Why do you think that Roberto Goizueta switched from a strategy that emphasized localization towards one that emphasized global standardization? What were the benefits of such a strategy? Localization strategy focuses on increasing profitability by customizing the firm’s goods or services to the intended country’s preference (Hill, 2011). Global standardization strategy focuses on increasing profitability and profit growth by reaping the cost reduction that come from economies of scale, learning effects, and location economies (Hill, 2011). Mr. Goizueta believed that the main difference between the United States and international market was the lower level of penetration in the latter, where consumption per capita was only 10 to 15 percent of US consumption. Thus, he made Coke become a global company, centralizing a great deal of management and marketing activities at the corporate headquarters in Atlanta, he focused on core brands and took equity stakes.
Moreover, it eliminated duplication of functions that were conducted in each country and placed strategic control to the headquarters. The benefits of global standardization strategy include cost reduction due to economies of scale and learning benefits. It also reduces duplication of functions which lowers expense. What were the limitations of Goizueta’s strategy that persuaded his successor, Daft, to shift away from it? What was Daft trying to achieve? Daft’s strategy also did not produce the desired results. Why do you think this was the case? The strategy did not address the various cultural differences with the international market. It was not tailored to each country’s preferences. It was a one-size-fit all approach which as time went by became less successful. Daft wanted to put more power into the hands of local mangers. Thus, he fired 6,000 employees from the Atlanta headquarters.
He also ceased global advertisement and allowed the local managers within each country to market the product according to the domestic demand. Daft had competition from the domestic market with our products that addressed and matched the preference of the customers. Customization increased the cost for production which affected profitability. How would you characterize the strategy Coke is now pursuing? What is the enterprise trying to do? How is this different from the strategies of both Goizueta and Daft? What are the benefits? What are the potential costs and risk? Coke is pursuing the transnational strategy which attempts to lower costs through economies of scale, location economies, and learning effects. The company wants to differentiate their product offering across geographic markets to account for local differences and foster a multinational flow of skills between different subsidiaries in the firm’s global network of operation.
The transnational strategy differs from both localization and standardization in that it varies from market to market to match local conditions. The transnational strategy is a combination of both global and localization strategy. It offers the centralization benefits provided by a global strategy along with the local responsiveness characteristic of domestic strategies. A potential risk would be the fact that when the product has to be customized to appeal to the tastes and preferences of local customers, it would create pressure to delegate production and marketing responsibilities and functions to a firm’s overseas subsidiaries.
What does the evolution of Coke’s strategy tell you about convergence of consumer tastes and preference in today’s global economy? Culture plays a major role in the international market. Businesses must be aware of each country’s preferences. Businesses must make adjustment to their product to match the country’s unique taste in order to gain higher products sales and to penetrate bigger market. When a firm adapts its strategy to meet the local conditions and customizes the product offerings to local demands, it increases the value of the product.
Hill, Charles W.L. (2011). International Business: Competing in the global marketplace
(8thEd.). New York, NY.