The Paradox of Standardization and Localization A case study on Kvadrat´s success of standardized marketing communication strategy in China Kitti Szekeres (403016) 1/6/2014 Supervisor: Sara Hamid Alwan 403016 Master Thesis MA in Corporate Communication Table of Contents Table of Figures .............................................................................................................................. 4 Abstract ........................................................................................................................................... 6 Introduction ..................................................................................................................................... 8 Problem statement ..................................................................................................................... 11 Delimitations ............................................................................................................................. 12 Scientific Approach & Methodology ........................................................................................ 12 Scientific paradigm ................................................................................................................ 12 Methodology.......................................................................................................................... 14 Validity .................................................................................................................................. 15 Research design and method ................................................................................................. 15 Data collection ....................................................................................................................... 16 Data analysis .......................................................................................................................... 16 Thesis Structure ......................................................................................................................... 17 Choice of theories...................................................................................................................... 19 Importance and Implications of this Research .......................................................................... 23 Theoretical Framework ................................................................................................................. 25 Globalization of markets ........................................................................................................... 26 International Marketing Standardization ................................................................................... 33 Critiques to the strategy of international marketing standardization ..................................... 38 International Marketing Localization Strategy ......................................................................... 40 The Strategy-Fit Approach ........................................................................................................ 42 Critiques to the Strategy-Fit Approach .................................................................................. 44 Business-to-Business (B2B) vs. Business-to-Customer (B2C) Sector ..................................... 45 Page 2 of 93 403016 Master Thesis MA in Corporate Communication Blue Ocean Strategy .................................................................................................................. 46 Planning in Management ........................................................................................................... 53 Environmental Analysis ........................................................................................................ 53 Types of decisions ................................................................................................................. 54 Stakeholder theory & The Stakeholder Salience Model ........................................................... 55 Case Study .................................................................................................................................... 59 Introduction to Kvadrat ............................................................................................................. 59 Stakeholder Identification ......................................................................................................... 60 Foreign Market Characteristics ................................................................................................. 62 Strategic Environment of Kvadrat A/S in Denmark .............................................................. 62 Strategic Environment of Kvadrat in China .............................................................................. 64 Firm/Management Characteristics ............................................................................................ 68 Tactical Level ........................................................................................................................ 68 Operational level.................................................................................................................... 69 Product Characteristics .............................................................................................................. 70 Strategy-Fit? .............................................................................................................................. 70 The Blue Ocean Strategy and Kvadrat ...................................................................................... 72 Discussion ..................................................................................................................................... 76 Advertising transferability......................................................................................................... 76 How to survive the future Red Ocean? ..................................................................................... 79 Balancing the paradox of standardization and localization ....................................................... 81 Conclusion .................................................................................................................................... 85 Appendix ....................................................................................................................................... 87 Bibliography ................................................................................................................................. 88 Number of characters without spaces: 136417, corresponding to 62 standard pages Page 3 of 93 403016 Master Thesis MA in Corporate Communication Table of Figures Figure 1 - Visual Overview of the Thesis Structure ..................................................................... 18 Figure 2 – Framework for Determining International Marketing Strategy. Source: (Cheon, Cho, & Sutherland, 2008). ..................................................................................................................... 34 Figure 3 – Framework for Determining International Advertisng Strategy. Source: (Cheon, Cho, & Sutherland, 2008). ..................................................................................................................... 35 Figure 4 – Conceptual Framework for Meta-Analysis. Source: (Tan & Sousa, 2013) ................ 37 Figure 5 – An External Environment Analysis. Source: (Ramarapu, Timmerman, & Ramarapu, 1999). ............................................................................................................................................ 43 Figure 6 – Strategy-fit Analysis. Source: (Katsikeas, Samiee, & Theodosiou, 2006). ................. 44 Figure 7 – How to Create the Blue Ocean Strategy. Source: (Kim & Mauborgne, 2005). .......... 48 Figure 8–The Strategy Canvas. Source: (Kim & Mauborgne, 2005). .......................................... 49 Figure 9 – The Four Steps of Visualizing Strategy. Source: (Kim & Mauborgne, 2005). ........... 50 Figure 10 – The Three Tiers of Noncustomers. Source: (Kim & Mauborgne, 2005). ................. 50 Figure 11 – The six conventional boundaries of competition. Source: (Kim & Mauborgne, 2005). ....................................................................................................................................................... 51 Figure 12 – Analysis on which Blue Ocean Idea is worth implementing. Source: (Kim & Mauborgne, 2005). ........................................................................................................................ 52 Figure 13 – Fair Process. Source: (Kim & Mauborgne, 2005). .................................................... 53 Figure 14 – 10 Steps of Analyzing the Strategic Environment. Source: (Lynch, 2011). ............. 54 Figure 15 – Types of Business Management Decisions. Source: (BBC.co.uk, 2014). ................ 55 Figure 16 – Stakeholder Salience Model. Source: ........................................................................ 57 Figure 17 – Selected Financial Data. Source: (Abbott & Groysberg, 2013). ............................... 61 Figure 18 – Rationalization Strategy of the T & C Industry. Source: (Olsen, Ibsen, & Westergaard-Nielsen, 2004) ......................................................................................................... 62 Figure 19 – Porter´s Five Forces Analysis on Kvadrat A/S in Denmark. Based on: (Porter M. , 1990) & (Bayer, 2008). ................................................................................................................. 64 Figure 20 – Key Success Factors for Kvadrat in China. Based on: (Lynch, 2011). ..................... 66 Figure 21 – Porter´s Five Forces Analysis on Kvadrat in China. Based on: (Porter M. , 1990). . 67 Figure 22 – The Strategy Canvas of Kvadrat in China. Based on: (Kim & Mauborgne, 2005). .. 73 Page 4 of 93 403016 Master Thesis MA in Corporate Communication Figure 23 – Strategies of Advertising Transferability in Multinational Marketing. Source: (Sheth J. N., 1978). ................................................................................................................................... 76 Figure 24 – A Checklist for Transferring Ads between Markets. Source: (Ipsos, 2013). ............ 78 Figure 25 – SWOT Analysis on Kvadrat. Source: (Bayer, 2008). ............................................... 80 Figure 26 – The Paradox of Globalization. Source: (Bird, 2007). ................................................ 81 Figure 27 – Products: Global scale versus local customization needs. Source: (Bird, 2007)....... 82 Figure 28 – Innovation: need to build truly global networks instead of R&D islands. Source: (Bird, 2007) ................................................................................................................................... 82 Figure 29 – Kvadrat´s Weibo presence as of 01.05.2014. Source: http://weibo.com/kvadratchina ....................................................................................................................................................... 87 Figure 30 – Kvadrat´s website. Source: www.kvadrat.dk ............................................................ 87 Page 5 of 93 403016 Master Thesis MA in Corporate Communication Abstract The aim of this thesis is to contribute to the discussion on the paradox of the international marketing standardization and localization and by examining the case of Kvadrat in order to find out why the use of the international marketing standardization strategy could be more beneficial, even though the external environmental factors suggest the implementation of a more localized approach. The background of this paradox is the trend of globalization. Lewitt (1983, p93) defined the globalization of markets as “companies benefit[ting] from enormous economies of scale in production, distribution, marketing and management”. Despite the criticism, which claim that the globalization of markets is dependent upon the market characteristics and conditions, Lewitt´s (1983) was used as the background to be kept in mind throughout the thesis. International marketing standardization can be defined as the use of the same marketing mix and distribution and products across different national markets (Jain, 1989). According to the advocates of this strategy, it is based on the homogenization of the consumers worldwide, further, the economies of scale and scope provides competitive advantage for the companies choosing this approach. Critiques argue that despite the greater economies of scale, the companies might suffer due to suboptimal sales if the standardization is incompatible with the market specifics. The proponents of this international marketing localization approach highlight the importance of local adaption (Svensson, 2001). There are several analytical frameworks which discuss how a company could determine which of the above mentioned two strategies to use. Katsikeas, Samiee, & Theodosiou (2006) and Ramarapu, Timmerman & Ramarapu (1999) offer insight into what aspects to consider before choosing a strategy. Both of these frameworks are based on the premise that if the host and target markets are similar than a standardized approach is beneficial, but in case they are profoundly different, the localization strategy should be applied. Furthermore, it has to be ackowledged that both strategies intend to generate competitive advantage for the companies. However, the bestseller management book by Kim & Mauborgne Page 6 of 93 403016 Master Thesis MA in Corporate Communication (2005) argues that the competitive advantage is an overstated concept and instead of focusing on fighting the competition, the companies should dedicate their resources to value innovation and thereby making the competition irrelevant. Since the ´opening up´ of China in 1978, thousands of foreign companies decided to set up businesses due to favourable economic conditions and prospects for great return on investment. However, as Gong (2003) argues the Chinese market still remains a difficult one for Western companies to penetrate into, due to te profound dissimilarities in market conditions. Therefore, this thesis sets out to analyze one of the success stories, the Danish textile manufactorer, Kvadrat. It is currently the leading textile manufactorer in Europe and their products are available in the Chinese market since 2010. The turnover, referential projects and the success of two showrooms in Shanghai andd Hong Kong and the plans for a new showroom in Beijing indicate that the company has managed overcome the difficulties with the use of a standardized approach (Kvadrat, 2014). One of the main premises of this thesis was that the Danish and Chinese market characteristics are different, and even though a globalised approach can be used to resolve these differences, my choice will fall upon the localized approach as a strategic solution and as a point of comparison. The external environmental analysis verified this hypothesis. However, when examining Kvadrat´s value proposition, it became clear that Kvadrat makes use of value innovation that indicates to deliver products rendered of a higher quality than the competitors albeit in the analysis section this will be reflected more upon in order to determine if the current competitors can match that. In the metaphorical terms of the Blue Ocean Strategy, currently, Kvadrat operates in a competition-free ´blue ocean´, which might become a ´red ocean´ over time. In the Discussion section, this issue will also be addressed. The main findings of this thesis include the beneficial aspect of international marketing standardization and also the debatable notion of the paradox of the international marketing standardization and localization, since the company should center on value innovation instead of gaining competitive advantage. Page 7 of 93 403016 Master Thesis MA in Corporate Communication Introduction There is no single formula for creating and implementing a successful business communication strategy. Since the trend towards globalization of markets turned out to be one of the most significant processes in the 21st century (Tan & Sousa, 2013), it has become increasingly difficult to ignore this in both the long-term oriented and day-to-day business operations, resulting in more opportunities as well as challenges with regards to the development of profitable business solutions across multiple national markets. Consequently, the international business community remains divided and heavily debated regarding the topic of whether international marketing strategies should be either more standardized or more localized and their intended effects regarding the market of wither gaining competitive advantage through economies of scale or trend more toward acknowledging the differences of the various national markets (Jun & Zhiqiang, 2008). International marketing standardization can be defined as the use of the same products, distribution, price, promotion programs and marketing communication strategies across different markets (Jain, 1989). According to Yip (2003), standardization may offer economies of scale, but in certain cases it might lead to suboptimal sales, because it may be incompatible with the characteristics of the host market. Therefore, Katsikeas, Samiee & Theodosiou (2006) proposed a conceptual framework on examining the characteristics of a host market in order to determine whether the standardization or localization strategy should be implemented. This analytical tool concerning the strategic fit to the new situation and environment will be one of the major pillars of this thesis. According to Tallman & Yip (2001), there are three major strategic issues to consider when multinational corporations (MNCs) go global. Firstly, the geographic spread, secondly, the local adaptation and localization, and thirdly, the global integration, meaning to what extend MNCs´ business operations in different national markets are integrated. The last two problems entail the paradox of standardization or localization. As pointed out above, even though this topic bears great importance for both researchers and managers, marketing theorists and practitioners still remain divided about the advisability of using a standardized or localized marketing communication strategy. As Coope (2004) argues, success is not only dependent on the Page 8 of 93 403016 Master Thesis MA in Corporate Communication implementation of localized or standardized strategic solutions, but it is also vital to communicate these choices to the stakeholders. One of the main reasons behind the fact that the companies are extremely focused on balancing the paradox of standardization or localization is to gain competitive advantage. However, one of the most sold management books in the US and China, The Blue Ocean Strategy by Kim & Mauborgne (2005) argues that instead of focusing on fighting the competion, the companies should put their efforts into value innovation, meaning that the company´s offering becomes unique by delivering a different value set than the competitors, thereby making the competition irrelevant (Kim & Mauborgne, 2005). The current state of competition is labelled as ´red ocean´, and the competition-free stage is the ´blue ocean´. The theory has received several criticisms, especially when it is compared with Porter´s Five Forces (Porter, 1986), since it has been argued that a unique offering through value innovation does not make the competition irrelevant (Porter, 1990). Nevertheless, this theory still offers a different point of view, therefore it becomes relevant when discussing why a standardized communication strategy could be beneficial. Furthermore, another advantageous point of this theory is that it can be utilized at strategic, tactical and operational levels, which corresponds to the analytical levels of external and internal environment, which the decision about implementing the international marketing standardization or localization communication strategy is derived from. Based on this ideal, it is vital for a company or an organization to communicate these strategic choices, which gives a new challenge for today´s businesses. This is due to the reason that if the communication strategy is carried out in an inappropriate or insufficient way, it might damage or even break the relationship with the various stakeholder groups, but a successful communication strategy has great potential for strengthening the collaboration (Cornelissen, 2011). This is in line with the argumentation of Pollach & Schlegelmilch (2005) who claim that too much communication could turn out to be counterproductive, especially in the case when the words do not reflect and mirror the company´s actual efforts. In line with Cornelissen (2011), within the framework of this thesis, marketing communication is seen as being comprised of corporate and mass media advertising, direct marketing, sales promotions, product publicity and sponsorship, further, the marketing communication strategy is rather the planning phase, whereas the marketing communication is the execution (Asche-Edmunds, 2014). Page 9 of 93 403016 Master Thesis MA in Corporate Communication One of the cases frequently analyzed is when Western companies are entering Asian markets. Due to the market reforms, growing middle class and disposable income, China has become an increasingly popular market to enter (Gong, 2003). Additionally, Rall (2007, p255) names China as “one of the world´s most attractive heavens for foreign investments that are looking for colossal returns”. Nevertheless, Chinese market is complicated to enter and even big Danish companies with great know-how have experienced vast difficulties (Hall, 2012). Communicating to the local market in an international manner does present its challenges that need to be considered along the lines of business expansion, as cultural differences are what can make or break a company’s success of entering the market and maintaining competitive advantage (Coope, 2004). One of the success stories is the Danish textile company, Kvadrat, which entered the Chinese market in 2010. Kvadrat is Europe´s leading manufacturer of design textiles. Due to their contract-based business model, they are working together with the world´s leading textile designers and artists and architects in order to generate unique products and solutions to the projects they are working on. Their referencial work includes the Reichstag, the Guangzhou Opera House or the Museum of Modern Art in London (Kvadrat, 2014). With regard to the Chinese market, the growing sales, turnover and plans for opening new showrooms in Beijing besides the existing ones in Hong Kong and Shanghai suggest that Kvadrat has mastered the challenges of the Chinese B2B market (Bayer, 2008). Consequently, the findings of a case study on Kvadrat might serve as guidelines for other companies in order to overcome the paradox of deciding between the international marketing standardization or localization aspect by looking at it through a communicative point of reference when engaging in the local Chinese market. Page 10 of 93 403016 Master Thesis MA in Corporate Communication Problem statement Taking a point of departure at the dilemma facing the international companies, which are entering new markets, this thesis will examine: The Danish textile company, Kvadrat´s marketing communication strategies in the Chinese market in order to answer the universal question: Why is it beneficial to use international marketing standardization, in case the market and environmental characteristics should point to alternate market strategy adaptation? Research questions: 1. To help the thesis understand the context of its problem statement, it will first attempt to explain the conceptual framework, which dictates marketing communication. It does so by answering the following problem statement: What is globalization and how does it affect the choice on marketing communication standardization or localization? 