Necessity of intercultural marketing 3
1. Historical Factors Feed-back 3
2. Social Factors 4
3. Geographical comparison 7
4. L'Oréal's Case 9
What does international marketing bring? A recipe for success 11
1. How to expand and penetrate new markets without failing 11
a. Analysing before going 11
b. Strategies 13
2. Comprehension and adaptation to cultures, limiting the risk of confrontations 13
a. What should be taken into account? 13
b. Local VS Global 15
c. L'Oréal's strategy 15
3. New skill, talents, abilities and idea developments but a risk of standardization 18
Did you know that Coca-Cola sells more of its product in Japan than it sells in the United States? Globalization is the way to go nowadays. Civilizations meet and exchange. Corporations export and delocalize all around the world. This helps to gain more potential consumers. Every part of the world has something to offer: from raw material or labor to technology, companies always embrace the differences. However, how does a company adapt to sell a product to different culture markets? FMCG (Fast Moving Consumer Goods), such as shampoo or cosmetics, play an important part in our everyday life. How do businesses such as L'Oréal manage to be successful in all four corners of the globe? After analyzing why we need intercultural marketing, this study will show what international brings to the worldwide economy.
Necessity of intercultural marketing
1. Historical Factors Feed-back
The international business and trades have existed for a very long time: Asia, Europe and Africa were linked with the Silk Road, clients wanted fabric from India, porcelain from China, cotton from America, coffee from Brazil, glass from Italy…; although marketing as we know it today appears in the mid-eighteenth century only, international marketing has only existed for a few decades with the intensification of globalization, which is a process defined by the gradual expansion of trade in goods, services and capital, by linking different parts of the world as well as the organization of production at the world level. This process was intensified after the World War II with the Thirty Glorious. The Marshall Plan was implemented by the USA in 1947: this financial aid helped many countries to invest in development. Thus industry grew faster and transportation evolved. The technology progressed, for instance in the machinery for the automobile industry. The greatest example is Ford which, with the concept of Fordism, improved the production chain to optimize the yield without over producing. Besides, to be linked with other countries became way easier with Bretton Woods agreements and the GATT agreements in 1944 and 1947 respectively: the US dollar became the international currency and the trade liberalization lowered customs taxes. Indeed, since 1945 and in fifty years the international trades increased by six. In addition, the Triad no longer exists but the world has become multipolar. The population has thus seen its standard of living growing and the consumption society built up: that led to the apparition of retailing. The concept of a self-service shop was born in the store Piggly Miggly in Memphis, USA in the 30's. However, supermarket and hypermarket organization emerged in the 50's. Now the top one retailer in the world is Walmart, an American multinational. It is in 1973 and 1979 when two oil shocks happened that the economy slowed down. The general evolution consisted in reducing the Welfare State and relying on the liberalism. In fact, this phenomenon speeded up the globalization even more. Indeed, business happened between companies and not countries anymore: trades were multiplied and one of the consequences was the phenomenon of delocalization. To reduce the cost of production, firms move their production chain to less developed countries where the labor is cheaper. The heavy industry declined to make space to high technology and electronic industry. Then came the major technical progress of this century: the Internet that is popularized in 1991 by the World Wide Web. The information exchanges were totally shaken up. With this, communication was developed, in particular the mobile telephony: inevitably, Apple must be quoted. The electronic company is one of the most welfare firm in the world and is not to present anymore. So in developed countries, market becomes saturated and companies tend to expand their business in new markets, where the demand is higher and the competition is lower. The cross-culture marketing is needed. Nevertheless these new markets have an extremely different culture that companies need to adapt to.
2. Social Factors
With all these new links between the parts of the World, adaptation is needed to sell to the different culture markets.
Globalization tends to standardize the culture because of the technology progress, and more and more countries are westernized.
As the cinema, the TV, the communication network like social networks are led by the USA, this is even a process of Americanization that it is about. English is imposed as global language, like the American techniques and the conceptions: cultural activities become simple entertainment and it is the capitalization that predominates.
