ramos - rathinakumar - internationalization strategy: between adaptation and standardization

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ESG Management School, Paris

INTERNATIONALIZATION STRATEGY:

BETWEEN ADAPTATION AND STANDARDIZATION

Master of International Business

Spring 2012

Supervisor: Mr. Olivier LAMOTTE

By

Marco RAMOS

Joseph RATHINAKUMAR

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Marco Ramos - Joseph Rathinakumar ! Spring, 2012

Table of Contents

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1. INTRODUCTION ................................................................................................. 3!

2. INTERNATIONALIZATION STRATEGY SELECTION .............................................. 5!

2.1. STANDARDIZATION & ADAPTATION ........................................................... 5!

2.1.1. Definition of standardization .............................................................. 5!

2.1.2. Definition of adaptation ..................................................................... 6!

2.2. MODES OF ENTRY ........................................................................................ 7!

2.2.1. International development with foreign distributors ........................ 7!

2.2.2. Strategic alliances with foreign partners ........................................... 9!

2.2.3. Mergers and acquisitions .................................................................. 12!

2.3. RELATIONS BETWEEN THE DESTINATION CHOICE AND

INTERNATIONALIZATION STRATEGY ................................................................. 14!

2.3.1. Geographical location of the destination ...................................... 14!

2.3.2. The local cultural aspect .................................................................. 16!

2.3.3. Economical situation of the host country ....................................... 18!

2.4. COMPANY SPECIFITIES .............................................................................. 20!

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2.4.1. Internal assessment ............................................................................ 21!

2.4.2. Companies industry and international strategy selection ............ 22!

3. CASE STUDIES IN THREE DIFFERENT INDUSTRIES ............................................. 25!

3.1. FAST-FOOD INDUSTRY ANALYSIS .............................................................. 25!

3.1.1. McDonalds: Think global, act local ................................................ 25!

3.1.2. Starbucks Coffee a unique experience all over the world ........... 28!

3.2. RETAILING INDUSTRY .................................................................................. 31!

3.2.1. IKEA, global retailer faces the Chinese market .............................. 32!

3.2.2. Carrefour entering the Japanese market ....................................... 35!

3.3. INTERNATIONAL STRATEGY OF THE TEXTILE INDUSTRY .............................. 38!

3.3.1. H&M, a universal model .................................................................... 39!

3.3.2. Inditex, a global textile retailer ......................................................... 42!

4. CONCLUSION ................................................................................................. 46!

5.!REFERENCES .................................................................................................... 47!

5.1. LITTERARY REVIEW ...................................................................................... 47!

5.2. WEBSITES ..................................................................................................... 49!

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1. INTRODUCTION

In a globalized world, similar to the one that we are currently facing, companies have to

be precocious regarding the selection of their internationalization strategy. Indeed, the

last few decades saw the world change. It moved from a threatening situation with three

World Wars to a world that dropped certain trade barriers. We now are all connected in a

way we have never been before. Companies no longer target their domestic market only

but they more and more tend to master international and markets. This globalization not

only concerns the selling part of the company but it also involves the sourcing and

production portion.

The globalization has also developed common needs between people all over the world.

This obviously makes it easier for the companies and allows them to no longer target by

country but to target by segment that gather groups of people from different countries

with common needs. This phenomenon is so strongly present in our world that it creates

an entire different category of companies that enjoy international range right from the

beginning of their life the well-known Born Global companies.

What are the important factors that lead companies to adapt or standardize while

expanding their business to an international market? Do the companies really have to

choose between these two approaches? In other words, in this paper, we will attempt to

give significant criteria that drive nowadays companies to choose one of these strategies

when planning an international expansion.

Throughout the thesis, we will be able to see that the main strategy of the companies can

be either standardization or adaptation. Nonetheless, there are no such obligations for

businesses to choose between either of these approaches. Therefore we will see all along

this paper that some key elements are weightier than some others in the decision making.

In order to develop this analysis, we conducted a literary review concerning the main

elements that influence the choice of the internationalization strategy that companies has

to face. We selected these factors among others as we considered that there was a link

between them and the international strategy. Moreover several articles that we studied

revealed that these same factors were fundamental to adaptation or standardization

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approaches. Therefore, after giving the definition of the Adaptation and Standardization

concepts, we will be reviewing the important factors as the mode of entry, the destination

selection and the company specificities. The second part of this thesis analyzes the

internationalization strategy of six different multinational firms within three different

industries. We will therefore compare the fast-food industry with the retail industry and

finish by analyzing the textile industry. These different sectors represent well the

globalization and the three of them have several internationally successful businesses.

Concerning the companies analyzed, we based our selection on big firms that have an

international aura, with solid expansion strategies. Also the accessibility to the data was a

key point in the selection of the companies. This would enable us to make significant

comparisons and therefore help us all along this thesis.

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2. INTERNATIONALIZATION STRATEGY SELECTION

2.1. STANDARDIZATION & ADAPTATION

This dissertation has the objective of understanding the factors that pushes a company to

choose its strategy of internationalization, and especially the selection between

standardization and adaptation while going abroad. As a first part, consequently, we are

going to take a look at the definitions of both of these concepts and then continue our

literary review with the important factors that enter in relation regarding the selection of

the strategy.

2.1.1. Definition of standardization

Standardization means that a company will sell in a foreign market, the exact same

product or service it sells in its own market. The main target of the standardization for a

company is therefore to minimize the costs by the process of economies of scale. The

process could be on an entire production chain just like it could be on a specific part of

the marketing mix like the packaging, the design, the product or even the distribution

development.

Sometimes, it is important for a company to standardize, as, it not only reduces the

operating costs but it also allows the company to reduce considerably the risk while

going in a foreign market often unknown. Furthermore, standardization has to deal with

consumer needs and desires. Several renowned authors stipulated that thanks to the

technological evolution enhanced by the era of communication our world witnessed,

there is a certain conjunction of consumers need all over the world. Therefore,

standardization is the right strategy for companies to sell their product abroad 1 .

Companies do no longer target consumers in different countries but they target different

segments in a region or even the entire world. For instance, the teenagers can be targeted

within some countries like in Europe and USA as they have the same influences and

needs. The cinema industry illustrate well this process with specific movies that targets

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!1 Yip G. (1996), Toward a new global strategy. Chief Executive Journal, #110, 66-67

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only the teenagers (teen movies) whether they are American, English, French or Spanish.

The film and the marketing will target the same segment in different countries.

And finally, the fact that a company goes international selecting a standardization

strategy will definitely simplify its internationalization, as it will use the exact same

product or service all over its foreign markets as well as in its domestic market.

2.1.2. Definition of adaptation

The adaptation strategy unlike the standardization one, refers to the change a company

operates while going on new international markets; adaptation can be drove by different

factors as infrastructure of the host country, but companies mainly use an adaptation

approach in order to sell their product to a population that have a different cultural style.

Using an adaptation strategy can enable the company to get higher revenue by

convincing a more customer who usually have a different need from the companys

home markets consumers. Also it is important to say that adaptation maybe sometimes

more expensive than a standardization strategy. However, we must mention that the main

important fact is the knowledge, the company getting on a new international market,

must ensure that they identify the real need of the consumers and therefore reply to it

through its product or service. Consequently, adapting companies have to acquire not

only the financial requirements for the internationalization but they also have to know the

major needs of the host country consumers, and especially be able to respond to it.