2. Due to the above mentioned circumstances in a globalized marketspace, one of the premises of successful corporate communication is to gain competitive advantage and communicating this via an up-to-date and relevant message to the most important stakeholders (Cornelissen, 2011). Therefore, the Theoretical Framework part of this thesis (p26) will answer to the following question: How does the choice of the international marketing standardization or localization in line with the Blue Ocean strategy reflect the strategic communication aspect of marketing globally in a specific location as China? 3. Successful communication outcomes do not only depend on the chosen strategy, but also on the characteristics of the audience. In order to answer the problem statement on which approach would be prefered regarding Kvadrat the following research question needs to be answered: How did Kvadrat deal with the paradox of international marketing standardization or localization from a communicative perspective and is this choice in with with the Blue Ocean strategy and the needs of the audience? 4. Based on the analytical findings, the Discussion part of this thesis (p74) will attempt to debate the marketing communication strategic choices of Kvadrat by answering the following question: How do the analytical findings from the case study on Kvadrat reflect Page 11 of 93 403016 Master Thesis MA in Corporate Communication on the above mentioned theories in general and what are the future prospects for development? Delimitations As mentioned above, international marketing standardization is comprised of several aspects, such as price or distribution standardization (Jain, 1989), however, the following thesis will be based on the communication aspect, thereby excluding the other issues which could be standardized or localized, such as Kvadrat´s positioning strategy. Furthermore, Kvadrat has recently engaged in B2C sales, but their main focus is still on the B2B segment, therefore this thesis is also limited to the B2B context. In this thesis, the empirical results will be focused on Kvadrat´s marketing communication strategy in China and it will exclude the other markets, such as Singapore or USA. In line with this, the geographic focus will be the People´s Republic of China. Consequently, the aim of this thesis is not produce an all-encompassing theory, but to formulate some industry-, country-, and market- specific trends, which – after further research and verifications – might be generalized. Due to the number of pages, this thesis will not encounter a comparative study, however, this will be proposed as a future research option in order to test the results of this thesis in a crosscountry or cross-industry perspective. Scientific Approach & Methodology Scientific paradigm The purpose of this section is to introduce the chosen scientific paradigm of this thesis and to present the opportunities and challenges of this decision. This thesis is based on the social constructivist paradigm. According to Guba (1990, p326), this paradigm can be defined as: “a basic set of beliefs that guides action”. Furthermore, social constructivism is about “reconstructing the ´world´ at the only point at which it exists: in the minds of constructors” (Guba, 1990, p327). The main advantage of this approach is that according to the constructivist paradigm there are different set of realities, not just one (Guba, 1990), which indicates that not only a certain set of possible answers can be generated for the problem statement, but it also entails that the findings of this thesis need to be treated from a dynamic and case-specific point of view. This is in line with (Hansen, 2010), who claims that in Page 12 of 93 403016 Master Thesis MA in Corporate Communication the field of corporate communication, equally valid answers or solutions can coexist. Therefore, this paradigm allows the researcher to produce several answers to the problem statement, consequently, to generate broader recommendations with regards to the marketing communication strategy when operating in different national markets. The conclusion and findings of this research will not be ´definitive truth´, but rather ´real´ reality, or as Bryman (2008, p25) puts it, “the researcher always presents a specific version of social reality, rather than one that can be regarded as definitive”. Nevertheless, it should be acknowledged that this characteristic does not make the results of this study less valid or relevant, since: “Realities are multiple, and they exist in people´s minds” (Guba, 1990, p327). Social constructivism originates from various sources; it was influenced by social psychology, social history and hermeneutics. It also influenced different writings, such as Immanuel Kant or Karl Marx. The sociology of knowledge or the history of ideas share similar understandings as the thoughts of the social constructivism. In general, social constructivism analyzes the the individual and communal life from the social influences point of view. There are several different adaption of social constructivism; however, all focus on the interconnectedness and complexity of the individuals and community and refuse the idea of causality. According to social constructivism, the interactions shape and create all parts of human life (Owen, 1995). The “theory of knowledge” (Bryman, 2008, p15) is constructed by ontological, epistemological and methodological levels. The ontological level refers to the existence of the world, whereas the epistemology represents the relationship between the observer and the world; the methodology clarifies the means through which the knowledge becomes accessible (Anonymous, 2014). In line with Wenneberg (2002), social constructivism will be considered throughout this thesis as an epistemological stance. Consequently, this thesis will regard the knowledge as “a human construction, never certifiable as the ultimate truth but problematic and ever changing” (Guba, 1990, p329). Thus, the social reality is seen as social construction of knowledge, which is the result of our thoughts, conversations, explanation and understanding (Wenneberg, 2002). This constitutes the major drawback of this research paradigm, meaning that even though this thesis intends to generate valuable results on the case study, these cannot be regarded as static or universal findings. Page 13 of 93 403016 Master Thesis MA in Corporate Communication Since Hackley (2010) argues that advertising and marketing communications are socially constructed, taking a point of departure at the social constructionism as an epistemological position in a thesis on marketing communication strategies is a beneficial and legitimate approach. This chosen stance has crucial implication for this thesis, since it has to be acknowledged that the theoretical framework and the findings of the case study shall be viewed as social facts and furthermore, these social facts are generally agreed upon. The chosen scientific paradigm links strongly to the communication as a discipline, mainly by defining a particular reality in which the communication process takes place. The constructive perspective views all stakeholders and members of the communication process as being actively engaged in producing meaning, which indicates that they work together through this process by analyzing and information sharing. In order for the communication strategy to be successful, all the participants need to collaborate together, thereby creating generally agreed upon social facts. Consequently, this points out that within this social reality the companies have great responsibility in making sure to shape the discourse in a way that it does not only make sense for the various stakeholders, but they will be given the change to actively collaborate during the whole process (Tobin & Tippins, 1993). Methodology In order to create consistency between the reflections and explicitness, the chosen scientific paradigm does not only define the epistemological and ontological levels, but it also classifies the methodological approach, namely the qualitative research. Furthermore, the qualitative research is in accordance with the purpose and objectives of this thesis which is to gain new knowledge by gathering in-depth data. As Maylor & Blackmon (2005) puts it, quantitative research analyzes the relationship between variables, whereas the qualitative research is based on observation of the gathered in-depth information in order to formulate knowledge about a specific case (Bryman, 2008). It has to be noted that in order to acquire a more focused and unbiased understanding of the case, quantitative measures will also be employed so as to delimit probability errors. As the main research design is the qualitative approach with an element of quantitative, these together will be used to not only detect the presence of certain strategies, but also to what extent these strategies Page 14 of 93 403016 Master Thesis MA in Corporate Communication are relevant. This will result in analyzing whether Kvadrat uses a standardized or a localized marketing communication strategy, what the reasons are behind this choice and how beneficial it is for the company. Validity As argued above, the communication strategy will be viewed in a certain set of reality, and it is essential to discuss the validity of the findings within this ever evolving context. As Maylor & Blackmon (2005) puts it, the validity can be grouped into two types: a) internal validity and b) external validity. The internal validity can be defined as causal relations within the study itself (Bryman, 2008), indicating an underlying connection of the problem statement and the research questions, based on the validity of the researcher´s pre-understanding reflected in the following Theoretical Framework (p26). Furthermore, the internal validity also refers to the research model, which is the fundament of solving the problem. All in all, it can be said that the internal validity means that the whole study should be logical and clear in order to get sufficient and reliable results. Maylor & Blackmon (2005) claim that the external validity is about whether the research is generalizable. With regards to this specific thesis, the internal validity is present within this framework; however, as discussed above, due to the chosen research paradigm of social constructivism, the findings generated here will only be valid to a certain set of reality, which is ever changing. However, this does not mean that the thesis looses its importance; it only means that it does not intend to formulate universal theories, but it rather aims to contribute to the ongoing discussion and create valid points for future research. Research design and method The research design chosen will be the case study design within the social constructivist paradigm. Bryman (2008, p56) defines the case study method as “a detailed and intensive analysis of a single case”, which is also in line with the purpose of this particular thesis. The Danish textile company, Kvadrat´s business operations in China, will be the used as a specific case when it comes to the analysis of the standardized marketing communication strategy in the host market. According to Bryman (2008), the case study design gives a possibility to the researcher to conduct a deeper and more profound analysis. The main aim of the case study is gain an Page 15 of 93 403016 Master Thesis MA in Corporate Communication insightful understanding of Kvadrat´s marketing communication strategy in China with special regards to the needs of the target group. Drawing upon the problem formulation, the qualitative research method is suitable for this research, since its explanatory nature purposes to understand the words rather than the number which is in accordance with the aim of this thesis as well. In general, the Theoretical Framework (p26) will take a normative approach to the description of the theories. This approach has been chosen; since it has been argued above that the companies operate in a certain social reality according to the social constructivist paradigm and the characteristics of this social reality – including reflections and argumentation why it is the most relevant in this case – need to be introduced. Data collection Njusja de Gier, VP of Branding & Communication argued that in order to “lower marketing expense or moving a lot more of our communications efforts online” (Abbott & Groysberg, 2013, p17), consequently, the communication data will be derived from the official website of Kvadrat, whereas the theoretical framework will be based on academic articles and books. Data analysis With regard to the data analysis, it is also important to define whether the thesis will employ a deductive or an inductive approach. As Bryman (2008) points it out, inductive reasoning moves from the specific hypothesis to the more general one, however, its main weakness is that the conclusion might still be false even through the premises are true. Since this thesis moves from the general arguments, such as the theoretical framework, to the specific case, namely the analysis of the marketing communication strategy of Kvadrat in China, this thesis follows a deductive logic. Regarding the analytical process, the next subsection will clarify the theoretical foundation which will be later on compared and contrasted with Kvadrat´s marketing communication strategy. The theoretical concepts will be centered on localization/standardization; B2B sector, and Blue Ocean Strategy. This will form the causal relationship between the theoretical framework and the case study and the findings of this thesis will be drawn upon the correlation between the practice and theory within the chosen research paradigm. Page 16 of 93 403016 Master Thesis MA in Corporate Communication Thesis Structure The following thesis is divided into 5 Chapters. As shown above, the purpose of the First Chapter is to give a brief introduction to the following research. As a part of this, the problem statement and the research questions have been formulated, whereas the main scientific paradigm and methodology were introduced as well. This serves at the background to the research, moreover, the literature review will present the readers with a suitable frame for the thesis. The Introduction is followed by the Theoretical Framework (p26), which will function as a fundament for the Analysis, whereas it also intends to provide a brief literature review regarding the topic of standardization versus localization, strategic management and the Blue Ocean Strategy. This will allow a deeper understanding of the case of Kvadrat in China. The main topics covered by the Theoretical Framework will be the following ones: first of all, it is going to discuss the current trend of the globalization of markets and its implications on businesses (Lewitt, 1983). Afterwards, a discussion on international marketing standardization and localization (see e.g. Cheon, Cho, & Sutherland (2008); Tan & Sousa (2013); or Svensson, (2001)) will be presented followed by an introduction to the B2B marketing (see e.g. Bingham, Gomes, & Knowles (2005), or Garber & Dotson (2002)). This will be supplemented by the introduction to the field of strategic management (Lynch, 2011) and the theory on how to create uncontested marketspace by Kim & Mauborgne (2005). Additionally, the Theoretical Framework (p26) will also clarify the analytical notions of strategic, tactical and operational levels of communication. Chapter Three will be devoted to the case study (p58). It will begin with a brief introduction to the company Kvadrat, followed by analysis of the macro- and microeconomic environment in both Denmark and China. This comparison will serve as the basis for determining to what extent the Chinese design textile market differs from the Danish one; moreover, it will also include an investigation at strategic, tactical and operational levels. This analytical data will be then put into the framework posed by Katsikeas, Samiee, & Theodosiou (2006) and it will be determined whether Kvadrat should use its marketing communication strategy based on an international marketing standardization or localization strategy and how the success of Kvadrat fits into the conceptual framework of this theory. Page 17 of 93 403016 Master Thesis MA in Corporate Communication Furthermore, applying the Blue Ocean Strategy by Kim & Mauborgne (2005) would give insight into the strategies used by Kvadrat and since it theory is applicable to all the three levels – strategic, tactical and operational -, it would generate valueable results on the benefits of a standardized approach to marketing communication. Chapter Four will give room for several topics of discussion (p74). First of all, it will be debated on how to balance the paradox of standardization or localization and whether there are some ways to combine there two approaches (Parnell, 2006). It will also be talked about to what extent the advertisements are transferable from one market to another and what the main strategies are in relation to making sure that the audience can make sense of standardized and translated marketing communication materials (Ipsos, 2013). This section will end by an argumentation on – given the not static notion of the ´blue oceans´- what the possibilities are for Kvadrat in moving to another blue ocean, in case the current market will turn into a red ocean, meaning that the company needs to face with increased competition (Kim & Mauborgne, 2005). Chapter Five will end this thesis by concluding remarks (p84). Figure 1 - Visual Overview of the Thesis Structure Page 18 of 93 403016 Master Thesis MA in Corporate Communication Choice of theories The thesis has several parts which logically intend to contribute to solving the problem statement. The main aim of this thesis is to examine the marketing communication strategies of Kvadrat. Since the purpose of this thesis is to investigate the Chinese market, Kvadrat´s marketing communication in China will be discussed and the other markets the company is operating at will be excluded from this analysis. As argued above it has been a difficult to market to enter for a number of Danish companies and Kvadrat´s turnover shows that it managed to operate successfully on this market (Hall, 2012), indicating that it could serve as an example for other companies. The thesis began by introducing the problem statement, objectives, and research paradigm. The social constructivist paradigm entails that this thesis will be conceptualized within a certain version of reality. In order to set this reality, the theoretical framework will introduce the most important scholars and the reason why they are relevant in the framework of this thesis. The Theoretical Framework (p26) will begin by a conceptualization of the globalization of markets by Lewitt (1983). Since he first coined this term and he greatly influenced the future research, his original article has been chosen. He is an advocate of the global convergence approach, which is one of the main pillars of this thesis, since it claims that the globalization takes places due to the technological advent and the key for gaining a competitive advantage is to realize this tendency and standardize all the marketing strategies. This theory is suitable, because it claims that it is enough to translate the messages and other alterations are not necessary, which is one of the crucial questions of this thesis. Lewitt (1983) based his argumentation on he technological advent that has driven the world towards a new commercial reality, where the global markets, which are bombarded with standardized consumer products, emerged. The concept of global strategy and globalization of business came forward in the 1980s. Lewitt (1983, p92) argued that: “Companies must learn to operate as if the world were one large market – ignoring superficial regional and national differences”. According to Sheila & Croucher (2006) globalization can be defined as a process resulting in the unification of the people – on economic, technological, socio-cultural and political levels - into a single society. In the framework of this thesis, globalization will not only be conceptualized as the common understanding in the Page 19 of 93 403016 Master Thesis MA in Corporate Communication mainstream media, namely as economic globalization leading to an international global economy (Jagdish, 2007), but it will rather be referred to as an approach to global convergence, indicating that the world is treated as one market (Wit & Meyer, 2010). Additionally, Lewitt (1983) claims, that those companies, who fail to adapt to new circumstances, will suffer an enormous disadvantage to those who succeed. In general, Porter (1990) argues in line with Lewitt (1983), however, he (1990) advocates that the standardized strategy should involve localized elements in order to acknowledge the differences across national markets. The critical scholars to this approach advocate the localization approach. Chronologically seen, the