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Analysis of Marketing Strategies Selection, The Experience of Australian and New Zealand Firms Henry F.L. Chung, Manukau Institute of Technology Abstract Drawing on the findings of previous theoretical and empirical studies, this study proposes a “marketing programme and process” framework. The study examines the proposed framework, using the experience of 120 Australian and 72 New Zealand manufacturing firms operating in the Greater China markets (host markets). The results suggest that similarity of consumer behaviour, marketing infrastructure and political environment between the home and host market is significantly related to the selection of standardised marketing strategies. Consumer behaviour has a significant impact on four elements: price, place, promotion and process. Marketing infrastructure’s effect is evident on the decision of product, place, promotion and process elements. Political environment is reported to be positively related to the decision of price and promotion strategy. Industrial and consumer durables are also suggested to be more likely to be standardised than consumer non-durables. However, firms employing a low resource commitment entry mode (e.g. exporting) are more likely to adopt a universal process than those which adopt a FDI mode (e.g. wholly owned subsidiary). The results of the present study also suggest that managers should understand that an across-the-board standardisation strategy is not realistic but it is possible to employ a highly standardised marketing programme and process when operating in the Greater China markets. The ranking of market importance for New Zealand firms was China→ Taiwan→ Hong Kong. For Australian firms it was China→ Hong Kong→ Taiwan. The majority of Australian firms were operating in the industrial goods sector while most New Zealand firms were operating in the consumer nondurables sector. The three most often used market entry modes by the respondents were direct exporting, overseas marketing subsidiaries and joint ventures. Introduction It has been argued that the worldwide marketplace has become so homogenized that multinational corporations can market standardised products all over the world (Levitt, 1983). Standardisation of marketing strategy refers to offering a common product, price, distribution and promotion programme on a national, regional or worldwide basis (Sorenson and Wiechmann, 1975). Despite its many recognised limitations (Barker and Aydin, 1994), standardisation of international marketing practices has still received a large amount of research attention (Buzzell, 1968; Jain, 1989), mainly because of the potential economies of scale in production, promotion, distribution and research and development associated with this strategy (Baalbaki and Malhotra, 1995). Marketing programme refers to various aspects of the marketing mix – product, price, distribution and promotion while marketing management process represents the tools that are used to develop and implement the marketing programme (Cavusgil, Zou and Naidu, 1993; Akkah, 1991). Even with the fact that a significant amount of research has been published on marketing strategy in international markets, the guidance provided by the literature seems to be incomplete. Previous studies have focused on examining issues relating to the choice between standardisation and adaptation of selected marketing programme elements (e.g. Johnson & Arunthanes, 1995; Cavusgil, Zou and Naidu, 1993). Although these studies have generated useful results, some important elements such as marketing process, political systems and market entry modes have often been ignored in their research frameworks. ANZMAC 2002 Conference Proceedings 21 This study is designed to fill this research gap. It will examine the impact of issues such as the political system, marketing infrastructure, consumer behaviour, and firm related factors on the selection of marketing programme and process elements. This study will employ a research framework to examine the experience of Australia and New Zealand companies conducting business in the Greater China region - i.e. the People’s Republic of China (China), Taiwan, and Hong Kong. The current study contributes in a number of ways. Its findings could provide some guidance for firms intending to operate in the Greater China markets. Secondly, a more complete framework including marketing process and new factors such as political system and market entry mode will be drawn in the study. Literature Review and Research Hypotheses The findings of previous studies are helpful in formulating a research framework. Several studies have revealed that marketing environmental factors such as the political system and marketing infrastructure (Jain, 1989; Whitelock and Pimblett, 1997) are keys to the choice of standardisation strategy. Other studies have found that consumer characteristics and behavioural similarity between the home and host countries are a factor for standardising strategy (Akaah, 1991). Some authors have cited that factors such as market entry mode selection (Grosse and Zinn, 1990) can affect the choice of marketing strategy. It has further been suggested that industrial products and consumer durables are more likely to be