Does Culture Influence the Marketing Strategies of MNCs?
|✅ Paper Type: Free Essay||✅ Subject: Business|
|✅ Wordcount: 5537 words||✅ Published: 13th Sep 2017|
Companies that participate in business jobs outside their national borders are known as multinational companies. These include all types of businesses participating in international business whether, large or small. Many of these Multinational businesses are known as Multinational corporations, which are organizations, owned through stocks publicly (Cullen & Parboteeah, 2008, p. 5).
According to Andreas van de Kuil (2008) most multinational companies are flexible and are not liable to economical ups and down in the past, mainly because of the reason, that they are not reliant on one single market. Multinational companies function successfully in some markets while fails to succeed in other markets, which compensate their weakness more than enough. Multinational companies gains from this opportunity by spreading their risk over in different markets, where they might be failing in some markets but operates successfully in other markets (De Kuil, 2008, p. 17).
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There has been extreme growth in Multinational companies. Multinationals has increased to 61,000 in 1999 from around 7,258 in 1972 and it reached apoxcemetly 79,000 by 2007. These multinational contains of 25 percent of world gross domestic product. The world’s ten largest multinational corporations, combined annual turnover rate exceeds the GDP from the world’s 100 poorest countries. These giant companies produce up to 25% of world’s gross product (Ellis, 2010, p. 9).
Wal Mart was the largest corporation in terms of sales in the year 2000. Wal Mart exceeded the sales of previous world leader such as General Motors and Exxon (Rugman, 2005, p. 79).The cultural modifications are very important, although they are challenging to observe and measure. Failure considering and coping with them can result in strain relationship; awkward blunders can drop down the overall performance.
Geert Hofstede and Mooij de Marieke has argued that ignoring the impact which cultures have, has directed many companies to operations and centralize marketing, due to which there was a decrease in profitability rather than increase in efficiency. The Centralized control system lacks local sensitivity due to which several large multinationals businesses have witnessed their profits going down (Mooil & Hofstede, 2002, p. 61-69).
2: Literature review:
2.1: What is culture?
It is a difficult proposition when it comes to defining a culture. Different Authors have their own differing opinions and views on what exactly is involved in culture. Hofstede defines culture as mentioned below.
“collective programming of the mind which distinguishes the members of one group or category of people from those of another” (Hofstede, 1994, p. 5).
2.2: Importance of culture for multinational companies:
The condition to understand the cultures of foreign countries has become essential, as more and more companies are expanding their setups internationally. If a firm does not manage with the cultural changes where it is operating, it has very low chance of selling its products in that area specific. A Product’s perception and use is influenced by the cultural rules and values that product has. Thus, culture should be understood before understanding the individual’s behaviour within the cultural context. For example colours have different meaning in international markets, than the home market, in china brides wears red while white is the colour for grief. In the United States bride wears white, and black is considered to be the colour for grief (Lamb, Hair, & McDaniel, 2011, p. 202).
Cultural difference and Fierce local competitions were the reasons due to which the world largest retailer Wal-Mart had to leave Korea, and experienced heavy losses. After Wal-Marts exit from Korea shortly it also left Germany, facing a loss of 1 billion as it failed to understand the German customers. Wal-Mart failed in Korea mainly due to cultural issues along with the legal environment and due to underestimating the international and local discounter competitors, Quoted in (Guffey& Loewy, 2010, p. 89).
2.3: What is marketing?
Ferrell and Pride (2010) described marketing as ”the process of distributing, pricing products, promoting and creating services, and ideas to smooth satisfying exchange relationships with consumers and maintaining and developing favourable relationships with stakeholders in a lively environment”(Pride & Farrell, 2010).
2.4: Globalization of Markets
Trade between countries are increasing and barriers to international trade are being reduced by countries restless to increase the volume of their trade, which has exceeded domestic production. Relaxed monetary policies have made it easier to obtain financing anywhere in the world. These practices are called globalisation. (Cullen &Parboteeah, 2008, p. 7)
Nowadays doing business internationally is usual. There are different businesses that have started operating outside their local markets, such as the Finnish mobile phones makers Nokia started operating in different fast growing markets such as India and China. Kallogg’s Pringles has started operating their business activities in China. American Multinational companies like Starbucks and McDonalds serve clients around the globe (Guffey & Loewy, 2010, p. 80)
In order to be successful in this inter-reliant global village American companies find it important to manage with the cultural issues, and adjust their products to other cultures. Chinese avoid hot fried food in summers as their perceptions are that two ”hots” do not balance as described in the Chinese philosophy Yin and Yang, which means that both life and nature must balance, opposing elements, had to be accommodated by Frito-Lay in China., alternatively in summers they have a preference for cool snacks. so in order to be in line with the Chinese market Frito-Lay offered cool lemon potato snacks sprinkled with mint and lime specks (Guffey& Loewy, 2010, p. 80).
