This article is about three important matters, which concern the growth of internationalising/ globalizing firms from Small and Medium Sized Open Economies (SMOPEC) such as Finland, Sweden, Norway, Switzerland and Portugal. One is the development of the optimal international / global expansion path for firms from SMOPEC economies. This is outlined. After which is explained how and why traditionally exports and then later different business functions assumed key importance. Two is the question of sustainable competitive advantage. This is discussed, along with modern thinking on these matters. A significant factor governing the latter is market orientation, which envelops the whole firm and all its functions. This orientation backed by marketing capability promotes global brand success. Integration of the organisation of the firm around the brand process is the way now for firms to achieve greater regional / global success. Examples are given in support of the above argument. Three is whether sustainable competitive advantage and the type of industry one is in significantly impacts on the expansion path.
For obtaining success in international / global markets, the challenges confronting firms from Small and Medium Sized Open Economies (SMOPEC) such as Finland, Sweden, Norway, Switzerland and Portugal are twofold. One is to select the optimal expansion path. Two is how to achieve and maintain sustainable competitive advantage. This article aims to show how these two streams of endeavour are linked.
Stages Pattern of Internationalization
SMOPEC recognizes that Finland can be treated as a typical and representative country of this group; firms in many other countries in the group have followed similar internationalizing paths. The SMOPEC Research Group was initiated in 1994; mainly by Christian Bellah of Austria, S.W. Hirsch of Israel and Reijo Luostarinen of Finland. Now its 20 members from 12 countries study whether the internationalization / globalization patterns and strategies of firms, industries and economies of small and medium sized open economies differ from those of large economies, and whether different explanatory theories are needed for them. The overall powerfield displayed in Figure 1 shows the sources of factors explaining internationalization of SMOPEC firms.
Untill 1960 traditional Finnish industries entered, penetrated and grew in foreign markets by using the export mode. During the 1960s, new light manufacturing industries such as clothing and electrical equipment entered into exporting. In the 1970s, exporting firms entered a more advanced stage of internationalisation, a foreign operations stage. This consisted of other modes of doing business abroad; such as licensing, subcontracting, turn-key projects and different types of subsidiary operations. The 1980s and early 1990s can be termed the international stage. For many firms the share of international business operations exceeded 50%. Their organization and system structures had to be expanded to use different types of foreign operations and to meet the consequent more diverse requirements of foreign markets. The late 1990s, and in the years ahead, is the globalization stage where, for a number of firms, the need is for global markets in order to cover high research and develoment (R & D) investments and to push global product innovations; . Table 1 is illustrative This is especially true for firms which have specialized in a niche business and have to gain competitiveness in order to attain a position as a global market leader. These firms are using the slogan "It is better to be a global market leader in a smaller business area than to be a small marginal producer in a big business area."
Luostarinen (1979,1994) explains that when analyzed at a company level, the internationalizing process seems to proceed in a particular way, as can be seen in Table 2. The rationale for a stepwise development is very reasonable: via the exporting mode the firm can test market acceptance with minimal risks. If demand proves promising, the firm increases sales power by establishing a sales unit abroad. Then through non-investment foreign production operations, manufacturing conditions can be tested before establishing a production unit abroad. This was substantiated by periodically collecting and analzying from the late 1960s large, almost population - wide, longitudinal data banks in Finland’s International Business Operations (FIBO) Research Program at the Helsinki School of Economics and Business Adminstration. The stages pattern of internationalization has been identified also for the firm at the target country level (Luostarinen 1970, Johanson and Weidersheim-Paul 1975, and Johanson and Vahlne 1977) Further understandably the stages pattern is more valid an explanation of the internationalization process at firm level than at the host country level (Luostarinen and Welch 1990 and Luostarinen 1994). Other major relevant findings of the original stages pattern at the firm level developed by Luostarinen at the FIBO research program are:
Some Other Dynamic Patterns of Internationalization
In the 1960s, when firms began to internationalize, marketing was the lead business function. As laid out earlier, firms began to go international by exporting without direct investment support, NIMOs. After marketing received investment support, DIMOs, the lead function became production in the internationalization process. This led to costs being lowered and value being added. Furthermore, the evolutionary perspective on internationalization was strenghtened as the theory of the product life cycle was made popular in the end 1960s / early 1970s. That theory used R & D as the lead function and linked the internationalisation process to phases in the location of production. Commencing with exports, once foreign markets grow adequately then overseas production is established abroad. Finally, as the technology matures and markets grow everywhere, then low cost production enters from developing lands and exports are sent from there into the home market of the initiator. This theoretical explanation built around the dominance of the US as the originator, and was valid for that time period.