localization approach was developed before the standardization approach of global convergence by Lewitt (1983) (Smith, 1956). For analytical purposes, this thesis will only take into account the most cited scholars, since these are the most developed and all-encompassing theories available. Moving onto the perspective of localization, the concept can be defined as the opposite of globalization, namely that the companies become responsive to local demands and national differences (Wit & Meyer, 2010). The advocates of this approach promote that there are still vast cultural and political differences across the regions and countries; therefore it is crucial for the businesses to adapt to local uniqueness. Furthermore, they also argue that the universality of the customer needs is only valid in limited circumstances, so it is essential for the companies to be flexible to change their operation or order to suit the local needs (Wit & Meyer, 2010). In line with Parnell (2006), localization means that the company´s main concerns are the local matters, indicating that the managers do not regard activities outside the host country as important issues. The strategy of “acting local” requires “thinking local”, means that the company´s efforts should mirror the localized and tailor-made decisions addressing the specific needs of the situation. In order to capture all possible aspects of this social reality, it is essential to take into account not only the two opposite strategies, but also how this strategic choice should be made. There are scholars who are only advocates of one of the perspectives, however, there are others, for instance Katsikeas, Samiee & Theodosiou (2006), who root their point of views from the contingency theory and thereby stating that the situational factors should decide whether a localization or standardization strategy is more suitable for the company. Since only 12% of the Page 20 of 93 403016 Master Thesis MA in Corporate Communication academic articles mention this approach, this thesis also set to determine the relevance of this approach within the paradox of international marketing standardization or localization (Katsikeas, Samiee, & Theodosiou, 2006). There will be several approaches and models presented in the Theoretical Framework which attempts to model and investigate the decision behind a standardized or localized communication. Many researchers have conducted a meta-analysis in order to examine the status of international marketing and advertising (e.g. Jain (1989), Agrawal (1995) or Estelamia, Lehmann, & Holden (2001)). However, these researches have not produced consistent findings (Cheon, Cho, & Sutherland, 2008). The most all-encompassing data-set is used by Cheon, Cho, & Sutherland (2008); therefore, this thesis will use their analytical results. Cheon, Cho, & Sutherland´s article (2008) is centered on the comparison of standardized and localized strategies based on a metaanalytic methodology, which is further based on qualitative statistical results since an initial study was conducted by Elinder (1961). As mentioned above, the main aim of the standardized or localized strategical decision is to gain competitive advantage. However, the bestseller management book in the US and China by Kim & Mauborgne (2005) claim that instead of focusing on the competitive advantage, the companies should utilize their resources in order to create a different product offering. Operating on various international markets implies fierce competition and the choice between using a standardized or localized marketing strategy. These are all based on the market characteristics; therefore, the analysis intends to compare and contrast the the Danish and Chinese market characteristics and thereby contributing to the literature on the paradox of standardization or localization. Furthermore, the marketing communication strategy does not only need to take into account the stakeholders (for which a stakeholder analysis will be conducted) but also the competition when it designs its business communication strategies. Therefore, the Blue Ocean strategy will be employed to analyze whether Kvadrat faces fierce competition and whether it is reflected in the communication efforts. This thesis intends to investigate the marketing communication strategy, further, the globalization affects greatly the strategies of the organizations; therefore the field of strategic Page 21 of 93 403016 Master Thesis MA in Corporate Communication management needs to be introduced as well. The major scholar within this field is Lynch (2011) who proposed several valuable models in order to investigate the strategic environment. These models will be in detail depicted in the Theoretical Framework section, since they will contribute to determining whether Kvadrat´s marketing communication strategy fits its strategic environment. Strategic management can be defined as: “The field of strategic management deals with the major intended and emergent initiatives taken by general managers on behalf of owners, involving utilization of resources, to enhance the performance of firms in their external environments” (Nag, Hambrick, & Chen, 2007, p943). According to Lynch (2011) strategy formulation is referred to the company´s determination of where it wants to go and how to get there, whereas it involves a list of practical steps, the tactics on how to reach this business vision and the regular day-to-day management of these steps is called the operational level. Furthermore, the strategic move is a “set of managerial actions and decisions involved in making a major market-creating business offering” (Kim & Mauborgne, 2005, p10). Strategic management involves a crucial aspect, namely the perspective of communication. One of the most important scholars within this field is Cornelissen (2011). The reason behind integrating his book into the theoretical framework is that it integrates both the academic and practitioner notions, thereby merging the practical issue with a comprehensive theoretical framework in order to propose solutions for strategic and tactical communication choices (Cornelissen, 2011). The term of corporate communication can be defined as a “management function that offers a framework for for the effective coordination of all international and external communication with the overall purpose of establishing and maintaining favourable reputations with stakeholder groups upon which the organization is dependent” (Cornelissen, 2011, p5). This has crucial implications for this thesis. The strategies will be examined from a communication point of view, since as the problem statement above pointed out, furthermore, this indicates that it will be examined whether the marketing communication strategies are sufficiently carried out and whether it suits the most important stakeholders´ needs, thereby creating a favourable reputation for the company. As mentioned above, one of the crucial aspects of examining the marketing communication strategy is the stakeholder identification. Since the research paradigm of social constructivism Page 22 of 93 403016 Master Thesis MA in Corporate Communication provides an ever changing framework, a dynamic model of stakeholders has been chosen, namely the Stakeholder Salience Model by Mitchell, Bradley and Wood (1997). Importance and Implications of this Research As previously referred above the debate over which approach is more viable as a preference to market expansion regarding standardization or localization is not a new topic, however, academia still has not yet reached a clear-cut conclusion on when to localize and when to standardize. Therefore, this thesis intends to contribute to this debate by outlining the most important findings and points of views, whereas the success of Kvadrat presents a suitable example for analyzing the marketing communication strategy and the findings of this analysis could produce valuable results not only for further research, but it might serve as a ´best practice´ case, generating guidelines on how to deal with different markets. Regarding the choice of the company, a lot of businesses failed to set up a successful business in China, consequently, Kvadrat can be regarded not only as a successful case, but also with its analysis it can contribute with valuable case-specific relevant results for future debate and conceptualization. Furthermore, since Kvadrat operates in a niche market, the Blue Ocean Strategy could help in understanding what the reasons are behind the success of an international marketing standardization strategy in case the market characteristics point to alternate market strategy adaption. Consequently, this thesis might add to the debate on whether gaining competitive advantage through the utilization of an international marketing standardization or localization strategy or eliminating the competition through employing a Blue Ocean Strategy, which indicates value innovation by providing quality product, service and after-sale service, could be a more beneficial strategy when operating across various national markets. Moreover, the ´Rise of China´ can be seen as one of the most important events of this century (Rall, 2007). Today, China has the world´s 2nd largest economy; it is the biggest trading partner of the EU and US, whereas its economy is expected to surpass the US´ by 2020. Compared with the modernization of any country in the world history, China´s case is still a miraculous one due to its size, political leadership, population and the rapidness of the development from a planned to a socialist market economy (Gong, 2003). Since China still has a huge growth potential and it Page 23 of 93 403016 Master Thesis MA in Corporate Communication is profoundly different from the national markets in Europe, it is essential to examine a company operating in this fast-growing and –changing environment. To sum up Chapter 1, the aim of this section was to answer the first research question by formulating the problem statement and clarifying the main context through which this problem can be solved. This thesis intends to investigate the standardized marketing communication strategy of Kvadrat in China and see whether the standardized or localized communication strategy could be more beneficial, when companies are entering new markets and they are faced with this dilemma. There will be several theorists and model used throughout the paper and this section also shed light to the most important scholars applied, followed by stating the importance of this paper. All in all, this chapter defined the main research paradigm as social constructivism and depicted a brief conceptualization of the intended problem and the way to its solution within this framework. However, it did not manage to give a deeper introduction to the models used later in the case study; therefore, the following section will establish the theoretical foundation for this paper. Page 24 of 93 403016 Master Thesis MA in Corporate Communication Theoretical Framework The following section aims to provide the reader with a literature review in order to build a theoretical foundation for the case study. Drawing upon the structure proposed by the second research question, the objective of this part of the thesis is to clarify the concept of globalization and its relation to the standardization or localization of the marketing communication strategy, whereas it will also discuss the issue of gaining competitive advantage as proposed by the Blue Ocean strategy, furthermore, the contract-based sales of Kvadrat indicates that this section will also include an introduction to the B2B sector. According to Bourner (1996), the literature review is an essential element of every research, since it deepens the researchers´ knowledge about the certain field by pointing out the gaps and opposing views in the literature, further, it also helps the researcher avoid the same mistakes made by others before. Furthermore, Cooper (1988, p104) characterizes the literature review the following way: “a literature review uses as its database reports of primary or original scholarship, and does not report new primary scholarship itself. The types of scholarship may be empirical, theoretical, critical/analytic, or methodological in nature”. In academia, the concepts are continuously developed in order to be up-to-date with the real world phenomena (Bryman, 2008). Therefore, it is essential clarify the notions used in this thesis in order to avoid confusion and misunderstandings among the potential receivers. The literature review will have the following structure: first of all, the globalization of markets will be discussed followed by the international marketing standardization or localization and the introduction of the strategy-fit theory. Later on, the difference between the B2B and the B2C sectors will be defined and it will be depicted to what extent it is valid to use B2C theories for the B2B sector. Afterwards, the Blue Ocean Strategy and its implications for the thesis will be illustrated. At the end, there will be a brief summary about the strategic, tactical and operational levels of analysis. Page 25 of 93 403016 Master Thesis MA in Corporate Communication Globalization of markets In Chapter 1, the origins of the globalization theories have been pointed out; therefore, this part of the thesis intends to review the concepts introduced above in a more profound and critical way. As argued above, this section will take a normative approach in order to depict the historical development on how the paradox of standardization and localization has been crucial. The most important theorist in the following section will be Lewitt (1983). Even though his theory might seem to be outdated, Svensson (2001) argue that Lewitt (1983) is one of the most important scholars within this field and the theories are based on his ideas, therefore, the following section will introduce his point of view. One of the most important concepts of this thesis is the perspective of global convergence. According to this approach, there is an increased internationalization of the world, due to which the key to success lies in developing global brands and standardized products, which are sold worldwide (Wit & Meyer, 2010). As summarized above, Lewitt (1983, p93) claims that “a powerful force drives the world toward a converging commonality, and that force is technology”. The technological advent will lead to increased international communication and transportation, which will allow the customers to purchase superior goods at affordable prices from other national markets, resulting in the homogenization of the consumer behavior on the globe. This does not only affect the marketing mix, but there is also an evolving tendency for communication standardization by increasing economies of scale. Lewitt (1983) also makes a distinction between the multinational and global companies, arguing that the first adapt its practices to the local environments, whilst the latter operate in order to maintain consistency. Moreover, there are four groups of variables that drive the companies towards globalization. These categories are the following ones: a) market, b) competition, c) cost, d) government (Johansson, 2000). Originally, Yip (1989) discussed these four drivers and concluded that the market drivers consist of homogenous needs of global customers, global channels, resulting in transferable marketing, whereas the cost drivers are comprised of the economies of scale, further, the government boosts the globalization by favourable policies and regulations, whilst the competitive drivers are fostered by the interdependence between the markets. Page 26 of 93 403016 Master Thesis MA in Corporate Communication Another main argument on why the globalization has become so essential is the rising universality of the customers´ needs (Sheth, 1986). The factors behind this emerging trend could be defined as access to foreign markets and international standardization of products and services (Sheth, 1986). As Parnell (2006, p22) puts it, globalization can also be viewed as the “intensification of world consciousness where mass communication has the potential to break down national borders to better satisfy the needs of consumers, markets, and organizations”. In this sense, globalization is a process, during which the technological advent entails in political and economic liberalization by bringing the world closer together, indicating that this process fits into the paradigm of social constructivism, which has also a changing nature. Furthermore, this notion has certain implications for the communication as a discipline, meaning that it needs to be able to serve constantly homogenizing stakeholder groups across various markets (Parnell, 2006). Moreover, it is essential to clarify the division between the concepts of action and thought. “Thinking global” includes a global mindset indicating that the leaders of the company are instantly looking forward to engage in new opportunities even outside the borders of the host country. However, “acting” refers to the notion of how managers approach and handle these opportunities (Parnell, 2006). There can be several reasons why companies shift their viewpoints from the domestic issues to a rather global orientation. Operating globally might lead to reducing the per-unit production costs due to the rising volume, whereas it also decreases the risk of competition by reaching economies of scope including more efficient distribution and marketing operations. Even though the global consumer culture is still a highly debated topic, trends point to the direction of disappearing localized preferences replaced by cheaper standardized consumer goods at higher quality. This development has facilitated the sales of the same products across different national markets. On top of that, production is not only outsourced to low-wage countries, such as the ones on South-East Asia, but due to their vast population these emerging economies provide great business opportunities as well (Parnell, 2006). Page 27 of 93 403016 Master Thesis MA in Corporate Communication The theory of globalization has received several criticisms. For instance, Jeannet & Hennessey (1992) write that the term globalization merely replaces the concept of ´international´. Whereas Lorenz (1986, p102) suggests that the notion of globalization cannot be unanimously defined, indicating that: “The permutations of meaning are confusing, not to say bewildering. To most people the only certainties are that globalization has become fashionable, and that it represents a daunting new challenge of indefinable proportions”. Despite these critiques, this thesis views the concept of globalization as Lewitt (1983) has formulated it. Communication is a vital mean of reaching and resolving the problems and challenges, the companies need to face when working in different – though globalized - national markets (Coope, Seeing the "Net potential" of online CSR communication", 2004). According to Cornelissen (2011), the future perspectives of the company are dependent on how it communicates with its stakeholders, furthermore, the globalization only strengthened this reality. As Anders Gronstedt (in Cornelissen, 2011, p5) argues, corporate communication “inserts the various communication disciplines into a holistic perspective, drawing from the concepts, methodologies, crafts, experiences and artistries of marketing communication”. In general, this process is driven by a certain reality: it could be market- or environment-based, fostered by internal challenges or changes of communication technologies and strategies (Cornelissen, 2011). This is also in line with the scientific paradigm of this paper, since social constructionism suggests that there are multiple realities, indicating that the general communication process and its advancement is subject to the characteristics of the dynamic formulation of social reality and environment (Bryman, 2008). There are a number of benefits and advantages of this global strategy approach. As Lewis (1983, p93) puts it, “companies benefit from enormous economies of scale in production, distribution, marketing and management”. In consistent with this point of view, Keegen & Green (2000) also state that the global strategy approach gives significant competitive advantage over the other companies. Additionally, Yip (1989) discusses the advantages of cost reductions, improved quality and customer preference as well. Page 28 of 93 403016 Master Thesis MA in Corporate Communication Another proponent of the convergence perspective is Porter (1990). Porter (1990) agrees with Lewitt (1983) that the world is becoming more and more integrated and global. The main difference between these two theorists lies in the concept of international diversity. Porter (1990) actually encourages this notion; whereas Lewitt (1983) claims that its importance is decreasing which leads to international standardization. In accordance with this line of thought, Porter (1990) concludes that the nation-specific characteristics are determinants when it comes to shaping a country´s capacity, indicating that the companies should make an advantage of the specifics of the national environments. To sum up, Porter (1990) advocates that the firms should not only keep up with the trend of globalization, but they should also make a competitive advantage out of the remaining unique characteristics of the different markets. The global convergence perspective is a widely debated approach. For example, Douglas & Wind (1987, p20) have an opposing point of view compared to Porter (1990). They call the global convergence perspective as “somewhat polemic”, which is only valid in limited and very particular circumstances. Douglas & Wind (1987) criticize the global standardization on several levels. Firstly, they claim that there is a lack of evidence on the homogenization of the customers worldwide and even within the same country the consumer taste varies, secondly, low-price strategy has proven to be a vulnerable one, whereas differentiation is more profitable and even a standardized product can be priced and advertised variously in different countries. Most importantly, the economies of scale can be a reason for global convergence, but it is not a plausible cause. Due to the modern manufacturing process, the costs are lower, further, the manufacturing costs do not equal to the final cost, but one needs to add the R&D, logistics and after-sale service. Consequently, Douglas & Wind (1987) claim that the global