Ignighter.com is an Internet start-up that surprised its founders by appealing to traditional practices far from its home base in New York City. Dan Osit, Kevin Owocki, and Adam Sachs created Ignighter.com as a dating site that would make dating “safer, less awkward, and more fun.” Its distinction was the founders’ assumption that dating would be more comfort- able if the individuals met up with others in a group. Thus one customer coordinates a date by inviting a group of people to join him or her for an outing.
After a year, 50,000 people in the United States had registered for the service—not an embarrassing start, but also not enough for a viable business. It turned out that many people in the target group—singles in their twenties—were confused by the concept. But Osit studied user data and picked up on an unexpected trend: the site was generating a lot of traffic from Singapore, Malaysia, India, and South Korea. At first the founders brushed off that information as just a quirk.
The trend persisted, however, especially in India, where hundreds of users were signing up for Ignighter every day. After another year, the founders acknowledged that they had accidentally created a website for dating Indian-style. In many parts of India, young people are not supposed to be out with someone from the opposite sex; but from their exposure to Western media, the idea of dating appeals to them. Group outings meet their desire in a socially acceptable way. With that realization, Ignighter’s founders laid plans to hire employ- ees in India and let the U.S. website coast. 41
• How might Ignighter’s founders have prepared better for local responsiveness?
left side of the road, creating a demand for right-hand-drive cars, whereas in neigh- boring France, people drive on the right side of the road. Obviously, automobiles must be customized to accommodate this difference in traditional practices.
Differences in distribution channels and sales practices among countries also may create pressures for local responsiveness. In India, people are used to buying their groceries at small, local shops, creating challenges for Walmart as it develops plans to open supermarkets and larger stores in that country. 42 Cinnabon had to adjust its approach to retailing when it moved into the Middle East and Russia. The company had found customers in the United States by setting up in malls, but Middle Eastern and Russian consumers have less of a culture of entertaining themselves with a visit to the mall. So in those locations, Cinnabon shops are more likely to be storefronts in shopping districts. 43
Finally, economic and political demands that host-country governments impose may necessitate a degree of local responsiveness. Most important, threats of pro- tectionism, economic nationalism, and local content rules (rules requiring that a certain percentage of a product be manufactured locally) dictate that international companies manufacture locally. For example, countries may impose tariffs (taxes on imports) or quotas (restrictions on the number of imports allowed into a country) to protect domestic industries from foreign competition perceived to be unfair or not in the nation’s interests. Recently, the United States began imposing tariffs on paper imported from China. The U.S. government justified the tariffs as a response to com- plaints that the Chinese companies were selling the paper below the cost of the raw materials, presumably because the Chinese government was subsidizing the indus- try. Others interpret this and other protectionist actions as being motivated primarily by political objectives. 44 Whatever the reasons for them, tariffs and quotas influence managers’ decisions about whether it is economically advantageous, or even possible, to operate locally or rely on exporting.
Choosing a Global Strategy
As Figure 6.5 shows, managers can use four approaches to international compe- tition, depending on their company’s position on the integration–responsiveness grid: the international model, the multinational model, the global model, and the transnational model. Organizations in each model compete globally, but they differ in the strategy they use and in the structure and systems that drive their operations.
The International Model In the international model, managers use their organization’s existing core capabilities to expand into foreign markets. As the grid suggests, it is most appropriate when there are few pressures for economies of scale or local responsiveness. Pfizer is an example of a company operating in the international model. It is in an industry that doesn’t compete on cost, and its drugs obviously don’t need to be tailored for local tastes. The international model uses subsidiaries in each country in which the company does business, with ultimate control exercised by the parent company. In particular, although subsidiaries may have some latitude to adapt products to local conditions, core functions such as research and development tend to be centralized in the parent company. Consequently, the dependence of subsidiaries on the parent company for new products, processes, and ideas requires a great deal of coordination and control by the parent company.
The advantage of this model is that it facilitates the transfer of skills and know-how from the parent company to subsidiaries around the globe. For example, IBM and Xerox profited from the transfer of their core skills in technology and research and development (R&D) overseas. The overseas successes of Kellogg, Coca-Cola, Heinz, and Procter & Gamble are based more on marketing know-how than on technological international model
An organizational model that is composed of a company’s overseas subsidiaries and characterized by greater control by the parent company over the research function and local product and marketing strategies than is the case in the multinational model.
Bottom Line
The international model helps spread quality and service standards globally. Give an example of a product for which quality standards would apply globally.
expertise. Toyota and Honda success- fully penetrated U.S. markets from their base in Japan with their core competencies in manufacturing rela- tive to local competitors. Still other companies have based their competi- tive advantage on general manage- ment skills. These factors explain the growth of international hotel chains such as Hilton International, Inter- continental, and Sheraton.
One disadvantage of the interna- tional model is that it does not provide maximum latitude for responding to local conditions. In addition, it fre- quently does not provide the oppor- tunity to achieve a low-cost position via scale economies.
