What Drives Globalization? Part 1/4

Globalization is driven by four factors:

  1. Cost
  2. Market
  3. Environment
  4. Competition

Cost:

Maximizing their investment is a motivator for many global companies. Single-nation markets might not be large enough to offer a company’s country subsidiaries all possible economies of scale and scope, especially given the dramatic changes in the marketplace. The goal, then, is to get the most mileage from the investment cost. At the same time, advertising and promotion can bleed across borders, so it makes sense to make the product available where people are going to hear or learn about it.

A realistic, objective assessment of global opportunities and costs will probably lead to tough decisions about which markets, customer segments, or product positioning to focus on and which ones to bypass as well as appropriate strategies. In pursuing price leadership, for example, the global marketer offers a product or service that is nearly identical to the competition’s, but at a lower price. This often means investing in scale economies and controlling costs that typically include overheads, research and development, and logistics.

The alternative strategy, product differentiation, takes advantage of the marketer’s real or perceived superiorities on value elements such as design or technical support. Cost leadership and differentiation are not mutually exclusive, of course, and should be balanced appropriately. For instance, product components manufactured to one worldwide standard on one production line can be assembled into different final products backed by unique positioning and brand differentiation to meet local customer tastes. And the “mass customization” product design movement that emerged two decades ago still permits low-cost tailoring of manufactured goods to individual customer specifications. Most global marketers combine high differentiation with cost containment so their global activities contribute to economies of scale in production and marketing.

Marketers who opt for high differentiation cannot forget to monitor costs, though, because customer value perceptions rely at least in part on the price paid for the quality obtained. Knowing this, Nissan introduced the sub-$10,000 Versa in the U.S. in late 2008, as the economic recession was just being acknowledged. The small vehicle lacks frills – there is no air conditioning or power steering – but its target market does not expect luxurious touches in a car in that price range.

This is an excerpt from Dr. Czinkota’s book Global Business: Positioning Ventures Ahead, co-authored by Dr. Ilkka Ronkainen.

Michael R Czinkota and Ilkka A Ronkainen, Global Business: Positioning Ventures Ahead (New York: Routledge, 2011), pg.90-91.

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