In order to expand their business; New York sandwich chain launched their new franchise NY Deli in Dubai. They did measured the cultural likings before starting their operations in Dubai, vinegar spirits and other beverages containing alcohol could not be sold in open markets of Dubai, and can only be served to in hotel rooms and to non- Muslims only. So they had to adjust their product offerings to the local culture, which they felt was necessary for operating successfully in Dubai market. So as a result they replaced all their salad dressings, which had spirits as an ingredient (Guffey & Loewy, 2010, p. 80).
Domestic markets are becoming concentrated, due to which big companies such as Wal-Mart are eyeing overseas markets. As they don’t expect huge sales at home market. Another reason for globalization of markets is the trade agreements. The United States, Mexico and Canada are involved in free trade due to the GATT (General agreement on tariffs and trade).
2.5: Standardization vs. adaptation of Marketing Business Strategy
Standardization and adaptation were considered as two opposites, traditionally. Firms either adapted a new strategy or apply a universal strategy in all foreign markets where they were operating. However these two elements are seen as two extremes. With companies adopting either the one or another or adopting a mix of these two strategies’ (chhabra, 1996; Ozsomeret al, 1991; Whitelock and Pimblett, 1997) cited in (Fernie, 2005, p. 71).
Several studies conducted by authors have tried hard to identify the background and history of adaptation and standardization. A detailed study on the marketing strategies of US based MNCs operating in European markets, conducted by Boddewyn and associates reported that, between 1973 and the early 1980s standardization was most common and was increasingly being used, however there was a shift from standardized marketing strategies, and companies started using adaptation marketing strategies’ in the early 1990s. Furthermore it was identified that the chief factors which act is a barrier for standardization, were differences in consumers habits and tastes, competition, technical requirements, nationalistic sentiments and government rules and regulations (Boddewyn, 1989 and Grosse, 1995) cited in (Fernie, 2005, p. 71).
chhabra’s (1996) study about the American based multinational companies operating in North America specifies that differences in the market was the main reason for the implication of adaptive marketing strategies, cited in (Fernie, 2005, p. 71).
In order to be successful, MNCs should use a mix of both the approaches. Their strategies should include elements of both the strategies. effectiveness and gaining advantages of both the concepts means that MNCs must standardize certain marketing strategies and marketing mix elements on one hand, but on the other hand should apply adaptive marketing strategies where required, in order to cope with clear market needs. Market complications, and the goal of cutting the costs encourages the companies to use standardization, while customer orientation may lead them to consider product adaptation (Vrontis and Kitchen, 2005; Vrontis and Papasolomou, 2005) cited in (Vrontis, Thrassou, &Lamprianou, 2009, p. 482).
Figure: 4.0 Reasons for adaptation and standardisation source:https://eduedi.dongguk.edu/files/2008031422250145.pdf
Supporters of standardization concepts argue that in recent past with the growth of MNCs, standardizing the marketing mix elements can reap potential gains (Buzzell 1968) cited in (Vrontis, 2003, p. 284).
On the other hand supporters of the adaptation school of thought oppose the supporters of standardization. Van Mesdag (1987) cited in (Vrontis, 2003, p. 285) suggests that there are different rules and regulations, in different countries and also there is a difference in the languages as well. Apart from this which calls for the adaptive marketing strategy, there are other factors as well, including race, topography, economic condition, political stability occupation and climate.
2.6 Practical Evidence
A study was conducted where Canada, Us, France, Great Britain and Italy based MNCs, which operates in Nigeria were selected. The study included 17 different MNCs, including, 4 departmental stores, 5 soap and detergents, 2 health and cosmetics, 2 food and beverages, 2 soft drinks and 2 beer firms. These companies were chosen as the products which they offer are directly sold to entire population of Nigeria. The turnover of marketing, health products, and manufacturing companies were more than one hundred and fifty million naira, and for other companies including soap and detergents, soft drinks, beverages, food and beers were recorded one billion naira in the time period of 1997 and 1998. Interview was the primary method chosen for this survey, where conducting interviews were not possible, questionnaires were left to be completed and returned, for the respondents. The data obtained was very useful for the study of whether culture influences the marketing strategy of MNCs or not (Ekerete, 2001, p. 97).
