HOW DO EXTERNAL FACTORS INFLUENCE SME'S CUSTOMER VALUE CREATION IN A NEW FOREIGN MARKET? A CASE STUDY OF AXELENT A.B

Undergraduate

ABSTRACT

 

When companies go international some factors present in the host country act like forces that might drive the company to standardize or adapt its strategies. The choices between to standardize or to adapt to local needs are of a great importance, since it can have significant impact in the company’s performance in the foreign market. In this paper these forces are characterized in country specific and industry specific factors. The aim of this study is to investigate the influence of external factors in the customers’ value creation in a new foreign market, under standardization and adaptation strategies. In order to fulfill the purpose of the paper, a qualitative research was conducted using a single case study of a Swedish SME, focusing on a single product, namely machine guarding, in connection with one foreign market, Brazil. The study shows that the factors that were most influenced in the customers’ value creation were social/cultural aspects and competition, which tend to lead the company to adapt in order to fulfill local needs and to react to the competitiveness. It was also presented that economic factors and market size did not represent any influences in the standardization or adaptation strategies of the company studied. However, other external factors, as technological, political/legal and industry structure, have shown impact to some degree, whether in adaptation or standardization strategies.


BACKGROUND

 

Internationalization is a vital step when companies want to go beyond domestic boundaries, expand markets, seek opportunities and/or have competitive advantages. Entering into foreign markets may also be a response of the companies’ desire to exploit opportunities on a broader geographic scale (Douglas & Craig, 1995). Due to globalization, the homogenization of markets and the increasing of competitors, foreign markets have become a more attractive field, especially for companies looking for growth.

 

When entering into a new foreign market it is important to consider the factors that surround the company in this new country. For instance, a company may face different types of economies, varying in accordance to the country’s development. Several other issues might arise, which influence in the performance of the company in this market. One of the most important decisions that a company might discuss is whether to standardize or to adapt its products when offering to local customers (Doole & Lowe, 2008).

 

The standardization approach relies on the strategy of offering the same product/service in the same way across different markets (Doole & Lowe, 2008). The standardization strategy is seen as a globalization trend (Theodosiou & Leonidou, 2003). This strategy becomes viable when a product meets universal needs (Levitt, 1983). Furthermore, it has been discussed that the global marketplace has been homogenized with standardization strategies (Ibid).

 

At the same time that globalization integrates worldwide economies, another perspective arises, which is the adaptation to the local needs (Doole & Lowe, 2008; Czinkota & Ronkainen, 1995).  Cavusgil, Zou and Naidu (1993) argue that differences among countries emerge regarding cultural, political and economic differences, which require adaptation to local market conditions. According to Theodosiou and Leonidou (2003), the contextual factors that encourage a company to choose adaptation, are related to environmental, market, customer, competition, product, industry, organizational and managerial aspects. Moreover, adaptation strategy responds to local conditions (Douglas & Craig, 1989).

 

When discussing standardization and adaptation it is also important to mention that every product must be adapted in some degree (Doole & Lowe, 2008). The main issue regarding the decision whether to standardize or adapt the marketing strategy in order to seek superior business performance, will depend on the set of circumstances that a firm is confronted with, within a particular foreign market, at a specific period of time (Theodosiou & Leonidou, 2003). Besides, as commented by Jain (1989) the final circumstance of the marketing strategy, standardization or adaptation, depends on its performance outcomes, which can be seen as the value added to the customer from its implementation.

Concerning customer value creation, some authors define it as the trade between the sacrifices made by the customer and benefits received (Menon, Hombung & Beutin, 2005; Woodruff, 1997). In this extent, customers that are looking for benefits must be willing to pay the price required for a product offered. Some factors also play an important role in the customer value creation when picturing standardization and adaptation strategies. For instance, cultural factors are one of the most sensitive factors that describe the customer’s perspective and also the customer buying behavior (Ravasi, Rindova & Dalpiaz, 2012). These factors might influence the way a company will act in a new foreign market.

 

 PROBLEM

 

Within international marketing, controllable and uncontrollable variables emerge when operating across a number of foreign countries. These variables compose the complexity of operating in international markets. Hence, the type of strategy adopted in the foreign market, as an attempt to deal with the complex environment, will define the overall performance of the company in the foreign market (Doole and Lowe, 2008).

 

One challenge faced by the company when operating beyond its home market is whether or not to adapt to local requirements (Doole & Lowe, 2008; Czinkota & Ronkainen, 1995). It has been shown as a challenge for international companies to determine which specific strategic elements are feasible or desirable to standardize or to adapt, under what conditions and in which degree (Theodosiou & Leonidou, 2003). Each country and each industry has its own characteristics that may have an influence on customer value creation. As cited by Cavusgil, Zou and Naidu (1993) adaptation is prioritized in a company when considering the different cultural, economic, political and legal issues, as well as the customer values and preferences. As discussed by Ravasi, Rindova and Dalpiaz (2012) the cultural perspective should be considered when identifying the means to seek customer value creation. 

 

Researchers have been arguing that the company’s decision for standardization and adaptation strategies is related to a number of factors that influence the performance of the company in a foreign market (Cavusgil, Zou & Naidu, 1993; Cavusgil & Zou, 1994; Jain, 1989; Theodosiou & Leonidou, 2003; Yakhlef, 2010). These factors are considered as background forces that influence the company’s decision to standardize or to adapt the international marketing strategy (Theodosiou & Leonidou, 2003). The choice between standardization and adaptation seems to have a serious impact in the company’s financial performance and competitiveness (Leonidou, 1996). 

 

When verifying the theories around standardization and adaptation strategies, a number of studies have been discussing external factors affecting these phenomena (Cavusgil, Zou & Naidu, 1993; Cavusgil & Zou, 1994; Jain, 1989; Theodosiou & Leonidou, 2003; Yakhlef, 2010). However, there is still a lack of studies that connect these external factors with customer value creation in a new foreign market. By answering the research question this study investigates the influence of external factors affecting standardization and adaptation strategies, creating customer value for the host market. 

 

Taking into consideration the importance of the country and industry specific factors, influencing the customer value creation in an international context, the aim of this paper is to answer the following research question:

 

How do external factors influence SME’s customer value creation in a new foreign market?