Multinational corporations evolve to meet international challenge

Multinational corporations have a direct investment in several countries and run their businesses depending on the choices available anywhere in the world. Well-known U.S.-based multinational firms include Coca-Cola, Eastman Kodak, Warner-Lambert, Pfizer, Anaconda, Goodyear, Ford, IBM, ITT, Corn Products, 3M, National Cash Register, H. J. Heinz, and Gillette. They regularly earn over a third of their total sales or profits abroad.

Many multinational companies are American. But there are also many well-known other companies such as Nestle, Shell (Royal Dutch Shell), Lever Brothers (Unilever), Sony, and Honda. They have well-accepted «foreign» brands not only in Canada, but also around the world. Such Canadian organiza­tions as Alcan, Canron, CIL, Consolidated Bathurst, and Seagrams have a control­ling or complete interest in U.S. firms.

Indeed Canadian-owned firms are far more multinational than most of us real­ize. Some 22 Canadian-controlled firms appear in a recent Fortune magazine list of «500 Largest Non-U.S. Industrial Corporations.» (Another eight Canadian-based but foreign-owned firms — the largest being General Motors of Canada — also appear on that list.)

Foreign firms are beginning to see that it may be attractive to operate in this large—if competitive—market. The Japanese entry into the field of electronic products is well known. The Japanese are now building plants abroad. Sony has had a TV plant in southern California since 1972. And Honda makes cars in Ohio. Kago­me, the leading brand of ketchup in Japan, has even set up a factory in California to produce ketchup for export to consumers back in Japan.

One reason for the movement of some multinational firms into North America is that labor costs in their own countries (including Japan) are rising. Considering the total cost—including transportation costs—it may be more economical to produce products in the United States and Canada.

From an international view, multinational firms do — as a GM manager said — «transcend national boundaries.» They see world market opportunities and locate their production and distribution facilities for greatest effectiveness. This has upset some nationalistic business managers and politicians. But these multinational operations may be hard to stop. They are no longer just exporting or importing. They hire local workers and build local plants. They have business relationships with local business managers and politicians. These are powerful organizations. And they have learned to deal with nationalistic feelings and typical border barriers, treating them simply as uncontrollable variables.

We don’t have one world politically yet, but business is moving in that direction. We may have to develop new kinds of corporations and laws to govern multinational operations. In the future, it will make less and less sense for business and politics to be limited by national boundaries.

Identifying different kinds of international opportunities

A multinational firm that has accepted the marketing concept looks for opportunities in the same way we’ve been discussing throughout the text. That is, it looks for unsatisfied needs that it might be able to satisfy given its resources and objectives.

The typical approach is to start with the firm’s current products and the needs it knows how to satisfy, and then try to find new markets—wherever they may be—for the same or similar unsatisfied needs. Next the firm might adapt the Promotion, and then the Product. Later the firm might think about developing new products and new promotion policies. Here the emphasis is on Product and Promotion. But Place obviously has to be changed for new markets, and Price adjustments probably would be needed too.

The «Same-Same» box can be illustrated with fast-food chain McDonald’s entry into European markets. As McDonald’s director of international marketing said, «Our target audience is the same worldwide—young families with children—and our advertising is designed to appeal to them.» The basic promotion messages must be translated, of course. But the company applies the same strategy decisions that it made for the North American market. McDonald’s has adapted its Product in Germany, Russia and Ukraine however, by adding beer to appeal to adults who prefer beer to soft drinks. Its efforts have been extremely successful so far.

McDonald’s and other firms expanding into international markets usually move first into markets with good economic potential such as Western Europe and Japan. But if McDonald’s or some other fast-food company wanted to move into much lower-income areas, it might have to develop a whole new Product—perhaps a traveling street vendor with «hamburgers» made from soybean products.

Let us now consider the different kinds of Promotion needed for a simple bicycle. In some parts of the world, bicycles provide basic transportation, while in North America people use them mainly for recreation. So a different Promotion emphasis is needed in these different target markets.

Both Product and Promotion changes are needed. Such moves increase the risk and obviously require more market knowledge.

International marketing often means going into unfamiliar markets. This can increase risk. The farther you go from familiar territory, the greater the chance of making big mistakes. But not all products offer the same risk. Think of the risks running along a «continuum of environmental sensitivity». Some products are relatively insensitive to the economic or cultural environment they’re placed in. These products may be accepted as is or they may require just a little adaptation to make them suitable for local use. Most industrial products are near the insensitive end of this continuum.

At the other end of the continuum, we find highly sensitive products that may be difficult or impossible to adapt to all international situations. At this end are ladylike or high-style consumer products. It’s sometimes difficult to understand why a particular product is well accepted in a home market. This, in turn, makes it even more difficult to predict how it might be received in a different environment.

This continuum helps explain why many of the early successes in international marketing were basic commodities such as gasoline, soap, transportation vehicles, mining equipment, and agricultural machinery. It also helps explain why some con­sumer products firms have been successful with the same promotion and products in different parts of the globe.

Yet some managers don’t understand the reason for these successes. They think that a global marketing mix can be developed for just about any product. They fail to see that firms producing and/or selling products near the sensitive end of the continuum should carefully analyze how their products will be seen and used in new environments—and plan their strategies accordingly. American-made blue jeans, for example, have been status symbols in Western and Eastern Europe, and producers have been able to sell them at premium prices through the best middlemen. On the other hand, Gillette is trying to standardize its international marketing in westernized countries.

Judging opportunities in international markets uses the same ideas we’ve been discussing throughout this text. Basically, each opportunity must be evaluated considering the uncontrollable variables. But in international markets there may be more of these—and they may be harder to evaluate. Estimating the risk involved in particular opportunities may be very difficult. Some countries are not as politically stable as the U.S. and Canada. Their governments and constitutions come and go. An investment that was safe under one government might become the target for a takeover under another. Further, the possibility of foreign exchange controls and tax rate changes can reduce the chance of getting profits and capital back to the home country.

Because the risks are hard to judge, it may be wise to enter international marketing by exporting first, building know-how and confidence over time. Experience and judgment are even more important in unfamiliar areas. Allowing time to develop these skills among a firm’s top management as well as its international managers makes sense. Then the firm will be in a better position to judge the prospects and risks of going further into international mar- keting.