Meaning that the company must have the capabilities to adapt but also it has to obtain the

appropriate resources (capital as well as human) to do so. The specialists stipulate that

people respond differently to an advertisement or a product across borders. The

cultural distance is thus, a key element that pushes adaptation.

Also, as we saw that standardization carries less risks, companies that resort adaptation

are not always certain to obtain the expected effect on the consumers, therefore it is a

way that involves a certain level of risk.

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Having defined those two concepts, we will see during the following parts of this paper,

that strategies differ according to certain factors that are linked. For instance, the

selections of the host country, the entry mode or even the capacity of the company to go

internationally are important dynamics that will push a company to choose adaptation or

standardization.

2.2. MODES OF ENTRY

There are different factors that companies have to take into consideration in order to

successfully develop their businesses in a foreign market. Researches show that the most

important point that companies have to acknowledge is the selection of the entry mode.

Roughly speaking, the cost management, environment specificities and some other

determinant for the international expansion will be chosen alongside the entry mode.

Also the selection of the entry mode will have a significant impact on the

internationalization strategy, especially about the choice of the strategy: Adaptation or

Standardization.

There are numerous types of entry modes; in this study we consider three main methods

to enter an international market. The first entry mode will take advantage of the foreign /

local distributors; the second mode of entry allows companies to call for a strategic

alliance with foreign partners and finally the mergers & acquisitions are one of the

solutions for the firms with a better financial condition.

2.2.1. International development with foreign distributors

Entering a new market, more importantly, a foreign country is not an easy task.

Companies have to reflect on different facts that are crucial for the development in a

foreign market. The knowledge of the local market is sometimes very precious for the

companies. By having information on the local culture or on the local consumption habits,

companies can reach a better overseas result thanks to a better targeting. This knowledge

is hold by the local distributors who have an expertise on the local population as well as

on the local competition and on the local rules and regulations that would be an essential

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element for the exporting company. Creating a link with those local distributors can help

companies to breach the entrance barriers and most importantly, it will lower the risks of

their international development. For David Arnold2, there has to be a very strong

relationship between companies and local distributors and that, even after companies

have been well established in the foreign market. In this following segment we will try to

analyze the advantages and the drawbacks of the use of foreign distributors while a

company develops internationally.

One of the most essential points for a enterprise while crossing borders to develop its

business, will be maintaining the costs low. And according to D. Arnold, this is a fact

that pushes companies to enter a new country through local distributors. In this mode of

entry, not only the local distributor represents an option to reduce costs and risks but it is

also seen as an adding value to the business. For instance, the exporting firm will be

investing only a minor amount in marketing and business development letting the local

distributor focusing on it, those two departments being precious to the overseas market

penetration. Nonetheless, by letting the distributor deciding the marketing and business

development, companies are losing power from a strategic point of view. This strategy

called by David Arnold the Beachhead Strategy, allows the company to take some time

to assess the results of their first move in the foreign market. However, a large number of

multinational firms use this approach and then in a longer term they ultimately take back

the entire control of the strategic points. Observing this attitude from the MNEs, local

distributors take the relationship in a more temporary way and no longer invest heavily in

strategic marketing and business development, which are indispensable for the business

growth. Therefore, after a while, when the sales start to flatten, it creates a rupture

between companies and local distributors. Indeed, the companies complain that the

distributors are not ambitious enough to grow the business and the distributors complain

the relatively low support from the companies. Arnolds study shows that when

companies move from beachhead strategy toward a strategy of direct distribution from

the companies themselves combined to the durable relations with the local distributors

there is a higher success. In short, companies are recommended to keep a relationship

with the local distributors even though they start to get established in a foreign country.

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!2 Arnold D. (2000), Seven rules of international distribution, Boston, MA, Harvard Business Review #78, 131

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The central point resides in acquiring the right equilibrium between the role of the

foreign partners and the role of the company.

Furthermore, David Arnolds research illustrates that the companies and the local

partners relationship is even more effective when the simple distribution relation leaves

room to a real collaboration between the two entities3. Additionally Arnold suggests a list

of 7 recommendations to select and manage a relationship with a foreign distributor. In

one of his recommendations the first one Arnold, puts the stress on the fact that the

company should initially select the country where it wants to develop its business and

then choose the proper local distributor as a partner. This shows the importance of the

country selection that will be treated in the second part of this literary review.

There is also another issue highlighted by Andrew R. Thomas and Timothy J. Wilkinson,

about the distribution approach in foreign markets that have a drawback on the

distribution in domestic market. Actually more and more companies focus on their

fundamental skills i.e. production and quality control, and neglect the distribution and

sales part which are highly considered by the authors4. The difficulty comes up especially

when companies use the beachhead strategy and they let the strategic portion to huge

distribution networks like Wal-Mart for which the partner represents only a tiny part in

their total revenue. Consequently, the initial strategy is no longer in place as the mega-

distributor takes the entire control from the marketing to the price fixing. Hence, while

Arnolds research recommends to the companies to keep control of the strategic part

when using local partners, Thomas & Wilkinsons work emphasis the drawback of

letting too much control to the distributors.

2.2.2. Strategic alliances with foreign partners

Another way to enter a new market is by using partner companies in a foreign country,

which are usually rivals, creating strategic alliances. This mode of entry has three main

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!3Arnold D. (2000), Seven rules of international distribution, Boston, MA, Harvard Business Review #78, 133 4 Thomas A. R. and Wilkinson T. J. (2006), The outsourcing compulsion, BOSTON, MA, MIT: Sloan Management Reviews #48, 10-14

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benefits: first, firms share risks and expenditure from research and development; second,

the company can take advantage of partners complementary resources; finally, this

strategy enables a more efficient development of capabilities to deliver products and

services. Usually, firms are not willing to work together being afraid of the lack of

control, but the colossal research and development costs lead some companies to look for

what we call a competitive collaboration, usually applied to lunch new products.

Risks are therefore avoided by using this kind of internationalization strategy.

Nevertheless, a way to evaluate such strategy is by considering the learning race: how

much more a company can learn from its foreign partner compared to what the ally

company can assimilate from this same relationship. In order benefit from this evaluation,

firms have to respect four key principles: first, companies have to take into consideration

the fact that this kind of collaboration is like competing in a different way; second, the

harmony between partners is not the most important variable to consider as a measure of

accomplishment; third, strategic alliances have limits such as protecting the company

against competitive compromises; and finally, it is primordial to gain knowledge from

the partner companies from the overseas country.

One of the dangers that can occur is the disproportionate transfer of a companys own

Firm Specific Advantages (FSAs), which can be absorbed by the alliance partner

company. It can happen by becoming the collaborator of so-called Original Equipment

Manufacturers (OEMs), which mainly take care of the research and development on the

product and the process design, and then, with time, the OEM develops the ability to

penetrate the market by itself. By being lazy, the company let its partner taking care of

one of the most important points to keep: know-how. Consequently, the partner does not

need the company anymore, and therefore, the firm that goes international becomes

dependent of the partner. Dependency is another danger of this mode of entry. To avoid

dependency, four principles exist: create FSAs through long-term; by outsourcing some

of the internationalizing companys activities, so it creates competence losses; individual

outsourcing decisions leads to deepening dependence; reinvent and fortify the expanding

companys FSAs in order to not get back from the partner. According to Hamel et al., a

key condition exists to learn efficiently from each other: each company must want and be

able to learn from its partner in order to create new capabilities while staying away from

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disproportionate transfer and diffusion of the home based firms own knowledge5. In

other words, the company has to share some know-how but not all of it. The last danger

we will explain here is about the avoidance of informal information transfer that can

occur at lower levels inside the company. To do so, company values and rules must be

clear and respected for key people and facilities not to be easily accessed.