The next development was the EPRG framework which also was proposed as evolutionary. It identified four stages of Multinational Enterprise (MNE: Here the term covers all forms of large corporations and enterprises which have operations abroad) internationalization reflecting different management attitudes and orientations. The first was the Ethnocentric stage; in which domestic standards are applied to overseas subsidiaries. Next came the Polycentric stage where the MNE tends towards host counry orientation catering to local cultural differences. After which came the Regiocentric stage which focuses on regional organization of authority and communication flows. Finally the MNE reaches the Geocentric stage which aims for global organization with collaboration between headquarters abd subsidiaries on procedures that meet both worldwide and local goals.Somehow this framework never turned out to be evolutionary to the extent it was suggested. MNEs tended to remain in the stage they were in. Very few Japanese or other ethnocentric firms have actually evolved significantly out of it. The polycentric firms tended to be from industries which lent themselves to multinational operations where the emphasis was on a multidomestic approach such as with Colgate, Nestle and Swedish Match. Such firms manufacture and market in each country where they have a marked presence. Firms in the regional and geocentric phases tend to be closer in pattern but none are really devoid of their fundamental ethnic origins. Thus the EPRG provides few explicit guidelines for strategy formulation and implementation.
Latest Development of the Stages Pattern of Outward Internationalisation
Inward, Outward and Cooperative Internationalization
The original stages pattern describing the evolution of the internationalization process of the firm was based on a partial analysis. Already in his large empirical study in 1978 Luostarinen paid attention to the fact that in addition to outward going operations many Finnish companies had utilized inward coming operations as well as cooperative operation modes or strategic alliances with foreign firms (Luostarinen 1978). However it was only in 1990 and later when these two other operation mode categories, inward and cooperative were integrated into a holistic stages pattern with outward. This holistic pattern extended and broadened the traditional pattern by indicating the fact that usually the firm starts the internationalization process by doing inward operations first, and proceeds after that to penetrate foreign markets by outward modes. Finally they strengthen the process by utilizing cooperative modes (Luostarinen and Welch 1990, Luostarinen 1994). Furthermore, there also may be close and simultaneous interaction between inward, outward and cooperative internationalization (Luostarinen and Welch 1990, 1993 and Korhonen 1999).
Functional Internalization Through Foreign Direct Investment
The traditional stages pattern, both at the company and target country levels, as well as other dynamic patterns of internationalization, had a common weakness. They only deal with two functional types of foreign subsidiaries: sales and manufacturing units. The FIBO data banks of 1143 subsidiaries in Finland of foreign firms, and 5894 subsidiaries abroad of Finnish firms reveal that sales and manufacturing subsidiaries are only some. In fact the total numbers of subsidiaries above represent altogether 23 different categories according to the functions of the units (Hentola and Luostarinen, 1995) Based on this empirical evidence, arguably all the functions and major activities of the firms are involved in the globalization process and not only the marketing and production functions. At the same time the plethora of subsidiaries for different functions of the firm is also a clear indication that companies are seeking for better performance by these market oriented organizational innovations.
