Saturday, July 4, 2009

Globalization Essay

The problem is a familiar one to international brand marketers. The company may be strong and well positioned around the world, with some great brands. And to achieve growth there is an aggressive agenda to develop through acquisitions, expansion into new markets and constant innovation. But globalization brings unique problems. Should you develop regional or global centers of innovation and development, or remain essentially decentralized? Clearly business is transacted at a country level and local management know their market better than anyone, but expansion brings the need to manage regional or global brands and develop common practices across the organization.

Some companies have made a choice to remain decentralized in order to remain responsive to local market needs, but globalization is affecting everyone--and the emergence of regional and global retailers is placing a new emphasis on manufacturers to understand and manage their regional and global businesses.

For most companies, the problem is not lack of information--in fact, quite the opposite is generally true. In addition to internal sources providing financial and production data, there is a host of external sources providing information on markets, consumers and retailers.

Unfortunately, they all tell different stories. The question is, which one gives the true picture? The frustrating response is usually that they all do, because they are intended to measure category and brand performance within a specific market, with specific brand positioning, its own set of competitors and its own language. So it's not surprising that when companies do set up regional or global centers, the information they receive is difficult to handle. It's been developed to meet a different need.

Finding the Right Level
For a regional or global business center to be effective, it must be both innovative and creative--a focal point where company knowledge and ideas can be shared across the organization. In order to play this role it needs to gather local information and make the right connections between important local developments. At ACNielsen, we recognize that the regional or global information strategy should reflect the shape of the organization and the strategic priorities which drive company growth. These information strategies fall broadly into three groups: the local model, the multi-local model and the global model.

The Local Model
In this version, the primary business focus is local markets. Management and budget control is essentially country-based with some limited coordination at the center. The information in this model is strongly country focused and reflects local market definitions and local competitors-- tactical information to deal with each local retail and consumer environment. Although extremely responsive to local market changes, this model makes it more difficult to optimize the brand portfolio and exchange knowledge across the organization.

The Multi-local Model
In many ways the multi-local is the most difficult model to develop because it demands a high level of information sharing and yet a local sense of autonomy. Here the regional centers seek to network informally with the countries in order to share knowledge and information. Because there are regional or global brands, some activities such as specific multi-country brand roll-outs are managed at a regional or global level. However, the management approach remains essentially decentralized. Information is structured in a similar way across countries, with the ability to view category segments, competitors and brands in a consistent way across borders. At the detailed level, however, information remains local-formulated for local retailer negotiations.

The Global Model
This model is characterized by one global center or a small number of regional centers responsible for all strategic marketing and product development--increasingly organized around categories. Market information is fully harmonized to ensure that category definitions, segmentation and products are aligned as far as possible across countries. In these organizations, the regional or global center innovates and takes the lead in the sharing of knowledge and best demonstrated practices for their business sector--made easier by the level of harmonization existing between local operations.

These models are not necessarily set at different points on an evolutionary scale, and in the past, companies frequently tested one model or the other as corporate philosophy changed. Now however, the trend is generally in one direction--and as globalization develops, certain factors are emerging which will challenge the traditional local information model. Perhaps the most significant of these is the emergence of the global retailer.

Retailers Beyond Traditional Borders
As a shopper it may be easy to overlook retailer expansion across borders. We might not associate a local supermarket chain in Bangkok or Mexico City with global retailing, but it's increasingly likely that it will be owned by a multinational retailer. Groups such as Carrefour, Ahold and Wal-Mart already have thousands of stores operating across four continents, and they are continually seeking to maximize global scale by acquiring companies who match their geographical and operational blueprints.

In this environment of rapid global growth, retailers face a similar information challenge to manufacturers in understanding masses of different local data sets. However, as global retailer technology and harmonization techniques improve, a transparency will emerge, enabling retailers to compare supplier performance across countries. A good example can be found in Europe, where it is already acknowledged that the introduction of the euro will accelerate pricing transparency for both retailers and manufacturers.

No surprise perhaps, that some multi-national manufacturers have already established regional or global teams whose sole purpose is to manage a retailer customer across every aspect of the relationship. The traditional, country-centric relationship model is making way for the regional model and subsequently the global model, in which discussions will focus on regional or global sourcing--and where understanding cross-border business performance will be critical to successful negotiations.

Measuring Global Performance
How do the different information models measure up in this race toward Globalization? It may be easy to dismiss the Local Model as outdated, but its great strength is its agility to respond to local consumer needs. The threats to this model however, are an unwieldy brand portfolio and less chance to reduce spiralling costs by transferring knowledge and best practice. The local model is well placed to drive the local business, but is unlikely to provide the information harmony needed to face a global retailer.

There is no doubt that the Multi-Local and Global information models will have the advantage of decision-making based on a common core of information across countries. Perhaps the optimum model is one where the regional or global center can analyze a strong core of common information across all operating units. This equips them for cross-border retailer negotiations and deliver economies of scale, but has to be balanced by a recognition of local information needs to encourage enterprise and flexibility in country business units.

So what happens next? The advance of technology will ensure that there is no lack of information on either side of the negotiating table. But as the volume and detail of information expands, we can expect international manufacturers and retailers alike to seek common standards of information to be the basis of regional and global decision-making. Without this, there can be no shared understanding of the facts. As a brand owner, how do you review the regional performance of your brand if there is no agreement about how your category is defined or measured?

At ACNielsen we are committed to helping our retailer and manufacturer clients make sense of globalization by recommending a level of harmonization appropriate for their organization. There is no "one size fits all strategy" that can deliver the information needed to make global business decisions.

One thing is certain: as globalization gathers pace and companies make new acquisitions and enter new markets and categories, the complexity of harmonizing information across borders can only increase. Although growth can sometimes be painful, there may never be a better time to think about a global information strategy.
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