Download Appendix 1.

Table
of
Contents
1
Introduction.....................................................................................................................3
1.1
Problem
Statement .............................................................................................................4
1.2
Methods ..................................................................................................................................4
1.3
Structure.................................................................................................................................5
1.4
Delimitation ..........................................................................................................................6
2
The
JYSK
Case ..................................................................................................................8
2.1
Jysk’s
Value
Chain................................................................................................................8
2.1.1
Firm
Infrastructure ...................................................................................................................10
2.1.2
Human
Resource
Management ............................................................................................10
2.1.3
Technology
Development.......................................................................................................12
2.1.4
Procurement ................................................................................................................................12
2.1.5
Inbound
Logistics.......................................................................................................................13
2.1.6
Operations.....................................................................................................................................13
2.1.7
Outbound
Logistics ...................................................................................................................13
2.1.8
Marketing
and
Sales..................................................................................................................13
2.1.9
Services...........................................................................................................................................14
2.2
Summary ............................................................................................................................. 14
3
Standardized
Versus
Adjusted
Market
Communication................................ 16
3.1
Standardized
Market
Approach................................................................................... 16
3.2
Adapted
Market
Approach ............................................................................................ 18
3.3
Combined
Market
Approach......................................................................................... 21
3.4
Summary ............................................................................................................................. 23
4
Culture
Theories
in
a
Marketing
Context............................................................ 25
4.1
Hofstede’s
onion
diagram .............................................................................................. 26
4.2
Introduction
to
Dimensions
of
Culture ..................................................................... 27
4.3
Validity
of
the
Cultural
Dimensions ........................................................................... 28
4.4
Cultural
Dimensions........................................................................................................ 28
4.4.1
Individualism
versus
Collectivism......................................................................................29
4.4.2
Masculinity
versus
Femininity .............................................................................................31
4.4.3
Uncertainty
Avoidance ............................................................................................................33
4.4.4
Power
Distance ...........................................................................................................................34
4.5
High
versus
Low
Context................................................................................................ 35
4.6
Summary ............................................................................................................................. 37
5
Choice
of
Entry
Mode
and
Market.......................................................................... 40
5.1
PESTEL
Analysis ................................................................................................................ 40
5.1.1
Political
Future............................................................................................................................41
5.1.2
Socio‐cultural
Future................................................................................................................42
5.1.3
Economic
Future ........................................................................................................................44
5.1.4
Technological
Future................................................................................................................45
5.2
Climate ................................................................................................................................. 48
5.3
Business
Networks........................................................................................................... 48
5.4
Corruption .......................................................................................................................... 49
5.6
Summary ............................................................................................................................. 52
6
Conclusion.................................................................................................................. 55
Bibliography..................................................................................................................... 58
Books ........................................................................................................................................... 58
Articles ........................................................................................................................................ 59
Online
sources .......................................................................................................................... 60
1
Video
sources ............................................................................................................................ 61
Appendix
1. ....................................................................................................................... 62
Appendix
2 ........................................................................................................................ 63
Appendix
3 ........................................................................................................................ 64
Appendix
4 ........................................................................................................................ 65
2
1
Introduction
In the industrialized world today companies face the intensified competition in
markets where contribution margins are notoriously diminishing. Due to lower
production costs in primarily newly industrialized countries like Brazil, Russia, India
and China (BRIC) to name but a few, home markets are in abundance presented with
a wide variety of imported and competitive products leaving no time for companies to
dwell on past merits.
However, while the globalisation has increased competition the subsequent
economical growth in the newly industrialized countries has increased the demand for
goods not “accessible” to these regions prior to the industrial growth.
Numbers from the Central Bank of Russia suggests that the inflation regulated GDP
per capita in Russia has doubled in the course of 10 years. What is even more
noticeable is that the Russian import has exploded over the last 10 years. (Appendix
1). The numbers from the Russian Central Bank indicates that in the wake of the
economical boom foreign companies have established themselves in the Russian
consumers every day life. The new global tendency has forced managers to rethink
their business model and many have decided incentivized by pro- or reactive motives
to enter new foreign markets.
At a first glance it seems as the newly established economical wealth of the so-called
BRIC countries among others, has paved the way for large multinational enterprises.
It seems these new markets provided the large multinational companies with an
opportunity to flex their financial muscle and reap the benefits from their hard earned
experience. However, over the years companies have realized what they thought was
a one-way ticket to success ended up being a costly affair leaving financial scars
visible even to Scrooge McDuck without glasses.
Over the years different approaches to cross cultural marketing have been suggested.
The core of the discussion is whether the market communication and product details
should be standardized or if it is necessary to adapt it to the receiving culture.
Proponents of the standardized approach (Levitt, 1983; Jain, 1989) argue that the cost
reduction associated with product development and market communication is the
main strengths of the standardised approach. On the other hand the proponents of a
modified marketing mix (Hofstede, De Mooij) suggest that the cost associated with an
3
adapted marketing campaign and increased product development costs are
outweighed by the subsequent increase in sales.
Seen from the perspective of the cost focused manager, with only economies of scale
in mind, a standardized marketing mix is very lucrative but it is hardly a sustainable
strategy if the imminent effect is withdrawal from the export market. But if
companies are not able to replicate their domestic strategies how much product,
promotion, distribution and price adjustment is needed to align the goods to the needs
and expectations of the export market?
1.1 Problem
Statement
Aforementioned is exactly what this bachelor thesis will try to highlight. It will assess
the important questions export managers have to ask themselves when moving goods
across cultures and borders. With Jysk as a case example this thesis aims to clarify
why a well-proven concept can fail to gain a foothold in a foreign market and put
forward a number of recommendations to avoid repetition of past failures.
Consequently following research question will be investigated:
How should Jysk compose their marketing mix in order to penetrate the
Russian market?
A number of sub questions will be answered to provide a theoretical foundation and
map possible mistakes that could help answering the research question.
(a)
What factors are in favour of a standardized market approach and vice
versa?
(b)
How big is the cultural gap between Russia and Denmark?
(c)
If any, how does the cultural gap affect market communication for Jysk in
Russia?
(d)
Was Russia the wrong entry market or was the entry mode not suited the
Russian market?
1.2
Methods
The thesis will take a problem-oriented approach to answering the problem statement
from a theoretical perspective. Throughout the thesis the arguments for the choice of
4
theories and models will be put forward and their relevance to the problem statement
discussed.
To answer the problem statement the thesis will include a number of analyses. The
thesis will investigate Jysk’s strength by looking into their value chain and observe
where Jysk adds value to its products and services.
To clarify the role of culture in relation to marketing a number of reputable theorists
have performed ongoing studies. This thesis will include the views of Hofstede, Hall,
Levitt, de Mooij among others to establish of theoretical foundation to answer the
problem statement. Hofstede’s cultural dimension will be assessed and along with
Hall’s cultural studies the thesis will try to clarify the differences between Denmark
and Russia. To gain marketing perspective de Mooij will provide an insight into this
specific area.
The thesis will explain the importance of choosing the right export market. By
performing a PESTEL analysis on the Russian market for Jysk the thesis will clarify
if the failure can simply be ascribed wrong choice of export market. Furthermore
Jysk’s choice of entry mode will be elaborated upon by the aid of Hollensen’s book
on international marketing.
Lastly the thesis will especially in chapter 2 and 5 use a number of online secondary
sources. A number of these sources do not have any authors accredited, which
complicates the structure of the bibliography. Consequently to ease the access to these
sources a complete URL will be attached as a footnote.
1.3 Structure
The proceeding section will briefly present the overall structure of this thesis.
Chapter 2 – The Jysk case: Firstly an insight into the company Jysk is necessary for
the proceeding investigations. Therefore this chapter will provide a brief summary of
key historical events along with company culture and strengths that have helped
JYSK become the successful company it is today.
Chapter 3 – Standardized versus adjusted market communication: This chapter will
present the reader with relevant theory and literature regarding the question whether
to standardize or adjust market communication. Furthermore this chapter aims to
5
identify motives for a standardized, adjusted or a combination of the two when
constructing a market communication strategy. The chapter is finalized by answering
sub question a.
Chapter 4 – Culture theories in a marketing context: The reader will here be
introduced to a theoretical approach to culture and how it affects cross-cultural
marketing. Hofstede’s and Hall’s culture dimension will be discussed and
comparatively applied to Russia and Denmark. After the analysis question b and c is
answered with respect to the findings.
Chapter 5 – Choice of entry mode and market: Chapter 4 aims to clarify the
importance of choosing the right entry market. Before any export is initiated it is of
paramount importance to locate the market with the highest potential for the concrete
company. The chapter will be completed with a PESTEL analysis on behalf of Jysk,
which should help answer sub question d.
Chapter 6 – Conclusion: The conclusion will summarize the findings from the
previous chapters and answer the main problem statement of the thesis.
1.4 Delimitation
Culture will be referred to as what Hofstede calls national culture. National culture is
deeper lying values or collective mental programming that Hofstede explains by his
cultural dimensions (De Mooij, M. 2004, p. 30). Consequently, aspects of culture that
often is administered by a culture minister such as music, theatre and art will not be
considered in this thesis.
This thesis will not investigate the competitive situation on the Russian market. To
gain an insight in the competitive situation in Russia would demand thorough market
knowledge that would be difficult, time consuming and space requiring stretching
beyond the scope of this thesis. Furthermore it is of less importance to answering my
problem statement as this thesis aims to clarify the optimal marketing mix based on
cultural differences and not on the competitive situation on the market.
Furthermore this thesis will exclude the discussion on whether to adopt a standardized
or differentiated pricing strategy as the author lacks critical information regarding the
Russian market in terms of competitor’s prices. Furthermore this will allow the thesis
to steer clear of the discussion of the creation of parallel importing/grey markets.
6
Culture brings a number of challenges to the table. This thesis will focus mainly on
how culture and factors such as economy, climate, corruption, infrastructure and
technology affects Jysk’s marketing mix. However it will not consider how these
cultural and external factors affects human resource management and other employee
related issues.
7
2 The
JYSK
Case
Firstly an insight into the company Jysk is necessary for the proceeding
investigations. Therefore this chapter will provide a brief summary of key historical
events along with company culture and strengths that have helped Jysk become the
successful company it is today.
On April 2nd 1979 Lars Larsen opens the first Jysk Sengetøjslager (Jysk Bed linens)
store in Aarhus, Denmark. Lars Larsen wanted to become the market leader and his
idea was clear. He wanted to sell his products at a lower price than that of his
competitors and thereby make his customers the winner (jysk.com1). Since that day in
1979 Jysk has gone from strength to strength and is now represented in 34 countries,
with a 16000 people strong staff and a yearly turnover of 2,35 billion Euros
(jysk.com2).
In the year 2001 stores in Denmark, Sweden and Finland changed name from Jysk
sengetøjslager or a direct translation of it to simply Jysk. This can be seen as a clear
statement that Lars Larsen is fully obligated to fulfil the goal of becoming the global
market leader within sleeping and living. In the proceeding years Jysk went through a
rapid market development process. Whereas prior to the name change Jysk was
located in the Scandinavian and neighbouring countries Jysk now expanded to larger
parts of Europe and in 2010 Jysk opened two stores in Shanghai, China.
However among these export exploitations, Russia is a stain on Jysk’s seemingly
successful export story. In 1996 Jysk opened its first shop in Moscow, Russia but had
to withdraw from the Russian market two years later in 1998. In 2005 Jysk reinterred
but failed and withdrew two years later in 2007 (Jysk.dk3). However, Lars Larsen is
still determined to succeed in Russia and has stated further plans on entering the
market in the future (Lassen, L. 2007).
2.1
Jysk’s
Value
Chain
A relevant tool to analyse how Jysk creates customer perceived is the value chain.
