Internationalization and the dynamics of product adaptation: the Case of Parfois.

Internationalization and the dynamics of product adaptation: The Case of Parfois. Yevheniya Vladimirova [email protected] Dissertation Master in International Economics and Management Supervisor: Maria do Rosário Moreira Co-Supervisor: Paulo Sousa 30th September, 2013 ii Short Biographic note Yevheniya Vladimirova was born in Neustrelitz (Germany), in 1983. She has her bachelor grade in International Relations, in the Faculty of Arts of the University of Porto (Portugal). She joined the Master in Economics and Management program in 2011 and since 2012 She is working in Parfois as International Market Manager, doing the management and coordination of some East European countries such as Romania, Ukraine and Kazakstan. iii Abstract The globalization creates huge challenge for the contemporary companies, which intent to develop their activities in foreign markets. As the countries differ, the companies need to decide whether to adapt the product to the local needs or to develop exactly the same product all over the world. The right balance is difficult to be achieved. The purpose of this study is to identify and understand the amount and types of changes required on a product due to the socio-cultural differences and understand its importance in the internationalization of companies. We focus on the product level, trying to understand which socio-cultural factors and dimensions may demand adaptations on the product and what physical characteristics of the product suffer such adaptations, to identify the motivation of firms to adapt (or not adapt) their products for export markets and to perceive the performance implications of adapting products. We studied the case of the products of Parfois, a Portuguese company producing women´s fashion accessories. We found that for the Middle East region, the socio-cultural factor most influencing changes on product was religion, followed by tastes/preferences. The less influential factors are climate and physiology. The results for Eastern Europe differ from the Arab region, among socio-cultural factors, the less influencing on product adaptation is religion and the more influential are tastes and preferences followed by socio-economical factor and climate. The most modified product characteristic is composition/materials, followed by functionality/shape and colour. The less modified characteristics were size and design. In both regions the main adaptations were made in form of line extensions, where colours, materials, shapes and features were added or removed. The success rate of the adapted product in both studied regions has increased. This study contributes to overtake the existing inconsistencies concerning the motivation for and against adaptation and provide companies’ decision makers with important information on how they should promote their products. Key-words: internationalization, product adaptation, culture, exports, marketing mix JEL-codes: F23, M31 1 Table of Contents Short Biographic note ................................................................................................................. ii Abstract ..................................................................................................................................... iii Index of Tables ........................................................................................................................... 3 Index of Figures ......................................................................................................................... 4 1. Introduction ............................................................................................................................ 5 2. Internationalization and product adaptation: a Literature Review ......................................... 7 2.1. Standardization and adaptation concepts 7 2.1.1. Internal firm´s characteristics ............................................................................... 9 2.1.2. External environment ......................................................................................... 11 2.2. Strategic fit 14 2.3. International marketing strategy and profitability 14 2.4. Cultural frameworks 15 2.4.1. Iceberg analogy .................................................................................................. 15 2.4.2. Cultural dimensions ............................................................................................ 16 2.4.3. Socio-cultural factors .......................................................................................... 17 2.5. Marketing mix 18 2.5.1. Product ................................................................................................................ 19 2.5.2. Boztepe´s framework (user-related adaptation) ................................................. 20 3. Methodological considerations ............................................................................................ 23 3.1. Study framework 23 3.2. Method specifications 24 3.2.1. Company selection and brief description ........................................................... 25 3.2.2. Data Collection ................................................................................................... 26 4. Product adaptation at Parfois: data analysis and results ....................................................... 31 4.1. Factors affecting Parfois’ international marketing strategy 31 2 4.2. The planning and production process of Parfois 33 4.3. Middle East and Eastern Europe market adaptation strategies 34 4.3.1. Middle East market analysis ............................................................................... 34 4.3.2. Eastern Europe market analysis.......................................................................... 36 4.4. Middle East and Eastern Europe strategy in light of Boztepe’s framework 37 4.4.1. Middle East ......................................................................................................... 38 4.4.2. Eastern Europe.................................................................................................... 40 4.5. Impact of adaptations on performance 42 5. Conclusion ............................................................................................................................ 45 References: ............................................................................................................................... 47 Appendix .................................................................................................................................. 52 3 Index of Tables Table 1. Advantages of standardization vs. adaptation strategies....................................... 8 Table 2. Internal factors and impacts on adaptation vs. standardization............................ 10 Table 3. External factors and impacts on adaptation vs. standardization………….…….. 13 Table 4. Hofstede, Hall and Fons Trompenaars’ cultural dimensions models................... 