Internationalization, De-Internationalization and Re-Internationalization
The third major addition to the traditional stages pattern at the firm level is based on the fact that companies which have advanced from the starting stage of internationalization to the development, growth and mature stages have begun to terminate the earlier operations. Licensing and franchising agreements are stopped, sales and marketing subsidiaries are closed, assembly and manufacturing units are divested and so on. These terminations do not necessarily mean withdrawals from the markets in question. On the contrary the licensing partner may become a manufacturing subsidiary or agent and assembly units may follow the marketing subsidiary after a while. Further, manufacturing subsidiaries in one country may be divested and established on a larger basis in another country within the same region. This is to say that the original internationalization may be followed by temporary, partial or full de-internationalization in a certain target country followed by reinternationalization within the same target country or region (Luostarinen 1979, Luostarinen and Piekkari 1999).
Based on the above , the logic of the analysis projects three crucial questions; which are taken up next.
Globalization
As mentioned earlier, the late 1990s denote the start of the era of globalization for the firms. The reasons for that are clear. The international marketplace has expanded dramatically. Huge regional blocs have been formed such as the EU and NAFTA. The earlier socialistic Central and Eastern European command economies are on a transition towards market economies. Trade and investment barriers are falling and the world economy is moving towards a global marketplace. The competition is becoming global in most fields. The demand is becoming global thanks to globalization of customer tastes, habits and values. Globalization developments in communication, transportation and in other areas together with huge increases in the free movement of capital, goods, services, knowhow, systems, technology, and people have made it easier for companies to extend their activities to other continents.
Due to this global development the firms from SMOPEC, as also those from other countries, are facing enormous challenges. However, these challenges are different for firms having different starting points on the globalization vector. Firstly, in regard to many firms that have already advanced to the mature stage of internationalization having extensive operations abroad, the oldtimers. Nowadays the gradual, peaceful traditional stages type of development is not anymore necessarily the best way to proceed to internationalize. Actually, two changes are needed: the restructuring of the business portfolio, and implementation of a new global business strategy.
Traditionally the SMOPEC firms internationalized their relatively diversified business portfolios on their domestic geographic continent. Now a powerful restructuring process is taking place. Companies are specializing , concentrating and focusing on their particular, carefully selected, businesses; those which offer the best growth and most opportunities in global markets. Firms have realized that it is almost impossible to successfully globalize many different businessses. There is just not enough capital and global management skills to globalize various, in many cases, unrelated businesses in their portfolio. Nokia, for example in the late 1980s and early 1990s, had 12 different divisions with total revenue of FIM 13 billion. Today its only existing businesses, telecommunications and mobile phones are yielding a profit close to FIM 20 billion and revenues of FIM 100 billion. After restructuring products, the next question is to decide how to globalize the selected chosen remaining products. The traditional stages pattern approach is too slow. The new globalization strategy is partly based on experience and knowledge gained during the previous internationalization process the firm was in. Further, it is partly based on a new understanding of the necessity of speed, of pioneering, and of market power. If the firm had formerly been using various inward, outward and cooperative modes during its previous internationalization periods, it must enter, penetrate and escalate into global markets by using those operation modes which are evaluated to be the most effective ones for global markets. In addition, most capital intensive operations, such as R & D and other scientific technology development based projects, must be implemented on a larger scale basis through strategic alliances. Organizationally, entries, penetrations and escalations in different world areas must be implemented simultaneously by transferring enough high level decision making power to area and divisional headquarters which should be established as close to market as necessary for effectiveness. Overall the future development processes for oldtimers, compared to the traditional stages pattern, will contain jumps over stages, reverse processes, different specific operations in different countries as required, larger investments and higher speed.