convergence perspective is production-driven and it neglects the other aspects of the marketing mix, such as place, product and price. Douglas & Wind (1987) do not only criticize the global convergence approach, but they also draw the attention to choosing between the strategy of adaptation or global convergence. According to them, the adoption of a global perspective should not be regarded synonymously with global products and brands but rather it should be a part of a more flexible, hybrid strategy, meaning the existence of global brands with certain localized elements. This entails that Page 29 of 93 403016 Master Thesis MA in Corporate Communication businesses should not only enjoy increased economies of scale due to the standardized approach, but they should also benefit from the adaption to the unique features of the countries, thereby creating a favourable competitive advantage of optimized differentiation and economies of scale. One of the reasons for this is that it is also crucial to take into consideration the trade barriers, such as protective regulations and laws, not only the factors leading to global competition, such as decreased logistic, marketing and production costs due to the economies of scale. This implies that there is an evident question whether optimization of the production of communication materials or investment in local communication and harvesting its advantages could be a better option for companies operating across different national markets. Nevertheless, Jeannet & Hennessey (1992) argue that the globalization of markets is subject to market characteristics, and legal and industrial conditions. Yip (1989) also mentions certain disadvantages of the standardized communication strategy. According to him, the global approach can lead to unresponsiveness to the local needs and local customer behavior, since it neglects the cultural differences, which can seriously impact the local competitiveness. However, the companies face a crucial dilemma, when they decide about the standardized or localized approach, since through the localized approach they might loose the competition with strong global competitors, whereas a standardized approach might not be suitable when competing with domestic businesses (Keegan, 1989). It is a crucial to investigate the question of what it actually means to act locally within the context of a globalized world. Parnell (2006) offers three main arguments for using the local approach. Firstly, it has been argued that besides a few industries – such as consumer electronics – the regional blocks are not integrated, which calls for a localized approach. Secondly, it might be difficult to implement a consistent global communication strategy in certain industries, such as the food and beverage industry. Thirdly, strict localization might be the key to reaching competitive advantage. This could take a form of a joint venture or international strategic alliance. These provide a number of advantages for the firms entering new markets, since the partner´s knowledge could be essential for survival, further, it also minizes risk (Parnell, 2006) Page 30 of 93 403016 Master Thesis MA in Corporate Communication Sachdeva (2010, p15) argues in her critical review of Lewitt´s (1983) article that: “The successful global corporation does not abjure customization or differentiation for the requirements of markets that differ in product preferences, spending patterns, shopping preferences and institutional or legal arrangements. But global corporations accept and adjust to these differences only reluctantly, only after relentlessly testing their immutability, after trying in various ways to circumvent and reshape them”. However, this thesis views every organization as a different case; therefore, it does not try to generate all-encompassing recommendations on how the companies should deal with this dilemma. It rather attempts to list the possible outcomes, such as Parnell (2006) above suggested and every organization should decide for itself according to its resources and environmental characteristics which strategy to choose. This notion also has a crucial impact on communication as a discipline. In order for the company to act according to the social reality it operates at, it is a significant decision to introduce a feedback mechanism into its communication practices. Due to this real-time data, the companies will be enabled to react quickly and accurately in case the social reality of certain characteristics is changing. Consequently, the key to a successful communication strategy does not necessarily lie in “testing immutability” (Lewitt, 1983, p102), but rather in evolving with the ever-changing globalized environment (Cornelissen, 2011). To conclude, there are three basic arguments supporting the global convergence perspective by Lewitt (1983). First of all, the main advantage is the economies of scale and more centralized decision making within the company, whereas the homogenization of the customer needs, in particular the trend that customers are willing to sacrifice national preferences for increased product features at a more affordable price (Lewitt, 1983). Despite the criticisms, Lewitt (1983, p96) argues: “What works well for one company or one place may fail for another in precisely the same place, depending on the capabilities, histories, reputations, resources, and even the cultures of both”. With regards to corporate communication, this section has outlined that companies increasingly realize the need for implementing those communication strategies, which are suitable for the Page 31 of 93 403016 Master Thesis MA in Corporate Communication different stakeholders. Furthermore, the characteristics of these stakeholders are shaped by the social reality, the company is operating in, which is in line with the chosen research paradigm of this thesis, namely with social constructivism. Moreover, it has also been mentioned that due the fact that this reality is socially constructed and thereby changing on an ongoing basis, it is crucial for companies aiming to implement a successful communication strategy to introduce a feedback mechanism into the communication process, through which it become a two-way practice. This will enable them to take accurate and timely actions in case the circumstances change (Cornelissen, 2011). All in all, this thesis views the trends of globalization as the major framework of the current reality, entailing that the companies will need to face global as well as regional challenges, which can be tackled by a standardized approach in order to reach economies of scale. Page 32 of 93 403016 Master Thesis MA in Corporate Communication International Marketing Standardization As conceptualized above, marketing principles and practices have been challenged by the new dynamic paradigm of international business and international marketplaces. One of the most frequently debated issues within the literature on international marketing communication and advertising is focused on the dilemma of the standardization or localization of marketing efforts across markets. The paragraphs above already clarified the general theoretical foundation on how this dilemma emerged; and in order to contribute to solving the problem statement, the following paragraphs will illustrate one of the strategies, namely this part of the thesis will introduce the most important theories within the field of international marketing standardization, whereas the next subchapter will be centered on the localization strategy. Despite the nascent literature within this field, the concept of international marketing standardization can still be defined unanimously. According to Jain (1989), the concept can be classified as the use of common products and marketing mix across different national markets. Chronologically seen, the form of standardization approach evolved before the localization approach, since naïve companies assumed that the foreign markets have similar characteristics as their home ones (Ramarapu, Timmerman, & Ramarapu, 1999). In order to create a more adequate picture on international standardization communication practices, Cheon, Cho & Sutherland´s article (2008) investigates three issues: 1) it analyses the marketing mix, target market, market position, environmental and organizational factors; 2) it scrutinizes four types of moderators connected to the desired degree of standardization or localization, namely, agency/company, consumer, media, ad message/execution; 3) it conducts a combined evaluation on regional differences and marketing-related operational factors. They used 128 statistical models in 152 studies published in 10 major business journals during 19602004, consequently, it can be argued that Cheon, Cho & Sutherland (2008) have conducted a thorough analysis in the field of international marketing standardization. Their main finding is that there is support for standardization strategy with regards to the marketing mix and organizational factors, whereas the conceptual advertising moderators, such as sender, receiver, values, channel, etc., are greatly influenced by the localization strategy. Page 33 of 93 403016 Master Thesis MA in Corporate Communication Figure 2 – Framework for Determining International Marketing Strategy. Source: (Cheon, Cho, & Sutherland, 2008). According to Jain (1989), the international marketing strategy depends on diverse factors, including the market position, target market, environment and organizational approaches. In consistent with this argument, Cheon, Cho & Sutherland´s (2008) meta-analysis has shown that the aspects of economic factors, market segmentation and market infrastructure have a considerable impact on the localization strategy. Even though there is a positive correlation between the characteristics of the host market and the localization strategy, Cheon, Cho, & Sutherland (2008) claim that the localization approach fails to provide any significant difference between how well the standard or the localized approach serves the needs of the target market. Corresponding to this finding, Shoham (1999) also concludes that the standardized approach has the advantage of maintaining a consistent worldwide image associated with high-quality; further, despite that there are persistent differences between the consumers across different markets, and these differences are vanished by high-quality products for lower prices. Nevertheless, Cheon, Cho & Sutherland (2008) recognized that the biggest weakness of their analysis is that the global target market relationship is open to doubt, therefore the standardization-performance might be context specific. Additionally, a flexible market segmentation and adequate target market positioning and the avoidance of national economic frictions drive towards localization (Cheon, Cho, & Sutherland, 2008). Page 34 of 93 403016 Master Thesis MA in Corporate Communication With regard to the communication element, they also scrutinized the advertising-related standardization. They adapted the definition of communication from Shannon (1949) and argued that the communication is the passing of information between the source and the sender (Cheon, Cho, & Sutherland, 2008). Figure 3 – Framework for Determining International Advertisng Strategy. Source: (Cheon, Cho, & Sutherland, 2008). This approach can be used in order to determine whether a more localized or standardized communication strategy is suitable for the company. With relation to the case study, this model will be used in order to theoretically determine which strategy Kvadrat should implement and then compare and contrast it to the actual strategy conducted. Other prominent authors within the field of international marketing standardization are Qun Tan and Carlos Sousa. They have also published a meta-analysis regarding the estimation of international marketing standardization´s antecedents and consequences (Tan & Sousa, 2013). According to their article (2013), the researches examining the antecedents and impact of the international marketing program standardization have produced fragmented literature without clear insights on the field. In order to address this matter, Tan & Sousa (2013) qualitatively scrutinized the empirical findings on the antecedents and consequences of the international marketing standardization strategy. These empirical results are gathered from 110 independent samples published in 108 articles. There has been conducted a multivariate analysis in order to Page 35 of 93 403016 Master Thesis MA in Corporate Communication find out the antecedents between the four elements of the marketing mix, whereas the metaregression analysis was used to determine the marketing standardization-performance relationship and the characteristics of this performance. Tan & Sousa (2013) proposed a conceptual framework for analyzing the international marketing program standardization. This framework is based on the notion that the firm along with its strategies are influenced and affected by the internal and external environment and the company´s goal is to allocate its resource in order to match this environment, thereby achieving the best-possible performance. Consequently, the framework is based on the examination of the components of international marketing program standardization strategy and its relationship with the 12 antecedent aspects and the international performance. As shown on the figure below, the analytical framework is comprised of three distinctive categories, namely the foreign market characteristics, the characteristics of the company and its management, and the product characteristics. These three factors contribute to the international marketing program standardization, which entails the standardization of the product, promotion, price and distribution leading to the overall economic and strategic performance (Tan & Sousa, 2013). When examining the international marketing program standardization strategy and its components, it is crucial to take a look at the communicative aspects. The technological advent and the globalization of markets made it possible to create a unified marketing communication in different markets throughout the world, which not only saves time, but also resources and money. Taking into account the marketing mix elements of product strategy, pricing strategy, communication strategy and distribution strategy, it becomes clear that they overlap with the marketing mix elements and the components of international marketing program standardization. Since this thesis intends to contribute to the literature on international marketing standardization or localization strategy from a communication point of view, the above described framework needs to be extended with the concepts developed by Cheon, Cho & Sutherland (2008). Furthermore, the communication in general refers to the media and tactics that are employed in order to coordinate with the stakeholders (Cornelissen, 2011). The prerequisite for a successful communication strategy in general and standardized or localized strategy in particular is the mission and the vision of the organization. Mission refers to the purpose of the organization, whereas the vision means the where the organization wants to be in the future (Cornelissen, 2011). With regard to the framework of international marketing standardization, these communication strategies will be Page 36 of 93 403016 Master Thesis MA in Corporate Communication analyzed under the management characteristics, what is in line with the definition of corporate communication above, namely that it is a management function (Cornelissen, 2011). Another aspect of this analytical framework is the promotional aspect, which is also related to the communication perspective of this thesis. The five elements of promotional mix include advertising, personal selling, sales promotion, public relations and sales marketing (Cornelissen, 2011). This extended conceptual framework will be a significant tool in determining why Kvadrat used an international marketing standardization strategy and whether it is the same approach the theories would recommend using. Even though contemporary research has shown that the embedded cultures are major obstacles to standardization; this barrier is usually not considered as a reason why not to standardize, since the benefits tend to outweigh the difficulties (Harris, 1996). Figure 4 – Conceptual Framework for Meta-Analysis. Source: (Tan & Sousa, 2013) There are several results, Tan & Sousa (2013) have formulated. First of all, there is no causal relation between the development of the export market and the product and distribution standardization, indicating that the export market is a rather irrelevant factor when it comes to the international marketing standardization strategy. Further, competitive intensity is found to play a determinant role in price, product and distribution strategies, whereas foreign market Page 37 of 93 403016 Master Thesis MA in Corporate Communication coverage has a negative impact on the promotion standardization, meaning that increased international experience facilitates the implementation of a more market-oriented adaptation strategy. Regarding the relationship between the marketing standardization and performance, there has been found a significant mediating role of the price standardization. Moreover, the findings suggest that the product standardization has a negative impact on the international performance, whereas the standardization of price and distribution impacts the performance positively. This negative relationship between the product standardization and the performance implies that the consumers still prefer customized products to a standardized one; therefore product customization is more attractive in the host markets. Moreover, another surprising finding in the regional comparison is that there is not any noteworthy impact of the regional variance on the standardization-performance relationship. This indicates that the communication aspect becomes extremely crucial, when a company intends to justify its decisions regarding product standardization or price and product localization, all of which generally have a negative impact on the companies´ performance, as argued above based on Tan & Sousa (2013). Critiques to the strategy of international marketing standardization Several professors and marketing practitioners criticize the strategy of the international marketing standardization. The most prominent argument against a global strategy is that all strategies require adaption to the local conditions in some degree. Furthermore, “The core of the standardization/adaptation debate in international strategy is the question of how far, if at all, it is appropriate to design, market, and deliver standard products and services across national boundaries”, therefore, it can be argued that the concept of standardization is rather misused and overused (Segal-Horn, 1996, p13). In accordance with this argument, Porter (1986, p17) also claims that: “In some global strategies marketing should play the role of tailoring and not standardizing to support an overall strategic position. In some cases standardizing marketing can lead to competitive advantages that support the overall global strategy”. Other criticisms to the international marketing standardization strategy are based on more explicit facts, such as economic nationalism or trade barriers. Simon-Miller (1986) maintains that when a company is going global, it should take into account these protective measures and act accordingly. Page 38 of 93 403016 Master Thesis MA in Corporate Communication Based on these arguments it can be concluded that adapting and tailoring the global strategy might be unavoidable in certain cases. Putting this point of view into perspective, Champy (1997) argues that: “Going global… It starts with recognizing that the world has no center… customers will differ from country to country and that they will expect you to respect those differences. Learn this or stay at home” (In: Svensson, 2001). Based on these criticisms, Sheth (1986) declares that the notions of global and domestic markets are misleading, except the concept of multiple markets. He (1986, p6) states that: “In conclusion, we often mistake global competition for global markets. As most markets become more divergent within each country, this approach tends to produce overlapping segment across countries, giving the illusion that markets are becoming global”. The debate on the international marketing standardization approach can be concluded by Daft´s (2000, p2) words, namely “[t]he very forces that were making the world more connected and homogenous were simultaneously triggering a powerful desire for local autonomy and preservation of unique cultural identity… The world was demanding greater flexibility, responsiveness and local sensitivity. […] nimbleness, speed and transparency and local sensitivity had become essential to success”. These criticisms underline the essential notion that the communication process between the stakeholders and the company needs to function in a way that it justifies the decisions of the company. As shown above, there are several perceptions towards standardization; therefore, the key to becoming successful and reputable is to make the stakeholders understand how the chosen approach benefits them. This would also serve to make sure that all the stakeholders are engaged in the same set of reality instead of existing in multiple ones, as the paradigm of social constructivism suggests. Page 39 of 93 403016 Master Thesis MA in Corporate Communication International Marketing Localization Strategy As described above, standardization is viewed as the rational and objective decision when entering a new market, whereas it has also been noted that – even though the benefits might be overestimated – standardized strategy was used by companies, simply because they were pressured by the increased tendency of standardization among companies (Whitelock & Fastoso, 2001). Localization can be described as the opposite of globalization; or as Pickton & Broderick (2005) put it, the message and the channel is adapted to the needs of the individual receivers located on the different national markets. This approach is frequently used when the convergence theory of markets is ignored. One of the proponents of this strategy claims that there is a rational consumption behavior, indicating that the noteworthy differences among the countries are resulted from the cultural divergence. Furthermore, Pennington (2002, p87) writes that “global human needs and wants must be distinguished from local, culturally defined needs and wants”. Chronologically, the adaptation strategy to the local needs started to develop in the 1950s, which entailed separate and distinctive marketing strategies for various home markets (Smith, 1956). According to Gesteland (2012), the essence of the localization strategy can be captured by two synonymous proverbs: ´when in Rome, do as the Romans do`, or as the Chinese proverb says: ´Ru xiang sui su´, meaning `Enter village, follow customs`. The advocates of localization argue that there are only a few markets alike, therefore some adaption to the local needs is inevitable (Quelch & Hoff, 1986), whereas El-Sayed (1989) points out three reasons why not to go global: first of all, standardized products do not fit the need of the customers, by being over-designed or under-designed for certain markets; secondly, the existing company networks might be destabilized; and thirdly, standardization reduces and weakens the entrepreneurial spirit. Nevertheless, localization cannot be applied as a ´static orientation´, since each product market differs from each other (Quelch & Hoff, 1986). This is a crucial point of this strategy, since it is in line with the dynamic notion of the chosen research paradigm. Additionally, Kanso & Kitchen (2004) found out that the companies, who follow the localized approach, respect the cultural differences and variety more seriously. With regard to the culture, Page 40 of 93 403016 Master Thesis MA in Corporate Communication it is a relevant concept in studying marketing and advertising, since the symbols of the advertisements and the promotional messages need to be recognizable and meaningful to a given marketplace (Cateora & Graham, 2002). Moreover, Unwin (1974) writes that even though all of the factors suggest the usage of international marketing communication standardization, it is a favourable idea to allow the advertisements to be translated into the various countries´ own advertising paradigm. All in all, understanding cultural diversity is to the key to avoiding marketing blunders (Kanso & Kitchen, 2004). According to this argumentation, standardized communication materials would never work, since in different cultures different meanings are linked to the same concepts or metaphors. This issue will be further on elaborated in the Discussion (p76) section, where the advertising transferability will be debated. Nevertheless, it can be argued that the basic premise of localization approach within the framework of social constructionism is that the company and its stakeholders are engaged in different set of realities; therefore, it is rather impossible to implement a successful communication strategy based on standardization. To sum up the section on the standardization vs. localization literature, it can be argued that most of the scholars consider them as opposing strategies. The main argument behind the standardization approach lies in the globalization of markets resulting in the homogenization of the global consumer behavior and increased economies of scale, whereas the advocates of localization claim that due to the cultural differences and protectionist trade policies and barriers, the companies will need to localize. With regards to the communication approach, this section clarified that the advocates of the localized approach argue that mainly due to the cultural differences, standardized advertising messages would not work. Page 41 of 93 403016 Master Thesis MA in Corporate Communication The Strategy-Fit Approach Surprisingly, the research by Schmid & Kotulla (2011) has shown that only 12% of the articles on international marketing standardization or adaptation have considered or mentioned the concept of the situation-strategy fit, even though the notion of situation-fit seems to be logical since the company´s performance outcome is dependent on the fit of the strategy to the circumstances. As pointed out above, Cheon Cho & Sutherland (2008) argues that the communication needs to fit to the audiences´ needs in order for it to be successful. According to this point of view, it is inevitable to maintain a close link between the firm´s strategy and the context where it is implemented (Venkatraman, 1989). The main argument within this paradigm is that superior performance is the result of the matching strategy to the context (Lukas, Tan, & Hult, 2001). Schmid & Kotulla (2011) writes that since the normative theory does not integrate comprehensively the ideal of situation-strategy fit, the literature on international marketing adaptation and standardization has become nascent and even contradictory. In order to eliminate this weakness, Ramarapu, Timmerman & Ramarapu (1999) proposed a theoretical framework on identifying the best standardization/adaption strategy for each particular situation. As the Figure below shows, Ramarapu, Timmerman & Ramarapu (1999) argue that the concept of International Opportunity is comprised of three concepts: 1) Place, 2) People and 3) Products. Place refers to the economy of the country, availability of local partners and the competition, whereas the concept of people can be defined as the characteristics of the market segments including the sophistication of the customers and their tastes; further, the notion of product means the classification, reputation, technology and perception of products. The International Marketing Strategy Choice of localization and standardization will be dependent on these characteristics of place, people and products. Page 42 of 93 403016 Master Thesis MA in Corporate Communication Figure 5 – An External Environment Analysis. Source: (Ramarapu, Timmerman, & Ramarapu, 1999). Katsikeas, Samiee & Theodosiou (2006) have contributed to the literature on strategy-fit analysis by using the contingency approach in the context of the subsidiary level. Their regional focus was the US, Japenese and German companies subsidizing in the UK. The results of their analysis are in accordance with the contingency perspective, meaning that the international marketing standardization or adaptation strategy fits the characteristics of the host market. Furthermore, the success of marketing standardization is in causal relation with the similarity of the market characteristics, such as culture, regulations, competition and customer characteristics. Katsikeas, Samiee & Theodosiou´s (2006) analytical framework is similar to the one proposed by Ramarapu, Timmerman & Ramarapu (1999), nevertheless, it can be argued that the one proposed by Katsikeas, Samiee & Theodosiou (2006) is more comprehensive, since it takes into account macro-and micro-environmental factors. The analytical framework can be divided into two parts: 1) Macroenvironmental factors and 2) Microenvironmental factors. The macroenvironmental factors are comprised of a) economic environment, b) regulatory environment, and c) customs and traditions. The microenvironmental factors are: a) customer characteristics, b) marketing infrastructure, c) product life cycle, and d) competitive intensity. Page 43 of 93 403016 Master Thesis MA in Corporate Communication Figure 6 – Strategy-fit Analysis. Source: (Katsikeas, Samiee, & Theodosiou, 2006). Furthermore, Katsikeas, Samiee & Theodosiou (2006) suggests that the bigger the differences between the characteristics of the host market, the more inevitable the need is for the companies to localize their marketing efforts in order reach superior performance. Consequently, the marketing practitioners need to identify the appropriateness of the international marketing strategy at hand, let it be standardization, localization or the mixture of the two. Critiques to the Strategy-Fit Approach As every approach, there are also weaknesses of the strategy-fit approach. These limitations include that the analytical framework is theoretically based and gives empirically testable suggestions; however, it fails to provide descriptions, explanations or predictions on the choices of the international marketing standardization strategies. Furthermore, it also cannot give recommendations on pricing, distribution and other marketing-related processes (Svensson, 2001). Nevertheless, it still provides a useful framework in order to test whether Kvadrat uses a strategy which is suitable for its environment and operational context. Page 44 of 93 403016 Master Thesis MA in Corporate Communication Business-to-Business (B2B) vs. Business-to-Customer (B2C) Sector The purpose of this subsection is to introduce the framework for the business-to-business context. Since Kvadrat´s main operations centers on the B2B sector (Kvadrat, 2014); therefore, it is essential to depict the characteristics of the marketing communication strategies within this sector. It is often argued that B2B marketing communication strategy is – or should be – different from the B2C one. One of the most prominent arguments behind this point of view is that the B2B relations are generally considered as more rational decision making than the B2C one (Bingham, Gomes, & Knowles, 2005). Additionally, the conventional wisdom also holds that B2B and B2C marketing are distinctive units and should remain so (Dant & Brown, 2008). Nevertheless, Kotler & Pfoertsch (2007, p357) argues the following way: “Does anybody really believe that people can turn themselves into unemotional and utterly rational machines when at work?” From this point of view it can be debated to what extent B2B differs from B2C. In accordance with this view, Bingham, Gomes & Knowles (2005) also point out that business buyers are humans, so they are subject to the same appeals – which are the basis of effective consumer advertising – as the individuals. As Bingham, Gomes & Knowles (2005) put it, B2B marketing communication has three purposes: “to inform, to persuade and to remind customers and potential customers about the product or a company”. The same can be said about the aims of the B2C communication. Therefore, Dant & Brown (2008) argue that the division between the B2B and B2C sector is obsolete, since it is impossible to isolate these areas from each other both within business and research, whereas the field of retailing actually bring these concepts closer, not tearing them apart. Additionally, Fern & Brown (1984, p69) write: “… [T]o date the observed differences between industrial and consumer marketing (1) have not been causally related to marketing practice or theory formulation, (2) have not been tested empirically, and (3) have not been justified on logical grounds. In short, the purported differences have not played an instrumental role in the development of marketing thought”. This argument is supported by the a) emergence of Supply Chain Management and its demonstration that the B2B and B2C divisions are artificial and b) consumer behavior in the B2B context shows similar trends as in the B2C sector (Dant & Page 45 of 93 403016 Master Thesis MA in Corporate Communication Brown, 2008). Another prominent claim behind the vanishing division between these two sectors is that all B2C retailing includes B2B components, since the retailers must manage upstream channel members besides serving the customers (Dant & Brown, 2008). Even though this thesis will not make a profound distinction between the B2B and B2C sector in terms of the analytical tools used, it acknowledges that there are clear distinctions between the two sectors. First of all, there are key different between the actual advertisements. While it is important to use jargon in the B2B sector, since the clientele requires detailed information, B2C marketing should be understandable for everyone without an industry-specific education (Zenn, 2013). Consequently, when it comes to the message, B2B clients expect complex and professional content, whereas the B2C customers need simple, emotional and general marketing (Basich, 2013). All in all, this thesis also will not make a clear distinction between the consumer level (B2C) and the business-to-business (B2B) sector. Consequently, the theories and analytical tools used in order to answer the problem statement will also be from both fields. Blue Ocean Strategy The purpose of the following part of the Theoretical Framework is to depict the Blue Ocean Strategy (Kim & Mauborgne, 2005). This is a relevant theory regarding the case study, since it offers a methodological framework and analytical tools in order to examine how Kvadrat used value innovation and succeeds in not battling with the competitors, but in creating unchallenged markets for achieving maximum growth. The main reason behind the choice of this strategy lies in the value proposition of Kvadrat and in the crucial examination of why a standardized approach can be beneficial in a market, which would normally require strategy adaptation. As argued above, academia has proposed that the companies need to adapt to new circumstances and trends as fast as possible. However, the advocates of the Blue Ocean Strategy believe that projecting a mere trend does not create competitive advantage over the other companies. They support the concepts of Red Oceans vs. Blue Oceans, indicating thinking one step further of the current trends and gaining bigger market share by competing with others (Kim & Mauborgne, Page 46 of 93 403016 Master Thesis MA in Corporate Communication 2005). The Blue Ocean Strategy is a profound analysis of more than 150 strategic moves across 30 industries over 100 years. The ideal behind this strategy is that the companies need to leave the ´Red Oceans´, referring to the cut-throat competition and they need to move into the `Blue Oceans´, where the market space is uncontested, therefore irrelevant. One of the advantages of this model is that it is possible to apply it through corporate strategic, tactical or operational levels. The advocates of this strategic planning and value innovation suggest that new demand can be captured by differentiation and cost-cutting. However, blue and red oceans are not static, but by the time, the current blue oceans will become red oceans; therefore, it is crucial for the businesses to constantly monitor their activities and work on their value innovation. As Kim & Mauborgne (2005) puts it, the study conducted by them (2005) shows that the right unit of analysis is not the company or the industry, but rather the strategic moves in order to create blue oceans and maintaining high performance. This groundbreaking book was written 9 years ago and over this period of time more than 3.5 million copies were sold. The Blue Ocean Strategy by Kim & Mauborgne (2005) challenges the understanding of management and competition, and it has become the best selling management book in both US and China. In February, there will be an updated version of this book published, which also shows the popularity and ongoing relevance of this conceptualization. The traditional conception about market spaces is that companies need to differentiate themselves in order to gain competitive advantage and thereby bigger market share. The Blue Ocean Strategy challenges this conventional wisdom by stating: “Stop benchmarking the competition. The more you benchmark them, the more you look like them” (Kim & Mauborgne, 2005, p12). The idea behind this strategy is: “to create new market space and make the competition irrelevant” (p3). This systematic approach is the “simultaneous pursuit of both differentiation and low cost” (p16). This theory proposes that the main objective of the firms should be differentiating their product/service offerings in a way that it significantly differs from the offerings of the other companies within the industry. In this way, they will appeal to a larger amount of customers and can become attractive to the potential customers, who –so far- have been dissatisfied or uninterested in the products of the industry (Kim & Mauborgne, 2005). Page 47 of 93 403016 Master Thesis MA in Corporate Communication The theory is based on the following metaphor: today´s industries are overcrowded, where the companies are fighting against each other. This is labeled as the ´red ocean´. However, the firms can seek new ways, through which they do not need to compete against each other anymore, so they move to the ´blue oceans´. The book is based on the examination of 150 strategic moves during the period of 100 years across 30 different industries. The authors of the book argue that tomorrow´s leading companies will not succeed by winning the competition, but by moving to ´blue oceans´ and making the competition irrelevant. After scrutinizing the strategic moves across these 30 industries, Kim & Mauborgne (2005) draw attention to six principles, including a) reconstruction of market boundaries, b) center on the big picture, c) reach further than the current demand, d) recognition the accurate strategic sequence, e) triumph over the organizational barriers, and f) implementation the right strategy. Figure 7 – How to Create the Blue Ocean Strategy. Source: (Kim & Mauborgne, 2005). The first step in order to move to the blue ocean is to change the firm´s offering. The ´Four Actions Framework´ can be used to draw a new value curve by rethinking the buyer value elements. In order to reach differentiation at a low cost when creating the new value curve, the following questions can be answered: “1) which factors should be raised well above the industry´s standard? 2) Which factors of the industry has long competed and should be Page 48 of 93 403016 Master Thesis MA in Corporate Communication eliminated? 3) Which factors should be reduced well below the industry´s standard? 4) Which factors should be created that the industry has never offered?” (Kim & Mauborgne, 2005, p25). So the essence of this framework is to decide on what can be eliminated, reduced, raised and created. The new offering can be measured up to the competitors´ on the so-called “strategycanvas”. Figure 8–The Strategy Canvas. Source: (Kim & Mauborgne, 2005). However, defining the strategy canvas is just the first step, the company also needs to focus on the ´big picture´ and align the strategic planning with the company´s strategic canvas. In order reach this goal, the company should pursuit the four step process of visualization. This includes 1) Visual Awakening, 2) Visual Exploration, 3) Visual Strategy Fair, and 4) Visual Communication. First of all, it needs to be decided – based on the strategy canvas – where the company´s current strategy needs to change. Secondly, the six paths of creating blue oceans need to be considered and applied to the specific case, whereas, thirdly, the alternative strategy should be reviewed and fourthly, it should be implemented with the help of visual communication (Kim & Mauborgne, 2005). Page 49 of 93 403016 Master Thesis MA in Corporate Communication Figure 9 – The Four Steps of Visualizing Strategy. Source: (Kim & Mauborgne, 2005). The second step is finding the new customers. According to the Blue Ocean Strategy, the companies should search for potential customers who are currently inadequately served by the industry. There are three groups of ´non-customers´: first of all, there are the “soon-to-be” noncustomers, who are dissatisfied and ready to try the new offering, secondly, there are the “refusing” non-customers, who are generally against the industry´s offerings, and thirdly, there are the “unexplored” non-customers, who are served by distant markets (Kim & Mauborgne, 2005). Figure 10 – The Three Tiers of Noncustomers. Source: (Kim & Mauborgne, 2005). Page 50 of 93 403016 Master Thesis MA in Corporate Communication Figure 11 – The six conventional boundaries of competition. Source: (Kim & Mauborgne, 2005). There is the analytical tool of “Six Pathways”, which helps to locate the current non-customers. According to this analytical framework, six conventional boundaries limit the current market space and the new customers can be found by looking beyond these limitations. To conclude, new customers are located in other industries, other market segments, influenced by different decision makers, within the dissatisfied customers by the current features and emotional/functional orientation of the offerings, further, the company can also benefit form a noteworthy trend or development, through which new customers can be affected (Kim & Mauborgne, 2005). The third step includes testing the validity of the proposed offering. This refers to reviewing the buyer characteristics, price, costs, adoption burdens, and on the basis of this analysis the Blue Ocean Strategy can be implemented. Page 51 of 93 403016 Master Thesis MA in Corporate Communication Figure 12 – Analysis on which Blue Ocean Idea is worth implementing. Source: (Kim & Mauborgne, 2005). The fourth step of this iterative process is the implementation phase. In order to maximize the benefits of the execution, the approaches of ´Fair Process´ and `Tipping Point Leadership´ should be utilized. The main idea behind the Fair Process strategy is to make the people, implementing the strategy, be enthusiastic about the execution by engagement, explanation and expectation clarity. Page 52 of 93 403016 Master Thesis MA in Corporate Communication Figure 13 – Fair Process. Source: (Kim & Mauborgne, 2005). Tipping Point Leadership´s objective is to first of all work with the influential and potential allies, whilst offset the resisters, instead of trying to make an impact of the broad mass within the company. This way is tested to have the maximum impact with the minimum of resources. To conclude, the main objective of the Blue Ocean Strategy is to redefine the competition. It is in direct opposition to the theory of Porter´s Five Forces and it persuades the companies to center their resources on moving to blue oceans instead of fighting the competition. This has a crucial impact on the communication aspect, namely, that these new strategic decisions and changing environment will need to be communicated sufficiently to the stakeholders. Planning in Management This part of the thesis intends to provide the reader with analytical tools which will serve as a basis for carrying out a case study examination. These tools fall under the area of strategic management, which has been defined above. Environmental Analysis According to the Strategy-Fit Theory by Katsikeas, Samiee, & Theodosiou (2006) the strategy needs to be in alignment with the environment. In order to detect whether this is the case Page 53 of 93 403016 Master Thesis MA in Corporate Communication concerning Kvadrat, a