therenowned term for this is strategic alliance. These partner-ing organizations may be the company’s suppliers, cus-tomers, or even competitors. Benchmarking, reengineer-ing, outsourcing, merger, and acquisition are examplesof strategic actions to improve process.

The value-creating drivers such as brand, service,and process (as the value enabler) should not only createvalue to external customers and investor customers, butalso become the credo of internal customers, who are peo-ple. People within the organization should be marketers.They should avoid functional arrogance within the com-pany because everyone holds a similar belief: Customervalue is the end result, not titles and job positions in thecompany. Brand, service, and process as three value-creatingprinciples are drivers to win the heart share of customers.

Principle #10—The Principle of Segmentation: View Your Market CreativelyAnother crucial part of a company: marketing strategy.The strategy comprises three elements, namely segmen-tation, targeting, and positioning. Together they are dri-vers to win shares of customers.

The first element of marketing strategy is Segmenta-tion. A typical definition of segmentation is the process ofsegmenting or partitioning the market into several seg-ments. However, segmentation to us is about viewing amarket creatively. It is about mapping a market into severalcategories by gathering similar behavior of consumersinto a segment. It is the mapping strategy of a company.

Segmentation is an art to identify and pinpointopportunity emerging in the markets. At the same time,it is a science to view the market based on geographic,

demographic, psychographic, and behavior variables or evena segment of one. Whatever segmentation variables areused, please make sure that each person in a segment hassimilar behavior, especially in purchasing, using, or ser-vicing the products.

The Marketing Company should be creative enoughto view a market from a unique angle. It also has toclearly identify the market from an advanced perspec-tive, using segmentation variables. Segmentation is thefirst marketing strategy element. It is the initial step thatdetermines the life of the company. Market opportunitiesare in the eyes of the beholder. In order to exploit the opportu-nity arising in the market, that beholder must first view themarket creatively.

Principle #11—The Principle of Targeting: Allocate YourResources EffectivelyThe second element of marketing strategy is targeting. Bythe traditional definition, targeting is the process ofselecting the right target market for a company’s prod-ucts and services. We, however, define targeting as thestrategy to allocate the company’s resources effectively. Why?Because resources are always limited. It is about how tofit the company within a selected target market segment.Hence, we call it the fitting strategy of a company.

There are several criteria used to select an appropri-ate market segment for the company’s resources. Thefirst criterion is market size. The company has to selectthe market segment that has “good” size to generateexpected financial returns. The bigger the market size,the more lucrative the segment is to the company.

The second criterion used to choose market segmentis growth. The potential growth of a market segment is acrucial attribute for the company. The better and higherthe growth is, the more promising the market segment tothe company.

The third criterion is competitive advantage.Competitive advantage is a way to measure whether thecompany has such strength and expertise to dominatethe chosen market segment.

The fourth criterion is competitive situation. Thecompany has to consider the competition intensitywithin the industry including the number of players,suppliers, and entry barriers. Using these main criteria,the company has to find its “fit” with the right marketsegment.

Principle #12—The Principle of Positioning: Lead Your Customers CrediblyThe third element of marketing strategy is positioning. Bythe traditional definition, positioning is the strategy to


occupy the consumers’ minds with our company’s offer-ings. In this principle, however, we define positioning asthe strategy to lead the company’s customers credibly. It isabout how to establish trustworthiness, confidence, andcompetence for customers. If the company has those ele-ments, customers will then have the “being” of the com-pany or product within their minds. Therefore, position-ing is about the being strategy of the company or productin the customers’ minds. It is about earning customers’trust to make them willingly follow the company.

Yoram Wind, a marketing strategy professor, definespositioning as the reason for being. He advocates that posi-tioning is about defining the company’s identity and per-sonality in the customers’ minds. As we move toward theera of choices, the company can no longer force customersto buy their products; they no longer can manage the cus-tomers. In this era, the company should have credibility inthe minds of customers. Because customers cannot bemanaged, they have to be led. In order to successfully leadcustomers, companies have to have credibility. So posi-tioning is not just about persuading and creating image inthe consumers’ minds, it is about earning consumers’trust. It is about the quest of trustworthiness. It is about creat-ing a being in the consumers’ minds and leading them credibly.