Coca-Cola can be taken as the personification of the cultural globalization. The brand is present in every part of the world even the most marginalised. And the advertising are not differentiated depending on the country, the language is the only parameter that changes.
However, some areas keep a strong culture with their traditions, meanings and their conventions.
The cultural diversity gives some resistance to the standardization, especially thanks to organisations like UNESCO that promote the cultural diversity against the English domination and to protect the cultural production against the market law. In fact, in France 75 regional languages are recognized since 2008.
With this in mind, some companies need to adapt, so for instance MacDonald's, which is also a symbol of the globalization, makes adaptation depending on the country. Meals in Israel are casher, halal in Muslim countries, vegetarian in India, more vegetables for France, a rice burger for China… Besides, in the cosmetics industry, more and more brands launch products for dark skinned women, like L'Oréal which is present all around the world.
These countries with a particular culture are the most interesting for the international marketing. They are often under development: indeed developed countries are already globalised in depth. Thus religions, habits, environment, weather, all these conditions must be taken into account to expand a business abroad and the best manners to avoid a mistake or an oversight in gathering this information is to employ some local people.
So international marketing is not only a tool to adapt for companies, but it also creates employment.
3. Geographical comparison
“Serving regional and national markets requires the adaptation of products, services, and business models to local conditions. As U.S. and European companies increasingly look for customers in emerging economies, both the advantages of global scale and the need for local differentiation will only increase.” - Hae-Jung Hong & Yves Doz, L'Oréal masters multiculturalism, June 2013. We understand here the importance of exporting to emerging markets. Firms becoming multinational help the countries be part of globalization but also helps the companies make money: it is a win-win situation. Most of the leading FMCG companies such as Nestle, Procter and Gamble, and PepsiCo (source: consultancy.uk) were born in developed countries.
Their main HQs are in North America, Europe, Japan or China. These regions of the world are the ones that export the most as well. However, nowadays, a lot of multinational firms born in emerging countries are becoming popular around the globe. On one hand, in Western markets, consumers have an increasing demand in tailored goods, their needs become more and more specific. This gives power to smaller players, although the FMCG giants still maintain the most important part of their sales in the Western culture markets. For example, for targeted consumers who are mature, if they have time, they will rather go to their local outdoor market to buy fresh fruit and raw meat instead of buying packed Campbell soup to serve to their family. On the other hand, developing markets are more about regional dynamics, and the growth takes place in the suburbs and rural areas, although the leading multinational firms hit big cities. They like the companies to value the local culture.
Leaders from China, South Africa, Germany, the United States, Japan, and dozens of other countries recognize that some of their greatest opportunities lie in new cultural markets. For example, L'Oréal has launched products in South America (see Part 2.2.c.).
However, some countries are in an economic recession and this has consequences on their role in global market. Brazil, Argentina, Russia and China are all going through an economic slowdown, and thus, giving power to other emerging countries. Nevertheless, the demand from emerging markets is seen as the most important factor facing global businesses. The spending power of China and India is increasing at an enormous rate. This is why firms want to sell all around the world. Also, Chinese companies are expanding globally with brands such as Lenovo.
You can see on this graph that most multinational firms implant in South-East Asia, Japan, Australia, America, Europe, South Africa, Saudi Arabia, South America, and North America. Most of the HQs are in the countries of the Triad (see Part 1.1.).
“In 2012, the Economist Intelligence Unit surveyed CEOs from hundreds of multinational corporations around the world. It found that for the ﬁrst time during an economic recession the majority of CEOs surveyed were planning to expand internationally, rather than retreat, because they believed their greatest opportunities for growth were outside their domestic borders” (Livermore, 2015).
4. L'Oréal's Case
L'Oréal is one of the most successful cosmetic brands in the world. It well integrated in the market of many different countries. For example, 23% of their turnover is from North America, about 9 % in Latin America, 38% in Western Europe, 7% in Eastern Europe, 3% in Africa/Middle East, and finally 19% in Asia (statistical data from L'Oréal).