The value chain consists of two activities – support and primary activities.
1
http://www.jysk.com/frontpage/about_jysk/history.htm
2
http://www.jysk.com/frontpage/about_jysk/history.htm
3
http://www.jysk.com/frontpage/about_jysk/history.htm
8
Support activities are firm
infrastructure, human research
management,
technology
development and procurement.
The supporting activities are
ongoing activities that can be a
tool helping to create customer
perceived value. Contrary to
the primary the supporting
activities has no clear line as to where the activity starts and stops and is difficult to
link to one particular part of the organisation. Primary activities are inbound logistics,
operations, outbound logistics, marketing and sales and finally services. Isolated these
activities are more tangible and easier to measure in terms of customer perceived
value created (Lynch, R, 2009, p. 112-113).
According to Jysk themselves they try to create customer value by delivering good
prices and excellent service. Furthermore they mention three essential factors they
wish to be associated with;
Reliable
-
Products are always available
Pricing is clear
Customer policies are favourable
Straight Forward
-
Understandable communication
Down to earth
Easy shopping
Responsible
-
Socially engaged partner on sourcing
Fair and trustworthy employer
Environmental commitment
(jysk.dk4)
4
http://www.jysk.com/frontpage/mission_and_values/jysk_customer_values.htm
9
To see how Jysk achieve these perceived values we return to the value chain.
2.1.1
Firm
Infrastructure
It has proven difficult to gain access to Jysk infrastructure. However, we know that
Jysk is divided into Jysk Nordic, Dänisches Bettenlager and a number of franchisees.
The full list of which countries administered by Jysk Nordic, Dänisches Bettenlager
and the different franchisees can be found on jysk.com.
2.1.2
Human
Resource
Management
Jysk is aware that to ensure the best service possible they need motivated employees.
A motivated employee is characterised by a constant and high level of work related
achievements, and he or she will show energy and enthusiasm in the process (Brooks,
I. 2009, p. 80). Without digging too much into motivational theory scientist work with
two factors, extrinsic and intrinsic rewards. Extrinsic rewards are company policy and
administration, working condition, salary, status and job security among others. These
extrinsic rewards are believed to cover what Maslow describes as lower level
physiological needs and do not have a direct effect on motivation. Extrinsic rewards
merely works as dissatisfiers, meaning that they will not motivate if they are at a
satisfactory level, but they will demotivate if they do not meet the employees
expectations (Brooks, I. 2009, p. 95). Intrinsic rewards are the real motivators. They
include sense of achievement, recognition, responsibility and personal growth among
others, all what Maslow describes as higher level physiological needs (Brooks, I.
2009, p. 94).
On Jysk’s homepage they have outlined three values essential to effective and
efficient procedures and continued employee satisfaction.
Tradesman
Service minded, cost conscious, reliable, goal oriented and professional.
Colleague
Helpful, mutual respect, flexible, open, honest and straight forward,
positive
10
Corporate Spirit
Committed, loyal, cooperative, obligation to challenge (the right to
speak up), JYSK ambassador
(jysk.com5)
Namely the last two values have a human resource aspect and can be classified as
intrinsic factors. Evidence show that Jysk is taking the humans resource aspects very
seriously. The mentioned values are supported by a number of initiatives such as Jysk
employee magazine, GO Jysk. GO Jysk has been recognised by the Association of
internal communication (Foreningen for Intern Kommunikation) with employee
magazine of the year 2010 (fikom.dk6).
According to communication and CSR
manager at Jysk, Jonas Schrøder, the magazine works as a strategic tool and cultural
link between employees within the organisation (Kommagasinet, January 2011). To
engage the employees, whom Jonas Schrøder describes as the experts, on strategic
level, employees are interviewed regarding a specific strategy and how it works in
practice and thereby ignite fellow colleagues interest in the company strategy through
the magazine (Bredsted, C, 2011).
Along with a healthy corporate culture Jysk also put high emphasis on educating their
employees. Through the Jysk academy, a two-year education with combined school
and trainee experience, future employees gain an insight into the Jysk cooperation.
They gain valuable knowledge about Jysk and its products along with sales
techniques and other practical insight into running a store (jysk.dk7). The Jysk
education has earned itself a prestigious reputation in the Danish business community
where Svend Berg, education manager at Danish business, states that the education is
among the very best and Lars Larsen’s policy of hiring young leaders is a further
incentive
for
young
and
driven
people
to
choose
the
Jysk
academy
(karriereportalen.dk8). In fact approximately 55% of of the Danish store managers
finished a Jysk academy education (jysk.dk9).
5
http://www.jysk.com/frontpage/mission_and_values/jysk_values.htm
6
http://fikom.dk/
7
http://www.jysk.dk/elev
8
http://karriereportalen.dk/default.asp?Action=Details&Item=429
9
http://www.jysk.dk/elev
11
To underline how good a work place Jysk is and to attract new trainees a viral
campaign has been initiated (Larsen, J. 2011). The video shows a young trainee on
her way to, and at work in rather awkward situations and is finalized with Lars Larsen
personally showing his appreciation of her employment at Jysk.
2.1.3
Technology
Development
To optimise the business Jysk are investing in large and technically advanced store
facilities around the world. In 2008 Jysk opened a super storehouse in Uldum,
Denmark. It is the largest of its kind in Denmark and will supply up to 300 Jysk stores
in Denmark, Norway, Holland and Great Britain along with a number of franchise
stores around the world (Jysk.dk10). In a TV interview the logistic manager Henrik
Gromada explains how everything is now registered electronically and goods can
easily be tracked around the storehouse and on their way to the stores. Furthermore
the number of wrong deliveries and damaged goods has reduced (tvsyd.dk11).
Another of Jysk’s major storehouses, Nässjö, Sweden has recently upgraded their
storage system which has lead to an increase in productivity by 7%, reduced lead time
of
shop
orders
and
improved
responsiveness
towards
shop
demand
12
(retailtechnologyreview.com ).
2.1.4
Procurement
In order to supply their customers with the best offer Jysk need the best suppliers.
Consequently a purchasing department has been established for the two primary
groups of goods. The first department handles textiles, duvets, pillows. The second
department handles furniture, garden, mattresses, house ware and bathroom hard.
These two departments are responsible for finding the best suppliers from around the
world who fulfil a set of ethical codes and qualitative standards. In cooperation with
the supplier Jysk strive to respect the business social compliance initiatives (BSCI)
ten principles of ethical and social responsibility (jysk.dk13). Over the years Jysk has
been supplied by suppliers who does not meet the expectations but according to
10
http://www.jysk.dk/uldum
11
http://www.tvsyd.dk/artikel/69212?autoplay=1&video_id=28364
12
http://www.retailtechnologyreview.com/absolutenm/templates/retail_supply_chain.as
px?articleid=443&zoneid=1
13
http://www.jysk.dk/ansvar
12
communications and CSR manager Jonas Schrøder, Jysk are doing their outmost to
secure that suppliers meet the expectations of Jysk (Grünbaum, B. 2008)).
2.1.5
Inbound
Logistics
Along with the increasing sales, Jysk has decided to engage in cooperation with the
global logistic company DHL. DHL are now responsible for all logistics matters of
Jysk products. According to logistic manager at Jysk, Henrik Bøgelund, this
cooperation was a direct effect of the increasing sales numbers, which made the
previous set-up inappropriate. Key account manager at DHL, Palle Bo Bøyesen,
explains that the agreement with Jysk allows Jysk to maintain competitive, have a
continual flow of goods and information, avoid bottlenecks and create an overview
(transinform.com14)
2.1.6
Operations
The production of Jysk goods is outsourced to external manufacturers all over the
world. However as mentioned Jysk are keeping tabs on the quality of the goods and
the working conditions on the factories.
2.1.7
Outbound
Logistics
As
with
inbound
logistics
DHL
is
also
responsible
for
all
outbound
logistics
for
Jysk.
2.1.8
Marketing
and
Sales
At a conference in Denmark Lars Larsen specifically explained how important
marketing is at Jysk. “Sales derive from marketing. Without marketing you may just
as well remain where you are – or become completely invisible. That is why my clear
message is: Marketing, marketing and marketing, that is the most important thing”
(startvaekst.dk15). Early Jysk marketing centered around Lars Larsen who personally
starred in the TV commercials. With “Hello my name is Lars Larsen - I have a good
offer for you” Lars Larsen was first introduced to the Danish public. Lars Larsen
marketing strategy was clear, he knew that buying quilts, pillows and mattresses was
a matter of trust because you could not see what was inside the mattresses. Lars
Larsen had heard that even people from Copenhagen considered things from Jutland
14
http://www.transinform.com/index.php/dtt/artikel/dhl_gar_i_seng_med_jysk/
15
http://www.startvaekst.dk/pls/wopdprod/wt2_nb.nb_preview?nid=338
13
to be trustworthy and solid, and that was why he named the stores Jysk and starred in
the commercials with his no nonsense Jutlandic appearance and dialect (Larsen, L.
2004, p. 44). As mentioned above Lars Larsen highlights marketing as the most
important asset to a company and he is even quoted saying that he during financial
crisis you can cut down on many things but absolutely not marketing. To emphasize
the importance of marketing he further states that marketing is the only weapon to
ride the financial crisis and even gain market shares on the way (Bjerrum, V. 2009)).
Whether you like the Jysk’s advertises or not there can hardly be two opinions about
their effectiveness. With simple instruments Jysk tries to highlight their three core
business values; reliable, straight forward and responsible and they succeed. In
general Jysk’s marketing can be described as down-to-earth, straightforward but none
the less aggressive.
Despite the global financial crisis Jysk has maintained it’s large marketing budget.
Because of the maintained marketing budget Jysk has gained market shares on new
markets. Something that Lars Larsen hopes will pay dividends when the economical
tendency turns (Bjerrum, V. 2009)).
In line with their values Jysk are engaged in a number of sponsorships and
organizations with a more or less direct effect to its production. A full list of
sponsorships and organizations supported by Jysk can be found on jysk.com.
2.1.9
Services
Contrary to many other discount shops Jysk put high emphasis on service. In order to
ensure their customers the best service Jysk educates their employees at the Jysk
academy where they, among other things, gain insight into the product range and
focus on customer communication and needs (jysk.dk16).
2.2
Summary
After a review of Jysk’s value chain a number of value creating initiatives has been
identified.
•
Streamlined supply chain.
•
Centralised storehouses reduce costs and increase efficiency and reliability.
•
Highly educated and motivated staff.
16
http://www.jysk.dk/elev
14
•
Aggressive marketing supported by a large marketing budget.
It seems that the three core values; reliability, straight forward and reliable is deeply
rooted in every part of the organisation. Firstly Jysk ability to provide reasonably and
priced products with a relative high quality is very much down to their streamlined
supply chain and the strategy of bulk-buying. Furthermore the centralisations of
storehouses reduce cost and increase efficiency. By outsourcing all logistics to DHL,
Jysk have engaged in cooperation with an experienced partner who will provide a
reliable and continuous flow of goods. The cooperation allows Jysk to focus on other
core aspects of its strategy such as human resource management and marketing. Jysk
has highly educated and motivated employees with a profound knowledge of the
organisations values and educated to provide the best service to the customers. Jysk is
fully aware that marketing is essential to succeed, which is reflected by the large
marketing budget. Despite the financial crisis Jysk has maintained its high marketing
budget. This may prove to be an asset when the economy stabilises and consumers
from the increased market share starts buying durable consumer goods again.
15
3 Standardized
Versus
Adjusted
Market
Communication
This chapter will present the reader with relevant theory and literature regarding the
question whether to standardize or adjust market communication. Furthermore this
chapter aims to identify motives for a standardized, adjusted or a combination of the
two when constructing a market communication strategy. The chapter is finalized by
answering sub question a.