strategic environmental analysis needs to be performed. As seen on the Figure below, there are ten basic analytic tools in order to examine the strategic environment. These include a general evaluation of market size, growth and market share, then the degree of turbulence can be measured meaning the changeablity and predictability of the environment, afterwards, the green strategy environmental analysis covers the government legislation, business opportunities and customer and value chain issues. The fourth step is PESTEL, followed by a growth and life-cycle analysis. The sixth step is to determine the key factors of success and then Porter´s Five Forces can be examined. The scrutiny ends with a Four Links Analysis, examination of the most important rivals and customer analysis (Lynch, 2011). Figure 14 – 10 Steps of Analyzing the Strategic Environment. Source: (Lynch, 2011). Types of decisions Within business, the decision making levels can be characterized as: a) strategic, b) tactical, and c) operational. The strategic decisions are long-term ones, which will have an impact on the entire company. The tactical decisions are medium-term ones, decided by middle managers and their purpose is to meet the objectives of the strategy, whereas the operational decisions are made by junior managers and affect the day-to-day management of the company (BBC.co.uk, 2014). Page 54 of 93 403016 Master Thesis MA in Corporate Communication Figure 15 – Types of Business Management Decisions. Source: (BBC.co.uk, 2014). As pointed out above, both international marketing standardization and the Blue Ocean Strategy has certain implications for all the three levels business management and the communication strategy. Therefore, it is essential to analyze the decision making at these levels in order to see whether the decisions are implemented in a coherent way, which could be one of the success factors for an organization. Stakeholder theory & The Stakeholder Salience Model The thesis has already clarified in the beginning of the Introduction, what corporate communication means. One of the core concepts of this definition is the stakeholder, since they are the ones who this organization is dependent on (Cornelissen, 2011). The concept itself went through a historical development; therefore the following paragraph will introduce the term and clarify how it will be understood within the framework of this thesis. At first, the notion of stakeholder was conceptualized by Friedman (1973), who argued in his profit maximisation theory (Friedman, 1973) that shareholders are the primary “stockholders” of the organization; the company´s aim and key responsibility includes satisfying this group by generating return on their investment. Later on, Freeman (1984) took a wider approach and defined the stakeholders as: “any group or individual who can affect or is affected by the organisation´s purpose and objectives”. Consequently, stakeholders are those groups, who have a stake in the organization, which can be described as: “interest or a share in an undertaking that Page 55 of 93 403016 Master Thesis MA in Corporate Communication can range from simply an interest in an undertaking at one extreme to a legal claim of ownership at the other extreme” (Cornelissen, 2011, p8). The concept of being a stakeholder will be defined within this framework of this thesis according to Clarkson (1995, p106), who stated that: “stakeholders are persons or groups that have, or claim, ownership rights, or interests in a corporation and its activities, be they past, present, or future. Such claimed rights or interests are the result of transactions with, or actions taken by, the corporation, and may be legal or moral, individual or collective. Stakeholders with similar interests, claims, or rights can be classified as belonging to the same group: employees, shareholders, customers and so on.” The groups of stakeholders can be categorized though their interest priority in the organization, which results in primary or secondary stakeholders. This entails in a priority listing, meaning that the organization first should deal with those stakeholders, who can be identified as important (primary) stakeholders. In order to identify the stakeholders for the case of Kvadrat, the Stakeholder Salience Model (Mitchell, Agle, & Wood, 1997) can be used. This model has been chosen, since it is categorizes the stakeholders on the basis of three given attributes, namely a) power, b) legitimacy and c) urgency. They core idea is that only those stakeholders who possess priority interests in Kvadrat´s activities should be mainly communicated to. This is also in line with the research paradigm chosen and the theoretical framework above, since it has been pointed out that the academia still debated whether the communication strategy of standardization or localization should be applied and recommended; therefore, - in line with the research paradigm – the company itself needs to find a way to limit the social reality it operates at, consequently, it should first satisfy and communicate to those stakeholders who have the biggest stakes in the company and who have the biggest power the affect it. Page 56 of 93 403016 Master Thesis MA in Corporate Communication Figure 16 – Stakeholder Salience Model. Source: The analytical process will have three phases: first of all, it will be counted how many times certain stakeholder groups are mentioned in the communication material, and this frequency will indicate the power of this stakeholder group. Later on, the legitimacy and urgency of these groups will be checked and based on this analysis, the stakeholders can be put into the following categories: a) dormant, b) discretionary, c) demanding, d) dominant, e) dangerous, f) dependent, g) definitive and h) nonstakeholder. In the Case Study section, the stakeholders will be grouped according to this conceptualization and thereby it can be determined to what extent they need to be communicated to and what their characteristics are, thereby indicating whether Kvadrat engages in a suitable communication strategy. There are advantages and disadvantages for utilizing this theory in this case. The main reason it has been chosen, since it provides a dynamic perspective on stakeholder management, which is in line with the paragraphs above, since the blue ocean strategy points of that the ´oceans´ are not static, furthermore, the perspective on communication and research paradigm has also indicated that this thesis views the communication process as an ongoing one, which exists in multiple realities. Consequently, the stakeholder salience model will enable the thesis to see the communication process as an ever-evolving one; therefore, it needs to be highlighted that this thesis intends to investigate the current state of stakeholder typology and it reveals that it is subject to change. Page 57 of 93 403016 Master Thesis MA in Corporate Communication This categorization is crucial for the analysis of the marketing communication strategy, since in the following parts of the analysis it will be further examined to what extent these stakeholders groups are adequately communicated at. To sum up the section on the Theoretical Framework, the main objective was to answer the second research question by understanding the context of the problem statement by defining globalization and its relation to marketing communication standardization and localization with regards to the stakeholder salience model and the blue ocean strategy. This thesis views the globalization as being driven by technological innovation resulted in increased international commercial activities. Consequently, the paradox of international marketing standardization and localization emerged. The former highlights the homogenization of the consumer behvaiour across national markets and emphasizes the economies of scale caused by standardized products and distribution, whereas the latter focuses on the differences between the consumers and argues for local adaption techniques and thereby gaining competitive advantage. These strategies are in opposition with each other and the strategy-fit by Katsikeas, Samiee & Theodosiou (2006) argue that the macro- and microeconomical conditions determine when the certain strategies should be applied. Whilst these two approaches are centered on competition, Kim & Mauborgne (2005) maintains that instead of concentrating on the competition, the companies should offer a unique set of products or services coupled with value innovation in order to make the competition irrelevant. All these strategies have implications on the marketing communication, namely there is a debate on to what extent it should be standardized or localized in order to gain competitive advantage and align the communication strategies with the needs of the stakeholders. Nevertheless, this chapter only managed to see the problem from a theoretical point of view and –as argued above – all the companies are different; the next chapter will serve as a case study in order to get closer to solving the problem statement and answer the third research question on how beneficial the communication strategy of Kvadrat is. Page 58 of 93 403016 Master Thesis MA in Corporate Communication Case Study The following chapter intends to answer the third research question by making use of the analytical models illustrated in the Theoretical Framework (p26) above in order to see whether the standardized or localized approach is more beneficial for Kvadrat and whether this decision is in line with the blue ocean strategy and addresses the most important stakeholders. Consequently, the following part of the thesis will investigate whether Kvadrat´s standardized marketing fits the environmental characteristics of the Chinese host market. First of all, Kvadrat will be briefly introduced followed by a macro-and micro-environmental analysis both for Kvadrat in Denmark and in China. This will enable the comparison of the environment in the original and host market, which will determine whether – theoretically – the international marketing standardization or localization strategy, would suit Kvadrat better. This environmental analysis will include the stakeholder analysis as well. Afterwards, the Blue Ocean Strategy will be applied to the case and at the end the findings of the two analyses will be summarized and the following chapter will serve as the Discussion (p76) of these findings. Introduction to Kvadrat Kvadrat is the leading manufacturer of design textiles in Europe. The company was established in 1968 and its main purpose is to create high-quality interior textiles and textile-related products for both public and private spaces. Kvadrat is a family-owned business and its headquarters are located in Ebeltoft. It is the main supplier of architects, designer and furniture manufacturers, and its main product range include upholstery and curtains. The mission of the company is: “We continually seek to push the aesthetic, artistic and technological boundaries of textile design. We create high quality products that help architects to shape architectural spaces, designers and furniture manufacturers to produce and craft furniture, and consumers to bring tactility and colour in their private homes. This is our way of contributing to contemporary design culture” (Kvadrat, 2014). The vision of the company includes being among the five strongest architect and design brands in both Asia and Europe (Abbott & Groysberg, 2013). Kvadrat is represented both in the contract and retail markets, however, they center on the B2B sector (Kvadrat, 2014); therefore, this thesis will only analyze the marketing efforts in that sector. The core purpose of the company can be summarized as follows: “We develop high-quality modern textiles and textile-related products for both architects to specify in the public spaces and Page 59 of 93 403016 Master Thesis MA in Corporate Communication for private consumers for the home. This is our core purpose – it is why we exist, it´s the enduring essence of our company, upon which all our strategic thinking is based” (Kvadrat, 2014). Additionally, Kvadrat also started to sell whole products, such as pillows and blankets. The company does not have its own production facilities; it manufactures its high-quality products in Western Europe and Japan and gives 10-year warranty for all the sold items. The main strategy is based on constant product diversification and market expansion through partnerships. Even though Kvadrat was established by the Rasmussen and Byriel families, today it evolved to be a cosmopolitan company with a global customer-base and perspective, whilst they are inspired by their long heritage of excellent service and design (Kvadrat, 2014). The fabrics produced by Kvadrat can be found in the world´s important buildings, such as the Copenhagen Opera House, the Walt Disney Concert Hal or The Gherkin, whereas it has showrooms in the most important cities for design, such as Milano or London. Not only the company´s turnover, but also the awards signalize the uniqueness and success of the company´s products. Among others, Kvadrat won the Wallpaper Design Awards in 2009 for the ´Most Innovative Textile´, or the AIT Award Architecture Textile for its upholstery. Regarding Kvadrat´s presence in Asia, it is available on the Chinese, Korean, and Singaporian markets. Its main goal is to enhance the brand awareness whilst maintaining the strong service concept, based on quality materials and short delivery times. The marketing communication strategy in China is centered on the ideal of standardization, meaning that the website, brochures, newsletters are created by one agency and these materials are translated to Chinese language (Kvadrat, 2014). Furthermore, there are two showrooms, in Shanghai and in Hong Kong (Kvadrat, 2014). Stakeholder Identification The Theoretical Framework (p58) pointed out the the significance of the correct identification of the stakeholders and the dynamic typology why the stakeholder salience model has been chosen as the analytical tool for the stakeholder identification. As the basis of analysis, the website of Kvadrat (www.kvadrat.dk), with special emphasis to the news section has been chosen (see Appendix). According to Kvadrat, it has three customer segments: a) contract, meaning the sales Page 60 of 93 403016 Master Thesis MA in Corporate Communication to the designers and architects, b) industry, referring to the sales to the furniture producers, and c) the retail (Abbott & Groysberg, 2013). However, as discussed above, the retail sector is not relevant to this thesis; therefore, the following paragraphs will only take into account the contact and the industry as customer segments. When taking a look at the website, the most frequently used stakeholder groups are the designers, which group can be split into two distinctive categories: the designers working for Kvadrat and the interior designers, who the contract customers are. This group has the legitimacy and power to affect and be affected by the organization, since they are involved in the day-to-day management of the company. The importance of the suppliers is also mentioned several times, since the main reputation of Kvadrat depends on its quality products. Furthermore, there are other stakeholders, such as the employees working at the distribution centers and offices and general investors (Kvadrat, 2014). Figure 17 – Selected Financial Data. Source: (Abbott & Groysberg, 2013). As the Figure above shows the company´s turnover is growing and it can be claimed that the customers have the legitimacy, but at the moment rather lack power and urgency, therefore they belong to the discretionary stakeholder group. Kvadrat claims that the employees are key to its business operations and promotes and provides sufficient working conditions, so the employees are dominant stakeholders; whereas the suppliers and designers are definitive stakeholders (Kvadrat, 2014). This has a crucial implication on the communication strategy, since the most dominant stakeholders need to be communicated on an ongoing basis (Cornelissen, 2011). However, their great presence on Kvadrat´s website suggests that they are frequently communicated to. Page 61 of 93 403016 Master Thesis MA in Corporate Communication Foreign Market Characteristics According the the strategy-fit theory by Katsikeas, Samiee & Theodosiou (2006), one needs to analyze the foreign market characteristics, followed by the management and product characteristics in order to determine, whether the company should apply a standardized or localized approach. Consequently, this part of the case study will take a look at Kvadrat´s strategic environment in Denmark and in China in order to examine the differences and similarities between the two markets. Strategic Environment of Kvadrat A/S in Denmark As pointed out in the Theoretical Framework (p26) section, in order to determine whether Kvadrat´s communication strategy fits to the environment it operates, first the macroenvironmental, then the microenvironmental aspects need to be investigated. The following paragraphs will not only be based on Katsikeas, Samiee & Theodosiou (2006), but also Lynch´s (2011) framework on strategic environmental analysis will be utilized as well. Macroenvironmental Analysis The textile industry is often referred to as the ´traditional industry´, since in the history of industrialization, it is one of the oldest sector. Due to the serious pressure on prices worldwide, the industry started to rationalize and centered the production on manufacturing high-quality products and cutting the labour costs. This resulted in outsourcing the more manual parts of the production to low wage countries, whereas the more capital intensive parts stayed in Denmark (Olsen, Ibsen, & Westergaard-Nielsen, 2004). This is also visible on the Figure below. Figure 18 – Rationalization Strategy of the T & C Industry. Source: (Olsen, Ibsen, & Westergaard-Nielsen, 2004) Page 62 of 93 403016 Master Thesis MA in Corporate Communication Regarding the current state of the Danish textile industry, it had a turnover of 38.6 billion DKK in 2012, of which exports amounted to 22.7 billion DKK. When compared to the levels before the crisis, the turnover has increased with 2.5 billion DKK, whereas the employment fell by ca. 1800 people. Consequently, there have been major cost reductions within the industry; however, the increasing turnover shows that it has healed from the crisis (Hillmose, 2013). The Danish regulatory environment is extremely concerned with the social and environmental demands. These include environmental labeling and decent working conditions. This is one of the reasons why the industry has changed its focus form manufacturing to know-how intensive work functions, such as design, quality control or sale (Odgaard, 2011). Concerning the Key Success Factors, they include the business and communication strategy, trained employees who possess great know-how, maintaining good relations with the supplier and distribution network, whereas ensuring service and quality control via meeting social and environmental demands (Abbott & Groysberg, 2013). Microenvironmental Analysis As pointed out above, the industry is tightly regulated based on environmental and social standards. Consequently, the green strategy is essential, in order to ensure compliance with the industry´s high standards. Due to the fact that the compliance to these environmental standards is crucial, there are rather no new opportunities in building an environmental strategy. However, the relationships between the suppliers and distributors are extremely important, especially for the reason that the social, environmental and quality demands need to be met and at the same time this fulfillment needs to be communicated to the customers. The industry was shaken by the recent economic crisis, however, it shows fast responsiveness and adaptation skills to new situations and the recent rising turnover also gives evidence for this argument. With regards to the competitors, there is a low chance for the potential entrants due to the high entry costs and centralization of the industry through partnerships and purchase of the smaller and medium enterprises, due to the EU common market and the ease it provides for substitutes, who have similar alternative costs. The suppliers have medium bargaining power due to the high quality and big orders they deliver, whereas the customers have rather low bargaining power due to the fixed prices (Bayer, 2008). Page 63 of 93 403016 Master Thesis MA in Corporate Communication Figure 19 – Porter´s Five Forces Analysis on Kvadrat A/S in Denmark. Based on: (Porter M. , 1990) & (Bayer, 2008). As discussed above, Kvadrat´s main customer segments include architects, interior designers and furniture makers. Datamonitor (2013) predicts a decrease in the Danish construction market resulting in a declining number of companies; therefore, it is increasingly important for Kvadrat to communicate efficiently within these shrinking market conditions. Furthermore, it is predicted that the furniture industry will become more concentrated as well (Datamonitor, 2013). As a premium brand, Kvadrat could be vulnerable to these market conditions due to its higher prices (Agrawal, 1995). Kvadrat basic strategy includes that it only moves to the retail market, if it has reached the maximum number of contacts within the market (Kvadrat, 2014). Regarding the contractual customer base in Denmark, it can be argued that the maximum number of contracts is reached, since Kvadrat entered the retail market. Therefore, the clientele of large industrial customers and public sector customers in Denmark needs to be maintained, since there are low possibilities of expanding. One of the ways Kvadrat chose to build these relations is through trade shows and its showroom in Copenhagen; further, the company´s communication strategies include presence on various social media platforms, the website and newsletter (Kvadrat, 2014). Strategic Environment of Kvadrat in China Macroenvironmental Analysis In 2012, the total output of the textile industry in China accumulated for 5,78 trillion RMB (roughly equals to 869,7 billion USD). It has been predicted that the industry will increase about 10,5%. The textile market is a traditionally adventegous investment, since it is one of the backbones of the national economy, accounting for 7,11% of China´s GDP in 2011. Page 64 of 93 403016 Master Thesis MA in Corporate Communication Furthermore, China´s