Executive summary and implications for managers and executives

Citation

(2007), "Executive summary and implications for managers and executives", Journal of Services Marketing, Vol. 21 No. 6. https://doi.org/10.1108/jsm.2007.07521faf.001

Executive summary and implications for managers and executives

This summary has been provided to allow managers and executives a rapid appreciation of the content of the issue. Those with a particular interest in the topics covered may then read the issue in toto to take advantage of the more comprehensive description of the research undertaken and its results to get the full benefit of the material present.

With more than 10,000 offices in 82 countries, HSBC is one of the largest banking and financial services organizations in the world, yet it brands itself as “the world’s local bank” emphasizing its commitment to work with different countries’ different cultures rather than operate a blinkered “we know what works for us, so it must work for you” strategy. It is a philosophy which other businesses, seeking to trade across international borders, might be advised to follow.

Not all business leaders, however, have that global mindset and prefer to replicate abroad a service which they provide efficiently and profitably on home territory. While such standardization may be seen as relatively low-risk and allow economies through a common marketing approach, it prevents companies from benefiting from the entrepreneurial approach of adapting their services to different needs or aspirations of a different culture.

In “The internationalization of hospitality firms: factors influencing a franchise decision-making process” Dr Levent Altinay looks at the factors which influence the franchise decision-marking process in Turkey and several European countries, of one of the world’s largest hotel franchise operators.

He says that an ethnocentric (home country oriented) approach to international expansion might result in failure in terms of a lack of appreciation of the differences between different country markets and making wrong strategic assumptions with regard to these markets. It might even create organizational tension among the organization’s members in the decision-making process. It is, therefore, vital for organizations to recognize and analyze their different environments and their possible impacts on international franchising.

The issue for managers and researchers continues to be a need to focus on, and look to better understand, different service firm and country contexts. This requires putting different learning mechanisms and processes in place and developing a better understanding of the internal and external environments in which the organisation functions.

When “selling franchising” to potential franchisees, the hotel organization conducted an education process which included “familiarization visits” to existing hotel properties, meeting functional executives from the divisional headquarters, and documentation. Here the organization’s vast expertise and knowledge – a source of well-grounded pride – were emphasized. When informants talked about the organization they stressed quality and value, and they believed that the organization’s internationally recognized brands and the support system are “needed and wanted” by the potential franchisees in the market.

The VP Development and Acquisitions believed that the organization offered itself as a “solution” to the potential franchisees, saying:

We have everything they need. We have expertise in managing hotels. We have financial power and support services. Companies like ours can go in and do something creative, but on the cost side save them money. We are bringing the technology and reservation system which are expensive for the small hotels, especially if they are trying to keep up with the technology.

The organization’s distinctive characteristics, and its members’ perceptions of these can, therefore, be seen to influence the use of franchising as a growth mode.

However, Dr Altinay comments:

Franchisors need to challenge and modify their own dominant norms and values to the unique cultural characteristics of each target country. Country managers who are familiar with the business culture can be an effective media of understanding the foreign market. The active involvement of these managers may be a further step towards more effective franchising decision-making. In addition, the skills, experience and, more importantly, the local awareness and the integration of the senior organizational members into the culture of the host country appear to be the key factor in the successful expansion of a service organization through franchising in different country markets in Europe.

These senior decision-makers can be given the opportunity to work in different country markets as expatriate managers before they rise to more senior positions in their organizations and/or they can be introduced to different networks which could help them to develop better local awareness.

Franchising is an expansion mode which appeals to international organizations, particularly service organizations. This is due to the low level of risk associated with this mode and the rapid growth opportunity it provides. But growth through franchising is not a straightforward activity, particularly in Europe. International service organizations should therefore consider the opportunity cost of using this international expansion mode.

Being more flexible and using other international expansion forms such as direct investment, joint venture agreements and leasing might accelerate international expansion and open doors to wider market coverage.