To go further on the previous data, we will use Erin Anderson and Sandy Jap work. They

mention the dark side of alliances: dependence, exploitation and abuse6. To avoid these,

the authors promote the use of six safeguards to keep away from dark side of alliances.

First, it is really useful to re-evaluate the alliance in order to limit reliability problems

(e.g. overbilling by purpose partners side; being mistaken in contributions estimations

the firm itself). The second safeguard is to keep as a priority the profitability of the

company instead of its production volume. The third one is keep looking for new fresh

alliances to limit the dependency. Then, another safeguard would be to settle the

condition that both partners have to be implied in investments on resources that cannot

effortlessly be redistributed in a different context than within the alliance without

significant losses. Then, Anderson and Jap state that it is important to keep reassessing

the goals that have been settled in the first instance. To finish with safeguards, Anderson

and Jap state that it is important to be confident towards the partner in terms of suspicion;

the goal here is to avoid vicious cycles of suspicion.

To counter all the previous arguments, we must take into consideration the fact that high

distance partnerships are different because they create new variables to think about. The

goals and time frame adopted will be different than for single-country alliance because of

the local culture, economy, and institutions differences. But we also can say that there are

more chances of suspicion (especially when problems are related to differences in

cultures) and to find difficulties to combine resources.

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!5 Hamel G., Doz Y. L. and Prahalad C. K. (1989), Collaborate with your competitors and win, Boston MA, Harvard Business Review #67, 133-9 6 Erin Anderson and Sandy Jap (2005), The Dark side of close relationships, Boston MA, MIT Sloan Management Review #46, 75-82

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Prashant Kale and Jaideep Anand7 share another point of view. They reference the choice

between private and public company to build the alliance with. Kale and Anand state that

a private local partner is more likely to be useful in the short term whereas a state-owned

ally is better for the long-run because it is less ambitious and consequently companies

have fewer chances to get into a competitive learning race.

2.2.3. Mergers and acquisitions

Finally the third entry mode we considered in this paper, are the Mergers and

Acquisitions (M&A) that allows companies to enter a foreign market directly by

contracting with the local actors. That goes without saying that this kind of entry mode is

limited to the big multinationals that have the necessary resources for it. According to

Ghemawat P. and Ghadar F. there was a real trend in global M&As in the early 2000s

Global Mega-mergers8. This process enables the MNEs to reach a broader geographic

target. The international economical environment added to this M&As trend, reduce to a

few big protagonists in the industries pushing the MNEs to use global M&As in order to

survive in their field of activity.

Even though there are a lot of unenthusiastic insights relative to the M&As, like the costs

or the level of risks taken, it has some optimistic views too. For Lee G.K. and Lieberman

M.B, companies use the acquisitions first because they facilitate an increase of the stock

price, which relativizes the impact of the expenditure9. However as a comparison to the

internal development, it is said that the cost of the entry differs in the way the payment is

made as well. For instance when a company decides to enter a new market through

internal development it has to fund its expenses with cash flow whereas while integrating

a new foreign market via an acquisition or a merger, the payment methods are plenty:

cash flow, exchange of stocks, debts or some other understanding between the two

MNEs. In sum, the costs are higher for the acquisition than for an internal development;

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!7 Kale P. and Anand J. (2006), The decline of emerging economy joint ventures: the case of India, California Management Review #48, 62-76 8 Ghemawat P. and Ghadar F. (2000), The dubious logic of global megamergers, Boston, MA, Harvard Business Review #78, 65-74 9 Lee G. K. and Lieberman M. B. (2009), Acquisition vs. Internal development as modes of market entry, Los Angeles, CA, Strategic Management Journal, 140-158

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nevertheless, the relative size of the company helps the decision making as MNEs are

more likely able to enter via acquisition methods than smaller companies.

Another factor that drives MNEs to select the acquisition as an entry mode is the speed of

entry. Compared to an internal development, an acquisition is relatively rapid and

enables the company to be present in its target market within a short period of time10. An

additional fact comes into the game according to Lee and Lieberman: the business

domain of the firm. Undeniably, the authors are explaining in their research that a

company is () more likely to use acquisition when the new product market is distant

from the firms existing products.11 Although, some researches show that a firm can

also acquire a foreign company that is making a product similar to it, in order to expand

or deepen its resources. 12 To conclude this part on the acquisition approach, companies

are more likely to use acquisition when they want to integrate a foreign market in a rapid

way or when they target to expand their resources or sales capacities. Nonetheless, a

company can also use acquisition if it wants to acquire a new product outside its business

domain. In that case, the product it would achieve thanks to the acquisition; will be

closely related to the main business domain of the firm.

This conclude the segment on the entry modes; even though companies are more and

more using M&As when they can afford it, the internal development remains a safer

methods to enter a foreign market, as long as, the balance between the companies and the

local partners is well defined and maintained throughout the development. Likewise, the

selection of the entry mode has an influence on the international strategy development

chosen by the company. For instance, if a company selects an internal development it

would tend to adopt a standardization strategy in order to reduce the production costs. On

the contrary when the company uses the Mergers and Acquisition system it has to adapt

to the existing market and product delivered by the company it acquired.

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!10 Lee G. K. and Lieberman M. B. (2009), Acquisition vs. Internal development as modes of market entry, Los Angeles, CA, Strategic Management Journal, 140-158 11 Lee G. K. and Lieberman M. B. (2009), Acquisition vs. Internal development as modes of market entry, Los Angeles, CA, Strategic Management Journal, 140-158 12 Karim S. and Mitchell W. (2000), Path-dependent and path-breaking change: reconfiguring business resources following acquisitions in the U.S medical sector, 1978 -1995, Strategic Management Journal #21, 1061-1081

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2.3. RELATIONS BETWEEN THE DESTINATION CHOICE

AND INTERNATIONALIZATION STRATEGY

As it was mentioned in the last part, the destination selection influences a lot, the choice

of the internationalization strategy. Besides, the destination selection process is as

important as the selection of the mode of entry. The entry mode is often related to the

country chosen by the exporting company, but this last element has a lot more

consequences on the strategy that businesses choose to apply to their internationalization

process. Therefore, this study will consider the correlation between the selection of the

country or region as a destination and the selection of the internationalization strategy,

that is to say: adaptation or standardization.

In this subdivision, we decided that companies have to focus, among others, on three

main factors: the geographical localization, the local culture, and the economic situation

of the host country. Along the literary review, these three elements seemed to be the most

reflected points by the internationalizing companies.

2.3.1. Geographical location of the destination

Researches showed that when companies appeal to internationalize, the selection of the

geographical location is a fundamental criterion. The destination market is also an

important factor that pilots the entire internationalization strategy of the company. In this

section we will see how the geographical condition of the destination market related to

the geographical location of the company turns out to be really important concerning the

selection of the strategy.

