Chapter 17 Outline

Introduction

In the previous chapter, we looked at the roles of global manufacturing and materials management in an international business. In this chapter, we continue our focus on specific business functions by examining the roles of marketing and research and development (R&D) in an international business. We focus on how marketing and R&D can be performed so they will reduce the costs of value creation and add value by better serving customer needs.

In Chapter 12, we spoke of the tension existing in most international businesses between the needs to reduce costs and at the same time to respond to local conditions, which tends to raise costs. This tension has been a persistent theme in most chapters since then, and it continues to be in this chapter. A global marketing strategy that views the world's consumers as similar in their tastes and preferences is consistent with the mass production of a standardized output. By mass producing a standardized output, the firm can realize substantial unit cost reductions from experience curve and other scale economies. But ignoring country differences in consumer tastes and preferences can lead to failure. Thus, an international business's marketing function needs to determine when product standardization is appropriate and when it is not. Similarly, the firm's R&D function needs to be able to develop globally standardized products when appropriate as well as products customized to local requirements.

We consider marketing and R&D within the same chapter because of their close relationship. A critical aspect of the marketing function is identifying gaps in the market so that new products can be developed to fill those gaps. Developing new products requires R&D; thus, the linkage between marketing and R&D. New products should be developed with market needs in mind, and only marketing can define those needs for R&D personnel. Moreover, only marketing can tell R&D whether to produce globally standardized or locally customized products. Academic research has long maintained that a major factor of success for new-product introductions is the closeness of the relationship between marketing and R&D. The closer the linkage, the greater the success rate.¹

The opening case illustrates some of the issues that we will be debating in this chapter. Many of P&G's problems in Japan were caused by a failure to tailor its marketing strategy to the specific demands of the Japanese marketplace. P&G learned from its experience with disposable diapers and laundry detergent that a marketing approach that works in one context won't necessarily work in another. The company's subsequent success with Joy drives home the point that in many consumer product markets, it is important to customize the product offering, packaging, and advertising message to the specific needs of consumers in that country. Joy was developed by Procter & Gamble's R&D staff in Kobe, Japan, specifically to meet the evolving needs of Japanese consumers. This illustrates the benefits of locating R&D activities close to the market for the product when that market demands a customized product offering.

But it would be wrong to generalize too much from this case. For other firms in other industries, it may make sense to pursue a global strategy, producing a standardized product for global consumption, and using the same basic market message to sell that product worldwide. Some product markets are truly global in their reach. The market for semiconductor chips, for example, is a global market where consumers demand the same standardized product worldwide so a global marketing strategy, supported by a global R&D strategy, might make sense.

In this chapter, we examine the roles of marketing and R&D in international businesses. We begin by reviewing the debate on the globalization of markets. Then we discuss the issue of market segmentation. Next, we look at four elements that constitute a firm's marketing mix: product attributes, distribution strategy, communication strategy, and pricing strategy. The marketing mix is the set of choices the firm offers to its targeted markets. Many firms vary their marketing mix from country to country depending on differences in national culture, economic development, product standards, distribution channels, and so on. The chapter closes with a look at new-product development in an international business and at the implications of this for the organization of the firm's R&D function.