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PRODUCT STANDARDIZATION CASE_week8
This document discusses product strategies of ICT manufacturers as they globalize. It presents 5 propositions on factors that influence strategy choices and tests them using case studies of 4 Finnish ICT companies (Nokia mobile phones, Nokia networks, Salcomp, and Tecnomen). The propositions find that standardized strategies are more likely when: markets are similar across countries; competition is intense; and firms have global capabilities and seek economies of scale. Modified strategies using standardized platforms may be used when local capabilities and economies of scope are important. The case studies generally validate the propositions.
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PRODUCT STANDARDIZATION CASE_week8
- 1. International Marketing Week 8 Globalizinginternationals: product strategies of ICT manufacturers Maria Vittoria Antonacci Federica Furlan Nikola Gak
- 2. Research Question How doproduct strategies change when ICT companies move from international to global and why?
- 3. Trends in theGlobalized World Markets liberalization Potential for experience effects (i.e. scale effects, learning by doing, technological advances, economies of scope) Development of international standards (e.g. technical standards and dominant designs) Emergence of global customers (developed countries vs emerging markets) Increased competition
- 4. Going Global: “Globalizinginternationals” Entry Phase •Primarily serve domestic Market International Market Phase •Expansion toward higher foreign markets within domestic continent •>50% of sales outside home country Global Market Alignment Phase •Expansion toward foreign continents •>50% of sales outside domestic continent •Global target market & Alignment of activities across countries
- 5.
- 6. Product Strategy Dimensions Common structure from which a family of products is built over time
- 7. Product Strategy Dimensions Width of product assortments number of product lines Length of product line number of products in a line
- 8. Product Strategy Dimensions Specific product category goods, services, knowhow, or systems Content Core product performance, technology, and the main functional features Actual product brand name, packaging, features, styling, and quality Augmented product additional services and benefit Individual Products
- 9. Product strategy standardization alternatives adaptationto market requirements inefficient, high R&D costs in ICT highest leverage in R&D, viable when products require relatively fewer or no modifications no adjustment to local needs greatest common denominator optimized set of function and features cost advantage and leverage of R&D Less adaptation (common product platform BUT adaptation of some features)
- 10. Research Design Methodology QualitativeMultiple-Case Study conducted in 2001 5 Theoretical Propositions Sample 4 Finnish ICT equipment companies from SMOPECs: Nokia mobile phones (NMP), Nokia networks (NET), Salcomp, and Tecnomen o Represents two-thirds of the Finnish ICT equipment exports o EU member countries considered domestic continent 14 interviews lasting 2-4 hours (with managing directors or senior vice presidents of marketing)
- 11.
- 12. Evolution of FinnishICT firm's product strategies Nokia mobile phones (NMP) Nokia networks (NET) Salcomp Tecnomen Evolved form Localized to Standardize Product Strategy Evolved form Localized to Modified Product Strategy using Standardized Product Platforms
- 13. FACTORS AFFECTING PRODUCTSTRATEGY ALTERNATIVES Impact of macro and industry environment P1 Greater standardized product strategy occur when: Favourable global trade liberalization and regional integration High technological advances Decline of transportation and communication costs Decrease distance between consumers and companies Easier business activities More similar markets need across countries Intense Competition companies operate on a global scale Technical standardization and dominant design
- 14. Validation of P1 Impactof macro and industry environment Nokia mobile phones (NMP) Nokia networks (NET) Salcomp Tecnomen Global technology standard Costumers need more similar Relatively fragmented technology standard
- 15. FACTORS AFFECTING PRODUCTSTRATEGY ALTERNATIVES Impact of corporate and business level strategies P2 Greater standardize product strategy & product management processes occur when: Managerial orientation shift toward foreigners, ideas and resources affect product strategy Ethnocentric, Polycentric, Regiocentric, Geocentric Shift across market development phases • Country-specific product lines and variants • Standardization process low • Strive for co-ordination and standardization of product lines on a global basis •Global or regional products platforms •Similar length of lines and positioning •Individual Products standardized at different level
- 16. Validation of P2 Impactof corporate and business level strategies Managerial orientation Nokia mobile phones (NMP) Nokia networks (NET) Ethnocentric polycentric regiocentric geocentric Product strategy development when penetrating countries outside domestic continent SPS Managerial orientation Salcomp Tecnomen Ethnocentric polycentric regiocentric Product strategy development when penetrating countries outside domestic continent MPS
- 17. FACTORS AFFECTING PRODUCTSTRATEGY ALTERNATIVES Impact of corporate and business level strategies P3 Greater standardized product strategy occur when: Higher centralization of production and marketing operations globally
- 18. Validation of P3 Impactof corporate and business level strategies Nokia mobile phones (NMP) Salcomp Tecnomen Decentralization Marketing Operations Sales Production (NMP centralized production) Centralized Nokia networks (NET) Marketing Operations Sales Production (NMP centralized production)