In his article, Distance Still Maters, (2001) Pankaj Ghemawat, stipulates that the distance

between the domestic market and the overseas market of a company is a very important

topic. He also specifies that the impact of the distance can have more or less effect on the

business development according to the companys industry 13 . Furthermore it is

important to know that firms often implement their expansion strategy in a slow and

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!13 Ghemawat P. (2001), Distance Still Matter: The Hard Reality of Global Expansion, Boston MA, Harvard Business Review #79, 147

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regular way. In their article, Tsai H-T and Eisingerich A B indicate that companies start

internationalizing by entering markets that are close to the domestic market14. Also

Ghemawat research displayed that In general the farther you are from a country, the

harder it will be to conduct business in that country15.

Another point that companies have to take into account before expanding internationally

is the physical attributes of the destination country. The distance not only matters but the

territory has to be reachable easily by the transport either through maritime way or via

road or flight. The infrastructures provided by the country have to be as good as the

business opportunity. This subject will be seen in the third section of this part, as it is one

of the key factors for a company in full expansion.

Concerning the strategy, a company will tend to choose standardization while entering

market close to its domestic market. Several different points show that when a firm

selects a country having common borders with the companys home country, the

standardization will help the company to keep low costs while globalizing. By

standardizing the production and the distribution along the marketing strategy, the

exporting company will be reducing costs and risks as the distance between the countries

are low. However this assumption is made only regarding certain industry as P.

Ghemawat shows it in his article16. Nevertheless, the author also confirms that the

distance matters and it is not only geographical. Ghemawat illustrates this by taking the

case of STAR TV in Asia. In appearance the Asian countries located in the same area,

have shown a demand for new TV channels. Hence, the American company presumed

that, there was a demand for English program and chooses to not differentiate its offer

between the countries. So in short, the entire zone had the same TV programs whether it

was a Chinese country or Indian or even Malaysian. At the end of the day, the company

recorded an unexpected loss of $500 million between 1996 and 1999. In this situation,

the choice of standardization, even though the distances between the countries were low,

was a real disappointment for the company.

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!14 Tsai H-T. and Eisingerich A. B. (2010), Internationalization Strategies of Emerging Markets, California, Californian Management Review Vol. 53 #1. 15 Ghemawat P. (2001), Distance Still Matter: The Hard Reality of Global Expansion, Boston MA, Harvard Business Review #79, 147 16 Ghemawat P. (2001), Distance Still Matter: The Hard Reality of Global Expansion, Boston MA, Harvard Business Review #79, 147

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This STAR TV case brings us straight to the second section of this part, which is the

Cultural aspect as a criterion in an expansion strategy. Indeed, the distance between a

companys home market and the destinations market is not only about the geographical

distance. It also concerns the Political, Economical and predominantly the Cultural factor.

2.3.2. The local cultural aspect

When companies choose to go international, a choice has to be made on which country to

enter. We saw in the last part (2.3.1) that the geographical location, or geographic

distance, is important to consider for taking a decision between adaptation and

standardization. But this component also deals with the local culture. As we can observe

it in some cases, some regions or areas of the planet contain similar cultures or same

philosophy foundation. In other words, as an example, countries being part of the

European continent share a lot more similarities between each other than with any other

Asian country. Before going further, we should define that we consider culture not only

as the set of values, norms and traditions, but also as business customs and practices.

Now, it is even clearer that the cultural behavior of the host country is an important

variable of the strategy determination.

Companies should take the cultural variable in serious consideration. Levitt (1960,

p.56)17 states: It is clear that a company should take actions that stimulate the demand. It

should adapt itself according to market requirements and this should be done sooner or

later. The fact is that markets influence businesses and not the opposite. In other words,

it is essential to be aware of a society needs and consider them when entering a market to

do business; because business is shaped and applied by societies. Standardization is not

bendable enough to adjust to policies of different markets like requirements for

environmental defense, standards on merchandise safety, and other local rules.

Adaptation, according to some authors such as Levitt (1983)18, is expensive. We can

observe nowadays, entire industries becoming international, differences in cultures,

national tastes and standards becoming concepts of the past. That is to say, global

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!17Levitt, T. (1960) Marketing Myopia, Boston, Harvard Business Review Vol. 38, 45-56 18 Levitt, T. (1983) The globalization of markets, Boston, Harvard Business Review Vol. 61, #3, 92-101

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preferences are emerging and consequently, standardization becomes mandatory, or more

reasonable. Standardization is very useful when economies of scale are possible, because

it allows decreasing design, production, distribution, and advertising costs As a result,

standardized products are more successful and competitive as prices can be reduced

comparing to competitors. But, on the other side, standardization and quality of products

have a negative relationship whereas adaptation has positive one. The interest is that

products with a higher quality are more likely to compete against foreign products: it

allows the company to gain market shares. From the moment in which the company

becomes more profitable and gets a stable position within the market, standardization

becomes the best solution. In fact, these two strategies can be opposite but also

complementary in the way that one comes after the other. Indeed, as an effective

standardization strategy comes with economies of scale, financial / economic means are

needed.

When entering a market, adaptation is the most realistic: if the company has the

necessary financial resources: the company learns from the local culture, creates products

that will penetrate the market with a high quality. Also, the company chooses to deal

with local actors as the market keeps being unknown, they share knowledge and

capacities. Then, the company becomes more powerful against competitors. Moreover, it

earned enough money to be able to invest seriously in the host country. Investments will

be done in production capacities, human resources, marketing and distribution

Companies will take advantage of its dominant position, its power towards competitors

and actors of the industry. This is when standardization becomes a serious alternative:

companies are now able to start produce the same products as in the other countries of

the region assuming that they are already settled in those states, or even the country of

origin. Costs reduction can be done in marketing, production, and human resources

The company becomes a serious rival with huge production capacity. We will discuss

deeper this evolution in strategy stages in the following part on the company specificities.

Culture may also impact the choice between standardization and adaptation from a

different point of view. Different cultures can have distinct approach of the

internationalization strategies. Indeed, companies, according to their own nationality or

the one of the country they are entering, can be used to standardize some areas of the

18


firm. For example, American managers are more likely to standardize planning and

control. On the other side, German managers usually standardize production and quality

systems. In these examples, Germans and Americans have a different approach to their

competitive advantage; they consider it from a different point of view. To be more

precise, Americans concentrate their efforts on share or stock value and the progress

whereas Germans prioritize manufacture and technology.

In short, the Cultural aspect in an internationalization process is a must for companies. It

allows them to choose either adaptation or standardization strategy. Furthermore, authors

showed that not only those factors are important but also the economical situation of the

host country represents a high determinant for the global expansion of a firm.

2.3.3. Economical situation of the host country

The economic situation of the host country is a very important determinant of the

internationalization strategy. Indeed, it allows companies to have a snapshot of what the

host country is capable of in terms of investments, development, infrastructures,

competition, market demand and offer, etc.

The fact is, that according to the stage of development of the country, possibilities

change and consequently, the strategy of internationalization changes: adaptation or

standardization. Standardization usually needs economies of scale. To be effective;

infrastructures, equipment and qualified workforce are needed. The necessary

infrastructures are mainly an issue as, if they do not exist, the company will have to

invest a lot more money on its expansion project.

This is an important point to consider. The host country can have restrictive rules

concerning investments. In some countries such as China, Argentina, India or Brazil, a

joint venture, or substantial amounts of money are demanded by the government to

deliver an authorization to a company to settle down in their market. These policies can

be qualified as protectionists, however these emerging countries tend to catch up their

backwardness compared to the developed countries. This is one of the reasons why they

19


try to protect their own economies. The goal here is to privilege the domestic companies

first.