Apart apart from oldtimers, the other group which evoke high interest are newcomers, "born globals" or "gazelles.". These are newly established firms which face globalization pressures at the start of their activities due to their product and /or process lines. For them, global activities have to be included in the initial establishment and investment plans. This means a revolutionary change as compared with the start and internationalization of companies established earlier. There is no domestic period at the starting stage. There is not enough time to test product acceptance in nearby markets first and then to proceed step by step to countries further away in business distance. There is no time to penetrate stagewise to different markets. Further, there is no time to start with physical goods; then after some years to add services, and later knowhow, and finally to combine these items into saleable systems.These born globals have to start domestic and international operations simultaneously and at times even foreign operations first. Furthermore their business abroad has to be extended to major foreign markets first : from Finland to the North American, Japanese, German, French and British markets almost simultaneously. Possibly after that these firms go to nearby Nordic markets by using the most efficient operation types first; perhaps in the reverse order of cooperation modes, outward modes, and inward operations. The first product offering maybe a problem solving system package with the brand to be established as soon as possible. For many of these firms this means that globalization has to be started too early, too rapidly, with too small financial resources, with too little experience and knowledge. However, if the company is not able to jump from the garage to global markets it has two options: to give up or to sell itself to larger managerially and financially stronger companies. Successful sale of the firms for example in the software industry to foreign firms has in many cases resulted in very fast and profitable global growth of these original Finnish firms.
Management of firms coming from SMOPEC are facing enormous challenges which they have not experienced previously. Actually these managers are dealing with a paradox. Firms coming from small SMOPEC economies must develop the capabilities to jump fast and profitably to the largest market area, the global market.. According to some preliminary FIBO studies those Finnish globalizing oldtimers and born globals usually belong to one of the following categories: high – tech, high design, high service, and high quality system enterprises. Usually these products are global by nature; having global demand and promise. But also they face rapid imitation of their products and aggressive competition from rivals if the product innovations are not utilized rapidly on global markets by themselves. Based on experience and on the studies of the motives and reasons for having subsidiaries abroad and of internationalization and globalization, one could agree that the earlier internationalization processes of firms from SMOPEC countries were adaptive and even defensive by nature. However, the present and future globalization processes seem to be more aggressive and proactive.
Advantages / Disadvantages of Different Operation Modes
There are advantages and disadvantages associated with all entry modes into foreign markets. Whenever necessitated, the firm could enter in a more advanced stage. Each firm has to think out its important criteria for deciding which mode to adopt and when. Exporting, for example, saves on capital investment but may not be possible when trade barriers and / or transport costs are high. At the other extreme of involvement are wholly owned subsidiarties. These have many advantages but in tandem there are hight costs and risks (Hill, 1994). Strategic alliances have many advantages. Firms ally themselves with actual or potential competitors for various strategic purposes; these include facilitating foreign market entry, sharing R & D costs, and combining complementary assets and skills (Ohmae, 1989). This is why cooperative type of globalization is regarded to be very suitable for SMOPEC firms. But strategic alliances also have been criticised as giving competitors a low-cost route to new technology and markets. In sum, trade-offs are inevitable with every entry mode. The optimal international expansion path has to be chosen with consideration of a static and dynamic vision. The static means the optimal path today.The dynamic means the path which can remain optimal as the firm’s operations abroad grow towards global coverage.and size. But growth can only occur by a firm maintaining competitive advantage.
Competitive Advantage and Foreign Direct Investment
In the past large firms, knowing the advantage of size used foreign direct investment (FDI) for international vertical and /or horizontal expansion. By vertical is meant upstream or downstream integration; the control of resources or distribution systems. Further important causes were the opportunity to reduce production and logistic costs. Horizontal expansion occurred from firms that were seeking markets and had products which could not carry heavy transport costs; products such as soap, toothpaste, consumer toiletries, shaving blades, and matchboxes. So these firms decided to manufacture and market abroad. Other reasons for FDI were the high tariff walls many governments erected to encourage foreigners to manufacture within their country rather than sell to them from outside. Today size, while still a powerful ally of international plans, is not always so dominant because advancing technology, venture capital financing and a more educated labour force have made it possible for many small firms to develop competitive advantages, both in national and global markets.