L'Oréal has developed an international portfolio with it's different brands such as L'Oréal, Garnier and Lancôme from France, Maybelline and Kiehl's from the USA, The body shop from the UK, Georgio Armani from Italy and even Shu Uemuera from Japan. Each of these brands has a specific target and this is what makes L'Oréal so popular. It is to be noted in 2012, half the sales came from new markets outside Europe and North America, especially in emerging countries. There has been a significant growth of the sales in these countries. L'Oréal has implemented son Research and Development Centers in Europe, the USA, Japan, China, India and Brazil. This enables the enterprise to have a specialized development depending on the localization. Their mission is to study the market but also «understand the habits, the needs and the preference criteria of the local population in regards to beauty. L'Oréal is able to adapt to different types of skins, hair colors and cultures.” – L'oreal.com. Furthermore, L'Oréal produces its products everywhere in the world. This limits the exportations and travel fees.
The company has evolved to reach a point where they have managed to reach clients from more than 130 countries, thus leading it to be the global leader of cosmetics. However, the company had to go through a lot of changes and had to adopt a certain strategy before this. What makes L'Oréal successful is their internalization strategy. According to Béatrice Collin and Daniel Rouach, authors of “L'Oréal's model: the key strategies of a French multinational company,” L'Oréal's internationalization strategy is based on four key ideas: diversification of risks by investing in all countries (L'Oréal has implanted in so many different places that if it fails in one, it will be compensated by its success in another), making international acquisitions, study the economies by scale and maintain the growth on the European and American markets.
However, what is the perfect solution to a successful market penetration and global expansion?
What does international marketing bring? A recipe for success
1. How to expand and penetrate new markets without failing
a. Analysing before going
Today's world is full of opportunities to seize. Companies now tend to export and expand abroad. By sector, the success rate of corporate relocation varies. We will see together what the «recipe» for success abroad is.
Before taking premature decisions, it is important to learn about the place and the people of the country where you wish to implant your firm. Indeed, the first thing to do is to analyze not only the market but also the socio-political, economics and local factors that can influence your success. Pre- research is required; there are some sites on the internet (for example APCE or creersaboite.fr) that are dedicated to entrepreneurs and businesses wishing to expand. Useful information is there, such as the sector (ex: services, hotel business ...) that could succeed in the chosen country, legal status, taxes, the preliminary steps to perform, etc... These preliminary research reveal whether the establishment of the company in the chosen country is possible or not. Certain markets are "closed" because of religious features (non-halal meat in Arab countries for example), or else the fact that there are already many competitors.
After learning the steps to follow, you must study the market, learn about the needs of the local population. For example, the cosmetic needs of the Indian population will not be the same as those for Western or African population because, in fact, skin and hair types are different and have different characteristics and therefore needs. So a company like L'Oréal will have to learn about the population itself, its characteristics, lifestyles, consumption patterns... The whole is to adapt its products to the needs of people. For this, companies establish questionnaires and subsequently statistics that have the ability to predict if a product has a chance to enter the market or not.
We wanted to interview our teacher Sales Forces, Ben Trapman, on the keys to success of a business and its expansion abroad. This is an excerpt of the interview:
• How do we target the expectations or the needs of specific cultures?
Ben Trapman: The initial research is done on the computer but you must have a contact with the population, make your own idea, and meet local people…Look for what is common and what is different. But most of the times you end up by finding patterns all around. For example, the experience of couch surfing is great to immerge in a culture.
• In a word, how do you succeed abroad?
Ben Trapman: You need to adapt.
So stay on your computer is not enough, you must explore the country by yourself. Plus, you'll never know a country as well as its people if you stay over there for a short period, this is why it is often much more interesting to hire the native people of the country because they already know the customs, language and habits of the people living there.
An analysis enables to summarize and see if you have collected all the necessary information for your export, it is the PESTLE (Politic, Economic, Social, Technological, Legal, and Environmental) analysis.
These six criteria are most important. Indeed, if you go to expand your business abroad and that you are not aware of local laws or environmental standards, it can penalize you. Furthermore, this research indicates whether financially, you are able to invest in this country. Subsequently, the budget-making process is clearly needed.