- 19. FACTORS AFFECTING PRODUCTSTRATEGY ALTERNATIVES Impact of internal strategy levers, resources, capabilities and decisionmaking variables P4 Greater standardize product strategy occur when: High economies of scale investments in R&D and product development are often high in ICT equipment companies, it is therefore extremely important to spread the development costs over the maximum volume of sales from global markets Global capabilities developed when valuable, rare, imperfectly imitatable and non-substitutable resources are available While modified product strategy favourable when: Economies of scope (joint production of several products) If strong scope economies are present it may be beneficial to adapt the product to meet the market requirements from different markets Optimize scale production difficult Local capabilities
- 20. Validation of P4partially Impactof internal strategy levers, resources, capabilities and decision-making variables Nokia mobile phones (NMP) Nokia networks (NET Salcomp Tecnomen Economies of scale and learning important Global capabilities developed Both Economy of scale and scope AS simultaneously adapt the products based largely on customer needs, but also manufacture these in high volumes at low cost. Both local and global capabilities
- 21. FACTORS AFFECTING PRODUCTSTRATEGY ALTERNATIVES Impact of decision making P5 Increased global business experience and resource commitment favour: Wider product assortment Bigger proportion of services, know-how, systems More advanced product categories While factors leading to adaptation Lack of experience leading of developing global products Lack of resources High uncertainty avoidance
- 22. Validation of P5 Impactof decision making Nokia mobile phones (NMP) Nokia networks (NET) Introduction of new advanced product categories Tecnomen Salcomp Widening the offering to new customer segments
- 23. Implications of Globalisation onthe ITC industry in Contemporary Times
- 24. Emerging Markets Growth Potential Emerging markets growth exceeds that of developed markets Emerging economies will account for 70% of global growth from 2010 to 2020 (Forbes) ICT in Emerging Markets ICT services stimulate global growth in emerging markets Indicators of economic development Firms using ICT see faster sales growth, higher productivity and faster employee growth E.g.: During economic recession, Brazil invested heavily in technology; helped recovery, and now accounts for nearly half of all IT spending in South America
- 25. Evolution of Technology Helps open new markets Dissolving trade borders Technology creates opportunities Global middle class will grow from 430 million in 2000 to 1.2 billion by 2030 (World Bank)
- 26. ICT Challenges inEmerging Markets Emerging markets: highly lucrative but present challenges Infrastructure availability, regulatory requirements, culture and politics may vary Local presence/partners = Better business Can help with regulation (e.g. China) and cultural differences ‘One-size-fits-all’ strategy Market nuances usually exist between corporate headquarters and its operational regions Evaluate the market carefully Think locally but act globally Learn nuances within markets (e.g. cultural differences) Hire local resources Establish a regional structure Completely integrate operations
- 27. A Vision forBorderless Markets Higher availability of tech services = Flattening of IT sophistication, infrastructure availability, and user adoption Must always address cultural discrepancies Analyse markets carefully + maintain reliable ICT services + establish strong local partnerships = $$$$$$$$$$
Editor's Notes
- #5 For Globalizing Internationals the study meant those companies who have first become international and then implemented a global strategy.This process is made of 3 different phases:Entry Phase the company focuses on serving solely its own domestic marketInternational Market Phase the company expands towards other countries in its continent international company = +50% sales outside its home countryGlobal Market Alignment phase the firm expands beyond the home continent confines towards other continents globalized international = +50% sales outside home continent target market = the globe alignment of activities across countries and continents
- #6 Product strategy and standardization can be applied at 3 different levels:Product platform levelProduct line levelIndividual products level
- #7 For what concerns the Product platform level, a product platform can be defined as a common structure from which a family of products is built over time.Product platform is typically standardized when a firm is willing to implement a Modified Product Strategy. In this case a common standardized product platform is used globally to then develop different products whose features are adapted to the market needs and requirements.
- #8 Talking about the product line implies making decisions concerning the width of product assortments = number of product linesthe length of each single product line = number of products in a line. These two measures(width and length) tend to increase when, after implementing a global strategy, a firm gains greater business experience and resource commitment.
- #9 Individual products which can be a good, service, know-how or system, instead, can be seen as further divided into 3 groups of attributes:Core product if standardized provide greatest cost advantages, but their standardization depends on the type of market and on the type of productActual product which are the interpretative elements of a product and are often the most standardized (e.g. brand image, product quality)Augmented product these attributes are the most difficult to standardize as they are more dependent on culture and performed in direct relation to local customers
- #10 The study identified 3 main alternative ways of standardizing a product for globalizing internationals:Localized product strategy greatest extent of adaptation to market requirements but least cost efficiency (very expensive for ICT companies who have to sustain enormous R&D costs)Modified product strategy middle extent of standardization in which firms standardize the product platform but still adapt some of the products features. Some cost advantages and leverage of R&D are gained (better exploitation of the R&D).Standardized product strategy highest extent of product standardization. The product is fully standardizes with no adjustment to local needs The product developed consists of either the greatest common denominator or an optimized set of functions and features. Highest cost efficiency and R&D leverage are gained.