construction accounts for 1/5 of the world´s construction projects, therefore it can be concluded that there is a strong need for high-quality interior textiles in China. (The Beijing Axis, 2014). An important feature of this working environment is that the Chinese construction industry is characterized by a boom and tense competition fostered by the fact that even though an architect has won a project, it is not sure that he or she will actually be involved in carrying it out (Dyer, 2007). Additionally, with the development of the Chinese manufacturing quality, Chinese clients are progressively hiring more local Chinese talents (Levinson, 2004). Regarding the regulatory environment, the Chinese government is putting efforts into boosting the Chinese textile industry by introducing favourable measures. There were two guideline plans launched in order to enhance the industry´s competitiveness. These plans are the following ones: 1) Adjustment and Revitalization Plan of Textile Industry and 2) Textile Industry Twelfth Five Year Development Plan. The guidelines until 2020 cover five main issues: a) emphasizing the domestic consumption market and stabilizing the international trade share by development of new products and developing the rural market; b) strengthening the brand building and focusing on innovation and technology; c) increasing the production efficiency by decreasing the energy consumption and eliminating the obsolete capacity; d) encouraging the relocation of production plants from Western China to the Central and Eastern part; e) increasing the financial support (Insight, 2013). Furthermore, the Twelfth Year Plan increased these expectations and proposedan annual growth of 8% of the industry. As specified above, the market is growing fast, which provides an attractive opportunity for investors. Kvadrat operates at the high-end of this market; and that segment is also growing. The degree of turbulence within the industry is rather high, but there is a bigger predictability in the high-end sector, therefore, Kvadrat´s segment is rather medium turbulent (Abbott & Groysberg, 2013). Regarding the Key Factors for Success, these factors include maintaining a consequent business strategy, brand awareness needs to be increased, quality and the distribution/supplier network needs to be maintained; further, the employees need to be trained and the company should focus on the high operating capacity utilization, product differentiation and successful promotion programs (Hansen, 2010). Page 65 of 93 403016 Master Thesis MA in Corporate Communication Figure 20 – Key Success Factors for Kvadrat in China. Based on: (Lynch, 2011). Microenvironmental Analysis Regarding the green strategy, Kvadrat is not in the possession of production facilities, nevertheless, it ensures quality by through manufacturing in Japan and Europe; therefore the customer perceptions on the quality is high and the value chain and distribution sector is closely monitored in order to keep the company´s standards (Kvadrat, 2014). There is a great opportunity for Kvadrat in China, since the increasing demand is driving up the prices of products of wool (Abbott & Groysberg, 2013). Another opportunity includes the prospects of opening up a production facility in China. However, there are great risks involved in doing so. First of all, it is questionable, whether there is enough qualified and skilled workforce, who can produce the expected quality and the same is true for the suppliers in general. Furthermore, the textile industry is generally harmful to the environment, and given the Chinese government´s efforts in combating pollution, the cost of establishing a production facility in China might be topped with government fines. Furthermore, the motto of the company is: “At Kvadrat we continually seek to push the aesthetic, artistic and technological boundaries of textile design. We create high quality products that help architects to shape architectural spaces, designers and furnituremakers to produce and craft furniture, and consumers to bring tactility and colour in their private homes. This is our way of contributing to contemporary design culture” (Abbott & Groysberg, 2013). Consequently, a potential production failure might seriously harm the reputation of the company. All these taken into account, at this stage it is not advisable to move the production to China. Porter´s Five Forces Analysis provides a useful analytical tool when defining the competitive environment. Regarding the potential entrants, there is a rather low threat due to the high entry Page 66 of 93 403016 Master Thesis MA in Corporate Communication costs. The customers generally have a high bargaining power, since the sizes of the orders are huge and the art of bargaining is embedded in the Chinese business culture. It is difficult to determine the number of substitutes, since there are a huge number of companies in the textile industry, however, they cannot deliver the same high-quality standards; for the same reason the threat of competitors is rather medium. With regards to the suppliers, Kvadrat reduced the 40 suppliers to 21 by 2013. Its biggest suppliers are Gaudium, Gudbrandsdalens and Wooltex (Abbott & Groysberg, 2013). Since Kvadrat is the biggest consumer of these suppliers (Abbott & Groysberg, 2013), it can be argued that the suppliers have rather medium bargaining power. Figure 21 – Porter´s Five Forces Analysis on Kvadrat in China. Based on: (Porter M. , 1990). Kvadrat faces competition at local, regional and global levels, involving companies specialized in curtains, or upholstery, and those who operate in all these segments (Abbott & Groysberg, 2013). Regarding the customer profiling, Kvadrat operates in the contract market, in China it especially works with high-profile government projects regarding building public spaces. Due to the uniqueness of these projects, it is impossible to analyze the customer profiling for the different products, since these projects all require exceptional solutions via suitable design. Consequently, the company´s main competitive advantage lies in adapting to the customers´ needs by giving a practical realization for the building architects´ plans (Abbott & Groysberg, 2013). The present customer strategies include maintaining a show room in Hong Kong and Shanghai and –as mentioned above – the communication has increasingly been moved to online platforms, such as Page 67 of 93 403016 Master Thesis MA in Corporate Communication various social media platforms, including the Chinese microblog, Weibo, and it has a website in English, German and Chinese language. As Gong (2003) argues the customers make purchasing decisions on basis of experience. There are some critical features of this customer group in China, namely “[s]everal years ago architects focused on cooperation. However, due to the development of the market economy, competition has become more serious nowadays” (Zhikun & Fungfai, 2009, p133). Zhikun & Fungfai (2009) also point out that Chinese building architects are rather unwilling to share their knowledge with each other, therefore Kvadrat can hardly rely on wordof-mouth marketing. Nevertheless, the Chinese culture is relationship-focused, consequently, despite the reluctance in information sharing – testimonies from social references are crucial, so Kvadrat needs to focus on relationship building within its market segment (Zhikun & Fungfai, 2009). Firm/Management Characteristics Due to the fact that Kvadrat uses international marketing standardization and the management is trained in the headquarters in Denmark, there are applied similar tactics and operations in Denmark and China; consequently, there is no need for a separate analysis in this thesis. The CEO of Kvadrat is Anders Byriel, who works in Ebeltoft, whereas the country director in China is Jorgen Hansen. The deputy manager in the Copenhagen marketing department is Shawn Cook, whereas Melody Lin is the Shanghai-based marketing coordinator (Kvadrat, 2014). Tactical Level The advertising tactics of Kvadrat in China are comprised of online media presence through social media and their corporate website combined with two showrooms in Shanghai and Hong Kong. Another general tactic for the businesses operating in the textile industry is to participate in trade shows. However, Kvadrat has found that these trade shows in China do not represent the same quality as the similar arrangement in Europe or America; therefore, so far it decided not to exhibit its products. According to the marketing manager Melody Lin, only a few people visit these trade events with the purpose of buying, more often the visitors only go there in order to collect ´free stuff´ (Hansen, 2010). Nevertheless, one could argue that it is still risky tactic not to attend the trade shows, since these could increase the brand awareness; moreover, they also have the opportunity to meet the Page 68 of 93 403016 Master Thesis MA in Corporate Communication potential customers face-to-face, which is highly essential given the characteristics of the Chinese business culture described above (Zhikun & Fungfai, 2009). Regarding the social media presence, Kvadrat has strategically chosen to be found on the biggest Chinese microblog: Weibo (see Appendix), furthermore, it has also created an account on Youku. By searching through the posts, one realizes that the main focus is on the visuals, since Kvadrat posts mostly pictures and videos of its recent ads with little or no explanation. This is another risky tactic, since it does not utilize the advantages of storytelling and it is difficult to get more information about the brand for those ones who are not aware of it. However, these all could be intangible benefits, whose effects on sales are rather impossible to measure. Furthermore, despite this tactic might be risky from one point of view, it could be beneficial, since there is no written message, which could be mistranslated. Furthermore, Kvadrat´s both mission and vision statements include the notion of art entailing in individual sensemaking, and this notion is highly reflected in pictures on abstract forms in vivid colours (Kvadrat, 2014). When looking at the timing of the social media posts, it can be argued that it is within normal business hours, which can be debatable as well. Since the interior designers are busy at work, it might be a more beneficial tactic to figure out the exact hours they are online and post during these hours. In case this lies outside the normal working hours, there are certain social media managing tools which can schedule the posts (Hackley, 2010). Furthermore, another intesting tactic is that the videos posted on Youku do not have any music or explanation, so there are silent ads. The impact of these on the Chinese viewers bombarded by various types of media every day should be considered and maybe focus groups should be set up in order to determine the success of the social media presence (Gong, 2003). Operational level All the Kvadrat employees need to undertake a training course, which will ensure that only highly qualified workforce will be employed. For each employee there is a specific learning plan designed, which guarantees that all the employees possess the relevant and up-to-date knowledge about the company´s strategy. This training takes place at Kvadrat´s special academy, which Page 69 of 93 403016 Master Thesis MA in Corporate Communication holds annual workshop and seminars for all employees. Last year, 88% of the employees went through trainings or seminars (Abbott & Groysberg, 2013). As the following quote from the Kvadrat´s employee handbook: “Our Vision and Mission, 20122015” illustrates: “We try to make as few rules and policies as possible. In return we expect each person to always act in accordance with our basic values and, in doing this, to: demonstrate enthusiasm in his/her daily tasks; be open toward others and our environment; understand that we act as one company; be quality-oriented in all decisions; and be proud of being a part of our company” (Abbott & Groysberg, 2013), the management style of Kvadrat is highly decentralized. This is facilitated by the project that all Kvadrat employees need to undertake a training course, which will ensure that only highly qualified workforce will be employed. For each employee there is a specific learning plan designed, which ensures that they are up-to-date about the company´s strategy. This training takes place at Kvadrat´s special academy, which holds annual workshops and seminars for all the employees (Abbott & Groysberg, 2013). With regards to the communication strategy within the organization, “Top management is communicating the strategy to all departments, all markets. We do that in January. I just had three departments in today, where we go through all of our strategic roadmap. . . . And we’re doing the same in the markets all over Europe and the world. I’m going to Australia next week to communicate our strategy, and make sure that they have a sense of urgency out there also” (Abbott & Groysberg, 2013). Product Characteristics The product characteristics refer to the product cost, type and positioning. Kvadrat´s products for the contractual market are uniquely designed with single solutions for the different projects, therefore they possess innovative features; topped with the quality, the company charges high prices for its products, therefore, it operates in the premium market (Kvadrat, 2014). Regarding the product type, it can be regarded as an industrial product, rather than a consumer one. Strategy-Fit? As described in the Theoretical Framework section, the international standardization strategy is suitable, when the foreign market characteristics fit the internal and external environment in the host country (Ramarapu, Timmerman, & Ramarapu, 1999). If one takes the framework of Katsikeas, Samiee & Theodosiou (2006) into account, it can be argued that the micro- and micro environmental conditions are different in Denmark and in China. According to the theory, this Page 70 of 93 403016 Master Thesis MA in Corporate Communication should result in a localized approach. Regarding the foreign market characteristics, -from the analysis above – it can be concluded that there is little environmental similarity between the Danish and Chinese markets. Whereas in Denmark there is high competition, in China, it is rather medium (low) with an increasing export market, further, the psychic distance between these markets are huge, as well. Concerning the firm/management characteristics, the company has long-standing international experience. Even though it is still a family-owned business, due to the partnerships on the global scale, it can be claimed that the firm size is rather big and the management is centralized in Denmark. The firm/management commitment to allocate resources to exporting activities is high, whereas the foreign market coverage is extensive as well, whilst the preceding year´s performance is positive due to the rising turnover. With regards to the product characteristics, the product type is industrial product with high costs with unique and innovative features (Abbott & Groysberg, 2013). Nevertheless, Kvadrat is successful with utilizing a standardized approach, which points to the direction that economies of scale might be more important in certain cases than adaptation to the characteristics of the local markets. When taking into account the external environmental analysis by Tan & Sousa (2013), the results are the following. The foreign market characteristics suggest international marketing localization, since there are dissimilarities in terms of environment, competitive industry, export market development and the physical distance. The firm/management characteristics rather show the possibility of international marketing standardization, since Kvadrat has a long-standing international experience with various foreign market coverage, further, the management approach is centralized with central training. The product characteristics suggest localization as well, since they are unique and adapted to the clients´ needs. Consequently, this framework suggests that Kvadrat should engage in an international marketing program standardization, which entails product, promotion, price and distribution harmonization. Despite the results of this meta-analysis, Kvadrat´s overall performance is –including economic and strategic levels – is satisfactory, which implies that the strategy-fit point of view is not suitable in all the cases. Page 71 of 93 403016 Master Thesis MA in Corporate Communication Moving onto the communication aspect of this analysis, as pointed out above, Kvadrat uses a standardized communication strategy. Njusja de Gier, VP of Branding & Communication of Kvadrat stated that: “we want to be more efficient with marketing; to have a higher ROI and lower marketing expense or moving a lot more of our communications efforts online” (Abbott & Groysberg, 2013). Therefore, the communication channel is online, whereas the receivers, as pointed out above, are the main stakeholders (Mitchell, et al. 1998). As analyzed above, the company itself is rather decentralized, whereas Kvadrat´s strategic road states that the ads should have affective appeals, therefore, they are based on abstract forms and colors (see Appendix) (Abbott & Groysberg, 2013). Cheon, Cho & Sutherland (2008) argues that in case the market characteristics profoundly differ (which has been pointed out above), furthermore, the sender has a decentralized management style and in case the purpose of reaching affective appeal, the localization strategy is more appropriate (Cheon, Cho, & Sutherland, 2008). However, Kvadrat itself benefits from the standardized communication approach, therefore, the following part of the section intends to classify the reasons behind this. Since Kvadrat offers a unique product and makes use of value innovation – thereby being in a blue ocean right now – the standardized approach to communication might be supported by other characteristics. The Blue Ocean Strategy and Kvadrat When examining the tactics of Kvadrat, it was mentioned that it moves to retail markets after it has reached the maximum number of contracts. Consequently, it can be argued that it uses value innovation strategy in order to marke the competition irrelevant, entailing that it is a suitable example for using the blue ocean strategy.The following section will scrutinize how Kvadrat moved to the blue ocean and created uncontested marketspace. As discussed above, the textile industry – along with the construction industry - is slowing down in Denmark, therefore it can be concluded that it has become a red ocean with fierce competition and decreasing number of orders (Bayer, 2008). As a result, Kvadrat focused on alternative industries and redefined the buyer groups within that industry. As a first step, it is important to define the strategy canvas and identify what can be eliminated, reduced, raised and created. Page 72 of 93 403016 Master Thesis 10 8 6 4 2 0 MA in Corporate Communication Kvadrat Kvadrat Textile Industry Figure 22 – The Strategy Canvas of Kvadrat in China. Based on: (Kim & Mauborgne, 2005). As the Strategy Canvas for Kvadrat in China shows, Kvadrat has eliminated the burden of owning its own production facilities, but it rather works in close relation with its 21 suppliers (Abbott & Groysberg, 2013). Furthermore, it has reduced the delivery time, raised the quality, the after-sale service and the warranty condition, whereas it created its own aesthetic design (Kvadrat, 2014). Additionally, it works together with companies from the furniture industry as well, through which it creates a new offering by merging the opportunities within these two industries. Furthermore, it works together with famous designers and the fact that it is a Danish company strengthens its competitive advantage of country-of-origin marketing. Another aspect of Kvadrat´s business and communication strategy includes norm-breaking ways of dealing with the contracts, regarding that it does not give any discount for the customers – which is a customary way in China – and its brand is signalized of high prices and top quality (Gaarden, 2013). Currently, Kvadrat´s market segment includes different projects, among which there is hospitality, healthcare and cultural spaces and it is important for them to communicate the variety of textiles suitable for these public spaces. With regards to the tactical aspects of the strategy, pamphlets and brochures are also distributed during trade shows and in the showroom and it intend to strengthen its online presence. One of the main messages in these advertising materials is that the vision of Kvadrat is to become a world leader in the interior textile industry and therefore it delivers top class solutions (Hansen, Page 73 of 93 403016 Master Thesis MA in Corporate Communication 2010). According to Ambler & Witzel (2004), one should never point out that they want to be the leader or they are the leaders within the industry, when making business in China. In accordance with this argument, Gesteland (2012) also argues that firms should never praise their products in the Chinese business context. This is contrary to Kvadrat´s tactics, however, the growing sales verify the applicability of this approach. Furthermore, the Chinese culture is usually characterized as relationship (guanxi) and social status (mianzi) focused. As Kvadrat´s example shows, the tendency of “[…] without guanxi the door to business is firmly barred” (Ambler & Witzel, 2004) may not be true when a company deliversa value innovated product. On the website, the reference works have a special place, which also creates credibility (Kvadrat, 2014). This is especially important, since Larsen (2004) claims that Chinese building architects are becoming more and more sophisticated; hence they increasingly look for excellent products. Nevertheless, there are no customer testimonials included in the advertisements, which is usually not considered as trustworthy advertising. To sum up, this chapter intended to answer the third research question, namely whether the chosen strategies of Kvadrat are in line with the theoretical suggestions and furthermore, why this certain approach is beneficial for the company. Furthermore, this chapter also contributed to solving the problem statement by examining the communication strategies and the reasons behind these choices. All in all, this thesis views Kvadrat as an exemplary case, since the environmental