Every successful firm has competitive advantage at some point in time. If it decides to penetrate international markets, this advantage helps it to do so. The ownership advantage theory states that firms with such advantage can penetrate foreign markets using FDI. Such advantages could be a superior technology, a well established brand name, and economies of scale (Hymer, 1976). However the theory does not explain why firms choose FDI rather than other modes of entry.
The internalisation theory develops such an explanation by relying heavily on transaction costs (Rugman, 1982). Further it supports the other causal factor emanating from the motive of safeguarding proprietary technology. It states that a firm relies on its own FDI when the transaction costs of dealing with other firms who can aid penetration are too high. Such costs arise from negotiating, monitoring and / or enforcing contractual obligations. Furthermore large MNEs, for example, IBM usually internalizes international production in order to guard its own technology i.e. does this production in its own facilities abroad. Toyota also has selected FDI in its own wholly owned subsidiaries as the preferred route so that it can ensure maintenance of quality and not reveal its advanced manufacturing techniques to others. Often maintenance of quality in products from outside suppliers is expensive for the purchasing firm. However when there are many competitive suppliers, transaction costs tend to be low. In such circumstances, firms do not have the same imperative to internalize through FDI. In the 1990s the trend in firms from SMOPEC has been the externalization of different low value added functions or activities.
Still internalization, while explaining why firms use FDI for international expansion, does not explain why such investment occurs in specific locations. This latter explanation completes the development of theory into what has been termed an eclectic OLI theory for FDI: ownership advantage, location advantage, and internalisation advantage. (Dunning 1981) The latter means the firm has an ownership advantage, which it chooses to internalize when expanding abroad, and in addition it has a location advantage in utilising its ownership advantage in particular locations. Let us now discuss the factor of maintaining competitive advantage.
Sustainable Competitive Advantage
Developing competitive advantage is hard but sustaining such advantage is perhaps much more difficult. Only 30 Fortune 500 industrial companies can claim a life of over 100 years, a point to ponder. Furthermore, how does a firm from SMOPEC sustain competitive advantage given a rising wave of dynamic competition from giant MNEs, from smaller MNEs originating out of Less Developed Countries (LDCs), from changing demand, and from advancing technological development? Competitive advantage can arise from technology but technology is easily substituted and / or imitated today by the large R & D teams within many countries. Further, it can arise from locational advantages, lower cost or a resource base. Except for the resource base, such as owned by the the oil producing countries or the diamond mining ones, all the others can be matched relatively soon.
For sustainability of competitive advantage, there should be a fit between the firm’s competitive advantages and its internal and external action premises. Although, due to the existence of dynamics, these action premises are continuously changing and thus the competitive edge which was proper in yesterday’s international situation might not necessarily be valid in today or tomorrow’s situation. This finding is supported by practical experience, and a major study of Finnish firms on the dynamics of competitive advantages in the different stages of the life cycles of the businesses / products along the internationalization path. The profit cycle theory was the resultant outcome. It gives evidence that a company enters into the profit cycle by introducing a superior product with clear competitive edge based on high tech, high design, high quality service or high problem solving capacity for system innovation. When the product is reaching a more mature form with standardized characteristics, partly due to erosive imitation and competition, the next stage is to move to production leadership based on technological process innovation. Although some companies have been able to become a global product leader and process / cost leader simultaneously.
Marketing has been the next competitive edge when demand has reached steady slow growth in a relatively saturated market. After that the strategic pattern is not consistent anymore. Some companies have gained competitive advantage through management of purchasing, while others have excelled in financing, information and other areas of leadership. However, what is needed for sustainable global success is knowledge and management leadership. It is a crucial task to know in which order and with what combination of competitive edges the new businesses should be taken into the profit circle (Luostarinen, 1994). However, outside a commanding resource base, the ultimate answer in the arena of possessing and maintaining competitive advantage lies in developing high market orientation and engineering distinct superior organizational capabilities (Hurley and Hult,1998). The former is needed for better understanding and identifying of customers, and overall adaptation to the cusomer environment. The latter gives the firm operational flexibility for maintaining the profit cycle.