17 Table 5. Type of adaptation strategies in several studies.................................................... 22 Table 6. Questions of the survey, internal and external factors, dimensions and authors... 28 Table 7. Number of changes made in each dimension vs. socio-cultural factor………..... 34 Table 8. Dimension and factors ordering (Middle East)……………………………........ 34 Table 10. Dimension and factors ordering (Eastern Europe)............................................. 36 Table 11. Number of adaptation classified according to Boztepe’s framework (Middle East)..................................................................................................................................... 39 Table 12. Number of adaptation according to Boztepe’s framework (Eastern Europe)..... 41 Table 13. Product performance in Middle East and Eastern Europe.................................. 43 4 Index of Figures Figure 1. Iceberg analogy – Visible and less visible indicators of culture..............................16 Figure 2. The interrelationship between user value categories, cultural factors and product properties.................................................................................................................................20 Figure 3. Boztepe’s framework detailed....................................................................... .....24 Figure 4. Methodology’s steps.......................................................................................... .....27 5 1. Introduction According to Tantong et al. (2010), the globalization creates both opportunities and difficulties for international companies. Today companies operate in conditions of intensifying competition, development of technology and global crisis – they try to find the right balance between global efficiency achieving economies of scale on one hand, and are pressured to meet the goal of local responsiveness, in order to better fit the customer’s needs on another hand (Gupta and Govindarajan, 2001; Ghemawat and Cassiman, 2007; Nasir and Altinbasak, 2009; Powers and Loyka, 2010). For achieving economies of scale, the better option is the product standardization policy, but with the weakness of, possibly, not satisfying the customers in a cultural different country. On the other side firms may choose to modify, or to adapt, the physical characteristics or attributes of a product and its packaging to fit the needs and desires of consumers in different countries, but this increases development, manufacturing, marketing, packaging, and distribution costs (Calantone et al., 2004). The balance between those two kinds of costs should drive to a strategy where the adapted product adds enough incremental revenue (through increased sales due to better satisfying customer needs and wants) where the additional manufacturing and marketing costs resulting from adapting the product are compensated (Calantone et al., 2004). Though product adaptation is a core aspect of international marketing strategy, little research has investigated modifying the physical product and packaging to adapt to different cultures (Calantone et al., 2004). The majority of the studies on product adaptation highlight the changes required on a product due to the cultural differences but do not focus on the motivation to do this adaptation and to measure the performance implications of adapting products (Calantone et al., 2004, Horská et al., 2007). Furthermore, given that some studies (Calantone et al., 2004; Tantong et al., 2010; Lishchenko et al., 2011) indicate the existence of several socio-cultural factors that affect product adaptation, it is crucial to understand the relative weight of each together with relative weight of each product´s physical characteristic modified and identify the impact on the company export performance. The main goal of this study is to understand what kind of adaptations can be required on product, what socio-cultural variables can affect the decision of adaptation, what is the weight of each variable in the decision of adaptation and how does the adaptation impact on product and firm performance. This study contributes to overtake the existing inconsistencies 6 concerning the motivation for and against adaptation and provide companies’ decision makers with important information on how they should promote their products. In order to fulfil this objective, an exhaustive literature review is done with the purpose of learning more about similar cases and about the internationalization process and strategies and the elements making part of the marketing mix and the product adaptation strategies. Then, using the case of Parfois Company, we do an empirical analysis in order to understand this situation, using an experience of this Portuguese company in some developing economies. This report is organized as follow: besides this introduction, in Chapter 2 we explain the theoretical framework, review the relevant literature on similar studies, on the factors affecting standardization vs. adaptation decision, its determinants and adaptation/standardization theories, on marketing mix elements and on internationalization strategies aiming to describe concepts relevant to our study and uncover the main gap of literature. In Chapter 3, we describe the undertaken methodology, the company selection and data gathering procedures. Chapter 4 presents the results and it is discussed the international marketing strategy of Parfois, as well as the possible impact of adaptation in the company’s performance. Finally the conclusions, main limitations of the study and future study considerations are summarized in Chapter 5. 13 Accordingly, to Hofstede (1988) culture is defined as ‘‘collective mental programmes”, shared by a group of people; these programmes differ from one group to another. These differences increase the liability of foreignness or the difficulties that the investing firms should overcome when it seeks to develop its activities in a new country (López-Duarte and Vidal-Suárez, 2010). Consumers´ divergence in tastes and habits, preferences that vary among the different local cultures, is among the main obstacles for standardization (Nasir and Altinbasak, 2009). The cultural convergence, as the part of globalization process, is another frequently discussed theme. It’s argued by some authors that it leads to standardization, due to the homogenization of tastes and preferences. According to Schilke et al. (2009), among the most prominent proponents of standardization is Levitt (1983), who argues that technological advancements have diminished cultural differences across countries and thus make a globally standardized marketing strategy the perfect option to achieve worldwide economies of scale. Correct market segmentation is a difficult issue as far as segmentation cannot be done on the country level. Vrontis and Vronti (2004) divide micro and macro levels of segmentation, referring as belonging to macro level economic, technological, geographic and political issues, and to micro level – lifestyles, attitudes, tastes and preferences. Because similar markets