As mentioned in the introduction the globalisation has paved the way for goods and
services to travel beyond borders. But when doing so companies face different
communication challenges than what they are familiar with from their home markets.
The core of the dilemma is if customers from foreign markets are able to decode the
original marketing message or if an adapted approach is necessary. Put in other words
marketing managers face the decision of a standardized or adapted market
communication strategy. A standardized marketing approach is by Jain defined as:
“Using a common product, price, distribution and promotion programme on a
worldwide basis”
(De Mooij, M. 1994, p. 89)
Which is the same as offering identical products worldwide at identical prices via
identical distribution channels, supported by identical sales and promotion
programmes (De Mooij, M. 1994. p 89).
Even though theorists do not agree on what the long term best cross cultural
marketing practice is, they seem to agree that technological development has to a
certain degree lead to a convergence of lifestyles at macro level. The question then is
to what degree it affects consumer behaviour and thus the need of an adapted
marketing strategy.
3.1
Standardized
Market
Approach
“The products and the methods of the industrialized world play a single tune for all
the world, and all the world eagerly dances to it.”
(Levitt, T. 1983)
Theodore Levitt rhetorically convincing expressed these words in his now famous
article “The Globalization of Markets” from 1983 and has since been centre of a
heated debate regarding international marketing. Levitt was an advocate for a
standardized approach but on the other side stands an increasing crowd opposing his
view.
16
A standardized market communication approach prevails under the assumption that
consumer preferences are converging as the globalization increases. According to
Levitt two vectors shape the world – technology and globalization. Technology helps
determine human preferences and globalization helps to determine the economic
realities (T. Levitt, 1983). What we can derive from his logics is that because the
technology is no longer a privilege for small parts of the world, lifestyles and
consumer preferences will converge and we as consumers will to a larger degree
prefer the same products all over the world. Because consumer preferences converge
companies can now focus on economies of scale and increasing the quality of the
products. Over time, market forces will then outcompete consumer preferences
derived from the decreasing cultural differences - if the price is right (T. Levitt, 1983).
While Levitt mentions economies of scale as the outmost important factor supporting
a standardized approach De Mooij elaborates and highlights following advantages:
•
Economies of scale in procurement, logistics, production and marketing.
•
More efficient transfer of tacit knowledge and management resources.
•
The possibility of building a uniform worldwide corporate image.
•
The possibility of creating a global brand, which is recognizable worldwide.
•
Lower risk of brand dilution and costumer confusion.
•
Easier to create global guidelines with respect to after-sales service and sales
training.
(De Mooij, M. 1994. p. 84-85)
The idea of a standardized marketing programme is further ignited by rapidly growing
youth culture. Susan Carley and Michael Dailey argue that young people today are
more similar to one another than they are to their parents. This trend is especially
observable in terms of lifestyle-oriented products such as music, clothing and
consumer electronics (Rugimbana, R & Nwankwo, S, 2003, p. 326)
Apart from the above-mentioned positives from a standardized marketing programme,
there are certain conditions that increase the likelihood of a standardized campaign
succeeding. Marketing professor Subhash Jain has developed a set of proposition with
conditions that summarize factors favouring a standardized marketing approach seen
from the perspective of the exporting company.
1. Economically alike markets.
17
2. Worldwide consumers, not countries, are the basis for identifying the segment
to serve.
3. High similarity in terms of consumer behaviour and lifestyle in markets.
4. High degree of compatibility of the product across the host country.
5. Similarity in a firm’s competitive position in different markets.
6. Same competitors and similar market share proportions in the host country
opposed to competing against local campaigns.
7. If your product is high technological.
8. Similar marketing infrastructure.
9. If key managers in the company share the same worldview.
10. If there is a strategic consensus among parent-subsidiary managers on the
standardization question.
11. If company policies and strategy is centralized.
(Jain, S, 1989. p 72-76)
3.2
Adapted
Market
Approach
As mentioned Levitt received massive critiques for his article and the crowd opposing
his view on cross-cultural marketing is gathering strength in numbers. The opponents
do not deny that the technological development is making the world smaller and to a
certain degree consumer preferences and tastes are converging. However the
convergence is merely on a macro level while countries is nowhere near as
converging at micro level (De Mooij, M. 2004. p. 57). Dibb, Simkin and Yuen further
argues that even though global products or brands such as Persil, Kodak, Sony,
BMW, Aldi and IKEA is highly visible throughout much of Europe, there is little
evidence that consumers buying these products have common goals and expectations
(De Mooij, M 2004. p. 57).
The core idea behind Levitt’s theory was that as globalization increased consumer
preferences would converge and consumers would to a larger degree prefer the same
products. Hofstede and de Mooij have since strongly warned not to use globalizations
as an excuse for a standardized market approach. The globalization has made the
world more homogeneous in terms of economic wealth and technological
development and according to de Mooij there are signs that consumer preferences are
actually diverging as people gets educated and wealthier and consequently
GNP/capita is no longer the explaining factor when considering differences in
18
consumption and consumer behaviour. That is because when countries develop and
economically converge, value differences become manifests and consumer behaviour
diverges. The most suitable factor for explaining the differences in consumption and
consumer behaviour is then cultural values (De Mooij, M. 2004. p. 86). This theory
obviously stresses the need for an adjusted market communication because as Ness
and Stith put it: “successful marketing program can only occur when the marketing
mix of the products is matched with the values of the consumer” (Ness & Stith, 1984,
p. 232).
In her book on worldwide advertising de Mooij advocates marketers to think global,
act local and identifies a number of external factors favouring the adaption strategy:
•
Different competitive situations in different countries.
•
Infrastructural differences.
•
Cultural differences which influence consumer behaviour.
•
Economic and technological differences.
•
Consumer ethnocentrism and country-of-origin attitudes.
‘
(De Mooij, M. 1994, p. 81-84)
Different competitive situations in different countries calls for a differentiated
marketing strategy in terms of price setting, sales activities and advertising.
De Mooij highlights infrastructural differences as a factor in favour of an adapted
marketing approach. Differences such as transport systems, distribution, available
media, legal conditions, physical environment and communication systems have a
profound impact on marketing approach and may force the exporting company to
adapt to the new conditions (De Mooij, M. 1994, p. 82). Whether available media
should be classified a technological difference or infrastructural difference can be
discussed. Anyway, an obvious example could be how a company with emphasis on
their visual appearance of their printed advertisements may consider if their marketing
message would have the same effect in a non-colour magazine.
The technological development of the host country is another incentive to adapt your
marketing strategy. Different stages in the technological development in the host
country means different premises for the exporting company, and hence a need for
local adaption.
19
Economic differences are important because spending patterns change when people
get wealthier. For example people only buy certain, especially luxury, goods when
their basic needs are fulfilled (De Mooij, M. 1994, p. 84). This suggestion is in line
with the micro economical theory Engels law. Engels law suggests that when
household’s income increases spending patters will at some point change. Pindyck
and Rubinfeld exemplifies this with the consumption of hamburgers which will
increase as the household income increases, but at a certain point, as income
increases, hamburgers will become an inferior good and will be substituted with
different goods (Pindyck, R & Rubinfeld, D, 2005, p. 112). The theory of course
covers other product groups than hamburgers and the rule of thump is that the
wealthier people the proportional size of their income is spend on superior goods
increases.
Regarding the question about ethnocentrism and country-of-origin attitudes there has
shown to be divided opinions. In certain parts of the world consumers prefer
domestically produced products. This urge for country-of-origin products goes hand
in hand with national pride, which can be enforced during and after political
turbulence, and varies greatly across the world (De Mooij, M. 2004, p. 121). In
general there are two factors that are thought to explain the degree of ethnocentrism.
Ethnocentrism is believed to be high; if products are perceived as unnecessary and if
consumers perceive themselves or the domestic economy to be threatened by the
import of a particular product (Rugimbana, R. & Nwankwo, S, 2003, p. 111)
However research also suggests that consumer attitudes towards imported goods are
related to the combination of product category and country of origin. If they match we
have what is called prototypicality (De Mooij, M. 2004, p. 121)(Usunier, J. 1993, p.
260). For example if consumers in a certain country perceives furniture from
Denmark to be of high quality it might actually works as an advantage to introduce
your products as Danish when constructing your marketing strategy. In addition
Rugimbana and Nwankwo argues that consumers rate local assembly over local
design. This means that exporting companies could advantageously move production
to the host country but maintain the design department of the product domestically
(Rugimbana, R. & Nwankwo, S, 2003, p. 111). Furthermore there has proven to be a
price/quality trade-off meaning that consumer only prefer imported products as long
as they are of superior quality or better priced than domestic products (De Mooij, M.
2004 p. 211). All in all it is plausible to suggest that country of origin attitudes can be
20
considered an advantage but also a disadvantage depending on the extent of
ethnocentrism, price/quality trade off and prototypicality. Generally speaking Russia
is divided on the question of country of origin products. Research has proven that
Russian consumers to a large degree prefer domestic products when considering
consumable product. However, when Russian consumers buy durable goods they tend
to prefer foreign made products (Thelen, S. et. al, 2006, p. 694)
Cultural differences were mentioned to be the best factor to explain differences in
consumption and consumer behaviour and the thesis will investigate that thoroughly
in chapter four.
Now that reasons to adapt your marketing strategy in foreign markets has been
highlighted it would be appropriate to finalize this section with how an adaption
contributes to the success of the company. De Mooij highlights a number of
advantages to this strategy:
•
An adaption of marketing strategies to different stages of a products life cycle
in different countries.
•
The possibility to downplay the products country-of-origin if it does not
positively contribute to sales.
•
More efficient market communication as it takes it departure in the receiving
culture.
•
Adjusted marketing mix to meet specific economical aspects, consumer
perceived values and preferences in the receiving culture.
•
More efficient market communication because advertisement is adjusted to
locale media infrastructure.
•
The possibility to counter the different competitive forces on different
markets.
(De Mooij, M. 1994)
3.3 Combined
Market
Approach
As the discussion on a standardized or adapted marketing approach seems to go on
theorists agree that a standardized or adapted approach, in its purest form, are two
extremes and it might be beneficial to combine the two. Usunier, who is advocating
this approach, states that it is not a dichotomous choice but a matter of the extent of
adaption and which parameters should be adjusted to adapt to different external
factors and to meet preferences of the receiving culture (Rugimbana, R. & Nwankwo,
S. 2003, p. 109). Hence some elements of a company’s marketing mix can be
21
standardized while others need adjustment. In general it is possible to give your
message a universal appeal such as quality for money however the instruments you
use to communicate the message needs adjustment (De Mooij, M. 2004). For example
it is the core business idea of Jysk to provide their costumer with a quality product at
a low price, which is a universal appeal. This concept is so deeply rooted in the
business and its USP therefore it would make little sense to change it however the
way you communicate your message has to be adjusted in order for the message to be
interpretable for the receiving culture.
In the two previous sections on adapted and standardized marketing approach factors
influencing the degree of standardization possible were highlighted. Marc Hermeking
(Marc Hermeking, 2005)
has made this framework that will help us explain the degree of standardization
possible. The inner circle is a company’s marketing mix in its domestic market. We
can assume that before a company decides to export they are relatively successful on
their domestic market hence their marketing mix is adjusted to the domestic
environment, which is represented by the middle circle. When a company decides for
pro- or reactive motives to expand to foreign markets they have to expand their
marketing mix, inner circle, to the foreign environment, the outer circle. The outer
circle consists of uncontrollable factors from the middle circle along with a number of
new factors that the marketing mix needs to adjust to. The match between the middle
22
and the outer circle can then plausibly explain to a certain extent the degree of
standardization. However we see that there in the outer circle are a number of factors
not represented in the middle circle. These factors and their applicability to the
existing marketing mix decide the degree of adaption needed.