Earlier, in initial entry into international markets, geographical expansion was the crucial decision. Subsequently the phase was one of geographic consolidation ; so growth centered around increasing exports, production investment and product line width. This in turn led to rationalization of product lines, and transfer of product lines and ideas, across countries. Thus the concept of a domestic market disappears , and strategy is formulated on a regional / global basis. In more recent times, with the emergence of global competition and integration of large trading blocs, a considerably more complex pattern of internationalisation has appeared. Global external drivers such as global competitors, global customers, formulation of the large regional free trade areas blocs, and the development of market economies in earlier Central and Eastern European socialistic command economies are powerful incentives to regionalize/globalize. Simultaneously, the firm is studying its global internal strategic levers: synergy through transfer of assets and skills across national boundaries: such as production technology, mangement expertise, brand and company image which can be levered globally. Other examples of utilizing potential synergy are through exchange of information and ideas from one subsidiary to another and to headquarters (Marschan 1996), cost efficiences via reduction of duplication, distribution effectiveness leading to greater customer service and other ways to increase economic value added. These are the forces which considered together make up the firm´s strategy and ,when correct, make up its sustainable competitive advantage. Strategy and resource allocation are developed on a global basis. Markets are viewed as interrelated, interdependant entities which are becoming increasingly integrated and interlinked worldwide.
Development on a global scale becomes the key principle guiding strategy formulation. Sustainable competitive advantgage requires an adaptive process with the marked possibility of a different business function as the lead competitive function for the firm at any particular time . In today’s world, since the global business environment is changing so rapidly, marketing has again become the lead function. What one knows is that a market oriented corporate culture increasingly is being considered as a key element of superior corporate performance.
Market Orientation for Sustainable Competitive Advantage
Slater and Narver (1994) point out that there is a growing body of empirical evidence showing that superior business performance is the result of superior skills in understanding and satisfying customers. However this finding has also met with some scepticism. It has been suggested that the most important manifestations of market orientation may be the success of innovations enroute to the success of the organisation. The issue of whether market orientation facilitates an organisation’s innovativeness had not yet been addressed in the literature. However in recent years this has been occurring (Han, Kim and Srivastava, 1998).
The underlying premise is that market orientation, as a corporate culture, characterises an organisation’s disposition to deliver superior value continuously to the customer. Slater and Narver (1995) emphasize that the creation of superior customer value requires coordination of customers’ needs, competitors’ capabilities, and provisions of other significant market agents and authorities. This entails an organisation wide commitment to ongoing information gathering. The benefits of market information can be enhanced when shared among an organisation’s functions. The framework needed within the organisation is an information management protocol, which includes generation and dissemination of, and responsiveness to market intelligence.
Market orientation in context has been defined as consisting of three equally weighted behavioural components:
Each of these components is engaged in intelligence generation, dissemination and responsiveness to the collected information. Each can operate on a global or an international regional coverage. But from a strategic standpoint, market orientation remains an incomplete guide if practitioners do not fully understand how this can be translated into superior customer value and corporate performance. In an effort to uncover this dynamic link attention has been focused on environmental moderators such as competitive intensity, market turbulence and technological change (Jaworski and Kohli, 1993). But beyond such moderators is the proposal that innovation is one of the core value creating capabilities which drives the market orientation- performance relationship; thus innovation is in the mediator role. The concept of innovation as the medium of choice for achieving successful business performance had its original grounding in organisational literature (Zaltman, Duncan and Holbek, 1976). Importantly, in the past the conventional meaning of the word innovation had largely referred to new product related breakthroughs. But market orientation, in context today, also impacts on facilitation of the administrative facets of an organisation. Thus the technological side of innovation is related to products, services and process technology. While the administration side is related to organisational structure and administrative process.
