Standardization and Adaptation as central managerial issues

The global marketing of products and services by firms going international often involves some crucial decisions, the most fundamental of which is the decision to standardize products across the marketing mix or adapt them to the particularities of local cultures. Standardized marketing involves firms employing a single global strategy across global markets. The degree of standardization may vary for each element of the marketing mix and is usually driven by considerations of profit growth and competitive advantage. The marketing mix consists of product, price, place, promotion, people and physical evidence. Standardization can also refer to the visual identities associated with a global brand image.

Conversely, adaptation is the process of adjusting the elements of the marketing mix to the customer requirements across different markets. The strategy is based on the assumption that consumers from different cultures have different needs, desires, buying behavior and perceptions and that firms can only survive and remain competitive by heeding to these differences and differentiating their products and services.

The debate surrounding standardization and adaptation goes back as early as 1961 when Elinder (1961) in his article “How international can advertising be?” reflected on standardization and adaptation in international advertising practices of corporations. Advocates of the standardized approach contend that globalization manifests in an increasingly homogenizing market with converging cultures and consumer tastes. The scale and scope of such markets are global in nature and global products are key for both customer satisfaction and the survival of global corporations (Fatt, 1967; Buzzell, 1968; Levitt, 1983; Yip, 1996). According to Levitt (1983), a well-managed company shifts its emphasis from locally customized offerings to globally standardized, consistent and affordable products. A global company therefore treats the world as a single market and offers quality and affordability through global products while making cost-savings in production and generating profits that allows the company to grow, compete and survive.

Standardization and Adaptation as central managerial issues

Multinational companies in quest of global recognition, increased market share and profitability and a means of overcoming constraints in saturated existing markets continually seek growth opportunities (Vrontis and Thrassou, 2007). Globalization has not only challenged the global relevancy of corporations but has also shifted the focus of economic development over time. Earlier, economic development was driven by cost minimizations and increased exports through the achievement of economies of scale. Today, market competition drives economic affluence through an increased focus on diversification among competitors. In addition, effective customer interaction and engagement acts as a value-adding function to products and services which in turn drives profit growth in a firm (Griffith and Lee, 2016)

Under present economic circumstances, companies going global are faced with the dilemma of whether to use a single marketing strategy and a standardized marketing mix or to formulate strategies befitting the unique features of local markets and adjust the marketing mix to local requirements.

According to competition theories, sustainable competitive advantage is one of the primary objectives of multinational companies (Douglas and Craig, 1986). Marketing strategies are devised with this objective in mind. For a company to survive in a foreign market, it must continue to sustain its competitive advantage. The question is whether they can achieve this with their marketing strategies in existing markets. Standardization will be favored if existing strategies demonstrate the ability to sustain competences in new markets.

Profit Growth

Profit growth is one of the most fundamental objectives of any firm. Lee and Griffith (2019) assesses the impact of marketing strategies on organizational performance and ultimately, profit growth under varying degrees of market dynamism and competitive intensity in the global market.

Achrol and Stern (1988) defines market dynamism as the degree of change in the market and the associated unpredictability that results from changes in global economy, demographics, preferences and marketing practices (Shi and Gao, 2016). Market dynamism positively corelates with profit growth as a result of standardization. Standardized marketing in highly dynamic markets allows firms to avoid the cost of adapting to an ever-changing environment. Profit growth thereby remains consistent across dynamic markets. The same, however, works against profit growth when paired with adaptive marketing strategies. In a dynamic market, adaptive strategies can be difficult to implement while maintaining consistent profit growth as more financial resources will be required to keep up with the market.

Competitive intensity refers to the degree of market competition faced by a firm. Consumers benefit from a highly competitive market through diversified options and a great number of alternatives. Competitive intensity has a positive effect on profit growth when an adaptive strategy is implemented as the advantages of greater customer engagement and market intelligence compensates for the cost of resources.

According to Griffith and Lee (2019), a high degree of customer engagement is more likely to accrue costs, diffuse managerial attention and strain resources. Highly adaptive marketing strategies therefore present significant constraint in the process of achieving economies in the global market and reaping higher profits. Standardization and adaptation are therefore strategic processes that are crucial in driving the outcomes of a firm. This makes standardization and adaptation central managerial issues in international marketing management.

Arguments for Standardization

• Unified organizational brand identity – one of the views in favor of standardization is that it can achieve global uniformity of a firm’s corporate image. Standardized promotional strategies create consistency with customers and guarantees greater control (Agrawal, 1995). This allows multinationals to use promotional funds and resources more efficiently.

• Economies of scale - the theory of economies of scale is fundamental in driving the arguments in favor of the standardization approach. A standardized approach uses less resources, focuses managerial attention on production quality, and achieves economies of scale by focusing on cross-market commonalities.

