Differences in Infrastructure and Traditional Practices

Pressures for local responsiveness emerge when there are differences in infrastructure and/or traditional practices between countries. In such circumstances, customizing the product to the distinctive infra-structure and practices of different nations may necessitate delegating manufacturing and production functions to foreign subsidiaries. For example, North American consumer electrical systems are based on 110 volts, while in some European countries, 240 volt systems are standard. Thus, domestic electrical appliances have to be customized for this difference in infrastructure. Traditional practices also often vary across nations. For example, people drive on the left side of the road in Britain, creating a demand for right-hand drive cars, but in neighboring France, people drive on the right side of the road, creating a demand for left-hand drive cars. Automobiles have to be customized to meet this difference in traditional practices.

Differences in Distribution Channels

A firm's marketing strategies may have to be responsive to differences in distribution channels between countries. This may necessitate the delegation of marketing functions to national subsidiaries. In laundry detergents, for example, five retail chains control 65 percent of the market in Germany, but no chain controls more than 2 percent of the market in neighboring Italy. Thus, retail chains have considerable buying power in Germany, but relatively little in Italy. Dealing with these differences requires detergent firms to use varying marketing approaches. In the pharmaceutical industry, the British and Japanese distribution systems are radically different from the US system. British and Japanese doctors will not accept or respond favorably to an American-style high pressure sales force. Thus, pharmaceutical firms have to adopt different marketing practices in Britain and Japan compared to the United States (soft sell versus hard sell).

Host Government Demands

Economic and political demands imposed by host-country governments may necessitate local responsiveness. For example, the politics of health care around the world requires that pharmaceutical firms manufacture in multiple locations. Pharmaceutical firms are subject to local clinical testing, registration procedures, and pricing restrictions, all of which demand that the manufacturing and marketing of a drug meet local requirements. Also, because governments and government agencies control a significant portion of the health care budget in most countries, they can demand a high level of local responsiveness.

Threats of protectionism, economic nationalism, and local content rules (which require that a certain percentage of a product be manufactured locally) all dictate that international businesses manufacture locally. Consider Bombardier, the Canadian-based manufacturer of railcars, aircraft, jet boats, and snowmobiles. Bombardier has 12 railcar factories across Europe. Some argue that the duplication of manufacturing facilities leads to high costs and lowers profit margins, but Bombardier managers say that informal rules in Europe favor companies that use local workers. To sell railcars in Germany, they claim, you must manufacture in Germany. The same goes for Belgium, Austria, and France. To address its cost structure in Europe, Bombardier has centralized its engineering and purchasing functions, but it has no plans to centralize manufacturing.¹⁸