3.4
Summary
In the light of the examined theories of the three market communication approaches
the thesis will now answer sub question a:
What factors are in favour of a standardized market approach and vice versa?
The question of standardization is tricky and each approach has its advantages and
disadvantages and consequently many theorists are leaning towards a combination of
the two. Theory suggests that a number of internal and external factors can help a
company decide how much standardization is needed.
For a company to succeed with a standardized approach it is important that the export
market resembles the home market in terms of economy, consumer behaviour,
lifestyle, competitive situation, technological development, marketing infrastructure
and shows low ethnocentrism. Levitt suggested that the technology would pull these
factors together on a micro and macro-level. Furthermore it was suggested that certain
products could more easily withstand the geographically expansion. In this category
we find lifestyle and high-tech products along with products with universal appeal
and strong brand equity.
23
While researchers agree that a standardized approach allows companies to utilize
economies of scale, some theorist suggests that the savings from a standardized
approach cannot outweigh the increasing sales numbers from an adapted approach
despite its lower cost. Advocates for the adapted approach believe that the
convergence Levitt suggests is only found on macro level. Despite countries converge
on macro level national value systems have not vanished but instead the globalization
has lead to value differences becoming manifests that has made consumer behaviour
diverge. The diverging consumer behaviour forces exporting companies to rethink
their marketing plan when moving abroad. De Mooij highlighted five important
factors on page 18 where cultural differences influencing consumer behaviour was the
biggest incentive to adapt your market approach.
The combined approach acknowledges that the question of standardization or
adoption is not a dichotomous choice. A complete adaption has its obvious
advantages but is also very costly. The standardized approach is beneficial to the cost
obsessed manager, however it might prove difficult to communicate your message to
the foreign consumer with your current marketing mix. The combined approach tries
to take the best from each strategy by locating important factors to adjust while others
are kept unchanged.
24
4 Culture
Theories
in
a
Marketing
Context
The reader will here be introduced to a theoretical approach to culture and how it
affects cross-cultural marketing. Hofstede’s and Hall’s culture dimension will be
discussed and comparatively applied to Russia and Denmark. After the analysis
question b and c is answered with respect to the findings.
A lot of people are interested in culture and have been studying culture to gain a
deeper insight into what culture really is. In Denmark we have a culture minister (red.
Per Stig Møller, 2010 - present) but that does not mean that he decides how our
culture is, it mere means that the minister decides where government funds should be
spend on cultural arrangements such as theatre plays, local sports clubs and if we
should apply for major sports events such as the Olympics or the football world cup.
When the talk centres on culture in a marketing sense what we think of is national
culture. Experts have over the years tried to define national culture more generally.
Edward Hall compares culture to a giant computer. The computer programs our way
of thinking and doing things (Hall, E. 1990, p. 4). Whereas Hofstede defines culture
as “the collective mental programming of the people in an environment. Culture is
not a characteristic of individuals; it encompasses a number of people who where
conditioned by the same education and life experience”(De Mooij, M. 1998, p. 42).
Because culture is a word of such magnitude and it applies to various things such as
music, theatre and art in general we need to understand what culture is in the eye of
the advertiser. Rice defined culture as “the values, attitudes, beliefs, artefacts and
other meaningful symbols represented in the pattern of life adopted by people that
help them interpret, evaluate and communicate as members of society.”(Rice, C,
1993. p. 243) Therefore culture both affects and describes human behaviour (De
Mooij, M. 1998, p. 43). Basically what Rice state is that we act upon our culture,
culture is a cognitive instrument we use when making decisions in our everyday life.
Culture works as a framework when we determine our preferences and consequently
is what we use when we make decisions on the consumer market as well. For
marketing this means according to Trompenaar and Wooliams that “culture
challenges the fundamental strategy of marketing, customer relations, definition of
products, price, and advertisement. In short culture is all pervading.” (F. Trompenaar
& P. Wooliams, 2004, p. 7)
25
4.1
Hofstede’s
onion
diagram
Hofstede constructed in 1991 a model depicted like an onion consisting of four layers.
The model will help to get a more systematic approach to the term culture.
The outer layer of the onion is
symbols followed by heroes, rituals
with values in the middle, where
symbols are the most superficial and
values the deepest manifest of
culture. Symbols are things that
have a deeper meaning and only
people from its native culture would
understand. It is often pictures or
physical items such as a flag that
has a particular meaning to a
culture, but it can also be gestures or words. The next layer is heroes. A hero is a
person alive or dead, real or imaginary that is well know and somehow attached to the
culture and serves as a role model. Examples could be Superman to the Americans or
Nelson Mandela to the South Africans. Rituals are collective activities considered
essential within a culture (De Mooij, M. 1998, p. 46) A well known ritual is greetings
but the way we greet are different across cultures. Rituals often differ across religions.
Symbols, heroes and rituals are all what is visible to the outsider and are all what is
referred to as the sociological culture, meaning “way of life” adopted by groups of
people (De Mooij, M. 1998, p. 46). Varner and Beamer call these elements of culture
onstage behaviour (Varner & Beamer, 2005, p. 3). The final layer, or the core, in
Hofstede’s onion diagram is values and it is by far the hardest to explain. Values are
by Rokeach defined as “an enduring belief that one mode of conduct or end-state of
existence is preferable to an opposing mode of conduct or end-state of
existence”(Rokeach, 1973, p. 5). So values are what is deeply rooted in us and the
most important part of our culture, and hard to change.
When considering marketing, these four elements are all of very high importance. For
instance symbols are important to get right in order to address the market in which
you launch your marketing campaign. Symbols vary across different cultures and
takes on a completely different meaning. For example the colour black symbolizes
26
mourning in America whereas in China it is white and in some cultures symbolic
language is considered more important than verbal language. (De Mooij, M. 1998, p.
56) Heroes serve as role models and opinion leaders but role models do not have the
same effect on advertising in all cultures and they certainly are not the same. If we
look at the dimensions of culture (more on that later) masculine cultures are defined
by high emphasis on successfulness, which enforce the use of role models. In
collectivistic cultures elderly are regarded as important opinion leaders (De Mooij, M.
1998, p. 133). Trompenaar and Woolliams on the other hand argues that the effect of
using heroes is not only determined by your rank on the individualistic index, as it has
also proven efficient in more collectivistic countries as Japan and China (Trompenaar
& Woolliams, 2004, p. 100). As rituals change across cultures it is definitely
something for advertisers to be aware of.
4.2
Introduction
to
Dimensions
of
Culture
As mentioned above culture is a framework that determines our preferences. It is a
cognitive instrument we use when making decisions in our everyday life.
Consequently, within international marketing it is of paramount importance to gain
thorough knowledge of the deeper lying cultural values, in order for the market
communication to reflect these values in the marketing message.
In order to gain a framework to describe and compare cultures, Geert Hofstede has
through extensive research identified five dimension of culture;
•
Individualism versus Collectivism
•
Masculinity versus Femininity
•
Uncertainty Avoidance
•
Power Distance
•
Long- and Short-Term-Orientation
Initially Hofstede initiated his study to see how values at the workplace were
influenced by culture. However his research has proven to be applicable to other
paradigms. Hofstede collected his data from IBM between 1967 and 1973 and today
he has recorded scores from 74 different countries and regions all over the world.
27
Each country is allocated points from 1-100 on each of the five cultural dimensions in
order in such way that comparison is possible (geert-hofstede.com17).
It should be mentioned that Hofstede created his framework in such way that when
for example a country scores high on masculinity it infers that they are low on
femininity. The same rule applies to the entire five indexes.
4.3 Validity
of
the
Cultural
Dimensions
Hofstede’s five cultural dimensions have since their introduction in the 70’s received
significant criticism. Opponents suggest that Hofstede’s population is not
representative and cannot describe general tendencies in a country because the survey
was conducted using IBM staff only. Hofstede on the other hand argues that using
employees from one company only is actually one of the strength of the survey. He
argues that because the population from one company can be assumed to be from the
same social layer of any deviations in the findings can only be described by cultural
differences (Jones, L. M., 2007, p. 5).
Another point of criticism centres on how Hofstede divides national culture by
borders. Opponents suggest that cultures are not necessarily bounded by borders
(Jones, L. M., 2007, p. 5).
A final critique questioning the validity of Hofstede’s study addresses the date of the
study. Opponents suggest that a 30 year old cultural study does not give a useful
picture of how cultures are today because the globalization has changed the world we
live in. Contrary Hofstede argues that culture is deeply rooted in the population of a
country and does not easily change (Jones, L. M., 2007, p. 5).
4.4 Cultural
Dimensions
Because no data on long- and short-term orientation exists for Russia it will not be
considered in this thesis. The following sections will describe the four cultural
dimensions and Hall’s high/low context theory and how they affect cross-cultural
marketing between Denmark and Russia.
For the convenience of the reader the thesis will use following abbreviations;
PD(I)  Power distance (index)
MAS  Masculinity versus Femininity
17
http://www.geert‐hofstede.com/
28
IDV  Individualism versus Collectivism
UA(I)  Uncertainty avoidance (index)
As mentioned Hofstede’s studies allow for comparison therefore this chapter will,
before any deeper going comparison and consequences of deviations, give us an
overlook of how Denmark and Russia respectively is placed on the four dimensions of
culture. According to Hofstede’s revised edition from 2001 Russia and Denmark are
two diametrical countries on the PDI and UAI where Denmark scores 18 and 23 and
Russia scores 93 and 95. On the MAS and IDV the countries seem to be slightly more
similar. Here Denmark scores 16 and 75 and Russia scores 36 and 39 (De Mooij, M,
2004, p. 319-320).
4.4.1 Individualism
versus
Collectivism
The individualistic versus collectivistic index deal with if the population of a country
values in-group over individualistic values. In collectivistic cultures members of the
in-group expect other members to care for them and in return members pledge
complete loyalty. In individualistic cultures in-group bonds are less significant and
people only consider their family as members of their group (Usunier, 1993, p. 74).
Furthermore findings suggest that primarily wealthy countries score high in
individuality (Hofstede, G. 2005, p. 78). As we move from an individualistic to a
collectivistic culture values change. Following values are mentioned as important to
individualistic cultures:
•
Variety
•
Adventure
•
Self-actualization
•
Explicit verbal communication
•
“I” conscious
•
People want to differentiate themselves from others
Whereas in collectivistic cultures these values are of high importance:
•
Filial piety (obedience to parent, respect for parents, honouring of ancestors,
financial support of parents)
•
Identify is based on social networks to which on belong
•
Harmony
•
Avoid loosing face
•
“We” conscious
(G. Hofstede, 2005, p. 80)
29
These trademarks of collectivistic cultures support the statements that focus is on ingroup relationships. Hofstede argues that there is no need to make friends, as family
or group membership, is predetermined and people are here born and raised as a
member of a group that defines their identity (Hofstede, G. 2005, p. 81).
Consequently in a collectivistic culture people share very close family bonds and
family values dominate individualistic goals. The opposite is the case for
individualistic cultures. Because people are not born into a group, relationships are
here completely voluntary and something that has to be fostered. Because
collectivistic cultures has high emphasis on group conformity they tend to yield to
group norms
When Russia is compared to Denmark we see a clear divergence. Denmark scoring
74, which is fairly individualistic, and Russia scoring 39, which shows trade of a more
collectivistic culture.