The respondent were first questioned that, does their marketing operation covers the entire country. Where all the respondents admitted that they operate throughout Nigeria. To find out the influence of culture on the marketing activities of firms, respondent were asked, whether culture influences their marketing activities (Ekerete, 2001, p. 97-98).Table 4.1 represents the responses of respondents.
Table: 4.1Responses of respondents
Source: survey data, 1999
Table 4.1 illustrates that sales promotion, personal sales and distribution scores high among the respondents, which means that these marketing activities are influenced by Nigerian culture. In the northern Nigerian markets some products can’t be demonstrated or sold to Muslims as it is not allowed in Islam. Similarly certain health care product also can’t be demonstrated, distributed and sold in public, as general perception is that these products encourages prostitution. In northern markets, Charnel stores products such as Indian laces, brocade and other fabrics were increasingly sold, however in the southern Nigerian markets of shoes and suits, fashion design and western world fabrics were in demand. The reason behind this was that, the Arabic and other products which suited the weather conditions were preferred in the northern culture. While the southern culture has preference for products of cross cultural integration and accepted socialization from US and Europe. To identify that to what extent these cultural elements influence the marketing strategies of selected MNCs in Nigeria, Table 4.1.2 was constructed (Ekerete, 2001, p. 98).
Table: 4.1.2 influence of cultural elements on marketing strategies
Source: Source: survey data, 2001
Table 4.1.2 illustrates that all the cultural elements such as aesthetics and ethnic values, religious beliefs, and language has exerted a significant amount of influence on the marketing strategies of MNCs (Ekerete, 2001, p. 98).
Kellogg’s is a standout amongst the best worldwide brands from U.S. which was world’s driving maker of cereal and comfort sustenance. It is tremendously well known breakfast cereal brand that is being sold in 160 nations with deals turnover of over $9 billion. On its beginning entrance into the Indian market, it utilized comparable advertising blend which it had been utilizing as a part of other worldwide markets. At the point when Kellogg’s initially entered India in 1994, it vigorously wager on changing the Indian breakfast food, where people preferred hot food in breakfast.(Taneja, Girdhar, & Gupta, 2012, p. 72-73).
The organization needed the Indian buyer to change its conventional propensities for having either Dosas or Parathas in their breakfast and these propensities excessively shifted from area to area, making it impossible to locale with the northern district favouring Parathas and southern locale leaning toward Idlis, and Vadas and so forth and the western locale favoured options like Poha.Kellogs wanted Indian customers to begin having the healthier breakfast cereals which was a tremendous test for the organization. India got to be uncommonly extreme business for Kellogg’s on account of it needed to change imbued dietary patterns of purchasers. It went through diverse however troublesome periods of life-cycle before it has turned into the strongest player in breakfast grain classification in India. Kellogg’s is assessed to hold around 60-65 percent of India’s Rs. 400 crore worth of breakfast grain (Taneja, Girdhar, & Gupta, 2012, p. 72-73).
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While presenting another item class, it was not simple for Kellogg’s to secure a remote brand into Indian market where sustenance propensities for individuals change after a couple of kilometres. In its starting ads, Kellogg’s demonstrated that what Indians were having in their breakfast was not in any way sound.This hurt the assumptions of the common India women who had been serving customary breakfast for a really long time to their families. The commercial contrarily influenced the outlook of real influencers and initiator bunches in the Indian families. Additionally the sort of breakfast which Indians were having was accessible in numerous mixtures at less expensive costs than Kellogg’s advanced breakfast of corn drops. It was hugely troublesome for the organization to persuade them to leave their conventional nourishment or breakfast alternatives and supplant it with oats. Notwithstanding this, the organization couldn’t comprehend another social viewpoint that Indian buyers have had warm drain in their breakfast though; the corn pieces (cereals) were ideally utilized with cool milk (Taneja, Girdhar, & Gupta, 2012, p. 72-73).
