Frame of reference
To facilitate a better understanding of what has already been done by scholars, the research should initially focus on secondary data collection (Crawford, 1997). The authors also provide an overview of existing scientific approaches and theories that explore corporate attitudes evolving in the course of internationalization and globalization.
Internationalization and globalization process
The world is moving away from bounded and locally-oriented economies towards interdependent and integrated global economy. Globalization can be defined (Mellahi, Frynas & Finlay, 2005) as “inescapably a multi-faceted process” of creating and deepening a global economy, political and cultural globalization, and convergence of ideas and values across the countries (Yip, 2002)
Mellahi et al. (2005) provided some insight into the process that companies should actualize before adopting a global strategy. The authors distinguish the notions of “globalization” and “internationalization” and highlight four different phases that the businesses go through (Figure 2.1). According to the authors, the internationalization process is initiated where local markets become unprofitable and attractive opportunities to expand internationally are evolving. This is why even locally-oriented companies should consider steps towards international operations in order to achieve strategic competitiveness. However, Solberg (1997) argues that businesses should stay ‘at home’ in case of their strong competitive advantage on the domestic market and if the pressure for global competition in the sector the company operates is low.
Yip (2002) provides one more argument in support of this approach together with Solberg (1997), suggesting that the domestically week companies should first improve and strengthen their competitiveness locally by “staying at home”. Despite the number of disadvantages to a single-country approach – potential changes in the country (e.g. political instability or market saturation will normally generate negative perceptions externally) can significantly impact company’s performance; the company can meet competition from the global players and force them to reduce their market share. Export strategy is another alternative to entering foreign market. By establishing cross-border subsidiaries, the company launches implementation of its internationals strategy. At this phase, a key focus is to domesticate business by aligning its products and services to the needs of the local market. Transition from domestic or international strategy to global strategy creates various strategic challenges for the company to deal with, including a need for a flexible corporate strategy that can be applied in different markets and factor in and respond to the local specifics where required.
The basic assumption of the internationalization process is that every business will first develop domestically and then expand internationally to generate more value through increased profitability and profit growth. According to Vernon (1966), there are four stages in a product life cycle, and product location is driven by the relevant stage:
- New products are introduced to meet local needs. They may be exported to the countries with similar needs, preferences, and incomes;
- The substitutes may appear on the domestic market, which will move the production to the other countries in order to create more value than competitors;
- The market is saturated, and the pressures for cost reduction become crucial;
- Third world or poor countries consume the product.
So overall, the international product life cycle theory highlights that a company will launch exports and will later take on foreign direct investment as the product moves through its life cycle. Along with each stage, the company will make a set of incremental decisions about its strategy and development. In other words, the marketing strategy can be defined as the choices and actions that managers must take to attain the goals of the firm.
However, there has been little discussion about differences between global and international strategies, though the authors believe that these differences are crucial for the complete understanding of strategic issue. Mellahi et al. (2005) distinguish three key differences between the mentioned strategies (Table 2.1).
To sum up, in the aim of developing their business, increasing profits, decreasing cost pressures and avoiding the saturated market problem, company decides, at the certain point, to expand overseas. The studies considered in this chapter have revealed a whole number of opinions and doctrines regarding this issue. However, it is also necessary to consider the specifics of the country that the company targets to access. The pressures for local responsiveness are becoming an important part of the company’s success when it enters the new market, because consumption choices are mostly determined by the cultural environment in which they are made. A profound explanation of the authors’ choice of Italy, i.e. a quite specific Italian market, will be provided in the next section, based on the cultural study of Geert Hofstede that totally explains why the fact of Swedish firms adapting (or failing to do so) to the Italian market, seems so fascinating.
Cultural differences as an strategic determinant
A deeper insight and scientific proofs of cultural differences between Sweden and Italy will be provided in this section. These differences will also explain why it is so challenging for an originally Swedish company to understand, adapt or bring its identity to the culturally distant country with its own unique lifestyle.
A term “culture” is usually defined as an accumulation of the shared meanings, rituals, norms and traditions among the members of an organization or society (Solomon, Bamossy, Askegaard & Hogg, 2006). Culture is composed by intangible objects like values, norms and ethics, and the material objects and services, such as cars, clothing, food, art and sports (Solomon et al., 2006).
According to Solomon et al. (2006) cultural system has three functional areas:
- Ecology – shaped by the technology used to obtain and distribute resources (e.g. industrialized societies);
- Social structure – which domestic and political groups are in dominance (nuclear family or a big family etc.);
- Ideology – includes mentality, the way a person relate to the environment and social groups; certain aesthetic and moral principles.
Having in mind that Sweden and Italy are distinctive in all these functional areas, and due to the difficulty of integrating an already existing foreign management, adjusting the product and gaining profitability, cultural differences are likely to be very important in the case of a company entering a foreign market.