The Multinational Model Where global efficiency is not required but adapting to local conditions offers advantages, the multinational model is appro- priate. The multinational model, sometimes referred to as multidomestic, uses subsidiaries in each country in which the company does business and provides a great deal of discretion to those subsidiaries to respond to local conditions. Each local subsidiary is a self-contained unit with all the functions required for oper- ating in the host market. Thus each subsidiary has its own manufacturing, mar- keting, research, and human resources functions. Because of this autonomy, each multinational subsidiary can customize its products and strategies according to the tastes and preferences of local consumers; the competitive conditions; and political, legal, and social structures.
A good example of a multinational firm is Heineken, a Netherlands-based brewing company. Heineken has three major global brands—Heineken, Amstel, and Murphy’s Stout—but it also offers regional and local brands. The company understands that every country is unique, with its own culture and business practices. So it attempts to adapt its products to local attitudes and tastes while maintaining its high quality.
As a result, the company produces more than 170 brands around the world, from its international brands to local and specialty brews. The localized portfolio includes such brands as Primus and Star in Africa, Vitamalt and Piton in the Caribbean, and Tiger in Asia. Individual countries have considerable autonomy in the beer that is brewed locally. 45
A major disadvantage of the multinational form is higher manufacturing costs and duplication of effort. Although a multinational can transfer core skills among its inter- national operations, it cannot realize scale economies from centralizing manufactur- ing facilities and offering a standardized product to the global marketplace. Moreover, because a multinational approach tends to decentralize strategy decisions (discussed further in Chapters 8 and 9), launching coordinated global attacks against competitors is difficult. This can be a significant disadvantage when competitors have this ability.
The Global Model The global model is designed to enable a company to market a standardized product in the global marketplace and to manufacture that product in a limited number of locations where the mix of costs and skills is most favorable. The global model has been adopted by companies that view the world as one market and assume that no tangible differences exist among countries with regard to consumer
multinational model An organizational model that consists of the subsidiaries in each country in which a company does business and provides a great deal of discretion to those subsidiaries to respond to local conditions.
Bottom Line
The multinational model helps speed up local response. What kind of product might experience rapid changes in local demand?
In this ad, Toyota counters the perception that foreign auto com- panies take jobs from Americans.
The production line above is actu- ally its Georgetown, KY, manu- facturing plant. According to the organizational model in Figure 6.5 , what type of company is Toyota?
tastes and preferences. Procter & Gamble, for example, has been successful in Europe against Unilever because i t has approached the entire continent as a unified whole.
As part of its effort to improve efficiency while broadening its appeal, Ford recently launched a line of compact cars under the Ford Focus brand as the company’s first truly global product. The Focus models include hybrid, plug-in hybrid, and electric cars, and promotional plans are built around a unified advertising campaign highlight- ing technology features. 46
Companies that adopt the global model tend to construct global-scale manufactur- ing facilities in a few selected locations so they can realize scale economies. These scale economies come from spreading the fixed costs of investments in new product devel- opment, plants and equipment, and the like over worldwide sales. By using centralized manufacturing facilities and global marketing strategies, Sony was able to push down its unit costs to the point where it became the low-cost player in the global television mar- ket. This advantage enabled Sony to take market share away from Philips, RCA, and Zenith, all of which used traditionally based manufacturing operations in each major national market (a characteristic of the multinational approach). Because operations are centralized, subsidiaries usually are limited to marketing and service functions.
On the downside, because a company pursuing a purely global approach tries to standardize its goods and services, it may be less responsive to consumer tastes and demands in different countries. Attempts to lower costs through global product stan- dardization may result in a product that fails to satisfy anyone. For example, although Procter & Gamble has been quite successful using a global approach, the company experienced problems when it tried to market Cheer laundry detergent in Japan.
Unfortunately for P&G, the product did not suds up as promoted in Japan because the Japanese use a great deal of fabric softener, which suppresses suds. Moreover, the claim that Cheer worked in all water temperatures was irrelevant in Japan, where most washing is done in cold water. The global model also requires a great deal of coordi- nation, with significant additional management and paperwork costs.
The Transnational Model In today’s global economy, achieving a competitive advantage often requires managers to pursue local responsiveness, transfer of know-how, and cost economies simultaneously. 47 The transnational model is designed to help them do just that. It is an approach that enables managers to “think globally but act locally.”
In companies that adopt the transnational model, functions are centralized where it makes sense to do so, but a great deal of decision making also takes place at the local level. In addition, the experiences of local subsidiaries are shared worldwide to improve the firm’s overall knowledge and capabilities. For example, research, train- ing, and the overall development of the organization’s strategy and global brand image tend to be centralized at home. Other functions may be centralized as well, but not necessarily in the home country.
global model An organizational model consisting of a company’s overseas subsidiaries and characterized by centralized decision making and tight control by the parent company over most aspects of worldwide operations; typically adopted by organizations that base their global competitive strategy on cost considerations.
Bottom Line
The global model of standardization lowers costs.
Could this model apply to a jewelry company? If so, how? If not, why not?
transnational model An organizational model characterized by centralizing certain functions in locations that best achieve cost economies; basing other functions in the company’s national subsidiaries to facilitate greater local responsiveness; and fostering communication among subsidiaries to permit transfer of technological expertise and skills.
In Practice