Thereafter comes to all legal proceedings but also the strategies to take. Each company chooses with importance its sales locations, they must be popular and easy to access, rather touristy, where the population is also high. This is why the socio- geographical study is very important for the development of a project such as export business.
Then you need to find local partners, your retailers, just like L'Oréal who sells its products in supermarkets or perfumeries for example (however, other brands like MAC Cosmetics prefer to have their own stores).
Finally, one of the big points is to project, to establish its projects, its budget over the next ten years. Indeed, no company today operates from day to day, they anticipate and project into the future.
In order to enter different markets with clients with specific cultural backgrounds, companies adopt one of the following strategies:
• Exporting : indirect, but direct advertising
• Licensing : a transaction between licensor and licensee
• Franchising: franchisor gives franchisee the right to use the trademark, trade name…
• Joint venture : a foreign country invites an external partner to share stocks
• Contract manufacturing : the components are manufactured in other countries
• Subsidiary : owned entirely by parent company
• Strategic alliance : partnership between companies to achieve the same objectives
Each of the strategies need a different approach. It is “easier” for a company to export than to franchise, but it will be costlier.
2. Comprehension and adaptation to cultures, limiting the risk of confrontations
a. What should be taken into account?
Imagine how they sold the first Coca-Cola outside of America. Were the consumers very responsive to the standard product offer or did the company have to adapt its marketing to them? When selling a product in another country, it is excessively important to know about the local consumer behavior. The marketing mix will be determined by the local population's religion, physical environment, power of purchase, traditions, values, taboos and many more. Since “culture is a set of norms, values, myths and beliefs, rites and habits, and expressions and creations that are learnt from the environment and that determine the conception of the world and the behaviors that are common to a group of people” (Duguet's Marketing Course, TBS 2015), we can say that culture is what dictates what people buy or not. Of course, culture does not only come from nationality, religion or ethnic identity, it also comes from professional occupation, family and organizations.
Here is an example of cultural adaptation:
The lady is naked in one advertising poster, and is dressed in the other because in some countries, such as Muslim countries. It is not admissible to portray a naked woman's body, sometimes it can even be illegal.
Cultural leadership is also important. When managing an international team for example, you have to understand most member's cultural situation in order to interact with him or her efficiently. For example, in many emerging countries in Africa, they value saving face instead of straightforward, direct feedback. In some situations, it can be an obstacle because confrontations can appear. For that it is important to take into account CQ: cultural intelligence. “Ninety percent of leading executives from sixty-eight countries identified cross-cultural leadership as the top management challenge for the next century. Most contemporary leaders encounter dozens of different cultures daily. It's impossible to master all the norms and values of each culture, but effective leadership does require some adaptation in approach and strategy. The most pressing issues executives identify for why cultural intelligence is needed are: • Diverse markets • Multicultural workforce • Attract and retain top talent • Profitability and cost savings.” ( (Livermore, 2015). You cannot apply the same business techniques everywhere you go, it is why is needed for colleagues to learn about each other's values. It increases their efficiency in their jobs, lowers their frustration and creates opportunities.
b. Local VS Global
Successful enterprises have found the right balance between promoting the local culture as well as developing a worldwide standard, expanding without endangering cultural diversity. Everyone likes their country's traditions to be shown off, and this, multinational firms have well understood. So if you sell adapted products or services, responding to the specific need, the sales will boost. If not, you foreign client will not have a positive attitude towards your brand. For example, in some countries of Africa such as Liberia, the images of the ingredients in a product are on the packaging. Once, a baby food company tried selling their product with a baby on the label. No Liberian consumed the product, it failed to enter the market. McDonalds is a good example of glocalization for the menu is customized to suit local tastes: hallal in Muslim regions, kosher in Jewish regions, Indian or Chinese dishes…
Glocalization is the opposite of standardization or Americanization that scares a lot of small ethnics and endangered cultures.
c. L'Oréal's strategy
In order to become the number one seller in cosmetics, L'Oréal had to face obstacles and find the right way to convince customers from many countries. For example, before selling their new line of products, they designed which markets to enter. For that, the most important segmentation criteria is the purchasing power. This criteria changes from one culture to another on a macro lever or from one customer to another on a micro level. There is also the myth of the global village which is a concept that defines the effects of globalization, mass media and communication. It is a concept in which world is seen as a unified, as a village with only one society, only one community. The internet helps us to share the same information and view the same things.
