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With the further development of the economy, economic globalization has become the basic trend of world economic development, and the production and operation activities of all countries or regions will be integrated into the global economy. A unified and networked market system will be shaped the world over. Nevertheless, there has long been a dispute between standardization and localization for the selection of a business strategy by the transnational corporation. The former argues that in the company’s option of standardization management strategy, scale economy and experience curve can be used for larger cost reduction, while the latter insists that the enterprise’s localization management strategy to be chosen is to satisfy the requirements of various countries and regions (Cheon & Cho & Sutherland, 2007). In this essay, it will be discussed.
Standardization as a Regular Practice
Standardization refers to that a transnational corporation provides a unified product in a national, regional or global market (Theodosiou & Leonidou, 2003). In the case of other similarities, standardization will be generally selected. Besides, a company is more apt to all or partial standardization of the business strategy in the overseas market, since the adoption of this management strategy has the following advantages:
1. To obtain scale economy and make prices predominant. R&D and mass-produced standardized products will contribute to the company’s product development and research as well as the scale economy arising from the manufacturing process (Moutinho & Chien, 2008). The realization of economies of scale considerably will play a role in both cost-cutting and depressed prices, making the company more competitive in the global turf wars and its products more accredited among customers all over the world (Moutinho & Chien, 2008). In the case of the company cutting costs and prices but synchronously improving quality, the customers will prefer the world standardized products. Not merely reflected in production and R&D, such kind of cost savings is also embodied in procurement, distribution, promotion, advertising, logistics and the like. Additionally, both plan and control can be bettered and staff utilization can be maximized by being standardized, therefore creating economies of scale to management (Theodosiou & Leonidou, 2003).
2. To shape a unified image and build a world brand. The company adopting standardized management designs a set of brand names and brand marks that do not conflict with local culture in most countries and regions for its products, via the excogitation of world-prevailing and unified product standard with advanced technology and excellent performance and efficiency (Washington, 1998). The communications media acceptable to most of the consumer groups is used for information dissemination and communication in the world through the sophisticated CI image design. And the customers are galvanized visually and acoustically and impressed with a product brand image that is unified, distinctive and unforgettable, thus increasing their loyalty to the brand (Richard, 2016).
Certainly, the differences in consumer demand are not taken into the consideration of standardization management strategy (Cheon & Cho & Sutherland, 2007). Regardless of their individual needs, it believes that merely one identical demand can be found in all the consumers, and the market segmentation that perhaps mean a lot to the company are put aside, which makes the company exposed to the potential hazards while brings economies of scale. After all, the demand of each consumer is naturally different. Its fatal weakness exists in the standardized management’s failure in meeting different needs of different consumers.
Competitiveness of Local Differential Business Strategy
Localization operation is the differential management strategy implemented by a transnational corporation in accordance with the actual situation of the place where the target market is. By applying the differentiated strategy, it not only works to meet the specific needs of all local markets but also maintain the company’s differentiation competitive advantage and make profits (Haron, 2016). Compared to the standardized management strategy, the local differentiated business is specifically distinguished by:
1. Its benefit of integrating into the local culture and better meeting the needs of the local consumers. To a great extent, consumption behavior depends on culture as the unique spiritual wealth of a region and a particular value historically determined. For one thing, localization has eliminated the differences between foreign cultures idiosyncratically, especially the estrangement formed by cultural diversities as well as the coercion and invasion of this culture (Cavusgi, 1996). For another, the business strategy is developed by management localization based on the situation of different markets and the actual demand of the consumers. It is not merely compliance with the business philosophy of being consumer-oriented but also makes the consumers’ satisfied changing market needs more likely (Cavusgi, 1996).
2. It’s contributions to the enterprise’s effective allocation of global resources. As a symbol of the company highly integrated into the local area, localization can fully share the advantages of production and manufacturing costs in the local market and also simultaneously make the best of capital, technology and human resources from host countries (Cavusgi, 1996). After allocating all kinds of resources around the world, the company will spend less on total cost and increase the total benefit, therefore always occupying a significant market share in the increasingly fierce market competition.