standardised than are consumer nondurables (Whitelock and Pimblett, 1997). Thus in light of the results of previous studies, especially those by Jain (1989), Buzzell (1968), Sorenson and Wiechmann (1975), Hill and Still (1984), a conceptual framework for examining the marketing programme/process activity of firms operating in the Greater China region is established. Marketing Mix and Process Elements Although far from conclusive, it is generally agreed that across-the-board standardisation of marketing strategy is inconceivable (Killough, 1978). Among the elements of the marketing programme and process, product related strategies are probably the most often standardised (Quelch and Hoff, 1986). It has also been suggested that process standardisation is important for a firm’s success internationally (Sorenson and Wiechmann, 1975). On the other hand, pricing, promotion and distribution are suggested as the most adaptable marketing mix elements (Grosse and Zinn, 1990). H1: The extent of standardisation of elements in the marketing programme/process will vary. Product and process are likely to be highly standardised while price, promotion and distribution are likely to be highly adapted. Marketing Environmental Factors- Political System Jain (1989) suggested that the political environment of the host country could also force foreign firms to change their operations, policies and strategies in the country. Political intervention from the host country often makes standardisation difficult to be used (Vernon, 1971). Though important, this factor has not received much attention among empirical studies (e.g. Sorenson and Wiechmann, 1975; Johnson and Arunthanes, 1995). ANZMAC 2002 Conference Proceedings 22 H2: The extent of standardisation of marketing strategy is positively related to the degree of similarity of political systems between the home and host countries. Marketing Environmental Factors-Marketing Infrastructure It has been suggested that international marketing decisions are influenced by the marketing infrastructure of a host country, including media availability and distribution infrastructure (Akkah, 1991; Britt, 1974; Dunn, 1976). Jain (1989) posits standardisation strategy is more likely to succeed if the basic marketing infrastructure is similar in the home and host countries. H3: The extent of standardisation of strategy is positively related to the degree of similarity of the marketing infrastructure between the home and host countries. Consumer Behaviour Factors Jain (1989) suggested that foreign markets can be segmented based on occupation, needs or shopping traits of a particular group. Jain believes that a standardisation strategy is more effective if customers, not countries, are the basis of identifying the segments to serve. Akkah (1991) and Hill and Still (1984) endorsed this view and found that firms are more likely to employ a standardisation strategy if the characteristics and behaviour of their customers in the home and host countries are similar. H4: The extent of standardisation of marketing strategy is positively related to degree of similarity in consumer behaviour in the home and host countries. Firm Related Factors It has been suggested that firms which market products overseas principally through exporting modes, are more likely to adopt a standardisation strategy. Because of the high cost of adaptation, such firms tend to choose export markets which are more likely to accept standardised products. Standardisation strategy usually represents a smaller amount of involvement (Terpstra and Sarathy, 2000). On the other hand, firms which enter a foreign market using a high resource commitment entry mode, such as a wholly owned production subsidiary are more likely to adapt their marketing mix elements (Grosse and Zinn, 1990). H5: Firms which adopt a low resource commitment entry mode (e.g. exporting) to service the market are more likely to adopt a highly standardised marketing strategy. Product Factors Research has indicated that selection of international marketing strategy is also related to the nature of the product (Jain, 2001). It has been suggested that consumer products are more likely to be adapted while industrial products are more likely to be standardised. Among consumer goods, non-durables often require greater customisation than durables because they are related more to local tastes, habits and customs (Whitelock and Pimblett, 1997). H6: The degree of standardisation of consumer durables or industrial products is likely to be greater than that of consumer non-durables. Research Measurement and Sampling Frame This study was designed to examine marketing strategies used by Australian and New Zealand based manufacturing firms which were currently operating in the Greater China markets at the ANZMAC 2002 Conference Proceedings 23 time when the survey was conducted. Respondents were asked to answer questions concerning their operation in the most important Greater China market. They were instructed to examine the similarity/dissimilarity of the marketing programme/process used in the home and host countries. They were also asked to examine the similarity/dissimilarity of the marketing environments faced in their home and host countries. In total, 23 items were used to measure various aspects