This approach might favor taking risks. It therefore certainly requires a thorough analysis of the factors, such as the details on key economic indicators for the country, stage of development of the industry in the country, the main competitors, demand characteristics and trends, contribution of the project to shareholder value and the degree of risk and potential downside for the organization.

It is also important that a franchise organization brings its expectations into alignment with the franchisees’ traits and capabilities in different country markets. It needs to thoroughly analyze its expectations and compare the franchisees’ current and future task-related capabilities to those deemed necessary for franchise success.

Dr Altinay’s view that the businesses he studied need to take heed of the unique cultural characteristics of each target country (and indeed the HSBC bank’s marketing message that different people in different parts of the world have different points of view) tend to suggest that the “global consumer” might not actually exist.

The temptation to assume that customers worldwide are identical, and that measures of service quality and customer satisfaction can be created to span innumerable national cultures, is understandable. However, there are dangers in the generalization that such measures, developed primarily in the USA, will be equally applicable and meaningful elsewhere.

In “Service quality and satisfaction: an international comparison of professional services perceptions”, Linda C. Ueltschy, Michel Laroche, Axel Eggert and Uta Bindl say culture has been shown to influence practically all facets of marketing efforts, including advertising, product choice, public relations, sales promotions, market entry mode, and online purchasing.

In a study of people’s experiences in visiting a dentist in three countries – Japan, the USA and Germany – they claim further support for the idea that national culture influences ratings on customer satisfaction and service quality.

Although many countries are culturally diverse, such as the USA, national culture does appear to be an important factor to be considered when making marketing decisions, as well as when making personnel decisions such as which managers to reward, since customer satisfaction ratings often play a large role in these decisions.

They say:

Companies which are operating in the global arena should be cautious when interpreting customer satisfaction surveys and not always take them at face value. They should consider the cultural differences associated with the various markets, particularly when using the results for making important decisions about product development, quality improvement interventions, compensation, promotion or retention of management.

The three countries were chosen for cross-cultural comparison because of their positioning on a “low context”/“high context” continuum, with Germany at the extreme of the low-context countries and Japan at the other extreme of the high-context countries and the “low-context” USA falling closer to the middle. In low-context cultures, meaning is explicit and frankness and forthrightness are valued, whereas, in high-context cultures, meaning is implicit and often comes from the context in which something is said. Non-verbal communication and visual cues are important, as are the setting and the status of the individuals involved.

The person from a low-context country who attempts to treat everyone equally will not be well received in a high-context country, where status is to be acknowledged and respected. In low-context countries, business comes first and relationships will develop over time. In high-context countries, the building of relationships and a feeling of trust must be established before any business will be conducted. Individual achievement and individual welfare are paramount in countries such as Germany and the USA, whereas, the welfare of the group and maintaining group harmony are most important in countries such as Japan.

The frank comment or forthright assessment so valued in low-context countries may be viewed as rude in a high-context country, particularly if it causes one of the group to “lose face”.

As anticipated, the responses of the German and US respondents were most similar to each other. Specifically, when performance was high, regardless of expectations, the low-context countries (USA and Germany) expressed significantly higher customer satisfaction and perceived service quality to be higher also. This, say the authors, may have been true because Japanese service standards are among the highest in the world, so good performance is expected. So, when performance is high, it may not be unusually superior, or perceived as so by the Japanese respondents, so that they might not give it their highest rating.

Second, Japanese grow up in a culture where emotions are not often expressed, so to choose the highest rating may seem a bit emotional to them and be frowned on. Asian commercials tend to avoid emotions and focus on rational, cognitive appeals using cues relating to reliability and assurance. Low-context countries, on the other hand, freely express their emotions and say exactly what they think and feel.

Also, in the dental scenario where expectations were low, but performance was actually high, a possible explanation for why the Japanese expressed lower perceived service quality and lower customer satisfaction may be because the dental office was described as being in an older part of town with well-worn carpet and furniture. The setting or context in which an encounter occurs is said to be more important to those who are part of a high-context culture.

