Values Chain Irfan

Using Value Chain Analysis to Make a Choice of
International Marketing Strategy
Master thesis
approved and supervises by
Dipl. Kfm. Alfred Merz
Fachhochschule Nürtingen
University of Applied Science
by
Zhaoyang Xue
from
Shaanxi, China
Winter term 2004/2005

Table of Content
Table of Content
Table of Content .....................................................................................................I

List of Abbreviations............................................................................................III
Table of Figures................................................................................................... IV
1. Introduction .......................................................................................................1
1.1 The Background of Study...........................................................................1
1.2 The Motive of Study ...................................................................................1
1.3 The Way of Study.......................................................................................2
2. The Value Chain Concept .................................................................................3
2.1 Value Activities ...........................................................................................3
2.2 Definitions of Value Chain ..........................................................................4
2.3 The Components of Value Chain ...............................................................5
2.3.1 Primary Activities..............................................................................6
2.3.2 Support Activities .............................................................................7
2.4 The Role of Value Chain ............................................................................8
3. Value Chain Analysis ........................................................................................9
3.1 The Purpose of Value Chain Analysis ........................................................9
3.2 Cost Analysis of the Value Chain ...............................................................9
3.2.1 Cost Drivers of each Value Activity ................................................10
3.2.2 Structural and Executional Cost Drivers.........................................10
3.3 The Strategic Frameworks for Value Chain Analysis................................10
3.3.1 The Company’s Internal Value Chain............................................. 11
3.3.2 The Industry Value Chain...............................................................12
3.4 The Value System ....................................................................................13
3.5 Buyers Value Chain Analysis ...................................................................14
3.6 Interactions between Value Chains ..........................................................14
3.6.1 The Horizontal Linkage ..................................................................15
3.6.2 The Vertical Linkage ......................................................................15
4. Value Chain Analysis and Competitive Advantage ......................................16
4.1 Competitive Advantage ............................................................................16
4.1.1 Two Generic Strategies ..................................................................17
4.1.1.1 Cost Advantage ...................................................................17
4.1.1.2 Differentiation.......................................................................17
4.2 Determining the Strategic Links of Value Chain Activities ........................18
4.3 The Competitive Advantage of Primary Activities in Value Chain .............19
4.3.1 The Customer Focused Value Chain .............................................19
4.3.2 The Supplier Value in Value Chain ................................................21
4.4 The Competitive Advantage of Support Activities in Value Chain.............23
4.4.1 The Core Competence of Value Chain...........................................24
4.4.2 Technology Leadership ..................................................................25
4.4.3 Human Resource Management .....................................................26
I
Table of Content
5. Value Chain Application in International Marketing Strategy......................28

5.1 Value Chain and Marketing ......................................................................28
5.2 Conceptual Views about Marketing..........................................................29
5.3 International Marketing Strategy ..............................................................30
5.3.1 Global Marketing Strategy..............................................................31
5.3.1.1 The Standardization of International Marketing Strategy......32
5.3.1.2 The Configuration-Coordination Perspective .......................34
5.3.1.3 The Integration Perspective .................................................34
5.3.2 Relationship Marketing ..................................................................35
5.4 The Extended Views of Value Chain in International Marketing Strategy .36
5.4.1 Value Chain Marketing ...................................................................36
5.4.2 Integrated Value Chain ..................................................................37
5.4.3 Collaborative Value Chain..............................................................40
5.4.4 The Virtual Value Chain- Information Based Marketing..................43
6. Value Chain and the Choice of International Marketing Strategy ...............47
6.1 Value Chain as a Basis for Planning Overall Strategy..............................47
6.2 Upstream and Downstream and the Marketing Strategy..........................48
6.2.1 The Upstream Advantage-Global Marketing Strategy ....................49
6.2.2 The Downstream Advantage-Relationship Marketing Strategy ......51
6.3 Case Study- The Choices of the Marketing Strategy of Three Joint Venture
Automobile Companies in China...............................................................54
6.3.1 Status of the Chinese Automobile Industry ....................................54
6.3.2 The Research of Three Automobile Companies in China ..............55
6.3.2.1 Volkswagen AG....................................................................56
6.3.2.2 General Motors ....................................................................57
6.3.2.3 Toyota Motor Corporation ....................................................59
6.3.3 The Marketing Strategy of Three Automobile Companies in China 60
6.3.3.1 The Marketing Strategy of Audi............................................60
6.3.3.2 The Marketing Strategy of Buick ..........................................62
6.3.3.3 The Marketing Strategy of Toyota ........................................64
6.3.3.4 Summary of the Three Companies’ Chinese Market
Strategies ............................................................................65
7. Conclusion.......................................................................................................67
References...........................................................................................................69
II
List of Abbreviations
List of Abbreviations
BEMs Big Emerging Market

