Global vision, local outlook

The dry prose, lack of illustrations and the endless stories of market entries gone wrong can put off a casual reader, but The Mirage of Global Markets is an interesting book. For, it gives valuable lessons""through a fascinating range of real examples""on what could go wrong in a company's globalisation journey.

Harvard University Professor David Arnold's counsel is simple: while companies are globalising, markets are localising. Many of the common pitfalls of international marketing described in the book are, in essence, symptoms of a drive to shape markets rather than the listening, reactive approach.

The name of the book could be misleading as it gives an impression that this is yet another a treatise against rapid globalisation. Far from it.

Arnold acknowledges that a reversal in the trend of corporate globalisation is impossible to imagine, but multinationals must realise that the marketing advantage that accrues from being global is the power to do different things everywhere rather than the power to do the same thing everywhere.

In fundamental terms, entering a new country-market is very like a start-up situation, with no sales, no marketing infrastructure in place, and little or no knowledge of the market.

Despite this, companies usually treat this situation as if it were an extension of their business, a source of incremental revenues for existing products and services. Two aspects of the typical approach are particularly striking.

First, companies often pursue this new business opportunity with a focus on minimising risk and investment""the complete opposite of the approach usually advocated for genuine start-up situations.

Second, from a marketing perspective, many companies break the founding principle of marketing""that a firm should start by analysing the market, and then, and only then, decide on its offer in terms of products, services, and marketing programmes.

In fact, it is far more common to see international markets as opportunities to increase sales of existing products and so to adopt a "sales push" rather than a market-driven approach. Given this overall approach, it is not surprising that performance is often disappointing.

In his very first chapter, Arnold sets the tone. Profitability in international markets has lagged behind average firm profitability for much of the last two decades (the "foreign investment profitability gap").

And Arnold's recipe is no rocket science, and is pretty fundamental. Successful global brands strive to be unique, meaningful, and enduring to the target audience in current and potential markets.

The right distinction establishes a powerful global foundation, which can be adapted to local wants and needs, resulting in a powerful localised message. With the world becoming smaller, a consistent global foundation allows consumers to easily find the brand they want wherever they are.

But this does not mean blind replication strategies, which achieve, at best, scale""a questionable achievement in the eyes of many consumers, who are reasonably focused only on their own local needs and wants.

His advice: take a close look at local conditions, consider various ways to enter the market, including franchising and licensing, and plan for a long-term fit, rather than a short-term solution, when choosing a distributor.

Consider, for example, Nestle and Unilever's grand plan to sell ice cream in Saudi Arabia. Both invested heavily, armed themselves with exhaustive market intelligence reports and thought selling ice creams in a hot country with a fairly large youth population would be nothing short of a cakewalk. Both companies, however, burnt their fingers badly and had to quit Saudi Arabia almost at the same time in 2001.

So what led to the failure? Saudi Arabians do not see ice cream as an eat-at-home dessert, and female shoppers frequently failed to buy ice cream at supermarkets because they had no driving licence.

Lesson: while focusing on top-line indicators such as population, etc. as a guide to market potential, both companies underestimated the difficulties of market-specific factors like cultural or regulatory barriers.

Arnold's book aims to help business people understand the issues which explain poor international performance, from an assessment of market potential and development to the management of local partners, and provides the frameworks for solving the international underperformance riddle.

Take the case of the US-based firm Mary Kay Cosmetics, which is a direct marketing company operating through independent "beauty consultants" who buy and resell cosmetics to contacts either individually or at social gatherings.

The company wanted to enter either Japan or China. Macro economic data provided by consultants showed Japan as a more attractive market: it boasted the highest per capita spend in the world on cosmetics, it already had a thriving direct marketing industry, and it had a high disposable income.

The company, however, later learnt that the market opportunity is far greater in China. Reason: Chinese women were far more motivated to boost their income by becoming beauty consultants than the Japanese.

There are scores of such examples in the book to show how globalising companies can succeed as markets localise. In Europe, for example, the same product is offered in different countries under different brand names.

And sometimes the same brand is offered in different countries with a different product formulation. Italians, for example, prefer blue flecks in their detergents ""blue being the colour of the favourite Italian soccer team.

On the other hand, residents of the Netherlands, considering themselves environmentally friendly, favour soaps with green flecks. In both cases, the coloured flecks serve no purpose at all beyond cosmetic appeal. But companies can ignore such apparently minor things only at their own peril.

David Arnold
Prentice Hall
Pages: 251;
Rs 450

The Mirage of Global Markets