Principle #13—The Principle of Differentiation: Integrate YourContent, Context, and InfrastructureThe first element of marketing tactics is differentiation.Traditionally, differentiation is the act of designing a setof meaningful differences in the company’s offers. To us,this definition by Philip Kotler is still valid. We define dif-ferentiation as “integrating the content, context, andinfrastructure of our offers to customers.” Different prod-ucts are the core tactic of the company to support its posi-tioning. Differentiation, therefore, is the core tactic of theMarketing Company.

As the first marketing tactic element, differentiationshould create a truly different and unique product for cus-tomers. The product not only has to be perceived differ-ently by customers (positioning), it has to be really differ-ent in content, context, and infrastructure (differentiation).

A company can ideally create a unique offer by con-centrating on three aspects of differentiation: content, con-text, and infrastructure. Content (what to offer) is the corebenefit of the product itself. Context (how to offer), inaddition, refers to the way the company offers the prod-uct. Infrastructure (enabler) is the technology, facilities,and people used to create the content and context.

When positioning strategy is not supported by dif-ferentiation, the company may overpromise and under-deliver to customers, which could ruin the company’s

brand and reputation. On the other hand, if the position-ing is supported by differentiation, the company willestablish strong brand integrity. It means the brand imagein the consumers’ minds is similar to brand identity com-municated by companies.

Principle #14—The Principle ofMarketing Mix: Integrate Your Offer,Logistics, and CommunicationsThe second element of marketing tactics is marketing mix.To many practitioners, this is considered as the wholemarketing concept. The 4Ps (product, price, place, pro-motion), initially introduced by Jerome McCarthy, isoften thought of as the complete marketing principle. Tous, marketing mix is only an element of marketing tactic.It is also the tip of an iceberg—the most visible part of thecompany in the market.

The marketing mix, to us, is about integrating thecompany’s offers, logistics, and communications. The com-pany’s offers, consisting of products and prices, shouldwell be integrated with logistics (including channel distri-bution) and communications to create a powerful market-ing force in the marketplace. Therefore, we call it the cre-ation tactic of the company. Why? Because marketing mixhas to be the creation of content–context–infrastructuredifferentiation. There are three types of marketing mixin the market. First is destructive marketing mix. It is mar-keting mix that does not add customer value and doesnot build company’s brand. Second is me-too marketingmix. It is marketing mix that often imitates other existingmarketing mix from other players in an industry.Third is creative marketing mix. It is the marketing mixthat supports the marketing strategy (segmentation–targeting–positioning) and other marketing tactic princi-ples (differentiation–selling) of the company and buildsmarketing value (brand–service–process).

Principle #15—The Principle of Selling: Integrate Your Company,Customers, and RelationshipsThe last element of marketing tactics is selling. The prin-ciple of selling does not refer to personal selling at all,nor is it related to the activities of selling products to cus-tomers. What we mean by selling is “the tactic to createlong-term relationship with customers through com-pany’s products.” It is the tactic to integrate company, cus-tomers, and relationships.

After developing marketing strategy and creatingmarketing mix, the company should be able to generatefinancial returns through selling. Thus, it is the capture tac-tic of the company. There are three main levels of selling:feature selling, benefit selling, and solution selling. As the




choice of products in the marketplace overwhelm cus-tomers, companies have to sell solutions to customers, notjust features and benefits. There is a relevant frameworkcalled customer bonding that emphasizes the importance ofthis principle. In the concept, customers have to gothrough five steps, from consumers to loyalists, as follows:awareness–identity–relationship–community–advocacy.

Hence, consumers should be made aware of ourproducts and drive them to become advocacies. Theprinciple of differentiation, marketing mix, and sellingare drivers to win the market share.

Principle #16—The Principle of Totality: Balance Your Strategy,Tactics, and ValueAfter focusing on the nine core elements of marketing (seg-mentation, targeting, positioning, differentiation, market-ing mix, selling, brand, service, and process) individually,in the implementation, the Marketing Company should beable to balance those elements operationally as well asstrategically. The Marketing Company should be able tobalance the strategy, tactic, and value in the implementa-tion. Marketing strategy is about how to win the mind share.Marketing tactic is about how to win the market share.Marketing value is about how to win the heart share.Together, they will win the mind, heart, and market shares.

As the business environment changes dynamically,the strategy, tactic, and value of the company may not beas precise as when it was developed. The maneuvers ofcompetitors, the revolution of technology, and thechanges in consumer behavior will require the companyto adjust and readjust the strategy, tactic, and value. Itdemands the company to align strategy, tactic, and valueto adapt to the most current business environment. Thedynamic business environment will necessitate the com-pany to constantly monitor or review the balance ofstrategy, tactic, and value; to build the totality of thebusiness. The Marketing Company should also balancethe time allocation in strategy, tactic, and value activities.

