rules of world trade. First, it began the process of opening up the most heavily
protected industries, agriculture and textiles (IMF, 1999). Second, it vastly extended the
scope of international trade rules, now covering services as well as goods. New issues,
such as foreigners’ “intellectual property” like patents and copyrights, were addressed
for the first time and services can now be traded internationally (IMF, 1999). As a
result of the GATT/WTO negotiations and unilateral decisions, almost all countries
have lowered barriers to foreign trade. Although liberalization has proceeded at
different speeds in different places, the trend is worldwide. Over the past decade, trade
has increased twice as fast as output, foreign direct investment three times as fast and
cross-border trade in shares ten times as fast (WTO, 1998). This development
suggests that the world economy becomes more integrated (WTO, 1998). Apparently,
the gap between export growth and GDP growth has further enlarged in the recent
past, which can be understood as an increase in the speed of globalization (Eiteman,
1999).
With the costs of communication and computing decreasing rapidly, the natural
barriers of time and space that separate national markets have been falling as well.
The cost of a three-minute telephone call between New York and London for example,
has decreased from 3 dollars (in constant prices from 1996) in 1930 to less than 1
dollar today (World Bank, 1997). The cost of computer processing power has dropped
by an average of 30% a year in real terms over the past couple of decades (World
Bank, 1997). In Information technology, the world has experienced a revolution. The
web represents a world wide information network. In 1998, 180 million Internet
workstations provided a worldwide network and Andy Grove of Intel believes that there
may be 500 million in another five years (Shepherd, 1999). The dimension can be
illustrated by some examples: Global stars as IBM and Microsoft are increasingly
focusing on the Internet business, and Reuters set up a new global ventures group to
pursue Internet investments (Shepherd, 1999). Cable & Wireless bought MCI’s US
Internet business for 1.75 billion dollars, then acquired a German and a Taiwan Internet
provider and hiked its three year budget by 3.3 billion dollars to build a global Internet
protocol network for multinationals (Shepherd, 1999). E-commerce is predicted to
become one of the most important market grounds of the next millennium and “all the
world’s businesses spend more on telecommunications each year than they do on oil”.
(Maass, 1997).
Another important factor for an increased globalization process is to be seen in
the plunge of traditional costs of covering distances by land, sea and air. They have
been reduced to approximately one fifth since the twenties and thirties respectively.
The “death of distance”, as Cairncross (1997) called it, facilitates the establishment and
monitoring of international production networks, enlarges trading areas, and enables
firms to exploit international cost differentials by the fragmentation and relocation of
production and global sourcing (Cairncross, 1997). Furthermore, the development of
high tech and telecommunication facilities together with the massive decrease of prices
for information sharing and transport can be seen as a dominant force of the
globalization process.
When comparing different regions in our world one will encounter completely
different opinions, languages, gestures, habits, rituals, behavioral patterns and so on.
As culture is about values and values are partly unconscious, acquired in early
childhood and then further developed, confirmed and reinforced later on, they are
hardly discussible and will not change quickly (Hofstede,1996). Therefore one might
argue that no globalization of culture is evident. However, there are tendencies
towards a “global culture”. The increasingly global media and entertainment industry
including cross-border satellite television broadcasting and almost “global”
TV-channels like CNN have an integrating effect on cultural diversity (Hofstede, 1996).
In most corners of the world for example, the name of Mickey Mouse will elicit at least a
glimmer of recognition. Walt Disney’s most famous creation was one of the first stars
with a global name, showing that there is a kind of convergence in consumer lifestyle
and behavior.