of marketing programme/process (Sorenson and Wiechmann, 1975; Quelch and Hoff, 1986)– five items for product elements (e.g. brand, packaging, design), four for pricing (e.g. pricing method) , five for distribution (e.g. types, channel management), six for promotion (e.g. theme, copy, creative expression) and three for planning and implementation (planning, budgeting and orientation). The measurement for explanatory variables was also based on the suggestion of previous studies (e.g. Jain, 1989; Hill and Still, 1984). These items were all measured by a 5-point scale (1=very similar; 5=very different). The market entry mode effect was measured relative to the most important entry mode used to service the host market. Results were coded in two categories (FDI vs non-FDI modes). In total two types of FDI modes were chosen by the respondents – wholly owned subsidiaries and joint ventures. The postal survey was conducted in April (New Zealand) and September, 2001 (Australia). The useable sample consisted of 72 New Zealand and 120 Australian manufacturing firms. The useable response rates were 28% in New Zealand and 16.8% for the Australian study. The reliability of the research constructs was all above the acceptable level (alpha > 0.61). Correlation coefficient results suggested that no multicollinearity problems existed in this study. Findings and Discussion The average size of Australian and New Zealand firms in this study was 525 full time employees. The average number of employees of New Zealand firms was about 729, in comparison with 403 employees hired by the Australian firms. These firms are classified as medium sized firms by New Zealand and Australian standards. A study classifies firms based in New Zealand which hire 1000 or more employees as large sized firms (Akoorie, 1993). The majority of the firms studied were operating in the industrial (42.7%) and consumer nondurable (39.1%) sector while a smaller number of them were operating in the consumer durable sector (18.2%). The most important Greater China markets were China (44.3%), followed by Hong Kong (33.3%) and Taiwan (21.9%). In total 25% of respondents used FDI modes while 74% of firms used non FDI modes. Only 1 firm used the Internet to service the Greater China markets. The results suggested that only six out of 23 items (26%) used in the marketing programme/process were moderately or highly adapted. These 6 items included one pricing element (offer of price discounts), one distribution element (role of middlemen/dealers), and four promotional mix elements (advertising copy, creative expression, advertising media allocation and role of sales promotion). The remaining items were all highly standardised. The three items used to measure the marketing process effect were all highly standardised. This result suggests that H1 is supported. Consumer behaviour is suggested to be positively significantly related to the adaptation of price, place, promotion and process. This suggests that when the differences in the consumer behaviour are low between the home and host markets, a highly standardised programme/process is likely to be adopted. This result is consistent with that of Hill and Still ANZMAC 2002 Conference Proceedings 24 (1984) whose study concludes that consumer preferences and consumer purchasing habits are important factors for an adaptation strategy. Based on this finding, H4 is supported. Similarly, marketing infrastructure is reported as being positively related to the adaptation of product, place, promotion and process. This result is not difficult to understand. Past studies have suggested that the degree of adaptation of promotional elements is affected by the availability of a host country’s media infrastructure (Britt, 1974; Dunn, 1976). Other studies have also concluded that factors relating to a host country’s distribution system are regarded as an uncontrollable elements, which have an impact on the selection of distribution strategy (Buzzell, 1968; Toyne and Walters, 1989). Based on this result, H3 is supported. Political factors are suggested as being positively related to price and promotion adaptation strategy. This result is consistent with initial expectations. Based on this result, H2 is partially supported. As suggested in Jain (1989), a host government’s political interference often forces firms to change their operations, policies and strategies. He notes that pricing guidelines may be guided more by a political factor instead of economic realties. When operating in a host market, foreign firms often try to avoid a direct conflict with the host government’s political policies. Product type is also suggested as a factor for product adaptation. The results suggest that consumer non-durables are more likely to be adapted than consumer durables and industrial goods. As discussed in the literature, consumer nondurables are more likely to be affected by local tastes and customs (Whitelock and Pimblett, 1997). Based on this result, H6 is confirmed. Market entry mode is identified as having a negative impact on process adaptation strategy. Firms using non FDI type of entry modes are more likely to employ a standardised process for their operations. Based on this finding, H5 is partially confirmed. This finding is consistent with that