Responding to Global Demand

Globalisation and Glocalisation

A firm selling in many countries has one big choice: sell the same product in the same way everywhere, or change it to suit each market.

Here, globalisation is the first option. The firm treats the world as one market, with one product, one brand and one advertising campaign. The wider meaning of globalisation is in unit 2.4.1.

Glocalisation: selling a global brand, but adapting the product or its marketing to suit the tastes and customs of each local market.

McDonald's is the standard example. Its restaurants look much the same worldwide, but in India it sells no beef or pork. The Maharaja Mac is a chicken version of the Big Mac, and the McAloo Tikki, a potato burger, is one of its best sellers there.

The choice is a trade-off between cost and fit:

• Globalisation: one product made in large numbers → economies of scale in production and advertising → lower average cost → lower prices or higher margins in every market.
• Glocalisation: a product that fits local tastes → more local customers want it → higher sales and market share than a standard product would win.
• The cost of glocalisation: a different version for each market → extra market research and design, and shorter production runs → higher average cost and lower margins.

Which works better depends on:

• How much tastes differ: food, drink and clothing are tied to culture, so they usually need adapting. A laptop does the same job everywhere and sells almost unchanged.
• The size of the market: adapting pays only if the extra sales cover the extra cost. A market as large as India justifies a new menu; a small one may not.

Approaches to Global Markets

The spec names three approaches, each with two names. They differ in how far the firm adapts to each country.

Ethnocentric approach: the domestic approach. The firm sells the same product abroad, in the same way, as it does at home.

Geocentric approach: the mixed approach. The firm treats the world as one market but adapts the product or marketing where local differences make it worthwhile. This is glocalisation.

Polycentric approach: the international approach. The firm treats each country as a separate market, with its own products and marketing, often run by local managers.

An ethnocentric approach is the cheapest way to start selling abroad, so a small exporter often begins there. A polycentric approach suits markets that differ a lot. Many large global firms sit in between, with a geocentric approach.

Price and Non-Price Competition in Global Markets

Abroad, a firm competes with local firms that know the market, and with other global firms. It can adapt its price (unit 2.2.2) and the rest of its marketing (unit 2.2.3).

When a firm adapts its marketing for a new market:

• Price: average incomes are lower than in the UK → the UK price would put the product out of reach → a lower local price, or a smaller pack at a lower price → more buyers, at a lower margin per unit.
• Promotion: adverts use the local language, local faces and local media → customers relate to the brand → demand rises.
• Place: customers shop through small local stores in one country and online in another → the firm sells through the channels local buyers use → the product reaches more customers.

Whether to compete on price depends on:

• Local rivals' costs: local firms pay local wages and no shipping, so they can often undercut an importer. The importer may do better competing on brand and quality.
• Price elasticity of demand: where buyers have low incomes and plenty of substitutes, demand is price elastic, so a high price loses many sales (unit 2.2.1).

Branding and Differentiation in Global Markets

Brand: a name, logo or design that identifies a firm's products and sets them apart from rivals'.

When a firm takes a well-known brand into a new market:

• Recognition: customers already know the brand → they trust it and are willing to try it → less spent persuading them → faster sales growth.
• Premium price: brand loyalty → demand becomes less price elastic → the firm can charge more than local rivals → higher margins.
• Risk to every market: a scandal or faulty product in one country is shared worldwide on social media → customers everywhere lose trust → sales fall in every market at once.

How much the brand helps depends on:

• The strength of local brands: local firms may be more trusted and know local tastes better, so the global firm has to differentiate on something local customers value (unit 1.3.6).
• Whether the brand's image travels: a brand built on being British may appeal abroad or mean nothing, and a name or slogan can carry an unintended meaning (unit 3.3.2).