Principle #17—The Principle of Agility: Integrate Your What, Why, and HowTo operate in a competitive, dynamic environment, wheretechnology, consumer behavior, and competitor movementchange in a chaotic pattern, a company has to be agile tosurvive. The question, then, is, “What does it take to be agile?”

In this principle, an agile company continuallyengages in three main activities: First, it constantly mon-itors the competitors’ movement and consumer behavior(what). It has marketing intelligence and informationsystems to take a picture of the business environment.Second, it continuously uses and analyzes the informa-

tion gathered from the first activity to get a useful insightabout the environment (why). Third, the gathered andanalyzed information is incorporated in its strategy andtactic development process (how).

To put it simply, an agile company monitors, scans,and reviews the business environment continually. Itanalyzes the information and uses it to respond and pre-empt the competitor movement.

This principle will allow the company to be informedabout the changes in the marketplace. This principle willallow the company to be not just a change agent and achange driver, but also a change surpriser. Achange surpriseris a company who is agile. It is the organization that can bal-ance what, why, and how. Balance your time allocation onwhat–why–how activities in the implementation.

Principle #18—The Principle of Utility:Integrate Your Present, Future,and GapThe Marketing Company does not just create profit fortoday and lose tomorrow. It does not just think abouttomorrow and forget about today. The MarketingCompany knows exactly the utility to integrate the pres-ent, future, and gap.

Together with the principles of totality and agility,utility is the driver to win the activity share, which is impor-tant, as mentioned by Michael Porter in one of his writ-ings in Harvard Business Review. In the implementation,finally, the Marketing Company can successfully balancepresent activities, future activities, and gap activities.

Present activities are about today’s products, whichcreate profit by servicing today’s customers. Futureactivities, meanwhile, are about developing tomorrow’sproducts, which create sustainable growth by servicingtomorrow’s different customers.

Gap activities are about enhancing capabilities ofthe technology and people, internally and externally, orby creating a strategic alliance or merger and acquisitionin order to create future’s activities.

Living by this principle, the company can maintainits competitiveness today and tomorrow and pursuewhatever it lacks (the gap) to stay competitive in thepresent and future.

FINAL THOUGHTThe Company MakingThroughout this writing, we have learned about the newprinciples of marketing. It is not just a set of static princi-ples. It is a set of dynamic, guiding principles of theMarketing Company.

The 18 principles are organized around six dimen-sions—Foundation, Topping, Strategy, Tactic, Value, and


Implementation—in which each dimension containsthree principles.

Using these principles, a company’s transformationfrom production oriented, selling oriented, marketingoriented, and market driven to a customer-driven com-pany should be clearly guided along the way to becomethe Marketing Company.

The making of the Marketing Company involvesstrategic processes and steps as follows: The companyshould conduct an internal and external marketingaudit. The results of the audit will produce what we callCAP (company alignment profile) and CSP (competitivesetting profile). The gap between CAP and CSP portrayswhat the company should do.

In addition, the Marketing Company should adoptthe 18 Guiding Principles as the corporate guiding credoand value that determine how it should act and react inthe marketplace. The set of principles should become theguidance, culture, and foundation to live by.

Furthermore, the Marketing Company should benavigated by top management or a CEO (ChiefExecutive Officer) who acts as a CMO (Chief MarketingOfficer). How the company behaves in the market-place—and which direction it should take—must bedecided by the top management based on the gap.

One final word: The Marketing Company is not a destina-tion. It is not a goal or objective. Becoming the MarketingCompany is a process. It is the never-ending pursuit of

excellence. It is a moving target every company should pur-sue if it wants to survive and become competitive.

The Anatomy of MarketingMany people who come to the subject of marketing withlittle or no business experiences think of it as a study of sell-ing. Those who already have extensive professional experi-ence or have undergone intensive academic training regardmarketing as marketing mix. We at MarkPlus define mar-keting with three strategic dimensions: marketing strategy,marketing tactic, and marketing value (STV). The inte-grated concept of marketing is illustrated in Figure 1A.1.

In the global marketplace of the new millennium, mar-keting should be redefined to reflect the increasingly inten-sified competition in almost every sector of industries.