Regardless of expectations, German and US respondents perceived service quality as being lower than the Japanese. The most plausible explanation is that because Japan is a high-context culture, keeping harmony in the group is important. Instead of confronting the firm or service provider by complaining or giving low satisfaction ratings on a survey, Japanese consumers are said to “vote with their feet.” Their dissatisfaction will be manifested as a lack of repeat patronage.

This is a dangerous situation for the service provider if they continue to provide the same service, believing the Japanese consumers to be satisfied. Firms should work hard to create relationships with these customers, so that they can come to understand whether they are truly meeting their needs and wants. Building relationships in a high-context culture, such as Japan, should be a top priority and an ongoing process.

The respondents from Germany and the USA expressed lower satisfaction and rated the service quality as lower, because forthrightness is valued in low-context cultures. People in these countries do not hesitate in letting their true feelings be known, whether they are positive or negative.

The authors feel it would be useful to replicate their study in other high-context countries in Latin America, as well as in Asia, to see if the differences encountered are a function of the Confucian influence in Asia or are generalizable across high-context countries in other parts of the world.

When targeting international markets, it is hardly surprising that companies take into account the cultural similarities and differences of the countries they select.

In their paper, “International market selection: measuring actions instead of intentions” Professor Nicholas Alexander, Dr Mark Rhodes and Dr Hayley Myers found, for instance, that language was the most important factor in explaining the direction of expansion among international operations in the retail sector.

Irrespective of more elaborate methods of describing psychic distance, language clearly has an immediate impact on those decisions with European retailers tending favor expansion within markets where the same language, or a closely related one, is spoken.

While retail managers look for markets that enable them to keep risk-taking to a minimum, there is a longer-term danger inherent in trying to minimize this exposure to “foreignness”. Psychic closeness does not automatically lead to better performing operations. In fact a psychic distance paradox exists, where retailers perform better in markets that are distinct from their home markets when compared with those that are similar.

As Professor Alexander et al. note:

When looking at development patterns of international operations, there is a danger of measuring difference not sameness. Certainly in the initial, cautious phase of internationalization, retail managers are looking for markets that enable them to avoid risk taking. The rational evaluation of difference suggests difference has already been accepted and will be addressed, whereas the instinct to sameness and psychological security suggests a rejection of difference.

Performance is likely to increase in markets where retailers are not unduly challenged by cultural differences. However, in such markets, it is more than likely that retail structures have evolved to a similar degree and that the incoming retailer is likely to encounter more advanced indigenous competitors.

That language emerged as such a strong factor suggests that companies that have moved away from that determinant of market selection will be better placed to address international challenges as they evolve internal structures to manage cultural difference. They may be based in larger domestic markets and target opportunities in emerging markets. However, it will be their ability to free themselves from the constraints of cultural proximity that will ultimately determine their longer-term development and hence their ability to take advantage of opportunities in psychically distant emerging markets.

In a study of international retailing activity in 17 Western European countries, there was support for three hypotheses that: international retailers will expand into less advanced markets; the size of the home market will encourage the development of large retail operations capable of international activity; and they will expand into psychically proximate markets.

The size of the home market emerged as a fundamentally important factor. While it has been recognized that large markets are often the market of origin for many global retailers, previously the impact of this factor has not been emphasized to the extent that the results here suggest it should be. Also, while language has been recognized as influential, the scale of the influence has often been submerged in the overall factor of culture and psychic distance.

The authors note:

These results show that language and hence, by implication, culture and psychic distance, play a fundamental role in determining direction of expansion. Language, as a representative measure of culture and hence psychic distance, continues to have an important impact on the expansion patterns of retailers within Western Europe. This would suggest that retailers are still influenced to a considerable degree by factors that avoid challenges within the international marketplace.

