Standardization Vs Differentiation

Standardization in International Business Strategy

 The point where an International Business strategy differs from a national business
development strategy is product standardization and adaptation come in.
 The factors of product differentiation and diversification are relevant in the case of both
national and global business strategy in the wake of rising competition in both the national and
international market.
 International business strategies have emerged as a result of globalization and
internationalization of established domestic companies which is purported to increase the value
of the company in question.
 Increasing pressure of globalization and the rising global competition have prompted managers
and academicians to rethink the formulation of international business strategy. As previously
mentioned, global business strategies rests on two pillars of standardization and adaptation
which have been in severe conflict in the recent years. This debate have been backed by claims
of theorists from both sides who exchanged thoughts regarding which of the two is more
profitable for the global businesses functioning in a unique set of circumstances.
 Standardization of production by firms who engage in global business entails producing the
same product for the national as well as the international markets with only minor changes in
attributes. This is mainly explained by the fact that basic human needs are same in all countries
across the world. The concept of standardization first emerged in the 1960’s and then again
resurfaced in the 1980’s and it has been adopted very effectively by many Japanese and
European firms which have experienced higher levels of product and process innovations which
in turn have acted as source of comparative advantage for these companies in the international
market.

The arguments favor of the global business strategy of Standardization is as follows:-

 It benefits in the economies of scale accruing to the company with it being able to produce
in large quantities using more or less the same the same techniques of production.
 It preserves the image of the home country which houses the global corporation since it
helps in minimizing the costs of alteration, design or modification, handling and stocking the
product, speeding up delivery systems. It also helps in saving the managerial time and effort
to take decisions regarding the manufacture of different products.
 It helps in faster accumulation of the learning experience as fallout of the learning-by-doing
approach.
 At the opposite end of the spectrum, advocates of the strategy of market orientation using
the techniques of adaptation or local adaptation argue that while basic human needs may
be similar everywhere, standardization may not be the word as differences in cultural and
other environmental factors significantly influence the buying pattern of people in different
countries.
  International business strategies are a field of study effectively addressed by the
interdisciplinary issues of marketing, organization theory, business strategy and
international management and concentrates on maximizing the firm performance.
 It depends on choosing a global strategy that is apt for the set of circumstances facing each
business. Choosing an international strategy, be it standardization or adaptation is
contingent upon the ability of the firm to suit its marketing strategy and the external
environment. A conceptual contingency framework is often theorized between the critical
variables of the business such as high sales revenue, capacity utilization and specific
relationships between these variables and their effective implementation can lead to high
levels of performance.

The Global Standardization Strategy

The global standardization strategy is sometimes simply referred to as “global strategy”. Its hallmark is
the development and distribution of standardization products worldwide to reap maximum benefits
from low-cost advantages.

While both the home replication and global standardization strategies minimize local responsiveness, a
crucial difference is that companies pursuing a global standardization strategy are not limited to base
their major operations at home.

In a number of countries, the companies may designate centers of excellence, defined as subsidiaries
explicitly recognized as a source of important capabilities, with the intention that these capabilities be
leveraged by and/or disseminated to other subsidiaries. For example, Merck Frosst Canada, the
Canadian subsidiary of Merck, is a center of excellence in R&D. Centers of excellence are often give a
worldwide (or global) mandate-namely, the charter responsible for one MNE function throughout the
world. HP’s Singapore subsidiary, for instance, has a worldwide mandate to develop, produce, and
market all HP handheld products.

In terms of disadvantages, a global standardization strategy obviously sacrifices local responsiveness.

This strategy makes great sense in industries where pressures for cost reductions are paramount and
pressures for local responsiveness are relatively minor (in such commodity industries as semiconductors
and tires).

However in numerous industries, ranging from automobile to consumer products, a one-size-fits-all

strategy may be inappropriate. Consequently, arguments such as “all industries are becoming global”
and “all firms need to pursue a global (standardization) strategy” are potentially misleading.

DIFFERENTIATION
  Porter’s Competitive Strategies
 Differentiation Strategy

 Offers products and services that are uniquely different from the
competition - Mercedes Benz

 Focused Differentiation Strategy

 offers a unique product to a special market segment.- Niche retailers -

Gucci

 Cost Leadership Strategy

 Seeks to operate at lower costs than competitors- Dell

 Focused Cost Leadership Strategy

 uses cost leadership and target needs of a special market.-

Indigo airlines

Why differentiate?
 The concept of being unique of different is far more important today than it was ten years ago.
The key to successful marketing and competitive differentiation.
 Hyper competition and over-communication are key features of the new economy. What used
to be national markets with local companies competing for business has become a global market
with everyone’s business everywhere.
 With the enormous competition, markets today are driven by choice-your targeted customers
have too many choices, all of which can be fulfilled instantly.
 Choosing among multiple options is always based on differences, implicit or explicit, so you
ought to differentiate in order to give the customer a reason to choose your product or service.
Thus, differentiation is one of the most important strategic and tactical activities in which
companies must constantly engage. It is not discretionary.
 Create differentiation within your products or services. If you have assortment of products or
services to offer, you may have identified your differentiation already. Common examples of
differentiation for products may be based on size, speed, color, components, combinations or
accessories. Common examples of differentiation for services include speed, performance,
quality, responsiveness, availability, ease or integration.
 If you are in the unique position of having only one product or service to offer potential
customers then you should consider accessories, partners or other options to create a variety of
levels from the perspective of your future customers. If all else fails, you can other different
levels of shipping speed or delivery.

Differentiation as a strategy

1. The differentiation strategy of a business is a predetermined set of actions designed to produce

and deliver goods or services to customers who perceive the company’s offering as different.
Not just different, but different in a way that is important to the customer. This means meeting
your customer’s unique needs with nonstandard products in a way that gives your company a
competitive advantage.
2. With hyper-competition in a global market, being unique and having a strong business
differentiation strategy are important. Any company has two basic ways to compete: either with
low prices or with a strong differentiation strategy that allows higher prices. Because of the
global market there will always be someone who can sell your product or service for less.
Differentiation therefore becomes necessary for business survival.
3. Differentiation strategy involves addressing the point of pain or performance gap felt by buyers
in market. A wise business owner will meet the criteria and then position the company uniquely
to meet the needs of buyers. These products are often “top of the line” and to reflect increased
cost to the company, prices are usually at a premium. Higher prices are necessary to cover
higher production costs and extra, value-added features for the customer. A company
employing a differentiation strategy gives customer a clear reason to choose them
4. The key parts of a business differentiation strategy, include positioning, trust-building, and
awareness. The first element of the strategy is the idea that makes your business different. The
next challenge is explaining why you can deliver what you promise. Many companies find it
 helpful to include testimonials and credentials. The third step, awareness, must be considered in
all marketing campaigns. Are you saying the same thing as everyone else? Or are you letting
everyone know that you are a little different?
5. When you have the ability to view your business and competition from an objective viewpoint,
the differentiation necessary to separate yourself and your product or service becomes clear.
First, determine precisely what your current positioning is and how you could improve. Then,
determine your exact advantage. How can you improve your difference and separate yourself
further from the competition? How can you better convey that difference? A strong business
differentiation strategy is fundamental to a successful business.