From a marketing perspective the difference implies that advertisement should aim
their attention to what serves the group over individualistic needs. This means that
Jysk shall be extra careful and try to highlight values as trust and confidence in their
brand and corporation, including well respected in-group role models and peer
approval (De Mooij, M. 2004, p. 159). Moreover a typical trade of the collectivistic
advertisement is showing collectivistic relationships instead of individuals (De Mooij,
M. 2004, p. 159).
As mentioned earlier individualism is closely connected to wealth. The question then
remains if Russia is, because of its GNP/capita increase, moving towards becoming a
more individualistic culture? According to Mooij and Hofstede it does but it remains a
30
relative concept (G. Hofstede, 2005, p. 114). Russia, a collectivistic country and at the
same time a place where western brands are prevailing, may seem as individualising
but it is merely a sign of rebellion against the “old” collectivism. In the “old”
collectivistic society people are seen as a part of the group, to the extend that all
individualistic features are taken away and replaced with what serves the group. So to
state that Russia is becoming individualistic is not true, it is rather a redefining of
collectivism by rebelling against the overly strong conformance to the group (De
Mooij, M 1998, p. 80).
This brings an interesting topic to the table. As stated by Hofstede and de Mooij
Russia should be moving towards being more individualistic on a relative scale due to
their growing wealth. If relative scale means that the global tendency is shifting
towards individualism can previously assumed advertising strategies for collectivistic
countries then be ignored and replaced with what was previously advertising adjusted
to individualistic cultures? This question seems unanswered and further research
could perhaps clarify the matter.
4.4.2 Masculinity
versus
Femininity
The masculine versus feminine index (MAS) deals with the differences between the
overall goals of life, what makes one happy and what determines successfulness. In
contrast to collectivistic versus individualistic countries and masculinity versus
femininity is not determined by wealth (G. Hofstede, 2005, p. 120). As the case was
with the previous dimension, values also change according to the score on the MAS
index.
Examples of masculine values:
•
Performance.
•
Achievement.
•
Success.
•
Big is beautiful.
•
Being a “winner”.
•
Consume for show.
Examples of feminine values:
•
Caring for others
31
•
Quality of life
•
Service oriented
•
People oriented
•
Consensus
(De Mooij, M. 2004, p. 34-35)
For the masculine society the core values are achievement and success, all harder
values. In contrast with the feminine society where values as caring for others,
security, modesty and quality of life, all softer values are important. The position on
the MAS is closely related to role differentiation, small in feminine and large in
masculine. Men in feminine cultures participate in daily task in the household and
there is no such thing as a typical female job (De Mooij, M. p. 2005, p. 80).
In general the MAS score has an immense influence on marketing. Advertising
campaigns in masculine countries tend to focus on hard values such as results,
winning and success, and celebrities reflecting such values are often used. In general
advertising can be categorized as more aggressive. In contrast the values addressed in
feminine cultures is modesty, in general softer (De Mooij, M. 1998, p. 82). In
feminine cultures it is common to show men performing what would be seen as
woman’s job in a masculine culture. Furthermore advertisement overestimates in
masculine cultures whereas in feminine advertisement underestimates (De Mooij, M.
2004, p. 220).
When comparing the two countries we see that Russia is moderate masculine with a
MAS score of 36. Denmark is a very feminine culture with a MAS score of 16.
32
The difference between the countries must according to Hofstede’s theory be reflected
in the values of the two countries. Above typical masculine and feminine values were
highlighted. For marketers this applies that advertisement should reflect the more
masculine values in the Russian culture. Consequently Jysk’s parameter mix needs to
reflect values such as; big is beautiful, success and consume for show.
One obvious paradox when talking about values and buying habits in relation to a
masculine culture is the practical buying process. If as theory suggests there are clear
role definitions we could plausibly assume that the woman is accountable for most of
the shopping. Does it then make sense to address all marketing to masculine values? It
does as long as there is no deviation in the MAS score between men and women but
again that is questionable.
4.4.3 Uncertainty
Avoidance
Uncertainty is by Hofstede defined as:
“the extent to which the members of a culture feel threatened by ambiguous or
unknown situations.”
(Hofstede, G. 2005, p. 167)
The term uncertainty avoidance (UA) is related with anxiety, high UA means high
level of anxiety. Anxiety comes to show in the way people express themselves.
Anxious cultures tend to be more expressive, they talk louder and use body language.
On the contrary weak anxiety cultures correlates with low levels of UA. The way
people express themselves in a low anxiety culture is more subdued (Hofstede, G.
2005, p. 171). UA also deal with how we relate to rules. High UA cultures dislike
uncertainty and consequently have a need for rules to structure life and the opinion of
experts are highly regarded (De Mooij, M. 1998, p. 83). On the other hand low UA
cultures does not have the need for rules to guide their life, thus value personal
freedom highly (De Mooij, M. 2005, p. 84). Uncertainty avoidance should not be
confused with fear for something particular. Instead it should be considered a wish to
avoid ambiguous situations.
33
When we look at how Russia and Denmark scores on the UAI respectively we see a
clear difference. Russia can be described as very high levels of uncertainty avoidance
while Denmark is located on the other end of the scale.
A typical high UA country advertising style is using examples, details, expert
statements, test reports, showing emotions and well-groomed people. That is because
nations scoring high on the UAI need proves that others have approved the product
they are about to purchase. The pattern is clear and in parallel with typical traits of the
high UA cultures. Contrary in low UA cultures the message seems to be more
implicit, creative and humour is frequently applied (De Mooij, M. 1998, p. 202).
4.4.4 Power
Distance
Power distance is by Hofstede defined as:
“the extent to which the less powerful members of institution and
organizations within a country expect and accept that power is distributed
unequally.”
(Hofstede, G. 2005, p. 46)
In large power distance societies everyone accepts one’s position, and to be given
authority comes natural and is unquestioned. In low power distance cultures the word
authority has a negative tone. Everyone should be expected to be listened to when
decisions are made, basically all are equal. PD is also shown by interrelations between
people. A baby combing his grandfather, and people of lower status driving their
supervisor crazy is unaccepted in large power distance cultures because elderly and
people with authority are seen as superior (De Mooij, M. 1998, p. 186).
34
PDI
100
80
60
93
PDI
40
20
18
0
Russia
Denmark
A good example of effective advertising in a high versus low PD country is the use of
elderly in commercials. In high PD countries it would make sense to show an elderly
person guiding a teenager and teaching him the importance of keeping with tradition.
In a low PD country a commercial starring a young person showing an elderly how to
do something differently might be efficient (Rugimbana, R & Nwankwo, S, 2003, p.
144). Another trade typical for high PD cultures is the guidance people seek from
persons perceived as superior (De Mooij, M. 2004, p. 203). This is something
advertisements need to take notice about. An example could be that a person would
seek guidance from a person with higher status than one self. Consequently using role
models is a very common trade in high PD cultures (De Mooij, M. 2004, p. 221).
4.5 High
versus
Low
Context
When moving your marketing abroad an obvious hazard is the language barrier. One
could easily fall into the trap of underestimating the importance of culture regulated
market communication and theorist agree that it is a wrong assumption that words and
their combinations carry the same meaning across boarders (Usunier, 1993)(Hall,
1990)(de Mooij, 1998). One of the reasons why it is important to adjust the wording
in your marketing campaign is because words often demonstrate a deeper meaning
that is not captured when translated. Consequently it is important to bear in mind that
words often contain values that cannot be translated (De Mooij, M. 1998, p. 55). The
degree to which communication within different cultures align is by Edward Hall
described by categorising cultures on a high and low context scale.
Edward Hall suggested that the way people in different cultures understand a message
is very much different. He suggests that the context in which the message is received
35
plays a prominent role in how people decode and understands the meaning of the
message. This is by Usunier exemplified by the degree a young speaker deserves trust
and credibility because of his or her age. The age is here the context and high context
cultures tend to put high emphasis on the age of the speaker whereas low context
cultures merely focus on what the speaker say – low emphasis on the context of the
message. Usunier explains this spot on by stressing; “Context brings together the sum
of interpretation mechanism that originate within culture and which allow the
explanation of a message.”(Usunier, 1993, p. 102).
Furthermore high/low context culture theory embraces the extent of a message that
can be decoded by the sheer use of language. In high context cultures most of the
information in a message is in the person communicating and is implicitly coded.
Contrary in low context cultures most of the message is in the explicitly
communicated thus what is being said is what is meant (Usunier, J. 1993, p. 102).
What is interesting to look at is the way people in different cultures react when
exposed to a wrong level of context. It is of paramount importance that the audience
the advertisement addresses is able to decode and understand the message the
advertiser is trying to push through. According to Mooij low context cultures seems
not to fully understand the message when not enough context is provided. On the
contrary high context cultures seems to become impatient or irritated when given
information they do not need (De Mooij, M. 1998, p. 157). Consequently the right
level of context must be reached in order to communicate efficiently. An example of
how an advertising campaign would differ between a high versus low context culture
is that in a high context culture indirect communication would be more efficient using
less text and more symbols, whereas in a low context culture the advertisement should
contain more explicit information such as facts and argumentation (De Mooij, M.
1998, p. 158).
When we look at how Russia and Denmark compare on the high/low context
parameter we see a clear divergence. Russia is a high context culture (G. Colin, 1999)
and Denmark is a low context culture (Usunier, J. 1993, p 102). According to theory
this would force the market communication to be adjusted. Because Russia is a high
context culture they would require less written information about the product they are
about to buy. Instead advertisement should focus on more implicit tools such as
symbols and metaphors to address the market in a proper manner.
36
4.6 Summary
After analysing cultural differences between Russia and Denmark comparatively the
thesis will now answer sub question b.
How big is the cultural gap between Russia and Denmark?
Chapter four has highlighted some obvious cultural differences between Denmark and
Russia. As the illustration shows there is a difference on all Hofstede’s four cultural
dimension though some dimensions more obvious than others. Most noticeable are
the differences on the PDI and UAI and Russia was also shown to be more masculine
and collectivistic compared to Denmark. Russia is characterized by having extremely
high uncertainty avoidance and power distance levels. Moreover Russia can be
characterised as being moderately masculine and collectivistic. When considering
communication characteristics, Russia was shown to be a high context culture. This is
in contrast to Denmark, which is a low context culture.
If any, how does the cultural gap affect market communication for Jysk in
Russia?
As shown the most significant cultural difference between Russia and Denmark is
PDI and UAI. These cultural differences have proven to have a significant impact on
market communication. Consequently what these dimension of culture implies to
effective market communication needs to be carefully incorporated in the marketing
plan.
37
First and foremost the extremely high power distance differences between the two
countries mean that marketers need to be aware of a number of things. The high
power distance implies that there is a strict division between authorities. In
advertising Jysk should be aware that people with authority are seen as superior to a
larger degree than in a low PDI culture as Denmark. This implies that the use of wellrespected people in advertising is a strategic strong tool to increase awareness and
sales. Furthermore the strict division of authorities means that interaction between
members from different social layer and people with different status levels needs to be
carefully regulated. In contrast to advertising in Denmark and for Jysk in particular it
is doubtful that using Lars Larsen in the advertisement would have any positive effect
due to his very much down to earth and his very unauthoritarian appearance.
The second cultural dimension with a profound difference is the UAI. With Russia
scoring very high on the UAI and Denmark on the other end of the scale Jysk needs to
be aware that in high UA cultures the need for proves is eminent. Prove could be in
form of examples, details, expert statements, test reports and well-groomed people
approving the product. This implies that Jysk should adjust their advertising by not
using Lars Larsen as a front figure before he has obtained a good reputation in Russia.
This might prove impossible and Jysk could therefore use persons with an already
well-established reputation in Russia.
