MGT520 International Business GDB No.1 Solution Spring Semester 2013

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MGT520 International Business GDB No.1 Solution Spring Semester 2013


Topic: Global Standardization or international Adaptation

Background:

Companies go global mainly with these three objectives: to increase sales, to diversify/acquire resources or to minimize competitive risk. Once the decision to venture into international markets has been taken, there are two broad strategies, which can be adopted. A fundamental strategic decision has to be made immediately as to; whether employ uniform standards for products (Standardization) or customize the products according to the local culture(Adaptation) to take account of the unique characteristics of each local market. Furthermore standardization is done to achieve economy of scale and the prices of goods are relatively lower with lower profit margins as compared to customized products & adaptation is preferred when host country has higher income level and buying power with greater trend towards luxuries, the prices of goods are relatively higher along with profit margins.

Real Time Case:
Afghanistan is an Asian country with the population over 30 million, covering an area of approximately 647,500 km2. Afghanistan became member of World Trade Organization (WTO) in 2004. Afghanistan is enlisted with less developed countries; it has poor economic conditions (almost no major flourishing industry, agriculture and textile), lower income level with less buying power and relatively unstable political environment (security issues, foreign invasion, private action etc.). Social and cultural values of Afghanistan are very much different from Pakistan. One thing to remember here is that; style, trends and preferences of Afghani people and Pakhtunes (residents of Khyber Pakhtunkhuwa of Pakistan) are very much alike when it comes to dresses and shoes. Bata Pakistan is the leading footwear brand of Pakistan. Bata is proved to be a successful shoe manufacturing company in all the market segments (Men, Women, children and people of all ages and cultures) in Pakistan. Consider Bata Pakistan decides to start its business operations in Afghanistan where millions of pairs of shoes may find their consumption.

Question:

By keeping in view the above scenario please discuss that Bata Pakistan should go with Standardization or Adaptation Strategy while doing business in Afghanistan.

Solution: Product standardization is an efficient method to reduce costs and increase quality. By minimizing the differences in your products, you are able to rapidly increase production, streamline distribution, decrease raw material costs and reinforce product branding. The best product standardization strategies allow you to balance the need for targeted adaptation with the cost savings of standardization.