with similar needs and consumption behaviours can be found across different countries, it may exist some opportunities for standardization. At the same time some researchers suggest that consumers within individual countries become more culturally heterogeneous (Carpenter et al., 2012). The external factors discussed above are summarized in the table below (Table 3): 14 External factors Expected result on: Adaptation Standardization Market similarities Different Similar Product nature (industrial product) Consumer product Industrial product Product nature (durable product) Non-durable Durable Product life-cycle Different Homogenous Intensity of industry competition Low Intensive Economic development Different level Same stage Political and legal restrictions Specific local requirement x Cultural convergence Specific local tastes, preferences x Competition Local competition / strong Global competition/ weak Market size Larger markets Smaller markets Table 3. External factors and impacts on adaptation vs. standardization Source: Own elaboration based on studies discussed. 2.2. Strategic fit There is still no right strategy that could fit anyone, because each firm has to consider both internal and external forces, which affect its activity. Recent studies emphasize the importance of a “strategic fit” between marketing strategy and environmental on one side, and internal factors, on the other, which can result in superior performance (Virvilaite et al., 2011; Gabrielsson et al., 2012). As many authors refer, standardization and adaptation should be seen as two extremes of the same continuum, within which alternatives could be found (Cavusgil and Kirpalani, 1993; Vrontis et al,. 2009). This two polarized positions can perfectly coexist in the same company even within the same product line (Vrontis et al., 2009) and neither complete standardization, nor complete adaptation is possible (Jain, 1989; Akaah 1991; Cavusgil and Kirpalani, 1993). The challenge for the international firm is to determine which specific strategy elements are feasible or desirable to adapt, under what conditions and to what degree (Dow and Larimo, 2009). 2.3. International marketing strategy and profitability Many studies show that the primary goals of standardization or adaptation are to gain competitive advantage and to improve the performance, which can be measured in terms of 15 sales, market share, profit, assets turnover, etc. (e.g. Calantone et al., 2004; Powers and Loyka, 2010). The positive association between the level of adaptation and profitability was found by some authors, who argue that the better product fits to the customers’ needs, the more value it creates to them and, therefore, the higher revenues firm generates (Zou and Cavusgil, 2002; Calantone et al., 2004; Horská et al., 2007; Boztepe, 2007; Powers and Loyka, 2010; Lishchenko et al., 2011). Thus, adaptation can give sustained competitive advantage to the firm. But some other researchers have concluded that there is a negative relationship between the level of adaptation and the profitability (Calantone et al., 2004). However, there is still no consensus whether standardization or adaptation of marketing mix will increase the performance (Nasir and Altinbasak, 2009). Generally, companies´ performance is a complex theoretical construct, which is influenced by innumerable factors and there is a lack of uniformity and consistence in definition and measurement of performance (Sadiq-Sohail and Alashban, 2009). There are different approaches to assessment of the performance of a firm in literature: financial, sales volume, profitability, market share, strategic, satisfaction with the performance and even number of loyal consumers (Virvilaite et al., 2011). Satisfaction with the company´s performance is also complicated to be measured and depends on a company´s goal and objectives set. Different companies may see the same result as success or failure at the same time, therefore generalizations cannot be done by scientists based on this variable (Virvilaite et al., 2011). At the same time, Moore et al. (2010) state that the most efficient mean of accessing the efficiency of alternative marketing strategy and measuring performance results in financial terms is the analysis of the value created by the company during a certain defined period of time. 2.4. Cultural frameworks As it was discussed before, the concept of culture is very wide and complex and is studied within different sciences, therefore there are many different points of view from which this concept is seen and analysed. We will see some of the relevant models and frameworks. 2.4.1. Iceberg analogy In the iceberg analogy, Hollensen (2008) tries to explain that not all of the components of culture are visible and can be seen, heard or touched. Architecture, behaviours, language, religion, education, aesthetics, music and food are examples of the visible face of culture. 16 There are also elements that are invisible but equally important for understanding the customers´ fundamental needs, like values, norms, beliefs, social morals, etc. (Ghemawat, 2007). Ghemawat (2007) sees the visible indicators as objective ones. Figure 1 presents the visible and less visible indicators of culture. The iceberg analogy shows that in order to satisfy fundamental needs of customers, international marketers need to study carefully both visible and invisible elements of their local culture (Hollensen, 2008). At the same time it shows how difficult and complex the culture concept is and how difficult it is for marketers to make conclusions about its manifestations. Figure 1. Iceberg analogy – Visible and less visible indicators of culture Source: Hollensen (2008) 2.4.2. Cultural dimensions Among other studies on cultural differences, some famous frameworks were developed to help characterizing and describing cultures through different dimensions that are basic concepts helping us understand the degree to which cultures differ from each other. (Hollensen,2008). Geert Hofstede, Edward T. Hall, Fons Trompenaars among others dedicated themselves to research of cultural differences (Hofstede and Regout, 1996). The models proposed by these researchers and the dimensions included in each one are described in Table 4. 17 Cultural dimensions models Author Dimensions proposed Geert Hofstede Power Distance Individualism Uncertainty avoidance Masculinity Long Term Orientation Edward T. Hall Proxemics Polychromic/monochromic High/low context Fons Trompenaars Universalism vs. particularism Individualism vs. collectivism Neutral vs. emotional Specific vs. diffuse Achievement vs. ascription Sequential vs. synchronic Internal vs. external control Universalism vs. particularism Individualism vs. collectivism Neutral vs. emotional Table 4. Hofstede, Hall and Fons Trompenaars’ cultural dimensions models Source: Hofstede and Regout (1996). The weakness of these models is that they don’t consider the existence of the differences and subgroups within the countries. Also Halls dimensions are more applicable in communication and Hofstede´s dimensions are more adjusted to analyse and understand the managerial culture inside multinational company applying it mostly on human resources management (Hofstede and Regout, 1996). At the same time, not all the counties are yet categorized in accordance with these dimensions by authors and specialists. That’s why it was decided not to use these dimensions in this study. 