Global and Multicultural Issues.

MRKT1199-1299-4177                                                                  Updated September 2023                       

Entering global markets can be quite rewarding as well as risky for companies looking to expand and increase their market share in the face of shrinking domestic markets especially in the food, beverages and tobacco industries to name a few. While many entrants overseas have met with phenomenal success a fair number have failed to come to terms with the vagaries of operating and understanding consumer behavior  in a foreign culture.

For one, companies are wary of over adapting their strategy to an extent where they lose their originality and identity as a global brand, and on the other forcing their brand upon the local populace without considering local tastes and cultural context. In many cases  glocalization, a  balanced approach of the above two strategies is much better suited to their success overseas.

The political environment can also play havoc with a company’s operations overseas, the most recent example being the war in Ukraine. The war has led to sanctions on Russia primarily by the majority of countries in the West including NATO allies. This has  led over 1,000 Western businesses pulling out of Russia, whereas around 200 businesses have done nothing to leave mainly because of complexities. Some companies to leave are: Starbucks, McDonalds, Pizza Hut, Visa, Coca-Cola, KFC to name just a few. These Corporations have had to cut ties and sell off their assets to local proprietors at throw away prices, these local proprietors have then re-branded to Russian brand names with only slight changes to their products. Companies do need to carry out a through risk-analysis in the planning stage before investing capital in countries that may have had a past history of political turmoil or even a more recent or current change where politicians are looking at changing policies and strategies, when relationships  that were once considered stable become quite volatile. The most recent example being in the former French colonies in Africa, with coups in Burkina Faso, Guinea, Niger, Mali and just this week 30th August 23′ in Gabon. In all these strongly French  allied countries democratically elected governments have been overthrown in coups by the military with local populations celebrating in the streets. These countries have long been controlled by French Multi-Nationals exploiting rare mineral and oil resources and now their survival is in threat by either nationalization, confiscation or expropriation.

Focusing on two well known companies Starbucks and IKEA that have gone the global route, it is beneficial  to learn from their experience entering the Indian and Chinese market with product, pricing and location decisions. Firms can learn lessons from others mistakes on how they may overcome  dilemmas and challenges while seeking to enter overseas markets,

It is important to know the background and history of hot beverage drinking in India, which has historically been known as a tea drinking nation dating back to British colonization being preceded by the entry of the East India Company in the mid 18th century. The British introduced tea agriculture in a big way, leading to  mass consumption after a successful advertising campaign by the tea board in the 1920’s.

Starbucks while considering entry into the Indian market, thoroughly researched consumer habits and behavior for six years  before confidently making an entry. Starbucks opened their first store in October, 2012 in an upscale area of downtown Mumbai. Howard Schultz commenting. “It is perhaps the most elegant, beautiful, dynamic store we have opened in our history.”

A great advantage to Starbucks was their carefully selected partnership with  the Tata Group a giant Indian conglomerate and one of the largest coffee producers in Asia. This partnership provided them with some of the most valuable prime locations to set up shop in Mumbai and Delhi with the Elphinstone Building and the Taj Mahal hotel sites getting them off to a great start.  The menu featuring a blend of western and local delights  in the shape of mouth watering murg (chicken) tikka panini, tandoori paneer (cheese) rolls and cardamom (elaichi) cookies.

In comparison in China, Starbucks went with the Chinese need to relax in more spacious surroundings, building bigger stores 3,800 sq. ft. and upward. Menu items included Chinese teas and moon cakes.

A Frappuccino is priced to a growing middle class in India at $3.35 compared to products being priced 20% higher in China than other markets, begging the question why the higher price in China compared to Western markets.

Starbucks went with a glocalization  strategy (a combination of a global and local strategy) to succeed in both India and China, adapting the product, catering to local tastes at the same time maintaining its Western image globally thru offering its original service and products as well.

IKEA’s entry into India had been more slow and on the cautious side, having to consider several key issues like the DIY culture  and remote locations of stores away from cities which could pose a serious challenge to visitors. They launched their first store in India on August 9, 2018 after over a decade of research and planning. Fine tuning their strategy they more recently opened their first in-city store in Worli-Mumbai in May, 2022 as well as opening it’s first in-mall store in Mumbai’s Ghatkopar (West) area.

One key lesson they learned from their China experience is that DIY (do it yourself) will not work in India for locals are not keen to assemble and would rather have a do-it-for-me model in place which Home Depot did not practice in China and paid the price having to close down their remaining  operations in 2012.

In China IKEA started with a higher price model which subsequently had to be lowered by 50% for the PPP (Purchasing power parity) may have been higher but income levels were quite lower for the intended target market, each potential Chinese customer earning $400 a month.

After initial experience IKEA realized that if they built bigger stores the crowd would come, now eight of their 10 biggest stores in the world are in China where their outlets have 40% more traffic than other countries with customers treating them as destination stores spending a significant part of the day, exploring, relaxing and dining their time away.

IKEA also had to come to terms with its positioning strategy in China initially focusing on the 20 to 35 year old market and then repositioning to include the wealthier 35 to 45 age segment with children.

When entering India IKEA looked upon their experiences entering other emerging markets including China and adapted to local customs and tastes. One way was by serving biryani and samosas in their huge cafeterias instead of Swedish meatballs ….. maybe next on the menu…. butter chicken and chicken tikka.

MRKT4177 students please structure your two to three page paper outlining. Key Issues, Analysis of key issues and Recommendations.  Do your own research and cite your sources at the end of your paper.

MRKT199 students answer the following questions below on one typed page. Cite your sources at the end of your paper.

Q 1.  Could IKEA and Home Depot have avoided some of the mistakes they made while entering the Chinese market. Explain how they might have done a better job of understanding and applying consumer behavior.

Q 2.  How might a firm increase their chances of success while entering foreign markets. What steps did Starbucks take in this direction in India and China.

Q 3.  Howard Schultz commented at the store opening in Mumbai, ” It is perhaps the most elegant, beautiful, dynamic store we have opened in our history”.  What aspects of consumer behavior do you feel were in his mind while making that comment.

Q 4.  What do you think companies might have done or looked at proactively, to reduce the political risk and losses they faced by having to suddenly leave Russia.