For many years, organisations have been focusing on innovations but primarily technical innovations. However in recent years, there has been a growing trend toward focusing attention on administrative innovations such as business system redesign, and on accelerating the growth of brand equity. What is becoming clear is that a market orientation culture should be designed with the innovation strategy in mind and vice versa. Just being market oriented does not appear to be comprehensive enough to be used as a strategic focus in achieving sustainable competitive advantage. What is needed to increase the effectiveness of a market orientated approach is organisational learning and anticipating future needs for skills and knowledge. A more comprehensive approach is to develop an innovation strategy to complement the organisation’s market orientation strategy.
Anttila, Möller and Rajala (1995) explain that these two perspectives can be integrated by a capabilities approach to market orientation. Market orientation is regarded here as a firm’s resource in organizational learning and, simultaneously, as an integral part of a firm’s marketing capability (Tuominen, Möller and Rajala, 1997). Organizational innovativeness is a potential mediator of this market orientation – corporate performance link. This is what the global marketing challenge is all about; how to increase specific organizational innovativeness that will lead to greater impact on the marketplace.
The global marketing challenge is for the firm to see that it is not just the marketing function that is affected by international expansion. All functions are affected, with marketing providing the envelope through which all functions act. Marketing houses the whole firm inside. Figure 2 is illustrative. In context, as mentioned earlier, globalization for SMEs of SMOPEC also does not only mean geographical expansion but internationalization and integration of all the functions of the firm.
The entire firm now has a market orientation. The emphasis is on global brand success against competitors. The latter is exemplified by Shell, the oil MNE. Shell has been rolling out its global reputation corporate campaign across all media and markets. The campaign, produced by J.Walter Thompson, cost some $450,000.00 and is built around Shell’s concerns with the three dimensions of sustainability: economic, environment and social. The initial promotion budget is $25 million. The campaign is running in global media, including The Economist and the Wall Street Journal.
Moreover, in a dynamic sense the maintainence of superor organizational capabilities requires the continuous building of learning capability within the organization. An outstanding example of where this has been done is the turnaround at Volkswagen Audi Group (VW) engineered by its Chairman Dr. Ferdinand Piech. When he took the helm in 1993, VW had lost $1.1 billion; in 1998 profits before taxes rose to $3.6 billion. Sales of 4.7 million vehicles in 1998 placed VW equal to Toyota as the world’s third largest automaker. The new VW Beetle is off to record sales in the U.S. Piech’s production strategy is built on five platforms. Although VW has seven brands, in his thinking he has just two groups of brands: one for the traditional driver, the other for the performance driver. The first stable has Skoda, VW, Bugatti (diesel); the sporty performance stable has SEAT (gasoline), Audi, Bentley, Lamborghini. He wants Audi to compete with the Mercedes S-class. His overall marketing strategy, based on fewer platforms then brands, is for a different brand group to design each type of car so anything directly touched or felt by the driver is different. He is so confident of its marketing envelope that VW plans to spend $37 billion over the next five years from internal cash flow to retool factories, expand his engine line-up and make heavy trucks (Guyon, 1999).
Market Orientation and Marketing Capability
Market orientation has been defined with a different emphasis by different schools of thought. One definition is based on the organisation just placing the customer’s interest first. Two is the ability of an organisation to generate, disseminate and use superior information about customers and competitors. Three is the coordinated application of interfunctional resources to the creation of superior customer value. The present authors tend to emphasize the latter viewpoint and agree with the view that market orientation is an approach to business where marketing should be guiding all the company’s operations in the dynamic global marketplace (Doyle and Hooley, 1992). The present authors think the resource coordinating and learning view of utilising market orientation is the correct one. The focus of this view is on the concept of information and knowledge of customers, competitors, and markets as an asset to be managed (Sinkula, Baker and Noordeweir, 1997).