CAD Computer-Aided Design
CCTV China Central Television
CRM Customer Relationship Management
DJSI Dow Jones Sustainability Index
FAW First Automobile Works
GAW Guangzhou Automobile Works
GE General Electric Company
HP Hewlett-Packard Company
HRM Human Resources Management
IBM Internal Business Machines (IBM) Company
MNCs Multi- National Corporation
P&G Procter & Gamble Company
PWC Pricewaterhouse Coopers
SBU Strategy Business Unit
R&D Research and Development
RFID Radio Frequency Identification
SAIC Shanghai Automotive Industry Corporation Group
SGM Shanghai General Motors Company
SISA Semiconductor Industry Suppliers Association
SVW Shanghai Volkswagen Group
SUV Sport Utility Vehicle
UTC United Technologies Corporation
VCI Value Chain Integration
VMI Vendor-Managed Inventory
VW Volkswagen AG
WTO World Trade Organization
III
Table of Figures
Table of Figures
Figure 2-1. The Generic Value Chain………………………………………………. ..6

Figure 3-1. The Value System………………………………………………………. 13
Figure 3-2. Linkages and Interrelationship.......................................................... 15
Figure 5-1. Value Chain Marketing…………………………………………………..37
Figure 5-2. The path from the physical to the virtual value chain……………….. 44
IV
Using Value Chain Analysis to Make a Choice of International Marketing Strategy
1. Introduction
1.1 The Background of Study
If an enterprise wants to survive and develop, it must create value for the
shareholders of enterprises, other interest groups including staff, customer,
supplier and related industries etc. The process that enterprises create value can
be divided into a series of economic activities which are not the same each other
but interrelated, or we could call it the added-value activity, The total makes up
value chain of enterprises. Any enterprise is a collection of every activity carried on
in design, produce, sell, and after-sale service of products. Every activity of
operation and management is a link on this value chain. Facing to the strong
market competition, to establish the business strategy is very essential, how to
adjust the good competitive strategy is connected with the survival and
development of each enterprise. The approach of the value chain analysis was put
forward by Professor of Business Administration of American Harvard Business
School, Dr. Michael E. Porter in his book “Competitive Advantage: Creating and
Sustaining Superior Performance” in 1985. Porter (1985) mentioned among other
things in this work the term of the "Value Chain", and stressed that the competitive
competence of an enterprise depends not only on the optimization of the sub-
functions, but efficient interlinking of the members of the chain. It is a kind of tool to
confirm and analysis enterprise's competitive advantage. An enterprise has a lot
of resources, ability and competition advantage, such as technological advantage,
Human Resources advantage, management advantage, and innovative advantage,
etc.,, if we consider an enterprise as a whole, and unable to identify these
competition advantages, we must resolve the enterprise activity and confirm the
competition advantages of enterprises through considering these individual
activities and relations between each other.
1.2 The Motive of Study

With the development of the world economy, various kinds of marketing theories
come out one after another, but a lot of marketing thoughts more stay in an
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enterprise's own marketing and promotions of inside system of product only. In fact,
for most enterprises, marketing is not enterprise's own problem any more,
marketing now is not the marketing problems of individual enterprises, but the
problems of all enterprises in the whole value chain. The successful marketing of
enterprises only could achieve the goal by depending on value promotion of all
enterprises in whole value chain. The backwardness of any link will influence
enterprises on all links, for example, print and dye industry, in fact highly depends
on the development of textile industry of the upstream and clothing industry of the
downstream, further more to build marketing channels is not merely a question of
the marketing channel strategy, in fact it is a extended matter of enterprise's value,
and it becomes a part of its value system. Whether the marketing channel is
valuable or not, will directly influence market competitive competence of enterprise.
Porter's value chain has deeply influenced the development of modern enterprises,
especially has enormous directive significance in forming enterprise's core
competitive competence. The theory of the value chain has shown us effectively
the value and the importance that enterprises could survive, it is the base that
enterprises seek to survive. Marketing as the front of realizing the value of
enterprises uses the value chain theory for reference, to explore the value of
enterprises, and to form the system of marketing that based on value chain
gradually, thus to bring out one's strengths to make up for one's weaknesses in the
competition . Whether the value could be created, or make the created value worth,
suppliers and the product technology of upstream and customers of downstream is
a research point of the value chain and marketing.
This thesis attempts to use the value chain theory to analyses the effective and
reasonable value chain of the enterprises within value activities, confirm the
enterprises’ competitive advantage, guide the adjustment of competition strategy
and finally use it effectively and successfully in the decisions of marketing strategy.
1.3 The Way of Study