3. Accurate command of the local market demand and acquisition of the local competitive advantage. Attributed to the indigenization market strategy, the multinational companies are in possession of the abilities to explore various marketplaces. From the perspective of the market, the profit opportunities of the enterprises are all transferred with the consumption demand in which there will be definitely potential business opportunities (Haron, 2016). For the transnational corporations, the global market is subdivided in accordance with the country and all controlled companies are empowered for marketing plans which are customized based on the consumer demand in each market. All actions and means are in line with the local needs and preferences so that the business opportunities in all countries can be made the best.
However, the local differential operation also has the disadvantage of its own. First of all, it is less likely for the companies in which differential operations are advocated to become dominant in the way of costs (Viswanathan & Dickson, 2007). Since the companies are required to make the differential operation combination according to the differentiating demands, they fail in the realization of scale effect and the utilization of location advantages in the way of products design and manufacturing. Secondly, local differentiated management may trigger brand cognitive bias. In different market segments, the separate product positioning, price strategy, distribution strategy and promotion model of the company may obfuscate the consumers’ brand cognition (Aaker & Joachimsthaler, 1999). Eventually, the local differential operation goes against the company’s coordinated control in the global (Ger, 1999). For implementing the differential operation, all branches are expected to entitle to greater autonomy, which helps to make the branches more creative but also pose them a terrible dilemma of global coordinated control.
In this regard, the transnational corporation shall take account of the fact that the global economic integration is on the way and shall make strategic decisions stretching into the globe. But in the process in which it is implemented and operated concretely, the differences in different regions are considered on the basis of analyzing the merits and demerits of the two means including standardization and localization. For the multinational firms, the standardized and localized management means are generally and synthetically used, and the proportions of differentiation and standardization depend on the actual situation. Consequently, the concept of “Global localization management strategy” comes forward, which is to call for the company’s fulfillment of dual track operation between “Global standardization operation” and “Local differentiated management” under the strategic thought of “ To think globally and act locally”.
1. International market to be subdivided macroscopically and all submarkets to be standardized.
There are many countries and regions in the world, and the unique market demand of each country or region makes for an independent submarket. Despite that disregarded market differences may render the business failures, it is unlikely for the company to design a differentiated product and make a business plan for all countries or regions. To make it compromised and efficient, it subdivides the international market on the macro level, namely to divide the whole world into dozens of submarkets which consist of many countries or regions and have the basically identical environment for business according to a certain standard. With a view to the different characteristics and needs of the various submarkets, the company is to adopt the differentiation management strategy but to insist on the highly standardized strategy within every submarket (Zhang & Cantwell, 2013).
2. Products standardization and promotion localization.
Relatively speaking, the implementation of the standardized operation is unlikely in international promotion for the company, since there are tremendous gaps between the cultural backgrounds of all countries. Of various business portfolio factors, promotion is one most sensitive to cultural difference. And the discrepancies in the aspects of language and education, religion, aesthetic, advertising media and even government regulations make the company more inclined to the differentiated promotion strategy (Bustamante, 2011). In all countries, Coca-Cola drinks manifesting a global image of happiness, good moments and pleasure are positioned in the same way, and they are uniquely formulated and wrapped in red and white. But when advertised internationally, the cultural differences of all countries must be considered. In a well-received advertisement for Coca-Cola Company, it is to show Joan Gobinni, a rugby player presents his sports shirt to a little boy who gives him a bottle of coke after an arduous match. But it is additionally changed outside North America. Diego Armando Maradona as the Argentine soccer legend and Nivat as Thailand football star respectively star the advertisement for South America market and Asian market. After it’s marching into China, Liu Xiang, the world champion of the 110-meter hurdles, is selected (From Youtube Coca-cola advertisement).
After writing the paper and reviewing the relevant information, I have a more profound understanding of the global business strategies developed by the multinational corporations. The global operation of multinational corporations is an inexorable trend of the future development of multinational corporations. Only by accelerating the process of globalization can all of them remain invincible in the future commercial war. Accordingly, the selections of frameworks and strategies play critical roles for the transnational corporations. After analyzing the advantages and disadvantages of the standardization and localization respectively, we know that it is so difficult to make it. So we should combine the strengths of both standardization and localization as a strategy to manage the company. Also, we should not only analyze the market, culture differences but also investigate the preference and custom of the consumer in order to fulfill long-term development in a timely and effective way.
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