2.4.3. Socio-cultural factors From another point of view, the socio-cultural characteristics of target consumers are recognized by many other authors as well as highly important factors, affecting international marketing strategy, because they influence decision both on a personal level and the level of society (Usunier et al.; 2009). The authors confirm that it’s vital to know the socio-cultural 18 variables of target consumers which grow up under conditions and in the context of the local environmental that influence directly and indirectly the consumption behaviour. The more differences between countries exist, the more products should differ from the basic original. Different authors distinguish different variables as important. Some try to group them into categories. The most cited variables are: language, religion, education, needs, values (individualism, materialism for example), habits, preferences, moral beliefs and aesthetics, (Waheeduzzaman and Dube, 2004; Czinkota and Ronkainen, 2005; Doole et al. 2006; Brei et al. 2011; Barbu and Meghişan, 2013). Other authors add variables as race, topography, occupations, disposable income, taxation and nationalism (Paliwoda, 1999; Usunier et al., 2009; Strelau et al., 2010). Brei et al. (2011) separate 4 main groups of elements of culture: language (written and spoken, nonverbal communication); institutions (education, attitudes, social organization); material culture (proximity, technology, aesthetics, material possessions) and symbolic culture (religion, customs and traditions). Climate is also a factor directly affecting consumers’ behaviour. For the company, which offers fashion products, which acceptance depends on consumer tastes, preferences, habits, incomes, social life style among other socio-cultural dimensions, these categories are of special interest. 2.5. Marketing mix In accordance with Doole et al., 2006, international marketing is defined as a process of management responsibility in identifying, anticipating and satisfying customer requirements across national boundaries. Though, companies need to take this responsibility on decisions in one or more variables of marketing mix. As literature review shows, all of marketing mix elements, proposed by McCarthy in 1975 (product, price, promotion, distribution) by different degree could be affected by the standardization/adaptation strategy. The majority of studies are done on product and promotion. Few studies concentrate only in one marketing mix element; the majority uses more than one element in their research, and some of them investigate all the elements together (Lages et al,. 2008; Nasir and Altinbasak, 2009; Powers and Loyka, 2010). At the same time product, accordingly to the continuum of standardization and adaptation proposed by Doole an Lowe (2001), is the easiest element to standardize of all the marketing mix (Lages et al.; 2008). 19 2.5.1. Product Product is defined as goods and services offered by company to the customers (Gwin, 2001). Each product is a bundle of attributes, including tangible and intangible goods (Doole et al., 2006). Product includes physical objects, services, persons, places, organizations, ideas or mix of these entities. The client can be attracted not only by the physical tangible product by itself, but also by some of its intangible aspects as: quality, taste, smell, texture, options, physical design, physical features, labelling, service attributes, warranty offered, packaging or brand name (Doole et al., 2006; Pasquaolotto and Ugalde, 2010; Brei et al., 2011). Colour, size, shape, style, country of origin (Manu and Sriram, 1996), image, materials, durability and performance (Vrontis and Vronti 2004), usage pattern (Boztepe, 2007; Strelau et al., 2010), and weight (Pasquaolotto and Ugalde, 2010) are other attributes of products. These authors suggest that the product is the heart of marketing mix, though it has to be attractive or appealing to the customers. But Urban and Hauser (1993), at the same time, defend that positioning is critical for a new product. Not only must a new product deliver the customer needs, but it must do so better than competition (Gwin, 2001). It’s needed to define which product attribute should be standardized and which adapted, because as we saw before, some of them could have different symbolic meaning in different societies. “According to Boztepe (2007), the product is always contextualized and there is no guarantee that the intension of designer will be recognized, much less respected, by users from another part of the world. For example product quality is defined as a set of features and characteristics of a good or a service that determines its ability to satisfy needs (Johnson and Winchell, 1988). But the definition is not clear and a product that in one country is considered to be of high quality can be considered low quality in another country that can even be similar in terms of purchasing power and socio-economic characteristics (Cateora and Graham, 1999). In accordance with observations of Boztepe (2007), normally adaptation on product design to local needs is not anticipate in advance, but occurs after the manifestation of a certain problem, which affects sales (Boztepe, 2007). At the same time, the problem Boztepe (2007) has identified is that there are few methods helping to deal with complex issues like designing for foreign markets that need collaboration of anthropologists and social scientists, who “could develop an understanding of credible 20 explanation of human behaviour” because it’s not easy to relate complex and “broad information about culture to specific product aspect” (Boztepe, 2007, p. 2). 2.5.2. Boztepe´s framework (user-related adaptation) According to Boztepe (2007), little attention is paid to user-related adaptation requirements, thus, Boztepe (2007) study how product can create a value for users in the new location. The definition of “value” is not an easy task, because this concept can be taken both in terms of economic gains or/and moral standards. Boztepe (2007) refers to value as “practical or symbolic result created through user-product interaction” (p. 515). It outcomes from the experiences of users with the product and from their subjective interpretations of what constitutes “value”. Users in explaining value, refer to the adequacy of product properties to the needs raised in their local social context. The identified elements of local context that influence user value are: local behaviours (daily routines, specific ways of doing things, etc.); meanings (symbols, rituals, beliefs, etc.) and systems (physical environment, technical systems interfacing product). Categories of “values” were identified as well: utility value (enabling the accomplishment of a physical or cognitive task); social significance value (helping to build reputation in given society); emotional value (affective benefits from the interaction, such as pleasure and fun) and spiritual value (spiritual benefits such as good luck, sacredness). The trade-off between different value categories can exist (Boztepe, 2007). According to Figure 2, the types of adaptation are classified as: 1. Convenience adaptation: adaptation of the features that help increase capability to the local context (surrounding objects and systems) and avoid unpleasantness. Normally “convenient” is something practical, saving time and/or effort. In each country perception of what is convenient may differ. 