The targeting of smaller, less competitive markets provides retailers with the opportunity to become immediately competitive. In the longer term, however, it raises questions about their ability to compete in more advanced markets and ultimately in the domestic markets of their primary international rivals. If these international service companies are essentially targeting less challenging market selections, by implication, the firms most able to compete, as the internationalization process reaches a stage of maturity in the future, will be those firms that have been able to adapt to competition in the more developed and larger markets.

The authors feel that the impact of culture on international strategic decisions deserves greater attention than it has been previously given. In particular, consideration should be given to the role culture plays at different stages in the market selection process. They also say their results illustrate the dangers of assuming that market selection is anything other than a process in which different factors have relative strengths at different stages in the process. Therefore, there are implications for future research that attempts to understand that process.

While companies take heed of the dangers inherent in perceptions of market selection, another perception which service firm executives might need to worry about is about positioning strategies.

The rationale for Charles Blankson’s and Stavros P. Kalafatis’s study “Positioning strategies of international and multicultural-oriented service brands” is that increases in personal income and wealth, trends towards globalization, and development in information technology have paved the way for increased worldwide competition that has resulted in considerable innovation within the credit card and charge card sector, both nationally and globally.

As competition between existing organizations increases and new competitors enter the sector due to deregulation in the financial services industry, coupled with the challenges in the positioning of service brands, the whole subject of positioning is an important and timely research task.

But are the positioning strategies which the executives and experts presume are being practiced the actual practices being carried out in the card brands’ marketing and communications? And what is the message that the customers and potential customers think they are getting?

With a growing demand for accountability and justification for advertising budgets, marketing managers and advertising executives ought to be able to justify whether their positioning strategies actually appear in marketing communications and whether the employment of positioning strategies have affected/impacted consumers’ perceptions.

Since a defensible market position is considered to be one of the key components of marketing’s credibility or justification for marketing budgets and advertising spend, without a proper diagnosis of the congruence between management’s presumed positioning strategies, firm’s actual positioning practices as seen in their marketing communications, and target group’s perceptions of the positioning strategies, managers cannot expect to choose the best competitive options to defend or enhance their brand positions in the market place.

In assessing both managerial actions and consumer perceptions, Blankson and Kalafatis take a look at the UK plastic card industry. Credit cards Visa and MasterCard, and charge cards American Express (Amex) and Diners Club were chosen because, not only are the brands international and multicultural oriented, but they appear to belong to two different areas in terms of their operation, branding and primary target audiences. While Visa and MasterCard brands pursue the middle class and mass market, Amex and Diners Club primarily aim their marketing and positioning efforts at the middle class and upper class markets.

While no single positioning strategy was found to be significant across the four brands studied, “brand name” appeared to be popular among three out the four – with Diners Club being the exception. The strategies which overlapped (i.e. were mentioned by executives/experts, marketing communications, and target group) were: Visa (reliability and brand name), MasterCard (brand name), Amex (top-of-the-range and brand name), and Diners Club (top-of-the-range and service). Other positioning strategies were value for money, attractive, country of origin and selectivity.

Visa executives and experts put service, value for money, reliability, and the brand name as dominant positioning strategies, appearing to confirm that the card follows mass marketing. In marketing communications service and the brand name appear to be emphasized, with reliability and the brand name as the two dominant strategies perceived by the target group.

For MasterCard executives and experts, all the listed strategies were considered for positioning, with the exception of country of origin. Marketing communications showed brand name being the strategy being pursued in all media (similar to Visa) with “attractive” also dominating the media overall. While the target group’s perceptions were that value for money, reliability and brand name were the dominant positioning strategies pursed by the company.

Like MasterCard executives and experts, those from American Express indicated a wide range of strategies being pursued, consistent with efforts for the card to be seen as the “top of the range”, dependable and well-known one. The brand name dominated communication, while the target group’s perceptions were dominated by “top-of-the-range” and “brand name.”