Signs of Globalization
Multinational corporations operate all over the world in ways never before
imagined. With operations in 100 or more countries, selling products in as many as 200
countries, global players gain revenues larger than most countries’ GDP (Shepherd,
1999). Corporate management can share best practices within seconds with modern
telecommunication from New York to Bangkok or have troubleshooting teams fly within
hours from Buenos Aires to Seoul. (Shepherd 1999) In order to enhance their
operational efficiency and profitability along the entire industrial chain many
corporations have adopted global corporate strategies (Yip, 1995). The global
enterprise organizes its operations from R&D for product and process innovation,
through production and distribution, to final sales and marketing as an internationally
integrated ensemble (Yip, 1995). It obtains raw materials from cost efficient sources,
manufactures or assembles goods in the lowest cost zones, acquires and develops
technological expertise wherever it is favorable, and uses its managerial and technical
resources as economically as possible, to enter markets as efficiently as possible (Yip,
1995). These worldwide operating organizations are particularly common in
high-technology, high-skill and capital-intensive industries such as computers,
electronics and chemicals, as well as in some assembly industries like automobiles, all
of which benefit from economies of scale through the whole industrial supply chain from
R&D to final sales (Graham, 1998). Another sign that companies are becoming global
is the fact that more and more companies are transforming their organizational
structures based on economic regions to global product lines. Consumer product
companies such as Nestl? or McDonald’s have standardized production and
distribution although they customized their products to local tastes (Shepherd, 1999).
Partners and suppliers that serve other multinationals, however, have come under
increasing pressure to provide the same products and services anywhere in the world
(Shepherd, 1999). The growth of the multinational enterprises seems likely to spur
further development in the history of globalization. Corporations want the freedom to
shift employees from country to country, and to use citizens of one country to alleviate
skills shortages in another. This will be not so much a quantitative change but a
qualitative one – namely, greater migration of workers with skills, or “human capital”.
As already stated above, globalization might be seen, at least historically, as a more or
less constant process. However, it is due to the more recent speed-up of the process
that scholars have paid more attention to it and termed the phenomenon as
globalization. There has been some dramatic changes taking place, namely the
liberalization process leading to more and more free trade and capital flows, the
development of information technology, the plunge of transportation and
telecommunication costs and the shift from “workers” to “human capital” introducing a
new quality of globalization (Graham, 1998). Today globalization is often used as a
buzzword describing the reality in which corporations are embedded.
Complexity in Global Operations
Complexity in global operations arises from multiple environments in which
global actors are embedded where one must consider the wide variety of issues, the
existence of multiple ways of operating globally, and the constant change of the
operating environment (Hansen, 1999). As one example of this complexity, we present
a framework that highlights complexity in the choosing of foreign operations (Hansen,
1999) which upon deeper examination proves to be a very challenging ordeal. Global
forces that create change towards a global operating environment can be identified as
deregulation, technological advances, increased competition, demanding customers,
etc. (Hansen, 1999). These demand a new attitude to business. A global organization
is associated with both different attitude and different activities from its more
circumscribed, international predecessor. Success and survival in a global world or
when trying to “go global” yields three main implications for corporations (Parker 1996):
1. Social responsibility: The raising globalization in economy creates a
tendency towards a redistribution of power and responsibilities between governments
and corporations. There are growing expectations for businesses to adapt roles
previously played by governmental entities. On the government side, the resources
saved hereby provide the opportunity to reallocate resources in education, training, and
other modes of knowledge creation. On the corporate side again this means adopting
roles which governments have played previously and – as ethics varies according to
culture – firms have to find a balance between what is acceptable in different cultures.
This involves not tolerating business practices that are illegal in other countries, which
involves dangerous work for the population, or which might be harmful to the
environment. Also, customers pressure large corporations to tackle human right issues
and to promote a democratic society organized around values like freedom, equality,
well-being, justice, mutual respect and to deal with the growing gap between rich and
poor, armed conflicts around the word, minimal legal protection in some parts of the
world and corrupt regimes.
2. Organization strategy: In creating sustainable competitive advantage in a
global world, strategies must be informed of political, legal and social as well as
economic considerations. They should be able to yield industry foresight and leverage
global knowledge. Thus global strategies have profound implications for human
resource strategies as well. Global corporations should not just try to establish an elite
of jet setters – they might be difficult to integrate into the corporate mainstream – or an
international team of big-picture overseers to the exclusion of focused experts. Here,
organizational learning is in a central position. In summary, global corporations should
apply an overall strategy to co-ordinate and integrate dispersed operations and
diversification in order to provide higher customer and shareholder value in their
diverse markets.