After choosing the target segments and thus the country, they have to find market entry strategies. They have two objectives: internalization and extension of the French culture. So this is why they have different brands but also keep French brands in international markets, in this case implanting different positioning for different consumers.
L'Oréal has a “glocal” approach: they expand their product more or less standardly across frontiers although they take cultural and market specificities as opportunities.
Before selling their product in China, they study the market there. Asia has 19% of the group's sales and they have seen a 9.6% growth on this market. You can conclude that Asia is a fast growing market and that is important to invest there. In order to be effective, L'Oréal sets up a specific strategy for Asia. It is an acquisition strategy because the main goal is to acquire new customers. The regionalization of the product is set up, research and development takes place on the continent and the products are adapted to the consumers. For example, Chinese people tend to have a thicker skin, thus the cream has to be the less greasy possible. Also, as you can see on the ad, the women like whitening creams, so it is a new opportunity for L'Oréal.
In China, the marketing changes in order to implant strategic brands. Yet, when L'Oréal expanded to South America, the strategy used was different. South America also has an expanding market but it is more of a heterogeneous area and it has the advantage to have an important economic growth. The continent covers up to 9% of the sales with a 10% growth. In Brazil, 2.7 million dollars are spent on the cosmetic market. So, in order to implant successfully, L'Oréal bought local brands, hire local professionals, launched new products (for dark wavy hair for instance) to target a new market.
Furthermore, L'Oréal launched an international campaign called Beauty for All which promotes differences between each individual with culture backgrounds. Videos are made for various countries, and the main object is to define what beauty is. This shows that L'Oréal values cultural diversity.
3. New skill, talents, abilities and idea developments but a risk of standardization
With the Internet creation, new skills appeared that led to new selling process. The companies are now able to sell their goods all around the world, and the consumers can enjoy some products that they hasn't got access to before.
The e-commerce allowed the emergence of different selling technique that include the consumer participation: for instance the showrooming consist to see and try a product in a physical store and buy it on the website. The web rooming is the exact inverse process.
Besides, many brand asked consumer advice and opinion on the Internet to improve their image, products or selling techniques. The customer is more and more in the heart of the process because that easier and quicker thanks to the Internet.
According to Fevad (Federation of the E-commerce and the Distance Selling), the sales on the Internet keep growing fast. In 2014, the web sales have reached 56.8 billion of euros: that is 11% more than the previous year. The Christmas sales, that represent 20% of the year turnover, attain 11.4 billion of euros that to say 13% more than in 2013.
However, the web selling is so much widespread, that these techniques are now standardize. Today, companies search some new ideas because everything has already been done: the innovative minds are increasingly rare and employed by the richest companies. This phenomenon led to the brain drain.
Counter to received ideas, brain drain doesn't happen in developed countries, in fact France, USA, Canada, Sweden, Australia, Brazil and Japan are the countries that the student leave the least. Portuguese, Italian, Greek, British, Dutch, are five to twenty times more to work abroad. The most important brain happen mostly from Africa toward the well developed countries.
The world is developing in a way that makes intercultural exchanges in the business world inevitable. However, entering a foreign market is never a simple task. It takes careful studies of the buying behavior of the target consumers, the global background of the country and a cautious choice of the entry strategy. At TBS, we understand the importance of cross culture exchanges, why else would we be studying international business?
“Do you want your company to become global and your product to be successful in many different cultures? Before trying to sell anything in another country, go there, eat street food, and talk to locals and share experiences with them.” – Ben Trapman.
We would like to thank Ben Trapman, Julien Duguet and especially Maud Léguistin for their remarkable help, whether it was for the information concerning the project or how to set it up.
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