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Authors: Florian Haller, CEO Serviceplan Group, and Niklas Schaffmeister, Managing Partner Globeone
Despite the protectionist demeanor in Washington D.C., German companies have realized record investments abroad in 2017, according to the German Chambers of Commerce and Industry (DIHK). The degree to which a company is prepared to adapt to local market requirements decides which path for the market entry is chosen. Following, we briefly present the four most important strategies. For more detail see the new Springer publication “Successful brand development in the major emerging markets”, written in German, by Niklas Schaffmeister (Managing Partner Globeone) and Florian Haller (CEO Serviceplan Group).
1. Global strategy – Maximizing global efficiency and centralized decision-making
In industries that are characterized by high integration pressure and short innovation cycles, a globally oriented strategy is recommended. In this case, the corporate headquarter controls the operation. Economies of scale enjoy top priority, the brands are highly standardized. However, adaptation to specific local market needs is limited, which may result in problems with local acceptance.
Example: Apple applies this strategy to its iPhones and iPads. Design, production and marketing are controlled by one single unit worldwide. Market-specific adjustments are usually limited to details such as the power cable, which must satisfy different voltages varying from county to country.
2. Multidomestic strategy – Strong decentralization with significant product adaptations
In this strategy business models and products are strongly adapted to local consumer needs. Country units operate largely independently. Economies of scale are neglected in order to achieve a higher acceptance in local markets. However, the high degree of adaptation can turn out to be a problem when the brand has to hold its own against competitors in a highly globalized environment.
Example: US restaurant giant Yum! Brands, operator of Pizza Hut, Taco Bell and KFC, tailors its menus to local tastes and culinary specialties in every single market.
3. Transnational strategy – Combining the strengths of the first two strategies
The transnational strategy aims to combine the flexibility of the multidomestic strategy with the efficiency gains achieved by global standardization. This difficult undertaking is recommended when companies are equally dependent on economies of scale as well as on adaptation to local consumer needs. Despite these adjustments, brands managed under a transnational strategy can continue to use the reputation of their country of origin for their branding.
Example: The Swedish furniture group Ikea is committed to providing its global customers with a unique shopping experience that defines the global recognition value of the Ikea brand. In addition to the standardized portfolio, there are numerous local adjustments. This is why Ikea sells harder mattresses in China at a lower overall price level compared to other parts of the world.
4. Home replication strategy – Limited standardization and little local customization
The home replication strategy is applied when there is little or no need for flexibility or standardization. This strategy aims to open up additional international markets without major adaptations for products primarily developed for domestic consumers. In the long run, however, this strategy includes the risk of not completely grasping local market conditions and thus losing competitiveness.
Example: Media Markt transferred its concept one-to-one to China and ultimately failed because the chain could not prevail over its local competitors with its classic concept and without major adjustments.
The choice of the right strategy will be rewarded in any case. After a short cooling interval, the emerging markets are currently registering a new dynamic. China will outperform the US as the world’s leading retail market in 2018. India overtook China in GDP growth at the end of 2017.
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