Actually, the degree of openness of the host country companies is an important variable

to take in consideration. Undeniably, the company entering a country needs to know if a

partnership is possible with a local firm. By finding if the enterprise is globalized, which

kind of experience it has and in which sector These questions are even more important

for the entering company. It is primordial for the strategy of the firm. Indeed, it will have

to choose between several partnerships possibilities, or a local development. It has a lot

to deal with the mode of entry of the firm. And as we saw earlier, the mode of entry is

mandatory for the internationalization strategy. The number of global companies in the

host country is a good indicator of its openness, as the number of foreign companies

already implanted. The more open the country is; the more it is willing to accept Foreign

Direct Investments (FDIs) entering in its territory. This would mean that investments on

infrastructures, as well as training and development have been made in the host country.

Consequently, the country is able to welcome companies with high-technological

requirements, which produce goods with important value-added.

Another point the company going international has to consider is the politico-economic

situation of the host country. We mean here its adhesion to international organizations

such as the World Trade Organization (WTO), the International Monetary Fund (IMF),

and the Organization for Economic Co-operation and Development (OECD). The

membership to one or to all of these organizations is a good index to openness towards

the international environment, but it also gives an idea of the rules and regulation

applicable within the country and its honesty. In other words, it allows companies to

understand if the country respects international business regulations. A country, which is

closed to these organizations, is more likely to deny global procedures and local

investments by being very protectionist.

Also, to connect this part of the research concerning the Geographical Location (2.3.1),

companies going international have to look at the relationships of the host country with

its neighbors. To go deeper, the firm also has to look at the business connections like

free-trade agreements. This kind of variable will determine which kind of

20


internationalization strategy is preferred. Indeed, a standardized strategy is easier to settle

down if connections exist across neighbors, as it would grant an access to the market and

thus make the distribution easier for example. For instance, assuming that a company is

willing to develop its business to China, among all opportunities that China can give the

company, its connection with the Asia-Pacific Economic Cooperation (APEC) allows the

company to produce in the Popular Republic of China and then export to California,

USA for example. This kind of correlation can be very helpful and smoothen the

progress of the internationalization.

This analysis on the host country capabilities and economical situation closes the

segment on the destination selection. Proving that accordingly to the selection of the

destination, a company will be influenced for the validation of its internationalization

strategy, between Adaptation and Standardization.

So far we did analyze two main factors that a company has to take into account while

getting global. Nonetheless a third factor is as much if not much more important for a

company before going abroad. We are here mentioning about the firm specifies.

Obviously before entering a new market a company has to evaluate its internal asset so it

can decide which internationalization strategy will be the most appropriate.

2.4. COMPANY SPECIFITIES

This part deals with the last variable that has been considered for this study, the

specificities or capabilities of the company. In other words, we will mention the structure

or development stage and the organization of the company. Moreover, we will see that

the sector in which the company is operating is relevant for the choice of the

internationalization strategy.

One of the most important points that a company has to do before going abroad is to

assess its own structure and capabilities. Indeed, companies have to ensure that they can

grow internationally and therefore be able to compete with local companies in the host

country market. According to several researches on the internationalization process, the

21


planning part and the commitment to the project are key factors for a company that wants

to go on an international market.

2.4.1. Internal assessment

On the very beginning a company that wants to internationalize its market has to assess

in a first part, its financial capacity to go abroad. It is obvious that in the aim to settle

markets in foreign countries, a company has first to be well set on its own domestic

market. Therefore it has to obtain the adequate amount of cash flow in order to run the

internationalization process, whether it is through an internal development (that is to say

exportation) with foreign distributors or with alliances or even acquisitions, in these three

ways the company has to develop enough financial resources to get to the target market.

Following the financial resources, the company must have an internal organizational

development that would allow the company to face the external market. For instance, in

Human resources, exporting companies have to ensure that the personnel can deal with

international business. Consequently it may be essential that the companies change their

organization structure in order to have a department specific to the international

development. Therefore, human resource adaptation is a key point for the companies.

The subjects mentioned just above are key elements for the selection of the

internationalization strategy. A company that has a lower financial resource will tend to

develop its business in neighbor countries and will therefore tend to standardize in order

to reduce a maximum the costs and risks, whether it is in communication and

advertisement part or in the production processes. On the contrary, a larger company

with higher financial resources will tend more toward an adaptation strategy as it can

afford it. The structural organization will therefore enable a change and the creation of an

international business department.

Linked with the organizational changes, the recruitment of human resources with specific

skills will be considered by companies and especially for the International Business

department. The employees will have to be fluent in English and may be with other

languages spoken on the targeted country. For instance, if a company decides to

internationalize in China a part of its business, either the production part of the selling

22


part, it has to call for a human resource that can deal in English but also in Chinese. Here

again the financial resources is linked to this and allow a flexibility for the company.

Finally, as we exposed it earlier in this study, the knowledge on the host country is an

indispensable element for the exporting company, through this knowledge the company

will thus be deciding either to select an adaptation strategy or a standardization strategy.

2.4.2. Companies industry and international strategy

selection

Another important aspect for a company that we have to take into consideration before it

goes international, is the sector or industry in which the company is present in its home

country and wants to develop internationally. The relation between the industry of the

company and the selection of the internationalization strategy is a very important element

to consider.

Some industries involve standardization in the international process of companies for

instance; some companies in the Information Technology industry are international from

the beginning. They are called Born Global. Those companies have a worldwide offer

and therefore are much more in standardization than any other industry company. The

globalization made the international business easier for the world and especially for those

companies that face the exact same demand from a country to another, facilitating the

standardization of the services. We can state some generalities on the relation between

the IT industry and the standardization. Indeed, we can affirm that companies coming

from this sector are more lead up to be born global. The best example comes from

companies acting on the web. This is the most globalized tool ever created. As the web is

accessible from the entire world it allows a wide targetable window. Therefore

companies are more likely to reach a wider audience through the Internet and they

standardize their offer in order to cut cost but also as it is recommended for this platform.

Also these companies coming from the Information Technology (IT) sector do not need

big structures: indeed, as a software developer, they do not need to have local structures

to respond to its demand. It can act from the country of origin and be fully able to answer

correctly the demand. Here the product, marketing, distribution are standardized.

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Nonetheless, sometimes IT companies faces also a cultural gap between the countries

and therefore they do adapt a minimum in order to reach their target. This adaptation part

is frequently concerning the language and the timing.

If we consider another sector such as the retail, it seems obvious that the standardization

strategy is slightly different. Indeed, in this sector, there are no such standards considered

like Internet for the IT sector. The retail sector, can be developed with the standardization

strategy, however an considerable adaptation part is recommended to companies in order

to acclimate with the host country market in terms of language, habits and opening time

that could greatly vary from a country to another. It is a fact that each country has its

own standards in terms of quality, security, warranties, legal rights, etc. The main point

of this segment is to argue that according to its sector of activity, the company is more or

less led to standardize or adapt its international strategy.

To finish our illustration the catering industry requires more adaptation from the

company in order to reach the international target as the cultural impact is greater in this

sector than in the two sectors we mentioned above. When developing, they will first

attain a regional dimension (country scale) and then the national dimension. When the

market of origin is conquered, the company will want to extend its market and will start

to invest in foreign countries.