Market orientation turns out to be based on marketing capability; a nexus of market and customer-related resources in the context of strategy and business processes. Möller and Anttila, (1997) explain that the internal organisational focus of marketing capability should stress organisational consistency and commitment, coordination of individual functional activities with business processes, and organisational structure, systems and processes. The external focus of marketing capability becomes the basis of marketing orientation. This marketing orientation should emphasise segmentation, product positioning, targeting and management of customer relationships and marketing channels, as well as market sensing, monitoring of industry structure, and analysis of competitors and competition. Marketing capability is thus an essential part of achieving and maintaining a comparative advantage and competitive market position (Tuominen, forthcoming) The present authors go beyond this and state that marketing capability is most important for global brand success; this is the only way a company can maintain global competitive leadership. An example of outstanding marketing orientation is shown by Nokia; a Finnish company to be proud of. Arguably, the global cellular phone market leader with sales of well over U.S. $ 18 billion or well over FIM 100 billion. It is worth noting that Nokia is also a leader in cellular phone innovation.
Integration around the Brand Process
The cementing of marketing capability and brand success is when the firm integrates around the brand process. The advantage of doing this is the growth of brand equity. This happens as customers benefit by easier shopping / brand recognition. Further employees win as greater organisational recognition outside gives them job security. Furthermore management gains as strong brand image provides ongoing income to the firm and lowers marketing costs. Finally shareholders win as brand equity growth increases the marketplace value of the firm. Integration around the brand process often results in new links in the buying system; such as a product / service with integrated service, a corporate values envelope, and a relationship marketing thrust. The movement also causes company brands, such as Nestle and Wella, to lead and power the traditional product brands of these firms. This is because the company brand can reflect wider values like company quality guarantees and the company response to environmental concerns. Further customer loyalty is seen as a corporate responsibility and managed across product brands. Some notable examples of the output from the process of integration around the brand process are SAS moving from the airline business directed to the business customer towards a "Total Travel Package," Carrefour an intermediary asking suppliers to manage shelf space and sell end customers of the stores, Saatchi and Saatchi offering consultancy and a boutique of marketing services.
Many big MNEs have been able to successfully build up global brands. But what about SMEs of SMOPEC, which are facing globalization pressures? The answer seems to be in their concentration, specialization and focus on a global niche business which is too small for big MNEs but large enough for mini –globals. Here the SME can by utilizing the right combination of sustainable competitive advantages and a well matching optimal expansion path become a global market leader. The choice of whether to internationalize or globalize for SMEs from SMOPEC is also a function of the type of industry. This is really the subject of future research. But some observations can be made. As mentioned before, there are industries, which are being pushed into globalizing by their industry structure and product mix; such as for instance the airlines, the communication industries, many financial service providers, high-tech electronics, high design fashion clothes, high quality tourism services, and high unique systems designs such as in some metal industries. In comparison there are many local industries, which are inherently local providers, and with relatively small firms; such as small clothing firms, construction firms, handicraft producers, a variety of local service firms, restaurants, most firms producing culture bound goods and services, and small retailers. Such firms may be pulled abroad but their first entry will follow the stages pattern of entering markets with a short business distance to them and then geographically expanding. Overall from the above analysis emerge at least three future research challenges. One, given the globalizing environment, are there anymore completely domestic industries. Also, which industries can just internationalize and which are global industries for SMOPEC economies. Two, is how do the internatioalized oldtimers globalize on top of their existing international patterns, and how can these two patterns be interrelated. Furthermore, how do the globalizing patterns of born globals / gazelles differ from the earlier traditional internationalizing stages patterns. Three, is how the dynamic use of sustainable competitive advantage and the globalization patterns are interrelated.
The message of this article is worth summarizing. The globalizing firm should be integrated around the brand process. Its market orientation then will reflect this and rest on the solid foundation of strong marketing capability. The choice of its optimal expansion path, given external marketing opportunities, will be dictated by its sustainable competitive advantage. Greater success then must follow the combination of inputs engendered by the latter; after having focused on the opportunities abroad. .
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