- #11 The research was conducted in 2001. It consisted of a qualitative multiple-case study that aimed at testing 5 theoretical propositions.In the sample 4 Finnish ICT equipment companies from Small and Open Economies were included. Nokia Mobile Phones, Nokia Networks (now renamed Nokia Solutions and Networks – joint venture between Nokia and Simens), Salcomp and Tecnomen (now renamed Tecnotree after the merge with the Indian company Lifetree). These companies represent 2/3 of the Finnish ICT equipment exports.14 interviews were conducted with managing directors or senior vice presidents of marketing of the 4 companies.
- #12 the study develop5 main propositions assessing the factors that are most likely to affect companies' product strategy development toward globalization. The validity of these proposition are tested against the product strategy development of the 4 Finnish ICT companies.
- #13 For the time-period considered by the study, we can see that the 4 companies have evolved differently.
- #14 According to the p1 the macro and industry env have an impact on the globalization process. It is assumed that a great standardized product strategy is employed when tariff and non tariff barriers in the industry are rather low favouring a free exchange of goods between countries. Technological advances ease the standardization of products for example the advent of Internet considerably decreased the distance between companies and consumers, making consumers always more aware of foreign products.Standardized product can be further developped when markets accross countries have similar needs or when a dominant design for the technoly emerges.
- #15 This P is confirmed as exemplified by the 4 companies, in markets where a global technology standard was present and consumer needs were more similar such as that of NMP and NET a more standardized product strategy was implemented whereas where the technology standards were still relatively fragmented such as for Salcomp and Tecnomen markets a modified product strategy was selected
- #16 According p2 the managerial orientation of the company has an important influence on the choice of the product strategy. For example ethnocentric companies consider international operation secondary and always supply the domestic market first. while geocentric are more open to global marketing But recognize the importance of regional marketing strategies to meet customers’ needs.Where the company is positioned in the market development phase affect the product strategy. In an entry phases products look to satisphy the domestic market need. HWV when companies start moving from international to global with respect of their geographical locations, they shift toward a more globalized products.
- #17 In all 4 cases , when the management orientation evolved towards the geocentric and the companies started to penetrate counties outside the domestic continent, the product strategies developed towards higher standardization across countriesNMP & NET internationalized first and then globalized entering NA and Asia Salcomp >> Spain, Italy, Germany in EU localised product strategy used > when penetrate NA and Asia start to eveolved toward modified product strategy based on global products platform across countriesTecnome when 90%of sale from EU e 10% outside > start globalizing penetrating, China Brazil, Indonesia Thailand > in 2001 51% of sales outside EU
- #18 P3. The higher the centralization of production and marketing operations globally, the greater the use of more standardized product strategies compared with adapted ones (which instead closeness to markets > provides a better opportunity to take into account the different requirements of the markets)
- #19 This proposition has been validated by the study. Analysis of the case companies revealed that they had moved toward a lower centralization of production (except one case, NET) and all had moved towards lower centralization in marketing operations, and yet increasingly standardized their product strategy. Whathasbeenshownisthatthose companies weredecentrlizingboth productions and marketing operations to have a bettercontact with the target market’s consumers.
- #20 The 4th pconsiderexperienceeffectssuchaseconomies of scale and building gloalcapabilitiesnecessary for applying a more standardizedproductstrategy. While on the otherhandeconomies of scope and localcapabilitiesfavour a modifiedproductstrategy
- #21 This proposition has been partially validated. The evolution of the 4 companies shows that the economies of scale as well as global capabilities induce a more standardized product strategy. However, when a more adaptive product strategy such that of Salcomp and Tecnomen is applied both economies of scope and scale and local and global capabilities are necessary.
- #22 P5tests the impact of decisionmaking and business experience on the globalization and standardizationprocess. The study shows thatwhen global business experience (thusrisk and uncertaintyisreduced) and resourcecommitmentincreasefirms are capable of deveoping a widerstandardizedproductassortment and more advancedstandardizedproductcategories.Whenthereislack of experience in developing global products, lack of resources and a culture of high uncertaintyavoidance, thenadaptationisimplemented.
- #23 P5 is validated as 3 out of 4 companies going global have developed new advanced standardized product categories thanks to their increased global business experience and resource commitment.Even Salcomp can be seen as supporting the validation of P5 as it didn’t make changes to the product category or assortment but it widened the offering to new customer segments.
- #24 Now Nik will present how the globalized world has evolved in the present days since the research has been done and the implications of this evolution on the ICT industry.OR: Nik will now discuss the implications of globalisation on the ITC industry in contemporary times