At the beginning of the internationalization, the companies tend to standardize since they

record a lack of experience, or a lack of cash flow, etc. Also, these companies will, at

first, start finding local partners or advisors in order to better know the market. The first

step of any internationalization strategy is to conquer the market. There is no other way

to conquer a market than by acquiring market shares. From the moment in which the

company consolidates its position in the host country market, the company is able to start

adapting its strategy. Indeed, from this point, the company should have enough cash and

experience to start this strategy.

We have seen in this part that not only the external factors of the company are important

to take into consideration before going international; but also an internal assessment of

the company capacities is essential and will drive the strategy selection. The structural

24


organization, financial capacities and the industry in which the company is present are

therefore most important factors that motivate the selection between adaptation and

standardization.

This concludes our literary review on the criteria that drives a company to select its

international strategy (adaptation or standardization). In short, a companys financial

resource and mode of entry, adding the destination selection and the organizational

capabilities are essential elements determining the selection of the international strategy.

Nonetheless, the industry in which the company is developing its business is also a key

factor in the choice of standardization or adaptation.

In our next section, we will be dealing with different enterprises cases in different

industries and try to explain their international strategy selection.

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3. CASE STUDIES IN THREE DIFFERENT INDUSTRIES

3.1. FAST-FOOD INDUSTRY ANALYSIS

In this section, we focus on the catering industry. By choosing two different

establishments existing globally, we will be able to analyze the selection of their

internationalization strategy and by this way to compare them. In order to proceed, we

choose two big restaurant chains as McDonalds and Starbucks Coffee Company. The

two of them are positioned on the Fast-Food market. These restaurants are known for

their international openness, as they are present in the five continents. They particularly

have different strategies, facilitating the comparison.

3.1.1. McDonalds: Think global, act local

McDonalds is one of the most well known brands in the world. With their thirty-three

thousands locations in a hundred and nineteen countries, they serve sixty-eight million

customers every day. Their international strategy starts with franchises: historically

because their first franchise opened in 1955 (the company has been created in 1940) from

a proposition of Ray Kroc, and kept being franchised until nowadays; conceptually

because franchising is part of their internationalization strategy, it is actually the basis of

their going international strategy. McDonalds had net revenue of $8,529 million in

2011 for the USA and $18,477 million from its foreign stores. The company encounters

an increase of 15.8% in their international market. Then, McDonalds strategy uses a

strong foundation of standardization, which allows the firm to conquer foreign countries

with confidence; this standardization is then mixed with elements of adaptation to the

local cultures.

The adaptation strategy started in the mid-90s when the company thought about the

regionalization of its restaurants. The idea was to propose culinary specialties according

to the different habits of the local population. But lets talk first about the standardization

part of McDonalds. The core activities, departments of the firm have been standardized.

The main goal of this standardization was to reduce the number of suppliers and weight

26


of costs. Consequently, the buying costs diminish, as the time spent on production,

distribution, etc.

The advertising is also standardized. Indeed, the priority in advertising is the television,

spending around two million dollars per day on this promotion channel. In 1963, Ronald

appears for first time on an advertising spot in the USA. At this time, the main targets

were families and especially children. That is around this time again, that the Golden

Arches becomes the most know logo worldwide. The advertising is not hard to spread

globally as the products, slogan, image, packaging are all the same. Indeed, it is part of

McDonalds rules: some of the products sold in these restaurants keep being the same:

burgers and mainly menus can be found in any franchise of the firm.

Employment is also standardized. Obviously, in this case we are not focusing on the

people but their processes. McDonalds counts about five hundred thousand employees

worldwide who have been taught the same procedures and methods. They reproduce the

same movements, which are minute and controlled. They repeat the same sentences and

look at the eyes at the same moment (when they give customers change back for

example). Employees have to be homogeneous, such as the products and brand; that is

also why they all wear the same uniform. They actually are trained with the same

textbook which transcribes all the rules about preservation of food, the cooking time,

the cleanliness, but also the partition and distribution of strictly defined tasks. For

instance, only the cooks are authorized to touch the food. These textbooks and strict

rules are what enable McDonalds to perform their objective of same products and same

services and finally, the ultimate goal to reduce costs and attain economies of scale.

Now we defined all the solid bases of the company, which have been standardized, what

follows will explicit the adapted aspects of McDonalds Corporation. The marketing and

products offered are the main points that suffered from adaptation. Here, the almost only

variable is the local culture, which shows its importance for MC Donalds but also for the

catering industry.

First, the architectures and atmospheres have been modified throughout countries and

cultures. The goal was to not get people bored too, and diversify its offer. The websites

27


are translated, designed differently according to regions. But the main adaptations have

been made on the products part of the Marketing Mix. The firms specialties have been

adapted to the local tastes. For example, in India, most of the burgers are made from

lamb or chicken. And they created the Chicken Maharaja Mac in New Delhi (see

Appendix 1), just like the Kebab Burger in the Middle East and the McSpaghetti Noddes

for the Philippines. Actually, the franchises helped a lot on the adaptation processes, and

made their contribution to the apparition of beer in the European franchises, but also the

McArabia in the Middle East (see Appendix 2).

Also, they looked deeper in the socio-economic factors and discovered that French

people were more dietetics centered, especially women. Consequently, they created the

Salad Plus. Since then, their target focus changed a bit to the adults. At the opposite,

about the same period, McDonalds released the menu Best Of XXL for the American

people. Another excellent example would be the soup: it is a very interesting example of

adaptation because they kept the same product for different uses according to the habits.

In France, soups were soups; but in the US, the soups were used as sauces. Here the

communication on the offer becomes different.

Adaptation is also performed regarding the accessibility of the restaurants. Thanks to the

Big Mac Index (REFERENCE SUR LINDEX), studies have been able to determine that

you do not need the same number of hours to get a Big Mac, but mainly that prices are

different across countries. The famous burger will attain its top in terms of price in

Switzerland (USD$ 6.81) and Norway (USD$ 6.79) but the cheaper in Ukraine

(USD$ 2.11), and India (USD$ 1.62) (see Appendix 3).

To finish, an example of a very adapted strategy will be explained briefly. The adaptation

here compares two sites in the same country and same town. We talk here about La Paz,

in Bolivia. In 1998, McDonalds opened two restaurants: one in Downtown and the other

one in the Southern part of the city. The places were the same, displaying the same

products, offering the same recreation spaces for children, same service, etc. The

difference remained in the target. Indeed, each restaurant had its own target: the one in

downtown was meant to middle-class people whereas the Southern one was intended to

the upper class. Consequently, the physical aspect of the waitresses was different: long

28


black braided hair for the middle-class; blond, blue eyes, Germanic style for the upper

class. The goal for the company was to make these businesses profitable taking

advantage of the local socio-ethnic division already existing in the city to drive them for

economic aims.

3.1.2. Starbucks Coffee a unique experience all over the

world

The subject of this paper drives us to select a company in the catering market, developing

in a global market and well known as well. Starbucks, our second choice, is the world

leader in Coffee retail. With a worldwide presence, Starbucks counts around seventeen

thousand shops, with a pace of three new stores opening every day. The company was

founded in 1971, in Seattle and since then, it opened in more than fifty countries around

the world. Starbucks recorded in 2011 net revenue of $8,038.0 million in its home

country USA and net revenue of $2,626.1 million for its international stores, which are

increasing by 13% compared to 2010. Conducting such a significant international

expansion made the company realizes the importance of the strategy choice.