2. Performance adaptation: it is normally done to improve the performance and efficiency in the local context. Typical elements considered are geographical factor and infra-structure. 3. Economy adaptation: it is done with the purpose of improving economic value of product, both at the point of purchase and in use (changing materials, for example). 4. Social significance and identity adaptation: it is necessary to create social outcome from the interaction with the product. The study should be done on the subject of what symbols of 21 impression and face-saving effect it can create. As Boztepe (2007) referred, people use goods as markers of their relative position in social nexus and can create symbols, used to obtain social prestige, achieve distinction from others or to belong to a specific social group. This can lead to the modification in any of aspects of product. 5. Pleasure adaptation: providing pleasant experience with product, linked with the local perception of aesthetics. Figure 2. The interrelationship between user value categories, cultural factors and product properties Source: Boztepe (2007) Through analysing the type of target client (whether the product creates value for this client, what are the local elements that play a decisive role in each value category) firm can understand the dimensions of the product that need to be adapted in order to satisfy specific needs of customer. Creating value, the client could obtain value from the interaction with the product (Boztepe, 2007). 22 Table 5 summarizes the main studies about adaptation versus standardization strategies in several countries and industries. We can see that almost more than a half of the studies make adaptations in the 4 marketing mix elements. When making adaptations in only one element of marketing mix, it is on the product. Table 5. Type of adaptation strategies in several studies. Source: Own elaboration. Type of adaptation Industry Country Goal of Study Method Authors Empirical test. Mail surveys, questionnaire CFA – confirmatoryfactor analysis Product (packaging) Furniture sector Brazil Product adaptation in internacionalization process Multiple case study, interviews, documents analysis Pasqualotto and Ugalde (2010) Product level (design, brand, quality) Thailand Effect of product adaptation (design, brand, quality) and market orientation on export performance Survey on managers, questionnaire Tantong et al. (2010) Saudi Arabia Analysis of product-market strategy and export perform Empirical research, survey, multiple regression Sadiq Sohail and Alashban (2009) Technology appliances Netherlands Roles of product appearance in consumer choice Qualitative research, interview Creusen and Schoormans (2005) Kitchen appliances USA/ turkey Product development for global markets user-valuebased approach Based on ethnographic studies Boztepe (2007) Finland Degree of standardization/adaptation Survey on managers, statistical method – Ttest and ANOVA test Dow and Larimo (2006) UK Country of origin effect on adaptation/standardization Deductive, inductive, questionnaire survey, statistical SPSS test. Vrontis and Thrassou (2007) Slovakia Amount and type of changes required due to the geographical and cultural distance Surveys, interviews Horská et al. (2007) Brazil Global marketing strategies dilemma in emerging economies. Qualitative research – case study Rocha and Silva (2011) Clothing manufacture ---- Degree of adaptation Empirica observation Vrontis and Vronti (2004) ---- ----- Influence of external/internal environments on stand/adaptation Literature review Nasir and Altinbasak (2009) Consumer nondurable product USA Survey on managers Powers and Loyka (2010) Design driven companies ---- Literature review Lishchenko et al. (2011) Product 4 marketing mix elements Different types Different types Food sector Adaptation Calantone et al. /2004) Southern Korea /USA Motivation of firms to adapt the product due to external/internal conditions Product (physical attributes and packaging) Manufacturing 29 b) Semi-structured face-to-face interviews To study the adaptation process of Parfois, two types of interviews were made: to the general manager of the company and to the markets managers, after the questionnaire has been analysed. The interview with the general manager of the company was conducted to understand the motivations of the company, the factors that influenced and conducted to the choice of the selected international marketing strategy. It was held in May 2013 in Parfois headquarters. This interview was semi-structured with questions based on the external and internal factor and its impacts and expected results on adaptation and standardization (Tables 2 and 3) and on the cultural dimensions (Table 4). After the analysis of the questionnaires, the interviews with market managers were held during the month of July. Interviews lasted about 30-40 minutes. The markets managers without any adaptation made were left out of the second step of data collection. At the same time, some of the cultural dimensions that were agreed among market managers as difficult to understand and use, were left out as well. Some of other factors were adapted to be more relevant to our study. With two market managers from Middle East and two market managers from Eastern Europe, the interviews were done on the basis of the questions from the questionnaire, asking them separately to explain interrelation between cultural factors and modifications made. c) Database collected information Information from internal database of Parfois was extracted regarding the success rate of the adapted collection and the sales volumes per store of each region. Success rate means the percentage of product sold before any sales promotion done and is calculated by formula sales/(sales+shipments). In order to have more objective information, the period of analysis was chosen leaving apart sales periods, which could distort the picture. The periods analysed were, 1. for Middle East  SS13: 01.02.2013-01.07.2013(when changes were introduced)  SS12: 01.02.2012-01.07.2012 (before changes had been introduced) 30 2. for Eastern Europe:  FW12 01.08.2012-15.12.2012 (when changes were introduced)  FW11 01.08.2011-15.12.2011(before changes had been introduced). There were selected only comparable stores (only the stores that were open on both periods and any changes on them were made) – from 52 open stores in Middle East we analysed only 16 and from 46 stores open in Eastern Europe we analysed only 24. 