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When Companies Should, and Shouldn’t, Tout Their Global Reach

Matt Palmquist

Matt Palmquist is a freelance business journalist based in Oakland, Calif.

 

Bottom Line: Being recognized as an international brand is usually a decided competitive advantage. But some markets and certain consumers prefer local firms.

Projecting an image as a brand with global appeal is often a fundamental aspect of multinational corporations’ (MNCs’) strategy — a core focus of their marketing campaigns, employee recruitment efforts, and relationships with supply chain partners and others.

The idea behind this “perceived brand globalness” (PBG) is that consumers will come to associate a logo, catchphrase, brand name, or product with a sort of universal appeal. If something is liked by so many people around the world, the thinking goes, surely it has to have some intrinsic value. The company’s ubiquity — on billboards, on broadcasts, at ball games — also enables consumers to form a general impression about its brands without necessarily using its products or services.

But there’s little consensus on what happens when, as is the case more and more, MNCs compete against one another in the same country. Might there be a tug-of-war over consumers’ true affections? Do consumers show more loyalty to a domestic brand that has made it big or to a foreign entity with a big presence in that consumer’s home country? Further, do people of different socioeconomic backgrounds view MNCs differently depending on where the company got its start? And if so, do the differences affect the value of global brands?

The authors of a new study set out to answer these questions. They analyzed chemicals-and-pharmaceutical makers because these types of MNCs operate in many developed and emerging economies, allowing a look into consumers of different backgrounds. Also, as these companies make generic and prescription drugs, crop and chemical products, consumer and personal-care items, and nutrition offerings, ecological and health concerns make people take the reputation of these corporate brands seriously.

The authors focused on MNCs operating in a handful of countries — the United States, Italy, China, Japan, and India — because they are important battlegrounds for global firms and represent very different positions on both an economic development and cultural scale. The outlook of consumers in these countries toward foreign- and locally based MNCs should therefore reflect a diversity of viewpoints and opinions. For each country, the authors tracked the six strongest chemicals-and-pharmaceutical MNCs according to sales. All MNCs were truly global, operating in at least 45 countries and racking up substantial sales on at least three continents.

The authors’ analysis began with the recognition that corporate brands succeed largely because they can provide two types of value to consumers. The first is functional, and entails offering a higher-quality product or a product that is a better value for the money than products offered by competitors. The second type of value is psychological, and involves appealing to consumers’ emotions or providing them with social signifiers via their branded products (luxury watches, for example, or eco-friendly vehicles).

More than 3,000 consumers, each based in one of the five countries, participated in the study. They were randomly selected with the help of a marketing research agency to ensure that the sample’s mix of gender, age, income, and education levels corresponded to the consumer population in each home country. The participants completed a survey about the PBG of the companies in the sample and their level of intentional loyalty to them. The authors measured the amount of functional and psychological value consumers ascribed to each brand and evaluated each participant’s ethnocentrism — or how much their perception of outside cultures was rooted in the standards and societal norms of their own.

Overall, foreign MNCs benefit more from their international appeal than do their domestic rivals — particularly in countries with emerging economies and in Japan, where trust in local firms seems to be lagging — and foreign MNCs “can more ably play the global card,” the authors write. However, in the developed countries of U.S. and Italy, there’s no significant advantage to being an overseas MNC with a global reputation. The authors posit that consumers in these countries have less sensitivity to foreignness because of their longer history of participation in the world marketplace, higher levels of immigration, and more ethnically diverse populations.

When domestic MNCs in all countries in the study were able to translate PBG into consumer loyalty, psychological value tended to be the reason, the authors found. This supports the argument that domestic MNCs benefit from having an emotional and social bond with consumers in their own country, who take pride in homegrown companies that are now competing on the big stage.

Foreign MNCs rely on both functional and psychological value to create loyalty to their global brands, although consumers in the U.S. respond largely to the functional value they derive from the products. Apparently U.S. shoppers are too used to American companies competing globally to put any psychological stock in their success.

Foreign multinationals benefit more from their international appeal than do their domestic rivals.

The effects of a brand’s global appeal wear off, but do not disappear entirely, for consumers in any of the countries with a high degree of ethnocentrism. What value these highly localized consumers do attribute to a global brand is almost completely derived from psychological, rather than functional, product characteristics.

CEOs and other top executives who bear responsibility for a brand’s global image should consider the study’s findings before taking certain steps in their internationalization strategy (for example, when entering new markets or deciding whether to compete with domestic MNCs or strictly local firms), the authors write.

Managers at foreign MNCs should strive to maintain their functional advantages but not neglect the psychological aspects of their products, say the authors. They should also target less ethnocentric consumers, if possible, and attempt to conceal their foreignness. They can also try to create stronger bonds with ethnocentric consumers by using their marketing campaigns to emphasize that they contribute to the local economy, employ the country’s citizens, and invest in infrastructure.

At domestic MNCs, executives should continue to play up their psychological qualities, underscoring the cultural connectedness or sense of unity that consumers can experience by using their products. But they must improve perceptions of their functional value. To do so, local MNCs need to stress the reliability and durability of their offerings, as well as the satisfaction local customers gain from their products. They should stress their origins when going after ethnocentric customers in their home market, but emphasize their globalness when competing overseas.

Source:  “Does Being Perceived as Global Pay Off? An Analysis of Leading Foreign and Domestic Multinational Corporations in India, Japan, and the United States,” by Bernhard Swoboda and Johannes Hirschmann (both of Trier University), Journal of International Marketing, Sept. 2016, vol. 24, no. 3

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When Companies Should, and Shouldn’t, Tout Their Global Reach