Even when they consumed it, they found that firmness of chips were totally disintegrated when they were dunked into the warm drain, along these lines losing the purposes of situating which guaranteed the pieces to stay fresh when it is to be expended. Because of the issues that Kellogg’s was experiencing, its deals declined by 25 percent in April, 1995 when contrasted with the offers of earlier month Walk, and 1995. After realizing a few lessons from the starting missteps, Kellogg’s totally redid its advertising activities and also brand building projects and made it India-particular. Most importantly, to beat the value affectability of Indian buyers, it launched little measured pack at Rs. 10 just for Indian market. At that point, they chose to tap the Indian open’s adoration for Hollywood geniuses by propelling a restricted release Kellogg’s Chocos Iron Man 2 “web-outlined cereal”. The utilization of couple of particular words taken from Indian dialect – Hindi, for example, Corn Chips with Iron Shakti and Calcium Shakti in the dispatch of new variations issued it a neighbourhood feel which was a decent activity taken by the administration. These moves have demonstrated that the brand was redone particularly for the Indian market, and new variations were presented for the Indian purchasers (Taneja, Girdhar, & Gupta, 2012, p. 72-73).
2.7: Cultural models
As culture is defined in section 3.1 of this project, now the cultural models that have been used to relate culture to various marketing concepts must be identified. Three models that are been extensively used in the past are, the Hofstede model, the Bond model and the Hall model.
Hofstede model: The Hofstede model is made up of four dimensions, which are named as power distance, collectivism versus individualism, femininity versus masculinity and uncertainty avoidance (Hofstede, 1994, p. 5).
Power distance: Can be characterized as the degree to which the less effective individuals from organizations and associations inside a nation expect and acknowledge that power is circulated unequally. Organizations are the essential components of society like the family, school, and group; association’ are the spots where you work(Hofstede, 1994, p. 28).
Collectivism versus individualism: is characterized as, independence relates to social orders in which the ties between people are loose: everybody is relied upon to care for himself or herself and his or her prompt gang. Socialism as its inverse relates to social orders in which individuals from conception onwards are coordinated into solid, strong in-gatherings, which all through individuals’ lifetime keep on ensuring them in return for unquestioning dependability (Hofstede, 1994, p. 51).
Femininity versus masculinity: Relates to social orders in which social sexual orientation parts are plainly unmistakable i.e. men should be affirmed, intense and concentrate on material achievement while ladies should be more humble, delicate and concerned with the personal satisfaction. Womanliness relates to social orders in which social sexual orientation parts cover i.e. both men and ladies should be humble, delicate and concerned with the personal satisfaction (Hofstede, 1994, p. 82-83).
Uncertainty avoidance: Can consequently be characterized as the degree to which the individuals from a society feel undermined by obscure circumstances. This inclination is, in addition to a variety of other things, communicated through anxious anxiety and in a requirement for consistency: a requirement for composed and un- composed principles(Hofstede, 1994, p. 113).
2.9: Hall’s Model
Edward Hall was a social scientist that primarily recognized two fundamental hypothetical measurements of society. He categorized the measurements as low connection and high setting (Hall, 1983) cited in (Sparks, 2005). Low connection shows, importance is in light of the words used and not on the situation. High setting relates significance of a people conduct to the circumstance. The importance of this in the study of culture is relying upon the non-verbal signs given; messages may be diversely translated by high connection social orders. To verify the message is seen in a comparative way by all forces that the base (culture) of the people be the same. In any case, this is once in a while genuine. In this way, culture has a direct impact on message transmission and exchanges. Lobby characterized this wonder as the quiet dialect (Hall, 1983) cited in (Sparks, 2005). Additionally, Hall acknowledged the quiet dialect to contain “components of space, material belonging, kingship designs, ascensions crosswise over societies, and time.”
Space is the parting between two individuals having a dialog. This view of how far this space must to be is distinct in every culture and by various situations. In the United States a safe distance is the regular separation for companions. Closer companions and personal companions take into consideration much closer dispersing. Having a corner office in the United States with a number of secretaries shows a status and power above others and shows spatial balance. Different cultures, for instance, Japan, explain this as a moving away from others and utilise this office area to show that the representative does not deserve to be near the activity (Sparks, 2005).
Understandings crossway over cultures is the way a society operates (Hall, 1983). A low connection society relay on the composed word, for example, contracts, as a complete report and flat out to direct conduct. A high connection culture depends on individual circumstance and companionships over a composed contract. In Asian nations contracts are just a start to the business relationship. They are there to be examined and adjusted cited in (Sparks, 2005).