31 4. Product adaptation at Parfois: data analysis and results In this chapter, the results of the data gathering are presented and discussed. Section 4.1. describes how Parfois conducted its international marketing strategy. Then, in Section 4.2., its depicted the planning and production process of Parfois, followed by an analysis to the Middle East and Eastern Europe market adaptation strategies (Section 4.3.). The Boztepe’s framework is then used to typify the studied markets value-based strategy (Section 4.4.). The Chapter ends with an analysis of the possible impact of adaptation in the company’s performance (Section 4.5). 4.1. Factors affecting Parfois’ international marketing strategy The interview with the general manager of the company allow to conclude about the factors that affected (and are affecting) the international marketing strategy of Parfois. Parfois is a design-driven company, from the first day of its existence, designer was hired. Design is considered one of the key competitive advantages of the company. Parfois actuate in fast-fashion industry, which means that it has to react rapidly, adapting the collection to the changing fashion trends. In addition, as fashion accessories are consumer goods, Parfois is a consumer-oriented company. It struggle to gain loyalty of customers, offering the right product at the right time and place in order to maintain their satisfaction with perceived and received value from interaction with product. Parfois sees it as important to show respect towards local culture, traditions and needs in order to create strong image and achieve leadership in that market. At the same time, as Parfois is experienced in international activities company (started its exporting activities in 1998), it is aware of differences existing among the consumers in different geographic zones, influenced by their different local contexts. But in the beginning of its internationalization process these differences were ignored. As occur to many other companies analysed in the literature review (Table 5), Parfois in the beginning of internationalization process, started selling their goods in geographically and psychically close markets. These (relatively) similar markets were chosen, due to the convergence of tastes and preferences and did not request any adaptation. Parfois started its international route as ethnocentrically or regiocentrically orientated company, selling the same product everywhere. 32 When it started to cross the borders of European Union (where legal requirements were different from domestic ones), the process of adaptation started. It can be considered that the first adaptations Parfois has done used to have mandatory character due to the specific legislative requirements and were done mostly on labelling, packaging, distribution channels and on some communication (catalogues). Any voluntary adaptation on product was considered. But, at that time the experience of the firm was reduced, as well as resources (financial, human – lack of experienced managers). All the decisions where centralized (international franchisees didn’t exist) and international scope was reduced and all this factors were not favouring adaptation strategy. From other point of view, taking into account: - the nature of the product (fashion accessories, which are consumer goods and have to satisfy the expectations of consumers), being consumer oriented; - the relatively short lifecycle of the product, which can be unexpectedly different in the country that are in diverse stage of socio-economic development; - the conditions of fast growing competition in the area of fashion accessories; - the company dependence from export activities, and the pressure to satisfy the requirements of target markets (and being market oriented); - the long-term development and international growth program with the aim of gaining bigger market share, reaching more segments of customers and leadership over competitors the company understood that more advanced level of adaptation should start to be implemented. But the main concerns of the company were related to the increase of the costs of manufacturing, distribution and stock management and the loosing of brand consistency. It was decided, though, that product standardization strategy will be practiced generally, but starting to make some product adjustments. It would be done not for separate countries, but for the group of countries with similar environmental conditions that, along with the presence of brand, clearly demonstrated specific needs unsatisfied or insufficiently satisfied by the product placed in that markets (do the segmentation by region). Low level of satisfaction was discovered due to the low performance of some ranges of product and requirement/complains 33 regarding lack or nonconformity of product expressed by local partners. At the same time, doing this gradual adaptation for the group of countries which bring significant percentage of revenues and represent great interest in terms of potential of market, the adaptation of the product for the group would not be as costly as only for one country due to bigger scale. As company strongly believes, in order to decrease the risk of losing sales and opportunities, the participation of immigrant managers in the adaptation process is vital. These managers used to have cultural connection with country of origin or deep experience within the country/region of interest together with international experience and, therefore, have a specific sensibility to environmental issues and needs of that market. There is a need to say that some minor adaptation existed before the decision on adaptation as a strategy, but these adaptations were done unconscientiously. For the majority of markets, they were not registered, thus their success efficiency couldn’t be measured. The major adaptation started in considerable scale simultaneously for all the countries of each of the chosen region (Middle East, Easter Europe). Though, Parfois have evolved from ethnocentric orientation into geocentric, aiming “Think global, act local”. Company´s goal is to communicate to its clients a consistent corporate and brand image across countries. The aim is to communicate the same message, recognizable all over the world (not only by the mean of communication, but also by clear merchandising, customer service and trendy product). It is recognized the need to understand who is our client in each target market, in what conditions and situations he uses the product and what product characteristics are more important to satisfy that customer needs in order to choose right product positioning in that (group of) market(s). 