• Cost reduction – standardization reduces the strain on resources and minimizes production, research and promotional costs associated with retrieving market intelligence and adapting to specific local demands.

• Homogenization of consumer demand – the impact of technology manifests itself in the worldwide demand for quality products at a low cost.

• Synergetic and transferable experience – standardization depends on the transferability of competitive advantage between markets. A higher transferability makes it possible to facilitate standardization strategies.

Arguments for Adaptation

• The current trend towards a global market offering global products is greatly driven by an assumption that consumer tastes and needs around the world are increasingly converging under a strong western influence. However, standardized products tend to be pushed on consumers rather than being pulled by universal consumer needs by companies attempting to make significant cost-reductions (Schütte, 1988). Cultural heterogeneity is still very much intact and even companies with a global strategy will be required to alter and adapt the elements of their marketing mix while operating in different societies with distinct cultures. For instance, in Asian cultures, consumer behavior is greatly influenced by a collective perception formed through a gradual, risk-averse approach towards new products. Individualist behavior in Asian societies tends to exist in groups of people rather than single individuals. This contrasts distinctly from western cultures where individualism and self-confidence are encouraged from an early age and the notion of group conformity is relatively looser. Such differences can call for completely different promotional strategies. Therefore, it is unlikely that absolute standardization is beneficial in the long-term for most industries.

• Competitive markets exist as a result of divergent consumer needs. The desire to be competitive is facilitated by opportunities that arise as a result of these distinct needs. In order to remain competitive and grow market share, companies invest in market research in order to profit from the needs of a bigger and more diverse market. The most relevant factors driving multinational companies in the UK towards adaptation are consumer perceptions, economic differences, culture and laws, competition and market development (Vrontis, 2005).

Factors affecting ADAPT-STAND decision

International marketers should be aware of the macro-environmental attributes of their target markets. This includes race, occupations, laws, culture, tastes, technological and social perceptions. Demographic factors like consumer taste, disposable income, literacy and education, taxation and labor costs also contribute to strategic decision-making (Paliwoda and Thomas, 1999). Chung (2007) emphasizes on adapting promotional efforts to foreign markets as consumer perception is shaped by culture which has a more profound impact on the promotional element of the marketing mix over other elements like product, price and process. It is difficult to quantify the effect of cultural differences on marketing, especially when it comes to religion, education, history, values, customs and attitudes. These factors present significant constraints for international marketers.

Viswanathan and Dickson (2007) presents a 3-factor framework for determining the appropriate level of standardization. The three “critical drivers of the degree of standardization” are:

1. Homogeneity of consumer response – this factor analyses the nature of consumer perception in different parts of the world. “Global consumer culture positioning” refers to the homogenization of customer exposure and reaction to global products and is achieved through diffusion of mass media programming and standardized advertising.

2. Transferability of competitive advantage – companies in possession of core competences are in a better position to standardize. E.g. technical industries.

3. Degree of market freedom – market freedom or power allows companies to transfer competitive advantages across markets. Market freedom is achieved through resources that erect high barriers to market entry. Some of these resources can be patents, financial assets, market share, brand reputation, economies of scale and scope (Viswanathan and Dickson, 2007).

The Integrated Approach

Both the standardization and adaptation schools of thought have positive and negative implications when put in practice. However, both approaches in their absolute forms are extreme and impractical in a diverse and complicated world. Vrontis (2005) proposed a third approach which arises from his study of Adapt-Stand decision-making in practice in multinational companies, from which he concluded that both processes are not mutually exclusive and do co-exist as an integrated approach. A company’s consideration of its market position, internal and external environment, target market, customer perception, product features and other organizational attributes form some of the factors that compels them into adopting an integrated approach. This is known as the Adapt-Stand process and it involves the integration of adaptation and standardization across the elements of the marketing mix in order to identify an appropriate level of integration that would ensure organizational profitability without undermining consumer satisfaction.

On exploring the practical levels of integration in the global market, the study reveals different tendencies towards standardization and adaptation for each element of the marketing mix in the surveyed companies. The product was found to be the most standardized element of the marketing mix. Conversely, pricing and promotional behavior tend to be adapted to individual locations. Within the promotional channels, the tendency towards adaptation is greater for sales promotions and public relations than for advertising and direct marketing (Vrontis et al, 2009).

Vrontis (2003) introduced the BEST REACT Model of Adapt-Stand integration (Appendix 1). The model outlines the nine most relevant factors influencing the levels of integration of the two approaches. International marketers should undertake a thorough environmental analysis for a single market in order to decide the correct levels of integration as suggested by the model.

The B.E.S.T. R.E.A.C.T. Model of AdaptStand Integration. Source: Vrontis (2003)

Limitations: The BEST REACT Model does not specify how each factor should impact the decision to standardize or adapt an element of the marketing mix. It is unclear how the factors affect each process and does not contain enough guidelines on how to carry how the integration decision-making. However, it does provide a basic framework to carry out an internal and external investigation for a company to aid in the decision-making process.