The two last cultural dimensions investigated, MAS and IDV, showed less divergence
than the PDI and UAI. However Jysk should be aware that Russia was proven to be a
more masculine culture than the Danish. This implies that Jysk should try to highlight
“harder” values such as; big is beautiful, success and consume for show compared to
the Danish marketing campaign. Also Russia proved to be more collectivistic than
Denmark. Market communication in collectivistic cultures should aim its attention to
what serves the group over individualistic needs. In order to do so values such as trust
and confidence in their brand and corporation and include well-respected in-group
role models. As mentioned Russia and Denmark score relatively close on these
dimensions thus emphasis should be on PDI and UAI where the largest cultural gaps
exist. However we see that what theory suggests for Russia with respect to the MAS
and IDV correlates neatly with suggestions supported with PDI and UAI theory.
Furthermore Russia was in contrast to Denmark shown to be a high context culture.
The degree of context was proven to be of paramount importance for different
38
cultures when they are presented a marketing message. High context cultures, such as
the Russian, tend to prefer less written text but instead focus should be on symbols
and metaphors to get your marketing message through.
Investigation proves that a number of paradoxes exist when we compare best
practices of market communication. For example it was suggested that in high UA
cultures the use of test results, product details and examples was important to reach
the target group. This is in sharp contrast to the results high/low context theory
brought to the table. Here it was suggested that more implicit communication was
necessary in high context cultures such as Russia and consumers would require less
written text and more implicit tools to fully understand the marketing message.
Consequently theory leaves a number of questions unanswered.
39
5 Choice
of
Entry
Mode
and
Market
Chapter 5 aims to clarify the importance of choosing the right entry market. Before
any export is initiated it is of paramount importance to locate the market with the
highest potential for the concrete company. The chapter will be completed with a
PESTEL analysis on behalf of Jysk, which should help answer sub question d.
How come some companies succeed and others fail when entering new foreign
markets? Maybe the answer should be found in the mismatch between consumer
preferences and the product that is introduced to the market. Maybe the distribution
methods are unknown and frowned upon. Maybe the demographics in the desired
export market leave much to be desired. Perhaps the market communication is
misunderstood and is digging ditches instead of building bridges or perhaps the
market is simply not ready for the product. It is a tricky question and the answer is
probably well hidden in the cultural gap and the exporting companies ability to
decode this gap and adjust their marketing mix to the changed set of underlying
cultural values.
According to Ness and Stith a “successful marketing program can only occur when
the marketing mix of the products is matched with the values of the consumer” (Ness
& Stith, 1984, p. 232). Consequently, if a company with either pro- or reactive
motives decides to move onto a new and foreign market, it is of paramount
importance to gain an insight into the value set of the new culture. However, other
external factors besides culture affects the choice of export market. Factors such as
the political climate and stability, economical state of the export country, the level of
technological development, focus on environmental issues and possible legal
implications are important issues to address and can help an exporting company
determine the optimal market. Many of these questions can be answered by the
PESTEL analysis.
5.1
PESTEL
Analysis
The PESTEL framework is a prescriptive strategic tool to predict the future by
analysing past events. In its prescriptive nature it is a static tool and should be used
carefully and conclusions drawn from the analysis should bear in mind the possibility
of changes in the environment. These environmental changes could be easier to adjust
40
to by using an emergent approach (Lynch, R, 2009, p. 42). However the PESTEL
analysis can help a company foresee obstacles and counter possible threats the new
environment could possibly pose to the organisation and therefore it is a useful tool
for Jysk. Richard Lynch advocates that a PESTEL analysis should not list every
conceivable item on the checklist but instead choose three or four factors with high
relevance to the corporation (Lynch, R, 2009, p. 82). However to reach the conclusion
as to which factors are most relevant this thesis will investigate a broad variety of
factors and finally give its evaluation of which factors are most important for Jysk to
consider before initiating market entry.
5.1.1
Political
Future
Currently Russia is not a member of the European Union and consequently they are
not forced to oblige to current EU regulations such as the common market. However a
strong cooperation between Russia and current EU member states does exist. This is
in form of the Partnership and Co-operation Agreement (PCA), which entered into
force on 1 December 1997 (ec.europa.eu18). The PCA is a set of agreements that
regulates the political and economical relationship between Russia and the EU. One
of its main objectives is to promote trade and investment between the parties and to a
very large extent prevent any restrictions to export to Russia (ec.europa.eu19).
However at its current form the PCA does leave some manoeuvre space for Russia in
terms of unilateral tariffs. However a new and improved contract, which is meant to
be the successor to the PCA, is currently being negotiated. The new agreement should
provide a more bilateral framework with stable, predictable and balanced rules for
bilateral trade and investment between Russia and the EU (ec.europa.eu20).
Russia’s absence in the EU is due a number of factors, which this thesis will not
investigate. However, as the PCA underlines a strong cooperation exists. On top of
the PCA, Russia is also engaged with the EU in what is described as the four common
spaces. The four common spaces are; economic space, space on freedom, security and
18
http://ec.europa.eu/trade/creating‐opportunities/bilateral‐
relations/countries/russia/
19
http://ec.europa.eu/trade/creating‐opportunities/bilateral‐
relations/countries/russia/
20
http://ec.europa.eu/trade/creating‐opportunities/bilateral‐
relations/countries/russia/
41
justice, space on external security and space on research education and culture. Most
relevant to Jysk is the common economic space. The main objective with the common
economic space is to ease export to Russia by pursuing elimination of trade barriers,
regulatory convergence, market opening, trade facilitation, infrastructure and
economic integration (ec.europa.eu21). According to material from the Russian
embassy in Denmark, approved by the President of the Russian Federation Dmitry
Medvedev, Russia do have a profound interest in a sustainable cooperation with EU
member states;
The Russian Federation is interested in the strengthening of the European
Union, development of its capacity to present agreed positions in trade,
economic, humanitarian, foreign policy and security areas.
(denmark.mid.ru22)
This leaves the impression that there is mutual interest in a long-term cooperation
between the two parties. All in all it seems that the relationship between Russia and
the EU is developing positively and exporting companies will have better conditions
on a long-term scope in Russia.
Despite Russia’s increasing conformity with EU law there are still some specific
standards applying to the Russian market specifically for exporting companies. This
means that most companies wishing to initiate export to Russia needs to obtain a
GOST-R certificate depending on product category (gost-r.info23). Furniture is a
product category embraced by the GOST-R and consequently Jysk would need to
apply for such. However since Jysk has previously been approved for export to Russia
obtaining the GOST-R certificate should prove an obstacle easy to overcome.
5.1.2
Socio‐cultural
Future
The Socio-cultural future deals with a number of factors such as values, culture and
changes in lifestyle. These factors were previously discussed in the thesis. The Socio-
21
http://ec.europa.eu/trade/creating‐opportunities/bilateral‐
relations/countries/russia/
22
http://www.denmark.mid.ru/vnpol_e_01.html
23
http://www.gost‐r.info/russian‐certification‐nuzen.php
42
cultural future also deals with other factors relevant to Jysk. In particular the
demographic changes and distribution of income seems relevant factors to include.
As we learned by looking into Jysk’s value chain Jysk offers a relatively cheap
product at a reasonably quality. The combination of reasonably quality products
priced relatively cheap is especially appealing to the middle-income family. To
measure the general income inequality in a country the GINI coefficient is a useful
tool. Without going into too much detail the GINI coefficient tells us how equal
income is divided within a country ranging from 1 to 100. In a country where
everybody has the same, perhaps if communism had worked, the GINI coefficient
would be 1. On the other hand if one person owns everything the GINI coefficient
would be 100 (De Mooij, M. 2004, p. 56). Looking at numbers from CIA we see that
Russia is a more diverse country in terms of income scoring 42,2 (cia.gov24)
compared to Denmark scoring 29 (cia.gov25). When we look at household income or
consumption by percentage, the conventional idea that the 10% richest people in
Russia takes up a larger sum of total income or consumption, compared to Denmark,
must be abolished. Numbers show that Denmark and Russia is to a large degree
aligning, with the 10% richest Russians accountable for 30,4% of total income or
consumption (cia.gov26) whereas in Denmark the 10% richest are accountable for
28,7% (cia.gov27). This could however also be explained by the significant large
number of billionaires in Russia and the 10% fractile might be misguiding. However,
in general, numbers indicate that Russia and Denmark is not as different in terms on
income distribution. This intuitively indicates that the Russian middle class is
increasing which is a positive tendency for Jysk as they primarily target what can be
described as middle-income families. In fact it is estimated that approximately 51,2%
of the Russian population can be described as middle class (Ridley, L. & Clarke, R).
Another interesting statistic to look at is the degree of urbanization. The larger the
degree of urbanization the closer people live together and consequently the more
people Jysk could reach per store. In Russia 73% of the population live in urban areas
(cia.gov28) whereas in Denmark the number is 87% (cia.gov29). It should however be
24
https://www.cia.gov/library/publications/the‐world‐factbook/geos/rs.html
25
https://www.cia.gov/library/publications/the‐world‐factbook/geos/da.html
26
https://www.cia.gov/library/publications/the‐world‐factbook/geos/rs.html
27
https://www.cia.gov/library/publications/the‐world‐factbook/geos/da.html
28
https://www.cia.gov/library/publications/the‐world‐factbook/geos/rs.html
43
mentioned that cities such as Moscow, St. Petersburg, Novosibirsk and Nizhniy
Novgorod all have a population equal to or significantly larger than Copenhagen. This
provides Jysk with plenty opportunities to reach a large group of people within a
relatively small geographical area.
When Jysk previously entered the Russian market they relied on massive marketing to
make up for their cheaply located stores (Lassen, L. 2007). It is no well-kept secret
that the strategy failed. This could be ascribed a number of factors, such as wrong
marketing that did not consider the cultural differences, but it is also important to
consider if the Russians have the transportation means to actually transport the goods
from the store to their homes. In Russia it is projected that 300 out of 1000 will own a
car by 2013, which is roughly a car per 3,33 inhabitants (free-press-release.com30). In
Denmark we have a significant higher inhabitant/car ratio with roughly 2,57
(5.560.628/2.164.000) (dst.dk). Obviously cars are not the only mean of
transportation however the Russian infrastructure is in need of heavy investment and
bus and train networks are not as developed and reliable as in Denmark (Volkov, V.
2011)). Consequently cars per inhabitant is a factor worth taking into consideration
when deciding on store location.
5.1.3
Economic
Future
The Russian economy relies heavily on export of natural resources. In 2009 Russia
was the largest exporter of natural gas, second largest exporter of oil and the third
largest exporter of steel and primary aluminium (cia.gov31). Until the global financial
crisis Russia was a country with rapid economical growth. Early economical growth
reached 7% in the years after the 1998 Russian financial crisis and up to the global
financial crisis in 2008/09. But in the wake of the global financial crisis Russia was
severely hit as prices of one of their primary export commodities, oil, swan-dived
(cia.gov32). However, oil prices are now again increasing and in general the Russian
economy is now again on an up rise. Nevertheless, Russia is still facing some serious
economical obstacles as inflation and government expenditures has increased which
29
https://www.cia.gov/library/publications/the‐world‐factbook/geos/da.html
30
http://www.free‐press‐release.com/news/200902/1233914050.html
31
https://www.cia.gov/library/publications/the‐world‐factbook/geos/rs.html
32
https://www.cia.gov/library/publications/the‐world‐factbook/geos/rs.html
44
may eventually hinder the positive impact the increased oil prices have on the Russian
economy (cia.gov33).
As mentioned Russia has prior to the global financial crisis experienced high growth
rates which has resulted in the emergence of a middle class (cia.gov34). Annual
growth rates are now again increasing, though not as fast as other major emerging
economies,
most
recent
number
show
a
GDP
increase
of
4,5%
(tradingeconomics.com35). When we look at GDP per capita numbers prove that
Russia has $15.900 (cia.gov36), which is significantly lower than that of Denmark
($36.700) (cia.gov37). It should however be mentioned that the slightly disappointing
Russian GDP is highly influenced by the severe summer drought and fires that hit
Russia in 2010 (tradingeconomics.com38).