conditions point to the direction that Kvadrat´s communication strategy should be localized. Nevertheless, Kvadrat´s international marketing standardization involves standard advertising materials translated into 9 languages by one agency called Design-Dialogue operating in the UK. Furthermore, this also requires a centralized approach regarding the tactical and operational levels of conducting business. The Blue Ocean Strategy has been used in order to find out, why Kvadrat is still successful, even though the analytical results pointed out that the standardized communication strategy does not fit the environmental characteristics. In general, Kvadrat has a history of making use of the Blue Ocean Strategy by moving to B2C segment and new markets when it has reached the maximum number of B2B contract on a certain market. Consequently, even though the environment suggest the international marketing standardization strategy, Kvadrat still succeeds in China, mainly due to moving away from the Red Oceans by Page 74 of 93 403016 Master Thesis MA in Corporate Communication value innovation and thereby maintaining a consistent business strategy and making use of economies of scale. Page 75 of 93 403016 Master Thesis MA in Corporate Communication Discussion The aim of the following part of the thesis is to answer the fourth research question, namely how the analytical findings above interplay with the theories and what the future prospects for development are. In order to answer this research question, first of all, the advertising transferability will be discussed, followed by a debate on the Blue Ocean Strategy. Advertising transferability Even though Kvadrat is successful regarding its advertising strategies, it is still essential to discuss the possibilities of advertising transferability. According to Ipsos (2013), one in every three advertisements should not be launched in another country, whereas another third should have been modified before aired. That leaves only a third of the ads which can be used without modification. Sheth (1978) argues that it is tempting to standardize the advertising materials due to easier management and economies of scale. These are also highlighted by the proponents of the international marketing standardization and criticized by the supporters of the international marketing localization. Sheth (1978) claims that the determining aspects of multinational advertising are: a) expectations of the customers, b) specifics of the message encoding-decoding process, and 3) silent languages, such as culturally different meanings of time, friendships, etc. On the basis of these factors, he proposed a framework, which helps the companies decide about the degree of adaptation. These strategies include: a) complete extension, b) symbolic extension, c) literal extension, d) symbolic and literal extension, e) simple adjustment, f) literal adjustment, and g) complete adjustment. Figure 23 – Strategies of Advertising Transferability in Multinational Marketing. Source: (Sheth J. N., 1978). Page 76 of 93 403016 Master Thesis MA in Corporate Communication Since the customer expectations between the Chinese and Danish market and similar, but the encoding-decoding process and the silent language are different, Kvadrat might consider to use the symbolic & literal extension strategy, indicating the use of the same medium, however, symbolically adjusted messages. Addtionally, according to Ipsos (2013), creative ads do not transfer easily not only due to cultural and language differences, but it is also dependent upon the strategy itself. In case, it is not new or relevant to the audience, it will fail to create interest. Furthermore, the executional aspects are also crucial when it comes to advertising on a second market. Based on these reasons, Ipsos (2013) recommended five strategies to think through before using standardized advertising material in another market. First of all, consumers in all regions in the world look forward to great the relevant storytelling. Secondly, the customer´s geography, culture, brand awareness and advertising context should be taken into account as well. Thirdly, ´think global´, meaning that big ideas developed for a global market are more likely to penetrate across markets. Fourthly, the investment in the success is crucial as well, indicating that the company should start with strong ads in order to create the important brand awareness, since strong ads are more likely to transfer than weak ones. Fifthly, it is always a good idea to conduct focus group interviews and tests before launching a big scale campaign (Ipsos, 2013). Additionally, (Ipsos, 2013) has also come up with a checklist for transferring ads between markets. Page 77 of 93 403016 Master Thesis MA in Corporate Communication Figure 24 – A Checklist for Transferring Ads between Markets. Source: (Ipsos, 2013). This framework measures how strong the strategy is on the originating market and takes into account the cultural and executional variables. With regards to Kvadrat, this framework might recommend some changes in its advertising practices, such as paying more attention to storytelling and a more localized approach. To sum up, there are several different frameworks regarding advertising transferability, but they have one thing in common: usually in the case of Kvadrat China they suggest some modification of its advertising practices. This thesis views as beneficial to run standardized advertisement for the foreign interior designers working in China, whereas a modified strategy might be beneficial for the native Chinese target segment. Page 78 of 93 403016 Master Thesis MA in Corporate Communication As pointed out above, the advertising transferability is dependent upon the receiver´s sensitivity to comprehend certain culturally embedded messages. However, the advocates of the international marketing standardization claim that the consumer tastes are increasingly universalized. Holt (1994) claims that the methods used to analyze the consumer tastes across different markets are rather inadequate, since they put too much weight on cultural aspects. However, consumption behvaiour is also largely affected by economic, political, demographic and ecological factors, therefore cross-national consumption patterns should be viewed in this spotlight. Furthermore, even though there are still discussions on whether the ´global consumer´ has emerged and to what extend it exists, data reports increasing importance dedicated to quality and uniqueness. In the case of Kvadrat this is an important trend, since it provides the customers with unique product offerings. Consequently, the culture might be a significantly lower role in determining whether Kvadrat´s products are going be bought. Furthermore, through the company´s product customization, it can also satisfy the buyers from various social and cultural backgrounds. As the case study shows, this approach of high quality product and after-sales service coupled with customization options can be marketed in a standardized way successfully (Holt, 1994). How to survive the future Red Ocean? Regarding the Blue Ocean Strategy, the analysis showed that Kvadrat applies it professionally on the strategic, tactical and operational levels. However, as Kim & Mauborgne (2005) point out, blue oceans will eventually become red oceans. Therefore, it is important for Kvadrat to be future-oriented and grasp new opportunities in order to further create uncontested market space. One of the aspects to consider is to look for new customers. Currently, Kvadrat has been mostly working with foreign design companies and foreign interior designers. Hence, it is could be a beneficial idea to engage in more contracts with the Chinese building architects. Furthermore, the usual Kvadrat strategy of moving to the retail market via wholesale could be another strategy. According to the SWOT analysis by Bayer (2008), the company´s strength lies in product development, sales, key employees, broad presence and low competition. Page 79 of 93 403016 Master Thesis MA in Corporate Communication Figure 25 – SWOT Analysis on Kvadrat. Source: (Bayer, 2008). Production in China is listed both as a threat and an opportunity. In case, the Chinese market was turning into a red ocean, Kvadrat could consider working together with Chinese suppliers. This would make them be closer to the customers and working with Chinese designers would allow them to understand the more culture-specific pattern of the public spaces. In order to reach a new blue ocean several tactics can be employed. First of all, more online advertising could take place, whereas the development of an e-business division could be beneficial as well. Furthermore, as discussed under the Advertising Transferability section, it could be crucial to re-think the culture specific symbols and the ad messages could be built on those (Bayer, 2008). On the operational level, Kvadrat has reached excellent results. However, it is essential that it maintains its academy on employee training and it keeps the employees up-to-date about the new tactics employed. For this purpose, the frequent use of intranet is recommended. With regards to communication, the analysis has showed that Kvadrat puts an emphasis on communicating to the most important stakeholders. As pointed out above, in case the conditions change, which result in strategic decisions, the stakeholders should be kept informed (Cornelissen, 2011). All in all, Kvadrat´s operational level show its ability to respond to quick changes, which is crucial in managing change or a move away from the red ocean. Page 80 of 93 403016 Master Thesis MA in Corporate Communication Balancing the paradox of standardization and localization This thesis aims to contribute to a crucial discussion with regard to international marketing standardization. The arguments for both standardized and localized strategy have merit and this section aims to present some ideas on how to balance the paradox of globalization and localization. As mentioned above, globalization drives growth and improved business opportunities, however, it still continues to be a challenging playing field, where only a few players actually manage to become truly global brands. In order to win in a global area, the companies need to have the strategic know-how and possess the executive skill to manage the day-to-day business issues (Bird, 2007). As the Figure below points out, this paradox of globalization holds both challenges and opportunities for the retailers. Figure 26 – The Paradox of Globalization. Source: (Bird, 2007). First of all, the paradox can be divided into 6 dimensions, covering the a) Product, b) Brand, c) Innovation, d) Supply chain, e) Organization, and f) Values. It is difficult to meet economies of scale and the local customer needs, involving the question of local sourcing, whereas it is also essential to decide whether a global brand is needed. Regarding the supply chain, the companies have to develop a well-functioning supply chain management, where there is place for innovation and sharing of new knowledge in order to create competitive advantage. In order to achieve these, the organization itself needs to be open to changes and flexible with the balance between the global and local decision making, and stil not excluding the local values and trends (Bird, 2007). Page 81 of 93 403016 Master Thesis MA in Corporate Communication Figure 27 – Products: Global scale versus local customization needs. Source: (Bird, 2007). As Bird (2007) points out, there is a way to balance the paradox of globalization of products. According to him, the degree of complexity increases with the differentiation from competitors and customer preferences, whereas the degree of complexity decreases by lowering the cost base of manufacturing, storing, distributing and controlling the products, meaning by the increase of profitability. A profitable tool Kvadrat could integrate into its business operations is a similar tool to Nike´s NikeID. With this tool, the customers can globally customize the products at a global customer interface, which leads to reduced costs, higher profits and full market exploitation through increased scalability and flexibity. In the case of Kvadrat, a customization tool could help in engaging in local retailing without the time-consuming efforts of negotiations with the customers. Figure 28 – Innovation: need to build truly global networks instead of R&D islands. Source: (Bird, 2007) Concerning the dimension of innovation, Bird (2007) suggests that instead of locating the R&D centers separately worldwide, there needs to be built truly global networks, which connect these Page 82 of 93 403016 Master Thesis MA in Corporate Communication locations. This will also lead to increased information exchange resulting in growth of the emerging markets. With regards to the supply chain, the companies face the challenges of increased delays, security compliance, and shorter product life cycles. Nevertheless, there are still several theorists, who claim that the balance between standardization and localization should not be balanced by choosing one strategy, but by integrating them, resulting in global products tailored for local preferences, namely, there should be a “glocal” approach (V., 2011). Furthermore, V (2011) claims that the way this approach can be integrated is the so called ´reverse innovation´. This concept can be defined as letting every market innovate and those results should be spread across other markets. The advocates of reversed innovation claim that the market-sourced innovation could be an effective strategy by fostering organic growth resulting from innovating products and services for the different national markets. Furthermore, dealing with globalization is a natural step for today´s businesses, whereas localization only increases growth up to a certain point, where reversed innovation could help to overcome the difficulties. Additionally, through the concept of reversed innovation, innovation itself could be enjoyed locally (V., 2011). Another option to balance the paradox of globalization and localization is the strategy of “think globally, act locally”. Few scholars or marketing practitioners would question this strategy; however, the interpretation of what it actually means is rather debatable. Parnell (2006) suggests that the firms should strive to achieve a synthesis between the standardization and localization strategy instead of choosing one over the other exclusively. This entails a “glocal” approach, where there are worldwide appeals which are mixed with local application. Furthermore, Parnell (2006) claims that the company´s most important lesson is to understand how the global and local strategies can be applied simultaneously. In order to add to this debate, he (2006) maintains that the academia should take a different path from the current one, indicating that instead of trying to determine which global, regional or local tactics are relevant, they should measure the organizational, industrial and environmental factors influencing the creation of a synthesis between the globalized and localized approaches. Svensson (2001) states that this glocal approach can be divided into local, international, multinational and global strategy approaches. It varies from the global approach, since it recognized the importance of local adaptation, further it Page 83 of 93 403016 Master Thesis MA in Corporate Communication is typically comprised of both international and multinational matters. The global strategy approach means the harmonization of the business activities across all markets; the multinational approach is applied when a number of foreign markets are targeted, whereas international strategy refers to the strategies which can be applied outside the home market. To sum up, the glocal strategy provides a harmony between standardization and localization, entailing developed correctness of the present utilization of the global strategy. Consequently, Daft (2000) states that “… we must remember we do not do business in markets; we do business in societies… In our future, we`ll succeed because we will also understand and appeal to local differences. The 21st century demands nothing less…” (in: Svensson (2001)). With regards to Kvadrat, the case study shows that certain aspects, such as the marketing materials and online presence are standardized, whereas the distribution channels and price are localized. There are several advantages of this mixture; however, Kvadrat could develop its business operations by not separating the globalized and localized matters, but by combining them. For instance, it could run similar advertisements in the countries with a little local touch. This way it would be able to sustain economies of scale, but still avoid the trap of distancing itself from the customers. To sum up, the purpose of the Discussion section was to answer the fourth research question by putting the analytical findings into another spotlight and examine their interplay with the theoretical recommendations. The basic notion of this section was that the thesis stems from a social constructivist perpectives, thereby assuming the dynamic nature of business. Consequently, Kvadrat´s current communication strategy might not continue to be successful in case it remains static and is not adjusted to the changing market conditions. Therefore, the transferability of advertising has been debated on followed by an introduction on how to face with increasing competition. All in all, it has been discussed that Kvadrat should continue with its professional way of dealing with the communication efforts by making sure that the most important stakeholders are up-to-date with the business strategies. Page 84 of 93 403016 Master Thesis MA in Corporate Communication Conclusion The purpose of this thesis was to contribute to the debate on international marketing standardization or localization from a communicative perspective in order to tackle the challenges the businesses need to face when operating across various national markets. The process of globalization has not only affected the current political, social and economic structures, but it has also challenged the development and implementation of successful business strategies across various national markets. The two prominent strategies on how to address these challenges are the international marketing standardization or localization. This thesis has given an account of and the reasons for the widespread use of the international marketing standardization approach, whereas it has also investigated whether these two strategies are exclusive or they could be used simultaneously and harmoniously. Another topic, this thesis has covered is a new management perspective, namely, the businesses should forget about fighting the competition and they should better look for way in order to add value to their products or services, through which they create uncontested marketspace (Kim & Mauborgne, 2005). Kvadrat is a Danish company specialized in interior textiles and since its business operations are successful with growing turnover in both Denmark and China, it has been chosen as a case study in order to contribute to the discussion on the international marketing standardization or localization. This study set to determine why it could be more beneficial for an international company entering new markets to use the international marketing standardization strategy, even though the host market characteristics suggest that it should better use the localization approach. In order to find an answer to this problem statement, several research questions have been asked as well. These include the definition of globalization, the debate on international marketing standardization vs. localization vs. the strategy-fit approach, the Blue Ocean Strategy, and business management on strategic, tactical and operational levels. Due to the fact that Kvadrat operates in the B2B market, the difference between the B2B and B2C fields has been researched on as well. One of the main findings of this thesis is that the Danish and Chinese market characteristics are profoundly different, consequently, the both the framework by Katsikeas, Samiee & Theodosiou (2006) and by Ramarapu, Timmerman & Ramarapu (1999) recommend that a localized approach Page 85 of 93 403016 Master Thesis MA in Corporate Communication is more suitable. However, Kvadrat uses a standardized communication strategy, thereby translating its website, newsletters and brochures to Chinese language. This is in contradiction with the theoretical recommendations; however, the growing turnover of the company indicates success. Therefore, the thesis also looked into the reasons behind this and with the use of the Blue Ocean Strategy by Kim & Mauborgne (2005) and it entails the creation of an uncontested marketspace. It has generally been found out that the fast service and after-sale care, moreover, the high quality and unique design has added a high value, which is coupled with the economies of scale achieved through the standardized communication strategy, which is the key to Kvadrat´s success. However, as the research paradigm of social constructivism suggests, this current status is not static, therefore it has also been discussed how Kvadrat can further move to uncontested marketspace. These ideas involve moving to the B2C market and the sale of the ready-made products. Other suggestions could be moving production sites to China in order to be closer to customers. All in all, it can be concluded that the present study makes noteworthy contributions to both the debate on international marketing standardization and creation of uncontested marketspace. It has also gone some way towards enhancing our understanding on the challenges and opportunities when companies enter a new national market in the spotlight of globalization. The empirical findings of this study give a new understanding of how the standardization and localization can be mutually inclusive approaches, and therefore, it could serve as basis of future studies on this matter. Furthermore, the methods used by Kvadrat may be applied to other markets in the world, which shows the company´s professionalism and great understanding of the current situation in today´s globalized world. Page 86 of 93 403016 Master Thesis MA in Corporate Communication Appendix Figure 30 – Kvadrat´s website. Source: www.kvadrat.dk Figure 29 – Kvadrat´s Weibo presence as of 01.05.2014. 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