Standardization Vs Differentiation

Standardization Vs Differentiation Standardization in International Business Strategy  The point where an International Business strategy differs from a national business development strategy is product standardization and adaptation come in.  The factors of product differentiation and diversification are relevant in the case of both national and global business strategy in the wake of rising competition in both the national and international market.  International business strategies have emerged as a result of globalization and internationalization of established domestic companies which is purported to increase the value of the company in question.  Increasing pressure of globalization and the rising global competition have prompted managers and academicians to rethink the formulation of international business strategy. As previously mentioned, global business strategies rests on two pillars of standardization and adaptation which have been in severe conflict in the recent years. This debate have been backed by claims of theorists from both sides who exchanged thoughts regarding which of the two is more profitable for the global businesses functioning in a unique set of circumstances.  Standardization of production by firms who engage in global business entails producing the same product for the national as well as the international markets with only minor changes in attributes. This is mainly explained by the fact that basic human needs are same in all countries across the world. The concept of standardization first emerged in the 1960’s and then again resurfaced in the 1980’s and it has been adopted very effectively by many Japanese and European firms which have experienced higher levels of product and process innovations which in turn have acted as source of comparative advantage for these companies in the international market. The arguments favor of the global business strategy of Standardization is as follows: It benefits in the economies of scale accruing to the company with it being able to produce in large quantities using more or less the same the same techniques of production.  It preserves the image of the home country which houses the global corporation since it helps in minimizing the costs of alteration, design or modification, handling and stocking the product, speeding up delivery systems. It also helps in saving the managerial time and effort to take decisions regarding the manufacture of different products.  It helps in faster accumulation of the learning experience as fallout of the learning-by-doing approach.  At the opposite end of the spectrum, advocates of the strategy of market orientation using the techniques of adaptation or local adaptation argue that while basic human needs may be similar everywhere, standardization may not be the word as differences in cultural and other environmental factors significantly influence the buying pattern of people in different countries.

 International business strategies are a field of study effectively addressed by the interdisciplinary issues of marketing, organization theory, business strategy and international management and concentrates on maximizing the firm performance.  It depends on choosing a global strategy that is apt for the set of circumstances facing each business. Choosing an international strategy, be it standardization or adaptation is contingent upon the ability of the firm to suit its marketing strategy and the external environment. A conceptual contingency framework is often theorized between the critical variables of the business such as high sales revenue, capacity utilization and specific relationships between these variables and their effective implementation can lead to high levels of performance. The Global Standardization Strategy The global standardization strategy is sometimes simply referred to as “global strategy”. Its hallmark is the development and distribution of standardization products worldwide to reap maximum benefits from low-cost advantages. While both the home replication and global standardization strategies minimize local responsiveness, a crucial difference is that companies pursuing a global standardization strategy are not limited to base their major operations at home. In a number of countries, the companies may designate centers of excellence, defined as subsidiaries explicitly recognized as a source of important capabilities, with the intention that these capabilities be leveraged by and/or disseminated to other subsidiaries. For example, Merck Frosst Canada, the Canadian subsidiary of Merck, is a center of excellence in R&D. Centers of excellence are often give a worldwide (or global) mandate-namely, the charter responsible for one MNE function throughout the world. HP’s Singapore subsidiary, for instance, has a worldwide mandate to develop, produce, and market all HP handheld products. In terms of disadvantages, a global standardization strategy obviously sacrifices local responsiveness. This strategy makes great sense in industries where pressures for cost reductions are paramount and pressures for local responsiveness are relatively minor (in such commodity industries as semiconductors and tires). However in numerous industries, ranging from automobile to consumer products, a one-size-fits-all strategy may be inappropriate. Consequently, arguments such as “all industries are becoming global” and “all firms need to pursue a global (standardization) strategy” are potentially misleading.

DIFFERENTIATION

 Porter’s Competitive Strategies  Differentiation Strategy  Offers products and services that are uniquely different from the competition - Mercedes Benz  Focused Differentiation Strategy  offers a unique product to a special market segment.- Niche retailers Gucci  Cost Leadership Strategy  Seeks to operate at lower costs than competitors- Dell  Focused Cost Leadership Strategy  uses cost leadership and target needs of a special market.Indigo airlines

Why differentiate?

 The concept of being unique of different is far more important today than it was ten years ago. The key to successful marketing and competitive differentiation.  Hyper competition and over-communication are key features of the new economy. What used to be national markets with local companies competing for business has become a global market with everyone’s business everywhere.  With the enormous competition, markets today are driven by choice-your targeted customers have too many choices, all of which can be fulfilled instantly.  Choosing among multiple options is always based on differences, implicit or explicit, so you ought to differentiate in order to give the customer a reason to choose your product or service. Thus, differentiation is one of the most important strategic and tactical activities in which companies must constantly engage. It is not discretionary.  Create differentiation within your products or services. If you have assortment of products or services to offer, you may have identified your differentiation already. Common examples of differentiation for products may be based on size, speed, color, components, combinations or accessories. Common examples of differentiation for services include speed, performance, quality, responsiveness, availability, ease or integration.  If you are in the unique position of having only one product or service to offer potential customers then you should consider accessories, partners or other options to create a variety of levels from the perspective of your future customers. If all else fails, you can other different levels of shipping speed or delivery. Differentiation as a strategy 1. The differentiation strategy of a business is a predetermined set of actions designed to produce and deliver goods or services to customers who perceive the company’s offering as different. Not just different, but different in a way that is important to the customer. This means meeting your customer’s unique needs with nonstandard products in a way that gives your company a competitive advantage. 2. With hyper-competition in a global market, being unique and having a strong business differentiation strategy are important. Any company has two basic ways to compete: either with low prices or with a strong differentiation strategy that allows higher prices. Because of the global market there will always be someone who can sell your product or service for less. Differentiation therefore becomes necessary for business survival. 3. Differentiation strategy involves addressing the point of pain or performance gap felt by buyers in market. A wise business owner will meet the criteria and then position the company uniquely to meet the needs of buyers. These products are often “top of the line” and to reflect increased cost to the company, prices are usually at a premium. Higher prices are necessary to cover higher production costs and extra, value-added features for the customer. A company employing a differentiation strategy gives customer a clear reason to choose them 4. The key parts of a business differentiation strategy, include positioning, trust-building, and awareness. The first element of the strategy is the idea that makes your business different. The next challenge is explaining why you can deliver what you promise. Many companies find it

helpful to include testimonials and credentials. The third step, awareness, must be considered in all marketing campaigns. Are you saying the same thing as everyone else? Or are you letting everyone know that you are a little different? 5. When you have the ability to view your business and competition from an objective viewpoint, the differentiation necessary to separate yourself and your product or service becomes clear. First, determine precisely what your current positioning is and how you could improve. Then, determine your exact advantage. How can you improve your difference and separate yourself further from the competition? How can you better convey that difference? A strong business differentiation strategy is fundamental to a successful business.