4.2. The planning and production process of Parfois As Parfois is a fashion accessories brand, the seasonality exists – the product is planned, designed and produced for two seasons/collections (Fall-Winter e Spring-Summer). All the Parfois products are organized by ranges and sub-ranges. All the analytics are held in accordance with this division. The ranges are: textiles (hats, scarves, ponchos), umbrellas, belts, watches, hair articles, footwear, handbags and jewellery (rings, earrings, necklaces, bracelets, others).Our analysis is made on the “range” level. The information regarding changes needed is collected during the season and implemented in the next relative season 34 (e.g. information collected during the Fall-Winter of 2012 – FW12 is taken into account for FW13 collection). 4.3. Middle East and Eastern Europe market adaptation strategies The Middle East and Eastern Europe markets’ adaptation strategies were scrutinized based on the questionnaire answers that was constituted by 14 questions. The internal and external factors and the cultural dimensions were the base of the questionnaire building (depicted in Table 6). Most of the questionnaires were finished on the fourth question with negative answer. The positive answers about the specific modifications made were collected only from 2 managers of Middle East counties (Bahrain, Jordan, Saudi Arabia, Kuwait, Qatar, Oman) and 2 managers of Eastern European countries (Russia, Romania, Ukraine, Kazakhstan). The changes introduced were done for the group of countries (Middle East and Eastern Europe) though for each group simultaneously. It’s also important to note, that the changes were made in the countries where managers had stronger cultural links (Middle East managers are Moroccans and one of them used to work in Jordan; Eastern Europe managers are Romanian and Russian/Ukrainian). The changes were introduced simultaneously for Middle East in SS13 (Spring-Summer 2013) and for Eastern Europe FW12 (Fall-Winter 2012). We will compare though for Middle East the periods SS13 01.02.201301.07.2013(when changes were introduced) with SS12 01.02.2012-01.07.2012 (before changes are introduced) and for Eastern Europe FW12 01.08.2012-15.12.2012 (when changes were introduced) with FW11 01.08.2011-15.12.2011(before changes are introduced). The periods of study were chosen with care, in order to not include sales periods that might influence numbers significantly. The interviews, done to the managers that revealed an adaptation of the product to the market he manage, were done on the basis of the questions from the questionnaire, registering modifications made to the products and reasons for that. 4.3.1. Middle East market analysis The analysis is made by registering the number of modifications (adaptations) made in the products, in which dimension of the product is made and which social cultural factor is in the origin of adaptation. 35 Table 7 depicts the quantities of changes made in each product characteristic in accordance with each socio-cultural factor. Adapted characteristic Socio-cultural factors Religion Traditions/ ideology Tastes/ preferenc es Climate Socioeconomical Physiology Total product characteristic Weight of each product characteristic Composition/ Material 6 - 4 3 4 1 18 19% Colour 8 6 6 2 4 - 26 28% Size 8 4 3 1 4 4 24 26% Functionality/sh ape 3 3 3 1 2 4 16 17% Design/ fashion - - 5 - 4 - 9 10% Total sociocultural factor 25 13 21 7 18 9 93 Weight of each sociocultural factor 27% 14% 23% 8% 19% 10% Table 7. Number of changes made in each dimension vs. socio-cultural factor Ordering the results by importance of each factors and product characteristics, we can analyse the relative weight of every dimension. Table 8 shows it. Number of adaptations Weight Colour 26 28% Size 24 26% Composition/material 18 19% Functionality/shape 16 17% Design/image 9 10% Religion 25 27% Tastes/preferences 21 23% Socio-economical 18 19% Traditions/ideology 13 14% Physiology 9 10% Climate 7 8% Table 8. Dimension and factors ordering (Middle East) 36 The data in Table 7 and Table 8 show that, for the Middle East, the most adapted physical product characteristic is colour and size with the weight of 28% and 26% on all adaptations, the less adapted characteristic is design/image (with 10%). The socio-cultural factor most influencing changes on product is religion (27%) and tastes/preferences that come mostly from the traditional/background of society (23%) But the factor traditions/ideology by itself was not seen as very influencing, being responsible only for 14% of changes. Due to the lack of ethnographical background, market-managers are not able to discover and explain the relationship among traditions/history, ideology and tastes/ preferences, that dominate in the region. The less influential factors are climate and physiology with 8% and 10% of weight respectively. The main adaptations were made in form of line extensions, where colours, materials, shapes and/or elements were added or removed. Also specific Ramadan collection (including all the ranges) was created for Middle East respecting all the requirements of the region (resulting in new product creation). 4.3.2. Eastern Europe market analysis Adapted characteristic Socio-cultural factors Religion Traditions/ ideology Tastes/ preferenc es Climate Socioeconomical Physiology Total product characteristic Weight of each product characteristic Composition/ Material - - 4 3 4 - 11 32% Colour - 2 5 - - - 7 21% Size - - 3 - 1 1 5 15% Functionality/sh ape 1 - 2 2 2 1 8 24% Design/ fashion - 1 1 - 1 - 3 9% Total sociocultural factor 1 3 15 5 8 2 34 Weight of each sociocultural factor 3% 9% 44% 15% 24% 6% Table 9. Number of changes made in each dimension vs. socio-cultural factor (Eastern Europe) By the order of importance of factors and product characteristics (Eastern Europe): 37 Number of adaptations Weight Composition/material 11 32% Functionality/shape 8 24% Colour 7 21% Size 5 15% Design/image 3 9% Tastes/preferences 15 44% Socio-economical 8 24% Climate 5 15% Traditions/ideology 3 9% Physiology 2 6% Religion 1 3% Table 10. Dimension and factors ordering (Eastern Europe) As we can see from the table above, the results for Eastern Europe differ from the Arab region, among socio-cultural factors the less influencing on product adaptation is religion (responsible only for 3% of changes on product) and the more influential are tastes and preferences with 44% of weight, followed by socio-economical factor with 24% of weight and climate with weight of 15%. Traditions/ideology and physiology together weight only 15% on changes made. Moreover, the most modified product characteristic is composition/materials with a weight of 32%. Other adapted characteristics are functionality/shape (with 24%), colour (21% of weight) and the less modified were size and design (with 15% and 9%, respectively). Similarly with situation in Middle East, the main adaptations were made in form of line extensions, where colours, materials, shapes and features were added or removed. Also Winter specific collection (textiles, footwear) was created for Eastern Europe respecting all the requirements of the region (new product creation). 