of previous studies (Grosse and Zinn, 1990; Terpstra and Sarathy, 2000). Implications and Limitations Consistent with the findings of other studies (Jain, 1989; Killough, 1978), the results of the present study confirm the proposition that an across-the-board standardisation strategy is not realistic in the home-host scenario. Managers should understand that some elements of their programme/process (e.g. product) are more likely to be standardised than other elements (e.g. promotion). The results of this study suggest that managers often need to modify their marketing programmes if the consumer behaviour in the host countries is considered to be highly different from that of the home countries. When operating in a host market whose marketing infrastructure is less developed than that of in the home country, managers should be prepared to adapt their marketing programme and process in order to be in line with local infrastructure. Likewise managers should carefully evaluate the extent of influence of political interference in a host country. This effect has a significant impact on selection of price and promotion strategies. Furthermore firms should consider employing a low resource commitment entry mode if a standardised process is important to their international marketing activities. Lastly, the findings of this study suggest that it is possible to employ a highly standardised marketing programme and process when operating in the Greater China markets if a careful analysis of these markets is conducted. ANZMAC 2002 Conference Proceedings 25 The findings of this study could be examined in other regions or countries. This study suggests that it is possible to adopt a highly standardised marketing strategy if a target market is chosen carefully. The benefits of standardisation can be realised if the host market shares a similar environment in the areas of consumption behaviour, marketing infrastructure and political system. The findings generated by this study might be refined by including other important factors such as cultural, technology and performance in the research framework (Hill and Still, 1984; Levitt, 1983; Jain, 1989). ANZMAC 2002 Conference Proceedings 26 References Akaah, I. P., 1991. Strategy Standardization in International Marketing: An Empirical Investigation of Its Degree of Use and Correlates. Journal of Global Marketing. 4(2), 39-62. Akoorie, M., 1993. Patterns of Foreign Direct Investment by Large New Zealand Firms. International Business Review. 2(2), 169-189. Baalbaki, I. M., and Malhotra, N. K., 1995. Standardisation versus Customisation in International Marketing: An Investigation Using Bridging Conjoint Analysis. Journal of the Academy of Marketing Science. 23(3), 182-194. Barker, A. T., and Aydin, N., 1994. Implications of Standardisation in Global Markets. In Hassan, S. S., and Kaynak, E. (Eds.). Globalisation of Consumer Markets: Structures and Strategies, New York: International Business Press. Boddewyn, J. J., and Hansen, D. M., 1977. American Marketing in the European Common Market, 1963-1973. European Journal of Marketing. 11(7), 548-563. Britt, S. A., 1974. Standardising Marketing for the International Market. Columbia Journal of World Business. 9(4), 39-45. Buzzell, R. D., 1968. Can You Standardize Multinational Marketing? Harvard Business Review. November-December, 102-113. Cavusgil, S. T., Zou, S., and Naidu, G. M., 1993). Product and Promotion Adaptation in Export Venture: An Empirical Investigation. Journal of International Business Studies. Third Quarter, 479-505. Dunn, S. W., 1976. Effect of National Identity on Multinational Promotional Strategy in Europe. Journal of Marketing. 40(4), 50-57. Grosse, R., and Zinn, W., 1990. Standardization in International Marketing: The Latin American Case. Journal of Global Marketing. 4(1), 53-78. Hill, J. S., and Still, R. R., 1984. Adapting Products to LDC Tastes. Harvard Business Review. March-April, 92-101. Jain, S. C., 1989. Standardization of International Marketing Strategy: Some Research Hypothesis. Journal of Marketing, 53(January), 70-79. Jain, S. C., 2001. International Marketing, six edition. Cincinnati, Ohio: South-Western. Johnson, J. L., and Arunthanes, W., 1995. Ideal and Actual Product Adaptation in US Exporting Firms. International Marketing Review. 12(3), 3-46. Killough, J., 1978. Improved Payoffs from Transnational Advertising. Harvard Business Review. 56(July-August), 102-110. Levitt, T., 1983. The Globalisation of Markets. Harvard Business Review. May-June, 92-102. ANZMAC 2002 Conference Proceedings 27 Quelch, J. A., and Hoff, E. J., 1986. Customising Global Marketing. Harvard Business Review, May-June, 59-68. Sorenson, R. Z., and Wiechmann, U. E., 1975. Probing Opinions. Harvard Business Review, May-June, 38-54. Terpstra, V., and Sarathy, R., 2000. International Marketing, eighth edition. Fort Worth, Texas: The Dryden Press. Tony, B., and Walters, P.G.P., 1989. Global Marketing Management: A Strategic Perspective, Boston: Allyn and Bacon. Vernon, R., 1971. Sovereignty at Bay: The Multinational Spread of US Enterprises. New York: Basic Books, Inc. Whitelock, J., and Pimblett, C., 1997. The Standardization Debate in International Marketing. Journal of Global Marketing. 10(3), 45-66. ANZMAC 2002 Conference Proceedings 28