Since there are no officially published information about cultural differences in Italy and Sweden, the authors have performed their analysis on the basis of cultural dimensions’ theory by Dutch cultural anthropologist Hofstede (1980).
Hofstede (1980) formulated his model of cultural dimensions based on detailed interviews conducted with IBM employees in 53 countries. With the help of standard statistical analysis of rather large data sets, he was able to determine patterns of similarities and differences among the employees from different countries. The outcome of the theory was that culture varies along the following dimensions:
Power distance (PD)
It is fully defined by the degree to which the less powerful members of a society accept that power is distributed unequally. It also covers how the decisions of the power holders should be viewed-challenged or accepted (Hofstede, 1980).
The main influential factors for this dimension are:
- Cultures in cold climates like Sweden tend to have low PD scores. Therefore, Italy with its subtropical/Mediterranean climate goes on the opposite.
- The greater a population is the bigger is a power distance; according to the statistical data from the statistical web-site Index Mundi the population of Italy amounted to 61,016,804 people in July 2011, while Swedish population at the same time was 9,088,728 people. Consequently, Italy has a higher power distance scores again.
- Distribution of Wealth. If the wealth is distributed unequally, the power distance is rather big. Sweden has one of the most even income distribution of any nation, which supports the low Power distance scores.
High corporate Power distance in Italy (Table 2.2) can be explained by the fact that the majority of businesses are represented by the small-to-medium-sized family firms (more than 85% of the total)(Cenderelli, 2007). Therefore, due to the traditional attitude towards status and hierarchy system derived from the family relationship, the owner of the firm is seen as an autocratic leader primarily responsible for the decision making, and the sense of mutual obligation and interdependence is very strong within the company.
This is reflected by the culture being threatened by ambiguous and uncertain situations; an aspiration to avoid uncertainty characterizes by low tolerance for ambiguity and they try to develop a set rules to control social behaviors, while cultures with a high tolerance for uncertainty tend to take risks and try new horizons more intensively and don’t need to be that strict.
The uncertainty avoidance in Italy is fairly high (75), which is important for an internationalized company to understand in order to successfully penetrate the market. In other words, people in Italy do not take big risks; they will prefer to know the product before buying it, they are afraid of significant changes and don’t like anything unknown.
This notion mostly refers to the balance of concern for oneself and concern for others. The main impact factors are:
- Cultures in colder climate tend to be individualistic, whereas cultures in warmer climates tend to be collectivistic;
- Economic development. The more developed and wealthy is the country, the more individualistic is its culture.
According to the scores in Table 2.2 Sweden and Italy are both individualistic; yet these are different types of individualism. Individualism in Sweden means that its inhabitants are not born into a world of familiar obligation to parents and elders, and basically regard themselves as born free, early encouraged by their parents into independence and then choosing whom to benefit through their work, and when and how to do this (Cenderelli, 2007). Individualism in Italy is more related to the weak government, which has historically shaped up the preferences to rely only on their own efforts and to protect and trust only parents or relatives.
Some authors have justified Hofstede’s high individualism in Italy with the fact that his results are based on the IBM location in the area of Milan which cannot be perceived as a good representation of Italian culture (Cenderelli, 2007).
According to Hofstede, people countries with a high masculinity index believe in achievement and ambition, material success, with very specific behaviors and products associated with male behavior. Low masculinity index cultures believe less in external achievements and more in quality of life such as helping others and sympathy for the unfortunate. Feminine cultures also prefer equality between male and female and less prescriptive role behaviors associated with each gender. Moreover, the determining factor is climate – masculine cultures tend to live in warmer climate near the equator and feminine cultures are likely to locate in colder ones.
Obviously, Sweden can be characterized as a country with a feminine culture; it is also related with a sexual equality – Sweden has one of highest percentage of female employment; In Italy sex roles are clearly differentiated, and sexual inequality is seen as beneficial which defines it as a country with a masculine culture.
Long-term/ short-term orientation
Societies with a short-term orientation generally have a strong concern with establishing the absolute Truth. They are usually very conservative and obey the norms, also showing a respect for traditions; they usually focus on achieving quick results. In countries with a long-term orientation, people believe that truth depends very much on situation, context and time (The web-site of Geert Hofstede). Therefore, they are prone to adapt their traditions to the changing environment. Sweden has a score of 20, making it a short term orientation culture. Same pattern is observed for Italy also.
List of Figures
List of Tables
1.4 Research Questions
1.5 Delimitations .
Frame of reference
3 Results and analysis
3.1 IKEA Case Study
3.2 Volvo Case Study
4.1 Theoretical contribution
4.3 Future research
4.4 Implications for managers
List of References
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IKEA and Volvo marketing strategies in the Italian market