Marketing Strategy: How to Win the Mind ShareMarketing strategy is the first dimension in the market-ing concept. Its role is to win the mind share of consumers.Because of its strategic importance, it is in the StrategicBusiness Unit (SBU) level of a company.

The first element of marketing strategy is seg-mentation. Segmentation is defined as a way to viewa market creatively. We call it the mapping strategy of acompany.

After the market is mapped and segmented intogroups of potential customers with similar characteristics


Segmentation

SPositioningTargeting

Differentiation

TSelling Marketing

mix

Brand

C

C

CC

VProcess Service

What

HowWhy

MarketingMarketing

Figure 1A.1Strategy, Tactic,and Value Model



and behavior, the company needs to select which seg-ments to enter. This act is called targeting, which is thesecond element of the marketing strategy. Targeting isdefined as a way to allocate company’s resources effec-tively—by selecting the right target market. We alsodefine it as a company’s fitting strategy.

The 18 Guiding Principles of the Marketing CompanyRewrite your credo or your company will die.

1. The Principle of the Company Marketing Is aStrategic Business Concept

2. The Principle of the Community Marketing IsEveryone’s Business

3. The Principle of Competition Marketing War Isabout Value War

4. The Principle of Retention Concentrate onLoyalty, Not Just on Satisfaction

5. The Principle of Integration Concentrate onDifferences, Not Just on Averages

6. The Principle of Anticipation Concentrate onProactivity, Not Just on Reactivity

7. The Principle of Brand Avoid the Commodity-like Trap

8. The Principle of Service Avoid the Business-Category Trap

9. The Principle of Process Avoid the Function-Orientation Trap

10. The Principle of Segmentation View Your MarketCreatively

11. The Principle of Targeting Allocate YourResources Effectively

12. The Principle of Positioning Lead YourCustomers Credibly

13. The Principle of Differentiation Integrate YourContent, Context, and Infrastructure

14. The Principle of the Marketing Mix IntegrateYour Offer, Logistics, and Communications

15. The Principle of Selling Integrate Your Company,Customers, and Relationships

16. The Principle of Totality Balance Your Strategy,Tactic, and Value

17. The Principle of Agility Balance Your What, Why,and How

18. The Principle of Utility Balance Your Present,Future, and Gap

The last element of strategy is positioning. Position-ing is defined as a way to lead customers credibly. Wecall it the being strategy of a company. After mapping themarket and fitting the company’s resources into itsselected market segment, a company has to define itsbeing in the mind of the target market—in order to have acredible position in their minds.

Marketing Tactic: How to Win the Market ShareThe second dimension of The STV Model is marketingtactic. Marketing tactic, because of its role, is regarded aselements to win the market share. Whereas marketingstrategy is in the SBU level, marketing tactics occur in theoperational level.

The first element of marketing tactic is differentia-tion. Differentiation is the core tactic to differentiate thecontent, context, and infrastructure of a company’s offersto the target markets. Meanwhile, we call marketing mixa creation tactic, which integrates a company’s offer, logis-tics, and communications. Selling, furthermore, is thethird element of marketing tactic, which we define as thecapture tactic to generate cash inflows for the companyand to integrate the customer and company in a long-term, satisfying relationship.

Marketing Value: How to Win the Heart ShareMarketing value is the last dimension of The STV Model.It is the corporate-level responsibility and is intended towin the heart share of target markets.

The first element of marketing value is brand. Brand isthe value indicator of a company, which enables the companyto avoid the commodity trap. Service is the second elementof marketing. It is the paradigm of a company to alwaysmeet or exceed the customers’ needs, wants, and expecta-tions. We define it as the value enhancer of a company.

The last element of marketing value is process. It is thevalue enabler of a company that enables it to deliver value tocustomers through the process within and without the firm.


1. What do you think of The 18 Guiding Principlesof the Marketing Company? How do these princi-ples compare to the marketing concepts and prin-ciples that you learned in your basic marketingcourse or that you have acquired through yourexperience as a marketer?

2. Hermawan Kartajaya is an Asian marketer. Do his18 Guiding Principles apply in your country? Is

marketing a universal discipline? Do the marketingconcepts, tools, and methods that are used in ahome country need to be modified or changedwhen used in other countries? Explain your answer.

3. What, in your view, are the key principles ofmarketing? List your principles (no more thansix), and explain their importance to marketingsuccess.


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