The company uses mainly acquisitions or joint venture to enter international market. For

instance it bought out sixty-five Seattle Coffee Company Stores to enter the UK market

in 1998. We can see in this section that the entry mode of the company depends on the

configuration of the host country. Still in 1998, when Starbucks entered the New Zealand

market, it did it through a kind of joint venture; by opening its first store under the

Restaurant Brands New Zealand Ltd. The company used thus a licensing process. In

2001, while entering the Spanish market, Starbucks decided to go through joint venture

in order to share the financial risk and joint hands with VIPS; a local leading company

specialized in full service dining. The company now shares the control at fifty percent in

Spain with its local partner. Each time, the choice of the destination allowed Starbucks to

expand a bit more within the region. After opening numerous amounts of stores in New

Zealand the chain started its growth all over the Pacific-Asian market. New Zealand

benefiting from special free trade agreements with the APAC and a free trade agreement

with China since 2001. It helped greatly the openness to the Asian market. Also right

after entering Spain, the company started to develop all the Western Europe market and

29


in particular Spain, France, Switzerland and Austria. Using partners in the new

international markets will allow Starbucks to have an entity that knows very well the

local market and thus will help for the recruitment and for the understanding of the

market condition.

Before going further on the strategy selection of Starbucks, we must remind the

companys general strategy. The Seattle based company does not consider itself as a

company that serves coffee to people but as a company that serves people with coffee.

That is to say, that, Starbucks puts a huge focus on the consumer and the consumption

experience instead of focusing on the products. The core competency of Starbucks is to

offer a great experience to the customers within its coffee shops. Howard Schultz, CEO

of the chain even declared that the company wanted to create a Third Place. It would

be a place where the consumer can have a unique experience and in a long-term the

Starbucks Coffee Shops would be the third place between Home and Work.

Having said that, we can express that the international expansion of Starbucks reveals a

part of standardization strategy. Indeed the Starbucks Culture often confused with

American culture outside the USA is the main product (service) that Starbucks exports.

In a research from the Journal of International Business Studies (2008), Starbucks is

designated as a Window to American culture. Wherever it develops its business,

Starbucks permanently sticks to its main competency: unique experience of the consumer

in its stores. People can travel to the USA, the UK, Japan or Spain; when they enter in a

Starbucks they will instantly recognize the value of the company and its high level of

quality service. That creates an identity for the store and therefore Starbucks can benefit

from it. Starbucks do not only standardize concerning the selling service but it also

develops a certain standardization regarding the selection of the location and the store

configuration. All of its stores are located in place where there is a high pedestrian traffic,

sometime based in the center of clusters with numerous coffee shops and other fast food

and commercial centers.

The coffee shop chain has some interesting benefit from standardizing. Indeed, by

creating the same value in each and every one of its stores the company is able to have a

unique training process for all its employees and convey the company cultures through

30


different steps of training. Also it does not have to adapt the arrangement of its stores

differently according to the country and thus profits from a certain cost reduction through

it. We saw in our first part, a notion called distance, as we saw it, not only the

geographical distance is important but also the cultural distance is one of the most

important points for internationally developing company. There are enormous cultural

differences between the countries where Starbucks is present. For instance, the Asian

culture advantages the Tea consumption instead of the Coffee. Also, there are differences

in the consumptions according to the country that differentiates the product ranges

present in the stores. In order to not loose customers because of these cultural gaps,

Starbucks decided to adapt its product ranges in both food and beverage according to the

country and the regional culture.

As an example, the consuming process of people differs also from a country to another

(figure 1).

Figure 1: Difference between American and European Starbucks Coffee customers

The figure 1 above clearly shows us that the American customers rather want to take

away the coffee instead of spending time in the coffee house like Europeans do.

This case study about Starbucks distinctly shows us that even though a company chooses

to focus on a standardization strategy it will be pushed to adapt even a little because of

the cultural gap present between the different markets. We have seen with the

McDonalds case that local culture is an important factor to take into account for the

international company. Here again, there is a part of standardization in the recruitment

process and training with the Hamburger University and the training programs.

31


Standardization will therefore help the big company to reduce some of its cost and

adaptation will enable it to target a better customers.

However, there is another kind of restaurant chains that do not always call for adaptation.

If we take the example of the ethnical restaurant, targeting a particular kind of people

coming from the exact same country of the company. In this case we mentioned two big

American companies, but there are also several small restaurant chains that expands

internationally which are targeting the people of its diaspora. For example, Anjappar,

which is an Indian food restaurant. Anjappar is well-known in the South of India, in the

Tamil Nadu state where it has its beginning in 1964, since then, it opened around thirty

branches in India but also across the world in the UK, the USA, Singapore and Sri Lanka,

mainly targeting the Indian consumers residing in those overseas countries. The targeting

of these company do not really need an adaptation, on the contrary it has to be the same

tasty food that people could have degusted in their country of origin.

This little segment on the ethnical food closes our section concerning the

internationalization of companies from the catering industry, showing that companies in

this field of activity have to accurately balance the level of standardization and the

adaptation part in their international strategy in order to successfully settle down in a

foreign country.

3.2. RETAILING INDUSTRY

The retailing industry is our second part of the case study segment. It illustrates well the

idea presented all along our thesis. To process to these case studies we selected two

important multinational enterprises. The first one is a Swedish retailer specialized in

Home style and furniture IKEA whereas the second one is a French multinational

retailer. By analyzing the international strategy of both of these MNEs we will be able to

more locate the factors that contribute to the selection of the international approach.

32


3.2.1. IKEA, global retailer faces the Chinese market

Our first case study in the retail industry will focus on the Swedish Home furnishing

retailer IKEA. For most of the authors, IKEA is often a great example when they

mention about globalization and global retail. Created in 1943 in a small Swedish

village by a Swedish of seventeen years old, IKEA is now one of the most recognized

retailers in the world. Present in forty-one countries all over the world. The group owns

three hundred and thirty-three shops and as an annual result in 2011 of twenty three

billion euros of sales. Before going further in the international strategic analysis of the

company, let us quickly review the company culture and its aim.

The IKEA vision is to create a better everyday life for the many people. We make this

possible by offering a wide range of well-designed, functional home furnishing products

at prices so low that as many people as possible can afford them.19 This statement

clearly announces that the company focuses on a low price product with an important

consideration to the design and the functionality. This drives us to the marketing strategy

that the company uses. IKEA has its own culture, the stores are located in city periphery

with large parking lot and near highways hub. The most important point communicated

by the company is that they sell products at low price but people have, not only to select

the product but also to carry it from the warehouse (usually in the ground floor of the

store) to their car then once at home, the customers have to assemble the furniture

themselves. It is in fact the democratization of the DIY (Do It Yourself). This system

enables the company to lower it costs and to create a sort of cult for the company by its

customers whom seems to enjoy manual work and get a certain pride from the

accomplished work.

One of the most important point also is that likely to Starbucks Coffee Company that we

analyzed earlier, IKEA, implement a strong company culture and tradition and therefore

creates buzz and movement around each of its opening. Its strategy is to implement

smoothly the company in a market before an opening by letting people test and write

about the products facilitating the word of mouth. Also in markets like in Europe or USA

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!19 IKEAs corporate website.