4.4. Middle East and Eastern Europe strategy in light of Boztepe’s framework Looking from another perspective, it will be introduced the Boztepe´s framework (Boztepe, 2007) to analyse the results. 38 4.4.1. Middle East In accordance with the typology of value-based adaptations, the purpose of changes introduced in Middle East in order to create value for customers were done as follows. a) Performance adaptation together with convenience adaptation It is mostly related with such socio-cultural factors as climate and physiology and socioeconomical factor. In order to make the usage of product more convenient and practical in local conditions and context, Parfois adapt, for example: - Due to the climate, textiles are made mostly of natural materials with light and vivid colours because hot weather do not allow using synthetic black and dark colours on head due to the climate. Natural materials in most of the product ranges generally are seen as “healthy” and practical. - Clients in this region need big scarves to cover the head due to the exigency of religion and traditions (small scarf will not cover the head). Consequently, simple, neutral and functional hair articles are needed, because hair is covered. - Socio-economical institutions require, as well, same performance adaptation. For example, the line of coloured small scarves created especially for children to use in schools on different lessons (different colour per lesson); and due to the big families, that are common in the region, handbags should be adapted: bigger, with more divisions. Some of the common social practices make some of the product or part of it useless, for example, as they don’t rely on banks system and women don’t use credit cards and discount cards, they don’t need cardholders and many divisions for cards in the wallets. Another example is, as they always leave small chain, they don’t need chain-holders. - Physiological properties of majority of local women (that are fat and heavy) demands adaptation of sizes (bigger sizes of belts, bracelets, footwear). The same reason impedes them from using crossover handbags. The footwear should be light, lowheeled. 45 5. Conclusion The globalization creates both opportunities and difficulties for international companies. For achieving economies of scale, the better option is the product standardization policy, but with the weakness of, possibly, not satisfying the customers in a cultural different country. Every company needs to understand whether socio-cultural factors, which are not so obvious and easy to analyse, are important and require changes on international marketing strategy, regarding the physical product it sells in distinct foreign markets. The main goal of this study was to understand what kind of adaptations can be required on product, what socio-cultural variables can affect the decision of adaptation, what is the weight of each variable in the decision of adaptation and how does the adaptation impact on product and firm performance. Using the case of Parfois, we show which physical product characteristics and attributes suffered changes and which socio-cultural factors are responsible for these changes as well as their weight on the adaptations done. We analyse, as well, the motivation of the company in its choice of international marketing strategy. Parfois act within Adaptation-Standardization continuum, where standardization strategy is adopted in order to provide customer with consistent product image and quality, impeccable services and, therefore, consistent brand image and adaptations are done in order to satisfy client, gain customers loyalty, gaining bigger market share by offering product that satisfies specific needs of chosen segments of customers. Certain dynamics, in the process of adaptation, exist. First of all, the company acquired more knowledge and commitment in the markets in research (Middle East and Eastern Europe) and only then he reviewed its international marketing strategy from complete standardization to partial adaptation As we could see, the bigger difference between the home country (Portugal) and country of destination is that more adaptations are required and done. For the Middle East region, the socio-cultural factor most influencing changes on product was religion, followed by tastes/preferences. The factor traditions/ideology by itself was not seen as very influencing. The less influential factors are climate and physiology with 8% and 10% of weight respectively. The results for Eastern Europe differ from the Arab region, among socio-cultural factors, the less influencing on product adaptation is religion and the more influential are tastes and preferences with 44% of weight, followed by socio-economical factor and climate. The most 46 modified product characteristic is composition/materials, followed by functionality/shape and colour. The less modified characteristics were size and design. In both regions the main adaptations were made in form of line extensions, where colours, materials, shapes and features were added or removed. As for the implications of adaptations done on the product´s and company´s performance, taking into account that these adaptations were ended recently and only one period of time for each group of countries could be analysed, any clear conclusions on the performance could not be done without further study of this subject on the consecutive periods. But if we ignore all other factors, generally speaking, the success rate of the adapted product in both studied regions has increased. The further attention and research on this subject would help the company to make all the necessary steps towards revision of actual international marketing strategy. 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What did the adaptation consist in? o Modification in physical attributes of the product o Creating of new product o Line extension 7. What was the range of product that suffered modifications? o Textiles o Umbrellas o Belts o Watches o Hair articles o Footwear o Handbags o Jewelry What specific product from this range was modified? 8. What physical attributes in this product were changed o Quality o Taste o Smell o Texture o Options o Physical design o Physical features o Labeling o Service attributes o Warranty offered o Packaging o Brand name o Colour o Size o Shape o Style o Country of origin o Image o Materials o Durability o Performance usage pattern o Weight 53 9. What was the cultural and social factor from the list that required that modification? o Language o Religion o Needs o Habits o Preferences o Moral beliefs o Race o Topography o Occupations o Disposable income o Taxation o Nationalism o Institutions (education, attitudes, social organization) o Material culture (proximity, technology, aesthetics, material possessions) o Symbolic culture (religion, customs and traditions, climate) 10. Explain how each of the dimensions specified in the point 9 requested those changes? 11. Were these modifications issued by you? 12. If not, by whom? 13. Were these changes introduced simultaneously or gradually? 14. What was the motivation for introduction of adaptation?