“Top of the range” and “service” were presumed by Diners Club executives and experts to be the dominant positioning strategies, with “top of the range”, brand name and selectivity present in much of the media communications. The target group’s view of six of the eight strategies being dominant (all apart from value for money and country of origin), appears to emphasize the fact that Diners Club is a “mass market” brand – something which seems to be incompatible with the views of executives/experts and what appears in the media.

Blankson and Kalafatis’s suggest that, in view of the challenging market environment, managers should proactively emphasize the positioning strategies that they presume they are following in their marketing communications while ensuring that their efforts are consistent with perceptions of their target markets.

To call doing business in diverse cultures and communities “challenging” is no doubt something of an understatement. In their paper “The service encounter in a multi-national context” Bruce D. Keillor, Dale Lewison, G. Tomas M. Hult and William Hauser study the buying habits of customers in Australia, China, Germany, India, Morocco, The Netherlands, Sweden, and the USA to find out what direct effects on behavioral intentions result from the technical (physical good quality) and functional (service quality and the servicescape) elements of the service encounter.

Their findings result in comments such as “difficult to explain”, “puzzling”, “hard to identify”, and “an interesting anomaly.” All of which emphasize that this global customer who will react predictably to standardized offerings may indeed be a myth.

Here is another understatement: When attempting to develop a service-based strategy and/or manage the service encounter across multi-nation/multi-culture markets, the nature of differences from one country, and/or culture, need to be considered.

The authors hypothesized that physical good quality would affect behavioral intentions of customers in all eight countries studied. It did in Germany, India, Morocco, and the USA, but not in Australia, China, The Netherlands, and Sweden. A result, they say, which is difficult to explain. Clearly in some cultures, the “where” (the servicescape) and “how” (the service quality) of the service encounter is a more compelling factor in determining behavioral intentions than is the “what” (physical quality) of a service experience.

Although anecdotal, an argument can be made that very few service organizations achieve long-term success simply because of the tangible and functional attributes of what they offer customers. In order to transfer the product to the customer some interaction is required. The result is a memorable personal interface that often defines the customer’s perception of the service encounter experience and the willingness to provide a positive recommendation.

Even in the USA, where service interactions are traditionally treated as secondary to the tangible product itself, the nature of the customer/provider interface cannot be overlooked. By contrast, in a culture where a higher emphasis is placed on interpersonal relationships such interactions become crucially important and overshadow the physical product offering itself as indicated by the results obtained from the Chinese, Dutch, Swedish, and Australian samples.

The authors’ second hypothesis – basically that all customers remember how they are treated in the service encounter and those memories affect their behavioral intentions – was not supported by the Chinese and Moroccan customers. “Puzzling”, say the authors, that they could not establish a connection between good service quality and a willingness to support the service provider – by, for instance, word-of-mouth recommendation. Maybe the answer has something to do with the aggressive bargaining within the service encounter in those countries and, within that context, the customers are less sensitive to how they feel they are being treated.

A third hypothesis, that the servicescape positively affects behavioral intentions, was supported in seven of the eight countries, but not in India. An explanation, say the authors, is hard to identify and represents an interesting anomaly. Retailing in India is still dominated by small, individual-owned and operated stores. About 96 percent of the country’s 500 million-plus retail establishments are smaller than 500 square feet – not dimensions which lend themselves to exciting store atmospherics, convenient layouts and comfort-based amenities.

If such elements play little or no role in their consumptive experience, it is hardly surprising that those consumers place little or no value on the servicescape. Indian perceptions of successful service encounters manifest themselves in the form of greater variety and assortment of goods and more personal attention in the store.

Whatever part of the world, customers have remarkable similarities – but also notable differences. While sharing expertise and good practice around the globe, and at the same time making a success in foreign markets, an open mind to cultural diversity is an invaluable asset to any company.

(A précis of the special issue “Internationalization of services”. Supplied by Marketing Consultants for Emerald.)