Russians have a very high disposable income. Compared to other BRIC countries the
disposable income is as much as three times higher (appendix 2). This can partly be
ascribed the Russian housing system. After the fall of communism housing was
distributed freely to the population meaning that mortgage repayments do not burden
the population. And since most Russians today live in a debt free house larger parts of
their nominal income is disposable (Boumphrey, S). On top of that the purchasing
power of the Russian population shows stark disparities. The urban areas are in
general wealthier than the rural parts of Russia with Moscow scoring significantly
higher than any other Russian cities and St. Petersburg listed as number 5 on the
purchasing power index (appendix 3)
5.1.4
Technological
Future
According to CIA the Russian government initiated in 2007 an ambitious programme
to reduce dependency on domestic commodities as the main mean of export. By
investing heavily in the technological sectors the goal was for Russia to be able to
withstand fluctuations in the highly volatile commodity market by spreading export
33
https://www.cia.gov/library/publications/the‐world‐factbook/geos/rs.html
34
https://www.cia.gov/library/publications/the‐world‐factbook/geos/rs.html
35
http://www.tradingeconomics.com/russia/gdp‐growth
36
https://www.cia.gov/library/publications/the‐world‐factbook/geos/rs.html
37
https://www.cia.gov/library/publications/the‐world‐factbook/geos/da.html
38
http://www.tradingeconomics.com/russia/gdp‐growth
45
income out on other sectors, such as the technological. However, things have not gone
according to plan and Russia is still lacking in the technological sector (cia.gov39).
Despite its phenomenal size and increasing wealth Russia is still lacking in
infrastructural quality. Russia is the worlds largest country in terms of square
kilometres however transport is not something that comes easy. Severe lack of
investment on roads, bridges, railways and power grid is a hindrance and prevents
Russia fulfilling its huge potential. According to Frank Holmes the lack of up to date
infrastructure the annual GDP is reduced by 6% (Holmes, F. 2009). It cannot come as
a surprise that the Russian infrastructure is crumbling as most of the Russian
infrastructure dates back to the cold war era and it is estimated that more than 60%
needs to be replaced (Holmes, F. 2009). The lack of infrastructural improvement in
light of the economical growth seems odd. However, it can largely be ascribed an
incompetent government and high levels of corruption. The high corruption levels
means that the price of producing one kilometre of highway in Russia is
approximately four times as high as in other BRIC countries (Holmes, F. 2009). The
general lack of functional infrastructure imposes immense implications for Jysk and
other companies wishing to enter the Russian market. As mentioned in chapter two
one of Jysk’s key attributed was reliability. This can be hard to obtain if the
infrastructure does not allow for timely delivery of goods to the stores. Furthermore
reaching parts of Russia placed east of Moscow may prove difficult and costly.
Especially the lack of trustworthy power grids in Russia implicates the setup of a
storehouse. Consequently Jysk will have to rely on its storehouse in Poland to supply
the huge Russian market.
Despite the current state of the Russian infrastructure there is light at the end of the
tunnel. Russia is hoping to copy China in terms of infrastructural improvement that
China underwent prior to the Olympic games in 2008. Since the announcement of
Sochi as the host city of the 2014 winter Olympic games and Moscow as the host for
the 2018 World Cup Russia can expect thoroughly investment in infrastructure. This
investment can hopefully be a catalyst for foreign investors and eventually benefit the
Russian economy.
39
https://www.cia.gov/library/publications/the‐world‐factbook/geos/rs.html
46
Due to the fact that Jysk relies heavily on their marketing a profound media network
is essential for their success on the Russian market. As of today a total of 6 national
TV stations exist. Among these only 1 is not in some way affiliated with the state
(cia.gov40). In general the public opinion towards television advertising is very
negative. Surveys have proven that two-thirds of Russian TV viewers react negatively
towards TV advertising, and 51% even switch channel or turn of their TV during
commercial breaks (Russia-agency.eligne.com41). Despite the seemingly resistance
towards TV advertising it is still a huge sector with significant revenues. According to
CTC Media, Russia’s leading commercial broadcaster, 90% of advertising space for
2010 is already allocated (Holdsworth, N. 2010). It has proven impossible to find
statistics regarding the percentage of Russians with TV access however according to
BBC the Russian government is currently working on getting digital TV to every
Russian home (news.bbc.co.uk42).
Another important media to Jysk is the Internet. Jysk use the Internet as a marketing
tool where latest offers are presented and product details are thoroughly explained.
According to numbers from ITU 42,8% of the Russian population had Internet access
in 2010 (internetworldstats.com43). This is not much compared to Denmark where
roughly 86% of the population has Internet access (cia.gov44). However there seem to
be a strong deviation of Internet users when urban areas are compared to more rural
areas. Numbers suggest that the Internet is more commonly used in cities such as
Moscow and Saint Petersburg. Combined these two major cities of Russia is
accountable for 36,2% (Moscow 26,1% Saint Petersburg 10,1%) of all page views on
the global search engine google.com on April 19th 2011 (liveinternet.ru45). The
number is relatively high due to the fact that only 15,1 million people, corresponding
to 11% of the total population, live in these two major cities (cia.gov46). This suggests
that Internet access or usage is not evenly distributed across the country and is
particularly centred around the major cities of Russia. Another fact to support the idea
40
https://www.cia.gov/library/publications/the‐world‐factbook/geos/rs.html
41
http://russia‐agency.eligne.com/2‐tv‐advertising‐commercials‐russia.html
42
http://news.bbc.co.uk/2/hi/europe/country_profiles/1102275.stm
43
http://www.internetworldstats.com/euro/ru.htm
44
https://www.cia.gov/library/publications/the‐world‐factbook/geos/da.html
45
http://www.liveinternet.ru/stat/ru/regions_hits.html?slice=Google;date=2011‐
04‐19
46
https://www.cia.gov/library/publications/the‐world‐factbook/geos/rs.html
47
that Internet development is progressing faster in major cities is the fact that 87% of
Internet users in Moscow use broadband compared to only 67% in other cities with
populations beyond 100.000 (infact.ru47). While only 42,8% of the Russian population
had Internet access in 2010 it is still a remarkable increase from 32,3% in 2009 and
twice as many as in 2007 (appendix 4).
Previous section ends the PESTEL analysis on Russia but there are still other factors
influencing Jysk’s entrance on the Russian market. Subsequent section will
investigate factors such as; climate, corruption and business networks.
5.2 Climate
A number of Jysk’s core products are related to climate. Duvets are made for certain
temperatures, outdoor furniture is mostly used during the summer period etc. As the
worlds largest geographical country Russia has a vide variety of climates. Due to its
sheer size it would be irrelevant for Jysk to adapt their products to climatic
characteristics throughout the whole country. Instead the densely populated areas are
of more relevance. Average temperatures are in Moscow ranging from -10 in the
winter to 19 degree Celsius during the summer (climatetemp.info48). Compared to
Denmark the Russian climate has tremendous fluctuations and especially winters are
extremely harsh around Moscow. The climate in St. Petersburg does not vary greatly
compared to Moscow. Historically winters are slightly warmer and summers slightly
colder (climatetemp.info49). When moving east to Novosibirsk the climate really starts
to bite back. Winters are extremely cold with an average temperature of -19 degrees
Celsius (climatetemp.info50).
5.3 Business Networks
Back in the communist era strong relationship networks were established, an
important aspect of these networks was “blat”. Blat is very intangible and difficult for
foreigners to fully grasp the meaning of. Blat does not have any monetary expression
however it works in practically the same way by the means of informal exchange of
favours. (Butler, B. & Purchase, S, 2004)(Jansson, H. 2007, p 117). Back in the
Soviet era blat networks were mainly based on personal features such as friendship
and trust. The Soviet population used these relationships to overcome shortage of
47
http://infact.ru/
48
http://www.climatetemp.info/russia/#imperial
49
http://www.climatetemp.info/russia/saint‐petersburg.html
50
http://www.climatetemp.info/russia/novosibirsk.html
48
various goods by trading favours or goods with other favours and goods from people
within their network (Jansson, H. 2007, p. 117). Post the Soviet era these networks
have continued to play a prominent role. That is especially because members of a
group within the “blat” network called “nomenklatura”, which consisted of elite
members from the communist party, are today playing a very influential role by
owning enterprises and participating in the network from a more industrial
perspective (Jansson, H. 2007, p. 119). Consequently “blat” has changed from being a
way of obtaining goods and favours for personal consumption into a more pragmatic
entity and a tool for gaining materialistic or financial advantages at a higher level,
(Jansson, H. 2007, p. 119) so to speak ”blat oils the wheels of Russian business”
(Butler, B. & Purchase, S, 2004). Blat works in various areas and is quite essential for
companies wishing to do business in Russia. For example blat is necessary to gain
access to distribution channels, blat gives business persons access to resources and
opportunities impossible to obtain otherwise, blat eases governmental related issues,
blat helps to gain access to influential customers, blat helps reach beneficial
agreements with custom offices etc. (Jansson, H. 2007, p. 119)(Butler, B. & Purchase,
S, 2004). Blat is in its nature very relationship based and therefore takes time to
establish. Consequently foreign businesses often have to rely on help from highly
respected Russians with a profound network to “oil the wheels”.
5.4
Corruption
It is the general opinion that doing business in Russia can be a very different practice
than in many other European countries. Strong business networks exist and personal
favours and relationships with influential people help a company gain access to
resources and opportunities not accessible otherwise. Another phenomenon in Russia
is the widespread corruption that cast its dark shadow over a market with seemingly
great potential. Corruption has become the norm rather than the exception in Russia,
and it is an accepted mechanism that has become essential for many firms to maintain
and survive in the modern Russia (Kouznetsov, A. & Dass, M.
2010, p. 52).
Corruption is one of the main reasons why relative few companies have forced their
way into the Russian market. Larger multinational companies often refrain from using
such unethical methods and because corruption has become the norm and is widely
accepted, companies refusing to indulge in corruption face a competitive situation
where local competitors have a number of advantages (Kouznetsov, A. & Dass, M.
2010). However it is interesting to look at how the size of a company affects its
49
general ability to avoid or at least withstand corruption in Russia. Kouznetsov and
Dass have performed a qualitative study of how large and SME’s deal with and are
affected by corruption. They suggest that SME’s are strongly affected by corruption
and only one third of newly established companies survived during the 90’s. This was
mainly because the SME’s did simply not have the financial capability to pay the
bribes necessary to continue business, bribes accounting for over 20 – 30 percent of
their capital reserves (Kouznetsov, A. & Dass, M. 2010, p. 53). Contrary to SME’s
larger companies have more financial flexibility thus they are able to withstand
various cost associated with taxes and other compulsory financial obligations.
Furthermore due to larger companies size they consequently have larger shipments of
goods that results in lower per unit costs (Kouznetsov, A. & Dass, M. 2010, p. 63).
5.5
Entry
Mode
History has taught us that Jysk has been leaning towards franchising in eastern
European markets including the likes of Ukraine, Bulgaria, Romania, Kazakhstan and
the Baltic states. Franchising is a term ascribed the projection of a business concept to
a franchisee who then undertake the concept and pays management fees to the
franchisor. In return the franchisee receives a full business concept including knowhow, intellectual rights, goodwill, trademarks and business contacts (Hollensen, S.