3. Organization structure: Global organizations need to develop relationships
with their interest groups and manage these relationships well in order to create
efficient and productive networks. Internally, this means that organizations with high
organization structures will have to flatten their pyramids and implement
cross-functional ways of thinking. Matrix organization structures are one way of doing
this. The knowledge revolution associated with globalization has the potential to
restructure not only existing organizations but also the way work is organized and
conducted (e.g. telecommuting). This requires fundamental rethinking of how
organizational participants think about their relationship with the organization and the
organization’s role in a global world.
Global or Local?
In today’s international markets it is difficult to find a simple answer to the
question whether to globalize or localize a product. The primary goal of a company is
usually to maximize its shareholder value, which means maximizing income, minimizing
expenses, minimizing assets and maximizing liabilities (Douglas, 1997). Respective to
products, maximizing income means adapting products to meet local environments and
minimizing expenses means to standardize them as much as possible. International
segmentation studies have revealed that global standardization is appropriate only in
relation to certain product markets or market segments under certain market conditions
(Douglas, 1997). The choice of strategy on the level of standardization or adaptation is
depending on the contingent variables (Porter,1996): (1) product characteristics – from
universal over modified to country tailored ; (2) country characteristics – such as social
and political system or, economical and technological development, or cultural context,
etc. and (3) consumer characteristics – social classes, age, sex, urban or rural
residency, lifestyle, etc. An interaction between all three characteristics implies
feasibility of an international niching strategy by customizing the marketing mix to
identified consumer niches across countries and segments. An interaction between,
product and country characteristics implies a product adaptation strategy by tailoring
country-clusters on the basis of a product-market match. An interaction between
country and consumer characteristics implies feasibility of a product transformation
strategy, in which product offerings are standardized and positioning and promotion are
adapted for different target consumer segments in different countries (Walters, 1997).
An interaction between product and consumer characteristics implies a global
segmentation strategy concentrating on one marketing mix for one segment or a
different marketing mix for each segment. If no interaction between the three
characteristics can be shown, a global standardization strategy or a gradual
standardization strategy may be feasible (Porter, 1996).
Global Market Segmentation
A central issue in global marketing is assessing markets, which is usually done
by segmenting them. Global market segments are transnational market segments,
which have been acquired by utilizing country specific segmentation criteria, individual
characteristics of customers or both of the previously mentioned segmentation criteria
(Walters, 1997). Traditionally, global market segmentation has been undertaken by
using either county specific criteria or transnational variables common to individual
customers in different nations as a basis for segmentation (Walters 1997). Country
specific global segmentation criteria include economic growth and development criteria.
Individual characteristics of customers as a global segmentation criteria include
demographic variables: e.g. sex, age, income level, social class and education level,
psychographic variables: e.g. lifestyle factors in regard to work and leisure habits such
as activities, interests and opinions, and behavioral variables: e.g. patterns of
consumption, product category and brand loyalty and context of product usage
(Walters, 1997). More recently, hierarchical segmentation processes have emerged.
These hybrids attempt to combine the benefits of both presented approaches to global
market segmentation. The advantage of this type of approach is that initial country
sorting allows identifying a context for consumer behavior, which enjoys significant
homogeneity (Walters, 1997). In such an environment, it is more probable that
similarity in lifestyle, behavior and decision-maker characteristics will translate into
viable transnational market segments. Three different ways of carrying out this process
are presented by Walters (1997):
1. Kale and Sudharshan: initial country screening followed by
microsegmentation, where the focus is on transnational similarities between customer
groups. Either segments are identified within target markets and then aggregated
across the qualified countries based on similarity or individual customers in all the
qualified countries are directly aggregated into segments.
2. Kreutzer: target markets are separated from all other countries, segments are
delineated within target countries sharing common features and finally factors that may
require marketing mix modification are taken into account.
3. Amine and Cavusgil: country clustering, lifestyle segmentation in which
targeted consumers are identified and aggregated across countries thus directly
delineating transnational segments and focusing on consumer behavior and identifying
two “shopping” clusters.
Walters (1997) states, “In the operationalization of segmentation strategies it
should be noted, that if the scope of international operations is broad, it might be