Another study by Harris and Attour (2003) supports the finding that companies rarely ever practice total standardization and that most multinationals that do standardize employ modified forms of the approach. It proposes that standardization is a flexible strategy that can be adapted to different market circumstances. Data obtained from this study suggests that companies frequently engage in regional standardization wherein advertising in two separate regions differ significantly from each other but are standardized locally. According to the study, regional standardization can be of two types

I. Regional modification, wherein the elements standardized in one region were modified from a different portrayal in another region

II. Regional adaptation, where the elements standardized in one region are totally different to that in another region

Business Context: Post-Acquisition strategy in Emerging Market Firms

The previous discussion in this essay was concerned with the dilemma of standardization and adaption for multinational companies expanding to new markets. One of the ways in which companies can acquire new markets is through cross-border mergers and acquisitions. The question of whether to adapt or standardize also arises in post-acquisition strategy. The business context I’ve chosen for this discussion is post-acquisition branding strategy in emerging market economies. This is significant in understanding how firms make standardization and adaptation decisions under more complicated circumstances where conflicting goals may exist between the merging entities.

Post-acquisition, an acquiring firm can either retrain the acquired firm’s corporate identity or impose the acquiring firm’s identity. Standardization would result in dissolving the target firm’s individual identity whereas adaptation would result in its retention or its operation as an independent subsidiary with its original brand identity intact. A study by Rosson and Brooks (2004) revealed that the target firm’s brand identity was retained in cases where the acquired firm was recognized as a major brand prior to the acquisition. In majority of the cases however, the acquired firm would assume the acquirer’s brand identity. The determinants behind an emerging market firm’s decision to adapt or standardize their branding strategies are:

• the relative brand values of the target and acquirer organizational brand identities

• the strength of the acquired firm’s assets

• cross-border regulatory differences

• organizational-level similarities and differences between the two firms

• potential cause for friction between the home and host countries and the consequent liabilities resulting from perception of foreignness and cultural disparities

Cultural, economic and regulatory differences, individual identities and the transferability of knowledge, competencies and competitive advantage plays an important role in the formulation of post-merger integration strategy. Branding adaptation, or rebranding, has been historically received positively in the integration process by employees and has reflected positively in post-integration financial performance. In high technology industries, the strength of the target’s brand asset often discourages the acquiring firm from imposing their own brands on them. Post-acquisition adaptation is also favored in order to avoid conflict with target firm’s stakeholders.

Ownership identities that are uncommon in advanced economies exist to circumvent institutional shortcomings that are characteristic of emerging markets. This includes business groups and ownership structures involving the state. One example of such an ownership identity is the Tata Group in India that comprises of highly decentralized member companies held together by the Tata brand identity and corporate values deeply embedded within the group. Previous literature has extensively documented the role of business groups in emerging market countries. Companies under business groups are more likely to standardize their post-acquisition marketing strategies to reinforce the brand identity associated with the business group (Nicholson and Khan, 2017). Moreover, privately owned firms usually tend to retain their brand identities and associated organizational values for the long-term sustenance of their business by standardizing the acquired brand to their own.

Business Case: TATA Group

The TATA group is one of the oldest and biggest multinational conglomerates in India. It is a business group comprising of many entities under the Tata brand name, operating in industries ranging from automobiles to steel and chemicals, IT consultancies, hotels and retailing. Tata’s post-acquisition approach is pragmatic due to varied responses and pressures from home country stakeholders. Conventionally, post-acquisition target firms are branded with the acquirer’s corporate brand name. However, in the case of Tetley Tea, a leading British tea brand that Tata acquired in 2000, it continued to market the target brand with its independent identity intact. The strategic nature of this decision arises from the fact that Tetley’s customers see the brand as innately British and removing that association from it could possibly compromise its brand reputation (Witze, 2010). A similar case reoccurred following the acquisition of the premium British automobile brands Jaguar and Land Rover (JLR). Tata Motors retained the acquired brands as rebranding could compromise the high value of JLR’s brand asset. On the other hand, Corus, a UK-based steel manufacturing company was acquired and rebranded as Tata Steel Europe. Corus’s brand assets were not significantly stronger than Tata’s thus it was rational to follow a standardization policy and add value to the Tata brand.

All these decisions were motivated by considerations of the weight of the brand assets it acquires against the benefits of standardizing the brands. Adaptive strategies prove favourable in maintaining stakeholder relations and positive customer perceptions in the target brand’s market and reducing the liabilities of institutional and cultural distance between the merging entities.