2008, p. 235). When Jysk preciously was present on the Russian market it was
through the franchise concept. The most recent entrance on the Russian market the
franchisee was Jens Veino, former director of Larsen Rejser (business.dk). However
the entrance was unsuccessful. According to Meyer and Tran the appropriate strategy for an exporting company
depends on the resources of the company (Meyer, K & Tran, Y, 2006, p. 3). Whit that
in mind the thesis will now look at three entry modes presented by Hollensen and
include Meyer and Tran’s views on entry modes. Hollensen outlines three different
entry modes; export, intermediate and hierarchical. These three modes differ in how
many of the business functions are carried out by the exporting company itself. When
a company opts for export modes it chooses to pass certain business functions to an
independent intermediary who is then in control of typically marketing and sales.
When opting for export modes the exporting company has very little control over the
product and how it is positioned on the export market. However, the risk is also
minimum as possible deficits and losses will be covered by the independent
50
intermediate (Hollensen, S. 2008, p. 235). Another entry alternative is intermediate
mode. Characteristic for intermediate entry modes is that the exporting company has
some kind of competitive advantage but are unable to utilise this advantage on the
export market. Thus the exporting company engage in a contractual agreement with a
company or person, typically in the host country (Hollensen, S. 2007, p 228).
Franchise is a branch of the intermediate entry mode. As the case with all
intermediate entry modes, franchising aims to establish a relationship with a host
country entity, this would in the case of franchising typically be a person willing to
undertake the current business model to a large extent. The contract will be of mutual
interest as the franchisee receives a well-proven business concept and assistance from
the franchisor in various areas. The franchisor in return gets instant market knowledge
through a motivated businessman with market knowledge (Hollensen, S. 2007, p.
233). The franchise concept has its disadvantages to. Despite the franchisor decides
who gets the franchise contract and provide thorough guidance there are no
guarantees that the franchisee meets expectations of the franchisor. The franchisor
runs the risk of appointing the wrong franchisee who is not able to carry out the
guidelines set by the franchisor. This could in turn hurt the brand and impair future
entrants and other franchisees on the market (Hollensen, S. 2007, p. 233). The third
entry mode mentioned by Hollensen is hierarchical modes. The hierarchical modes
are especially applicable to companies that want high level of control. Since all
business entities and functions are controlled from within the company the
hierarchical modes does not depend on independent or external foreign subsidiaries or
other investors such as in the franchise concept. The different hierarchical modes
differ in how many business functions are domestically or foreign based. A company
can choose to maintain all business functions domestically which is one extreme or
choose to transfer all business functions to the foreign market which is the other
extreme on the hierarchical entry mode spectra (Hollensen, S. 2007, p. 242).
As mentioned the appropriate strategy for an exporting company depends on the
resources of the company. In chapter 2 the thesis identified four main strength of
Jysk; Streamlined supply chain. Centralised storehouses reduce costs and increase
efficiency and reliability. Highly educated and motivated staff. Aggressive marketing
supported by a large marketing budget. To utilize these resources Jysk would need
control to some degree. This leaves out export modes. Intermediate modes allow
companies to transfer certain business functions to the export market. Through
51
franchising, strategic alliances or joint ventures Jysk could maintain some control and
transfer their main resources to the export market with a relative low financial risk. If
Jysk opts for the hierarchical export mode they would maintain total control of all
business functions and thereby utilize their key resources in the export market.
However, this also means significant investments in an unknown market with
possibilities of massive financial consequences.
Meyer and Tran argues that the multi-tier entry strategy is the most ambitious but also
the strategy that may lead to long-term success (Meyer, K & Tran, Y, 2006, p. 21).
The multi-tier strategy advocates exporting companies to acknowledge the diversity
in the foreign market. Meyer and Tran found that emerging markets are highly
segmented in terms of income and regional challenges (partly supported by the
findings of this thesis). Because middle income families are more price sensitive than
upper class they would prefer cheaper products, while upper lass would prefer
premium products. This enhances the need for a product portfolio reflecting such
differences especially noticeable in emergent country markets. Consequently a
company is advised to adapt its product portfolio to the local context, hence a
products line of cheaper products especially directed the middle class companied with
a global product line directed at the upper class. This allows Jysk to maintain its
global brands thus enabling Jysk to capitalize on the global brand value (Meyer, K &
Tran, Y, 2006, p. 9). Furthermore, the multi-tier strategy has to be supported with a
combination of global and local resources (Meyer, K & Tran, Y, 2006, p. 2).
Consequently the appropriate entry mode has to capture local resources while
maintaining the exporting companies key value creating resources (Meyer, K & Tran,
Y, 2006, p. 22). This perfectly aligns with previous findings concluding that products
and marketing will most likely need adjustment to a certain degree, while exporting
companies in Russia would have to rely on local resources to “oil the wheels” and
understand the context in which the company operates.
5.6
Summary
After analysing key attributes of the Russian environment, and how these attributes
stimulate various precautions and affects the entry mode, the thesis will now answer
sub question d.
Was Russia the wrong entry market or was the entry mode not suited the
Russian market?
52
At a first glance Russia seems a very lucrative and exciting export market. With its
blossoming economy and increasing welfare the living standards are on an upsurge.
The positive economical tendencies have resulted in an increasing middle class where
disposable income is significantly higher than in other emerging economies.
Furthermore investigation showed a clearly division of wealth according to
geographical position. The urbanized areas of Russia are significantly wealthier than
rural parts. Overall there are many positive factors that would open the eyes of
companies wishing to expand their market portfolio. However, companies wishing to
export to Russia needs to be aware that precautions have to taken in order to comply
with Russian business methods and other factors highlighted by the PESTEL analysis.
First and foremost rather unethical business methods are widely recognised as the
norm in Russia. This implies that foreign companies have unfavourable terms
compared to domestic companies if they do not to a certain degree comply with the
Russian business culture and its norms. The substantial importance of networks
complicates entrance and in order to reach favourable conditions in various important
areas companies need to involve themselves somehow in these business networks.
These business networks are to a high degree relationship based and is a closed
environment for exogenous’. Consequently the importance of establishing a
relationship with a highly respected member of an existing business network to
“smooth” business could prove vital.
Corruption is a well-known phenomenon in Russia and it defiles the Russian business
environment and is inevitable. It was however suggested that larger companies were
less affected by corruption as the necessary bribes ads a lower per unit cost. The fact
that corruption is deeply rooted in the Russian business environment is another
incentive to establish relationships with highly respected people in an existing
business network.
Investigation proved that Russian infrastructure leaves much to be desired. The
extensively lack of functional road systems and power grid reliability is two
contrasting factors. The lack of reliable roads may provide some logistic implications
while the lack of reliable power grids implicates the setup of a storehouse.
Russia has a vide variety of TV channels and television marketing is a well-known
marketing tool in Russia. However, the overall perception of TV commercials is very
negative and Russians tend to either switch channel or ignore commercials when they
53
appear on TV. Internet access in Russia is statistically lower than in Denmark.
However, Internet access was largely centred around urban areas such as Moscow and
St. Petersburg.
The climate in Russia is very diverse. The densely populated areas east of the Ural
Mountains had a climate not so different from the Danish. However, winters are
significantly colder compared to Denmark.
Lastly chapter 5 considered the importance of entry mode. Here it was suggested that
Jysk should not completely abandon control but instead engage in cooperation with a
local entity to capture local resources while maintaining key value creating resources.
This point in the direction of an intermediate entry mode where a local businessman
could provide the market knowledge and business networks while Jysk’s values and
resources are still utilized.
54
6 Conclusion
The conclusion will summarize the findings from the previous chapters and answer
the main problem statement of the thesis.
This thesis has investigated how companies wishing to engage on export, need to
adapt their marketing mix to the local context. Special emphasis has been on the
Russian market as the thesis used Jysk’s export failure as a case on which to project
marketing theories. The overall goal has been to identify possible international
marketing pitfalls and locate where companies might be tempted to cut corners in
order to simplify market transition from their safe home market to a more unknown
foreign export market. By including theories pro and con adaption to the local
environment, investigating Russia and Denmark’s cultural dimensions comparatively
and how the state of the Russian environment currently allows for export and the
precautions that have to be taken a thorough insight into what determines the
composition of the marketing mix on an export market has been gained. Based on the
gained knowledge the thesis will now answer following problem statement:
How should Jysk compose their marketing mix in order to penetrate the
Russian market?
Jysk is a multinational company and has been widely successful expanding their
business model to especially a number European markets. While Jysk are reaping the
rewards in most of their export markets they have until now been unable to establish a
foothold on the Russian market. This thesis put forward a number of factors that may
hold the key to a successful market entrance in Russia.
The degree of adaption was discussed in chapter 3 and was shown to depend on a
combination of internal and external factors and the product itself. The centre of
discussion was whether globalization was erasing cultural differences and external
factors in the exporting country environment influencing consumer behaviour and the
way we decode messages. Investigation in chapter 4 suggested that Russia and
Denmark were culturally diverse and market communication would need adoption.
It was proven that Jysk does not need to change the overall marketing appeal, instead
they should change the way it is communicated. This can to some extent be described
by the respectively score on Hofstede’s four cultural dimensions. As a former
55
communistic country the cultural gap between Russia and Denmark is immense. It
was especially noticeable on the power distance and uncertainty avoidance index
where Denmark and Russia were positioned at two extremes. It was suggested that
due to Russia’s high power distance interaction between people from different social
layers and people with different status should be avoided. Furthermore the high power
distance implies that using people with great authority in advertising is a strong
marketing tool to increase awareness and sales. The second cultural dimension with
profound divergence between Russia and Denmark was uncertainty avoidance. Here it
was advised that Jysk used examples, details, expert statements, test reports and wellgroomed people as a persuasive tool in their market communication. The last two
cultural dimensions, individualistic versus collectivistic and masculinity versus
femininity showed less divergence. However, Russia proved to be more masculine
than Denmark and consequently market communication should be addressed “harder”
values. Russia is also more collectivistic than Denmark, which implies a more group
oriented marketing approach. The final aspect of culture this thesis touched upon was
the level of context used in communication. Here Russia was describes as being a
high context culture, which implies that Jysk should adjust their market
communication and give it a more implicit appearance, which enforces the use of
symbols and metaphors instead of written text.
Chapter 5 investigated how through an extended PESTEL analysis how external
factors affected the export possibilities and what precautions would have to be taken.
Most importantly was the extensive business network that was inevitable for
businesses to ease the entrance to the Russian market. Business networks would
benefit Jysk in various areas but perhaps most importantly they would help Jysk find
and gain access to a suited store location that was important considering the poor
infrastructure and low car/inhabitant ratio. Also the climate in Russia distinguish from
the Danish by having significantly colder winters which indicates that product
modification is necessary in terms of warmer duvets.
The technological and infrastructural conditions in Russia’s urban areas suggested
that Jysk should focus their attention at these densely populated areas. These areas
were also proven to have significantly higher income than other parts of Russia and
their geographical location was closer to Jysk nearest storehouse in Poland decreasing
logistic time and costs.
56
Regarding entry mode it was suggested that Jysk should establish a relationship with a
Russian entity to capture local resources while still maintaining control to a certain
degree to utilize their in-house resources such as marketing. This Russian entity
should preferably be in form of a businessman with contacts in important business
networks.
57
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http://www.tradingeconomics.com/russia/gdp‐per‐capita
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62
Appendix
2
http://static.seekingalpha.com/uploads/2010/8/25/saupload_briics_disp_inco
me.png
63
Appendix
3
http://www.gfk-geomarketing.com/en/press/press_releases/retail_in_russia_2008.html
64
Appendix
4
YEA
R
Users
Population
% Pop.
Usage Source
2000
3,100,000
145,149,035
2.1 %
ITU
2007
29,400,000
141,377,752
20.8 %
POF
2008
38,000,000
140,702,094
27.0 %
POF
2009
45,250,000
140,041,247
32.3 %
ITU
2010
59,700,000
139,390,205
42.8 %
ITU
http://www.internetworldstats.com/euro/ru.htm
65