33


and Australia, the DIY method has been redirected into a communication strategy by

enhancing the result that assembling a product procures in a customer.

Concerning the production and the sourcing, IKEA decided to not only sale the product

but also to source the raw material, to produce it and to sell it to the consumer. Part of

their international business is the sourcing and production parts of their business, which

are located in the three main continents where the company has huge markets i.e. Europe

(Poland), USA and Asia (China).

This transition brings us to the internationalization strategy of the firm. IKEA developed

its global retailer designation in few decades. The standardization approach selected by

the company leads it to the international markets and brought the company founder in

one of the top wealthier man of the planet. Concerning the internationalization, the

company took at first a regional development strategy by settling down into the

neighboring markets with the same cultures and languages and in a second time the

Swedish firm entered farther markets such as the USA and then China. IKEAs approach

has always been the same; it launches the stores in a new market without establishing any

prior analysis of the market and then it allows itself to adjust the offer according to the

local market if really necessary. Standardization helps IKEA to set up the same offer in

each of its markets. It has a large range of products, displayed in the same way in all the

stores of the world and with low prices. The communication part is done with the catalog

which, according to IKEA takes up around 70% of their marketing budget. This catalog

is the same for every country; it is however translated in 27 languages and published in

200 million copies annually.

Very few adjustments are made in the catalog according to the location, and sometimes

the only thing that changes from a country to another is the cover. Undoubtedly this

standardization strategy benefits the firm to reduce its production and marketing costs

allowing some economies of scale. Also in all the country, IKEA tends to set its stores in

the suburb of the cities with large parking facilities and near highways. The location of

the store has been an important point for the company, as it has to offer the possibility to

the customer to carry the products to its car and transport it till the house. Even though,

there are more and more home delivery facilities offered by the company.

34


Nonetheless, the company that tends to fully standardize its concept has also some

trouble to succeed in it without adaptation. Indeed, IKEA delivers products that are

slightly different according to the country culture in order to please the local consumers.

That happens in USA where the products are resized considering the local market. Also

the European markets products are heavier and larger than in the Asian market. Moreover,

the display of the furniture and the rooms in the stores differs also from a country to

another in order to accommodate with the local tradition, for instance in China, the room

are smaller whereas in USA they are larger and in Sweden they have a bigger part for the

clothing section. Another aspect on which the giant retailer chooses adaptation is

concerning the service: for instance in USA, people are more used to shop 24/7 and

therefore they look for an after sale service that runs 24 hours.

Although, those adaptations are relatively small and do not incur important cost to IKEA,

there are an entire adaptation strategy that IKEA had to takeover in one of its country.

Indeed while setting-up its stores in China, the Swedish company entered into a

significant change for the first time in its international development strategy. The level of

competition that succeeds in copying the IKEA products made the company to choose a

different aspect of its core competition as a key success factor. Indeed, according to a

case study, people came to the IKEA and were drawing the furniture without aiming to

buy it. Therefore the firm decided to concentrate not only on the product sales but also on

the interior design and started to help Chinese to modify their interior with IKEA

products. It went till having TV shows in order to give interior design class to the

consumers. Another important factor that the company registered in China was the price.

Indeed, the Chinese market is abundant of cheap product made by small manufacturer

that copied IKEAs main goods. The company had to completely change its image in

China, with the aim to succeed in such a different market. By changing its image from

low cost but quality product, the company went to high cost product with quality and

taste. It targeted young and wealthy customers that could afford the products but also that

were more impulsive from the other segments. Also, IKEA changed its standardization

strategy towards an adaptation strategy concerning the location of the shops. The primary

target of IKEA was to drive traffic, which would drive more sales, and therefore it sets

up its shop nearer to the city center and instead of highways it has centered the store

between the local public transportation in order to drive more traffic and to adapt to

35


Chinese tradition. Even the parking lot was no more in an open space but in the

underground of the store. Finally, on the services aspect, the Chinese being unfamiliar

with the DIY methods, the company started to offer delivery and assembling of the

furniture. Thus, it created a new kind of deliveryman that also assembled the product at

home. This was driven by the change of the image from low cost product to high-class

product. People, which were paying more for a product, did not want to assemble it

themselves. However, smoothly IKEA recruited hostesses for the store that helped

people to understand the IKEA cult and made them change their mind.

This case on IKEA showed us that the standardization approach in an internationalization

strategy may help for several countries thanks to the strong companies culture,

nevertheless, it is not possible to standardize everywhere, especially in farther countries,

which have a complete different culture from the home country. Therefore, adaptation is

a solution to enter the country and as IKEA is doing it, it also comforts to implement the

company culture in order to go back to standardization in a long-term process.

3.2.2. Carrefour entering the Japanese market

Carrefour is our second enterprise that we will be studying for this thesis. This French

retailer is implanted all around the world, combining around twenty four thousand

markets in approximately 29 countries. Their internationalization strategy worked

worldwide and strongly in Asia except in Japan where they had to make modifications of

the original plan. The firm did not take into consideration that Japan is a very different

country in terms of development, consumerism and way of life. In other words, Japan is

far from being like the rest of Asia can be.

The following part will present the failure of Carrefours entry in Japan within its choices

in terms of adaptation and standardization of their internationalization strategy. The

choice here of Japan is justified by the fact that despite being one of the main failures

from Carrefours intent to entry a market, it is also an excellent example of

internationalization strategies as Carrefour tried both adaptation and standardization, at

different time periods and levels of integration.

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In 2000, when Carrefour arrives in Japan, their first idea is to implement the

internationalization strategy that worked so well for the other countries of Asia, entering

the market, standardizing the Asian strategy. The core element of this strategy is creating

the Japanese style of hypermarket. The company wants to sell local products, becoming

closer to the local suppliers. Indeed, the firm is close to the local actors and being

supplied from local producers, in other words, Carrefour is implementing a localization-

oriented merchandise assortment20. Carrefour simply used its worldwide successful

strategy of running with local suppliers for suggesting goods common to the local

marketplace. It is clear that we can think here about adaptation of the offer. The fact is

that they did not adapt to the local culture expectancies, they standardized their idea of

how approaching Japan as if it was like another Asian country. Nevertheless, the

Japanese market, as the American one, is not used to buy food products and not food

products at the same place, for instance. However, the organization of the Carrefour

hypermarkets as we actually know them do not suit the idea Japanese customers have on

retailers.

Also, Japan is a country, which has one of the worlds strongest luxury brand markets

represented by a large group of consumers qualified as high-income households. This

point results in a smaller market for low-priced products. As a result to this trend, people

were demanding European products. Carrefour has the French image of luxury goods

that Japanese people want to discover. However, Carrefour is implementing a strategy of

low price, which brings an image of low quality products. The low price strategy is badly

considered in Japan, as Japanese customers are brand conscious, price sensitive and

above all, they are looking for great experiences. They expect from shopping to discover

an entertaining experience consuming products that enhance their lives. On their price

sensitiveness, we here talk about their perception of low cost retailers that does not fit the

Carrefours customer profile that is supposed to be wealthy.

In 2001, Carrefour changes its strategy

ramos - rathinakumar - internationalization strategy: between adaptation and standardization

Documents

standardization adaptation

textile industry

international development

global retailer

companies industry

retailing industry

definition of adaptation

definition of standardization