Internationally operating companies have to face two major challenges on how to configure and coordinate their value chain in the most efficient and most profitable way: global integration and local responsiveness (Daniels et al, 428). On the one hand, the growing globalization in the business world requires companies to adapt to global strategies, which emphasize product standardization and globally functioning infrastructures (customer service, supply chain management, communication). On the other hand, consumer preference and host-government policies forces companies to tailor their operations and/or adapt to local market requirements (Daniels et al, 430). It is and will remain a huge balancing act for all international companies to manage the gap of this apparent conundrum.
However, distinctions have to be made when it comes to specific industries. The Integration Responsiveness (IR) Grid (Daniels et al, 431) illustrates for instance that bulk chemicals require high standardization and central control regarding global integration, whereas local responsiveness is of minor necessity. BASF, the German based and estimated biggest chemical company in the world, operates 330 production sites around the globe. Since most of its produced chemicals are considered commodities, the focus of the company’s global production is efficiency and economies of scale. “ The more a plant produces, the lower the fixed costs per ton of product (economies of scale). This is why BASF operates such cost-efficient large-scale facilities in all regions.” (BASF Website). Their so-called Verbund-System, the German translation of a combination of plants that interact on a global basis by consistently informing about best practices, makes use of integrated production processes to manufacture as inexpensively and as efficiently as possible. Hence, local responsiveness plays a minor role, but cannot be disregarded completely. Environmental requirements and production processes, especially concerning member states of the European Community (specific filters for steam that occurs during cracking processes, handling and transportation of residues and waste streams) forces the company to act indeed on host-government policies.
Nestle Waters, the world’s largest food company, owns about a third of the global bottled water market, with seven regional water brands only in the U.S. (Nestle Website). In addition, Nestle owns various imported brands, such as Perrier. The company’s strategic marketing approach is to act and react locally, by serving specific customer groups in designated geographical areas, based on its acquired local water springs. (Poland Spring - Northeast, Deer Park - Mid-Atlantic, Ice-Mountain – Midwest, Ozarka – South, Arrowhead – West, Zephyrills – Florida) (Huser, 84). So far, Nestle seems to be successful. The company was able to gain a strong position in the market based on local consumer loyalty to its regional brands. At the same time, marketing communication seems rather difficult, since the company cannot easily reach all its bottled water consumers with an efficient “one message for all”-approach, as done for instance by Coca-Cola and PepsiCo. It has to adapt to regionally based brands. A unique advertisement, usually measured as per person reached nationwide, does not apply for Nestle’s strategy and forces the company to pay “ […] a substantial up-charge to reach the consumers in its different regional markets.” (Huser, 84). In addition, plastic packaging providers, such as Graham Packaging (plastic bottle blow molder) and BERICAP (plastic closure supplier) have to follow Nestle’s segmented marketing approach, by designing specific bottles and closures for the various geographical regions. The global integration idea regarding production processes and economies of scale – as described above for the chemical industry – falls short. A Poland Spring bottle looks differently than an Arrowhead bottle, and the closures are of different sizes (Nestle Website). Therefore, also suppliers and other stakeholders have to adapt to local responsiveness, and moreover, to additional requirements such as designs, smaller production lots and rather complicated distribution networks.
Nevertheless, globally operating Multinational Entities seem to be successful for the most part, by gaining sufficient profit through a functioning value chain that is integrated globally, and by adapting successfully to local requirements at the same time - as the example of Zara shows (Daniels et al, 405-409). Efficiency seems to be one of the core secrets to be successful. Flexibility and fast deliveries are certainly two other variables in order to gain profit, market share, and finally to be sustainable on a global scale.
Reference:
BASF Website, Oct. 11, 2009. www.basf.com/group/corporate/en/about-basf/worldwide/index
BERICAP Website, Oct. 11, 2009. www.bericap.com/index.php?pg=menu_160
Daniels, John D., Lee H. Radebaugh, and Daniel P. Sullivan. International Business: Environments and Operations. 12th ed. Upper Saddle River, New Jersey: Pearson Education, Inc., 2009. Print.
Graham Packaging Website, Oct. 11, 2009. www.grahampackaging.com/markets/food-beverage.asp
Huser, E. Ann. Marketing Concepts. Fairleigh Dickinson University, Madison, NJ, 2009. Print
Nestle Website, Oct. 11, 2009. www.nestle.com/Brands/BottledWater/BottledWaterListing.htm