Time is separated into two types of detectable timelines, monochrome time and polychrome time. (Hall, 1983) Monochrome time refers to time in a direct manner. Everything is reserved for a certain time and the times don’t cover. Time has less meaning to the events around it allowing various things to be reserved for the same time cited in (Sparks, 2005).
2.10: Applying the Hofstede Model:
Behavior studies across different cultures are increasing over time. This has made Hofstede’s natural cultures model a very beneficial tool for identifying cultural behaviors. Therefore author considers the Hofstede model to be a reliable model to use for this project (Mooij& Hofstede, 2010, p. 104)
2.11: Cultural dimensions relevant to marketing strategy
Power distance is a relationship between a worker and their seniors. It also denotes a person’s position in the society as compared to everyone being equal. Luxury brands are an identifier for the second part of this definition (a person’s position in a society)to show a high power distance (Mooij& Hofstede, 2010, p. 102-103).Therefore, in high power cultures adapting such a product strategy where much more value can be added to the product can prove successful for multinational companies. On the other hand, cultures with high power distance best fit skimming pricing strategy.
Cultures with uncertainty avoidance, a simple product strategy that is, offering basic products, with either penetration or economy pricing strategy, and less innovative promotional strategy will do it for multinational companies.
In masculine cultures an important factor is achievement, when combined with individualism, success can be shown, less so when combined with collectivism. Cultures with high uncertainty avoidance usually lack innovativeness and the wish for change. Although combining such cultures with high power distance, appeals like modernity and innovation provide status (Mooij& Hofstede, 2010, p. 102)
A family picture denotes collectivism in content analysis of advertising however it can also show individualism as people worry about shrinking families. Therefore marketers might not prefer using pictures of a family to show collectivistic cultures. The number of people in a family does not necessarily reflect individualism/collectivism. A better measure of this is using directness of communication, e.g. by comparing the use of personalized headlines (Mooij& Hofstede, 2010, p. 103)
3.0 Conclusion and summary:
The main objective of this project is finding whether national culture has effect over the marketing strategies of Multinational companies. This project starts with the definition and introduction of multinational companies. Culture being the main focus of this project, therefor this work has defined culture and has linked culture with multinational organizations by showing importance of culture before applying marketing strategies in international markets.
This project then defines marketing and discuses the globalization of marketing in this era. Multinational companies either standardize or adapt their marketing strategies when operating in different cultures. This project has identified and highlighted the point of view of both, the supporters of standardization and adaptation school of thought.
Next examples of countries where, multinational company’s marketing strategies were influenced by cultures are included in this project, to justify the selected title which is the influence of culture on multinational companies as discussed in the conclusion below as well.
This project has stressed different examples such as, Sufficient amount of works has been used as an evidence from articles, journals and books where authors have written about the importance of culture to Multinational companies and has showed that failing to cope with cultural differences results in failure of multinational companies in international markets, such as Wal-Mart lost its market shares and was forced to leave the German, Korean and Japanese markets mainly due to difference in cultural. Frito-Lay American based multinational adapted a Chinese philosophy ‘yin and yang’ in order to adjust to Chinese culture. Many similar kind of signs can be found in the works of this project which proposes that Multinational companies have adapted their marketing strategy to the cultures of countries where they are operating.
Experiential evidences of three countries, including India, Nigeria and America, where Multinationals have adjusted to the national cultures of these countries are included in this project. 17 different multinationals were comprised in a study conducted in Nigeria, where they were asked that whether culture influences their marketing activities. The results mainly justified that the sale promotion, marketing strategies, distributions and personal sales in specific are influenced by Nigerian culture this evidence along with other two evidences that of IKEA in America and Kellog’s in India, where they adjusted to the cultures in order to be successful evidences to be a valid answer that is, yes National Culture has an effect on International businesses and marketing strategy specially with Multinational organizations, which explain the first problem area of this project.
Literature like, MNCs departure from markets, such as Wal-Mart from Japan, Korea and Germany, loosing market shares such as that of Kellogg in Indian market and Frito-Lay applying the Chinese philosophy ”ying yang” covers the third question of research problem.
So based on the literature, and empirical evidences presented in this project, it is concluded that culture has an influence on the marketing strategies of MNCs.
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