Conclusion & Recommendation

The debate of standardization versus adaptation has yet to yield any definite conclusions. International marketing managers continue to face the strategic tension between customer interaction-oriented marketing strategies and the demand to formulate profitable strategies through a standardized approach. However, rather than focusing on either of the extreme approaches and debating on underlying ideologies, international marketers should thoroughly assess the marketing environment and conduct a cost-benefit analysis to determine the factors that would contribute to the assets of the firm while maintaining its competitive position. By adopting an integrated approach and calculating cost variations for different levels of integration between the two approaches, marketing managers can optimize profit growth without undermining other factors that contribute to successful marketing. Practical issues in marketing management should receive greater emphasis in order to identify the constituents of a good practice. Managers should look for cross-market commonalities and homogeneity of customer responses to isolate the elements of the marketing mix that can be standardized across markets, while at the same time remaining cautious of dynamism in the market.

Scope for further research exists in the construction of a thorough framework that not only addresses factors that international marketers should be aware of but also measures to a certain quantifiable extent the correlation between these factors and their impact on the market environment, marketing strategies and the performance of the firm. Previous studies have mostly focused on international marketing from a broader perspective. There are various angles from which the marketing environment and the strategy-making in firms remains to be explored. Limited literature on context-based study of international marketing practices leaves many research gaps for future marketers to fill.

---

References

Achrol, Ravi S., and Louis W. Stern (1988), “Environmental Determinants of Decision-Making Uncertainty in Marketing Channels”, Journal of Marketing Research, Vol. 25 (1), pp. 36–50.

Agrawal, M. (1995), "Review of a 40‐year debate in international advertising", International Marketing Review, Vol. 12 No. 1, pp. 26-48.

Buzzell, R.D. (1968), “Can you standardize multinational marketing?”, Harvard Business Review, Vol. 46, pp. 102-13.

Chung, H.F.L. (2007), “International marketing standardization strategies analysis: a cross-national investigation”, Asia Pacific Journal of Marketing, Vol. 19 No. 2, pp. 145-67

Elinder, E. (1961), “How international can advertising be?”, International Advertiser, December, pp. 12-16.

Fatt, A. (1967), “The danger of local international advertising”, Journal of Marketing, Vol. 31 No. 1, pp. 60-2

Griffith, David A., and Hannah S. Lee (2016), “Cross-National Collaboration of Marketing Personnel Within a Multinational: Leveraging Customer Participation for New Product Advantage”, Journal of International Marketing, Vol. 24 (4), pp. 1–19.

Harris, G. and Attour, S. (2003), "The international advertising practices of multinational companies", European Journal of Marketing, Vol. 37 No. 1/2, pp. 154-168.

Lee Hannah S., Grifffith David A. (2019), “The balancing of country-based interaction orientation and marketing strategy implementation Adaptation/Standardization for profit growth in multinational corporations”, American Marketing Association, Vol. 27(2), pp. 22-37.

Levitt, T. (1983), “The globalization of markets”, Harvard Business Review, Vol. 61, pp. 92-102

Paliwoda, S.J. and Thomas, M.J. (1999), International Marketing, 3rd ed., Butterworth-Heinemann, Oxford

Paliwoda S., Slater S., Vrontis D., Thrassou A. and Lamprianou I. (2009), "International marketing adaptation versus standardization of multinational companies", International Marketing Review, Vol. 26 No. 4/5, pp. 477-500.

Rao-Nicholson, R. and Khan, Z. (2017), "Standardization versus adaptation of global marketing strategies in emerging market cross-border acquisitions", International Marketing Review, Vol. 34 No. 1, pp. 138-158.

Rosson, P. and Brooks, M.R. (2004), “M&As and corporate visual identity: an exploratory study”, Corporate Reputation Review, Vol. 7 No. 2, pp. 181-194

Schütte, Hellmut. (1988), Asian culture and the global consumer.

Shi, Linda Hui., and Gao, Tony. (2016), “Performance Effects of Global Account Coordination Mechanisms: An Integrative Study of Boundary Conditions”, Journal of International Marketing, Vol. 24(2), pp. 1–21.

Viswanathan N. K., Dickson Peter R. (2007), “The fundamentals of standardizing global marketing strategy”, International Marketing Review, Vol. 24 No. 1, pp. 46-63.

Vrontis, D. (2003), “Integrating Adaptation and Standardization in International Marketing”, Journal of Marketing Management, Vol.19, No. 3-4, pp. 283-305

Vrontis, D. (2005), “The creation of the AdaptStand process in international marketing”, Innovative Marketing, Vol. 1, Issue 2

Vrontis, D. and Thrassou, A. (2007), “Adaptation vs standardization in international marketing – the country-of-origin effect”, Journal of Innovative Marketing, Vol. 3 No. 4, pp. 7-21

Witze, Morgen. 2010. Case Study: TATA Available at: https://www.ft.com/content/8e553742-136c-11e0-a367-00144feabdc0

Yip, G. (1996), “Toward a new global strategy”, Chief Executive Journal, Vol. 110, pp. 66-67.