As we know, the value chain activities are not independent as same as the
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marketing activity, but how to connect the two elements effectively and finally to
make a success in the international marketing is the key discussion point of this
article. Using the views of the value chain to design and plan the marketing
systems of enterprises, value chain and marketing includes two meanings: firstly,
an enterprise is a part of whole industry value chain, and the value reflection of
value chain marketing needs many efforts to realize through other value chains.
So value chain and marketing is a process of integrated marketing which
integrates the upstream and downstream resources. And secondly through
analysis and compare the value to hold the value systems of enterprises
objectively, to form the distinctive value added process. Using the systematic eyes
to plan the upstream and downstream resources, realize the win-win situation.
Marketing is not only promotion, enterprises should set up systematic thinking way,
should effectively plan relations of customers, enterprises, suppliers and
cooperative partners (http://www.huaxiamanage.com/info/xxlr1.asp?ID=6432).
Using the value chain analysis, the extended value chain concepts and marketing
in the decision and choice of the marketing strategy: on the basis of value chain
and marketing, introducing the views of value chain effectively into the process of
marketing channel building, using the value chain to fully verify the structure,
composition of the channel, and the value-added process in the channel,
establishing the channel system which is valuable to meet the challenge of the
unceasingly development world economy and globalization. By this way
enterprises are able to keep and improve their competitive advantages and survive
in the rapidly changing marketing environment.
2. The Value Chain Concept

2.1 Value Activities
According to Porter (1996, p.62), "Activities . . . are the basic units of competitive
advantage. Overall advantage or disadvantage results from all [of] a company's
activities, not only a few." Porter (1985) suggests that firms can be viewed as a
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flow of activities performed to provide products or services to customers. These

activities can be organized into a value that describes how the firm creates value.
The firm generates value by making a series of activities that Porter called as the
value chain. Except the firm’s own value-creating activities, the firm also takes in a
value system of vertical activities including upstream suppliers and downstream
channel members. If a firm wants to gain a competitive advantage, it must take
one or more value creating activities in a way which creates more value than its
competitors. Effective value is made through lower costs or superior benefits to the
consumer.
2.2 Definitions of Value Chain

What is value chain? If we intend to know the activities that an enterprise makes
and develops a competitive advantage and the enterprise’s value, we should
divide the system into a series of value creation activities. Porter has offered a
definition of value chain in 1985 in his book “Competitive Advantage”. He stated,
“The basic tool for diagnosing competitive advantage and finding ways to enhance
it is the value chain, which divides a firm into the discrete activities it performs in
designing, producing, marketing, and distributing its products” (Porter, 1985, p.26).
“The value chain disaggregates a firm into its strategically relevant activities in
order to understand the behavior of costs and the existing and potential sources of
differentiation.” (Porter, 1985, p.33)
Brown (1997) considers, as a tool the value chain divides a business into
strategically relevant activities. Through it the company is able to identify the
sources of competition advantage and perform these activities more cheaply or
better than its competitors. Its value chain is part of a larger stream of activities
carried out by other members of the channel-suppliers, distributors and customers.
Walters and Lancaster (2000, p.162) define a value chain as “…a business system
which creates end user satisfaction (that is value) and realizes the objectives of
other member stakeholders.”
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Michael Porter gives us a very useful tool to define a framework of confirming the
competitive advantage of a firm. When we use the value chain analysis, we can
regard an enterprise as a whole of activities that takes products and services to a
customer. The commercial activity is unique and great in the figure for each
industry, but only those activities are considered which have direct influence on
the competition advantage.
2.3 The Components of Value Chain

Value chains are the key of the economy. Through them flow the goods and
services of our materially industrial society. In any industry, a firm is connected
with a value chain where it buys goods and services from suppliers, adds value,
and sells to customers. These fundamentals are used in all kinds of businesses
such as manufacturing, distribution, or services. This value chain gives a kind of
frame on which a useful analysis can be adopted. The basic idea is that to
understand competitive advantage in any firm, it is necessary to identify the
specific activities which the firm performs to do business. Each firm is that a
collection of the things that it does that all add up to the product being handed over
the customer. These activities are numerous and are unique to every industry, but
it is only in these activities where cost advantage or differentiation can be gained.
These activities can be classified generally as either primary or support activities

that all businesses must undertake in some forms. The basic idea is that a firm’s
activities can be divided into nine generic types which are linked to each other and
to the activities of its suppliers, channels and buyers. Five are the primary
activities, which are directly concerned with the activities that create the products,
market them deliver them and service, each of these primary activities has a
linkage with support activities that can be useful to raise their effectiveness or
efficiency. Four are the support activities that cross between the primary activities,
it is shown in Figure 2-1:
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Figure 2-1 The Generic Value Chain, source: Michael E. Porter (1985, p.37)
Porter (1985) hints the term “Margin” means that firms realize a profit margin that
depends on their ability to manage the linkage between all activities in the value
chain. In other words, the organization is able to deliver a product / service for
which the customer is willing to pay more than the sum of the costs of all activities
in the value chain.
2.3.1 Primary Activities

According to Porter (1985, p.39), the primary activities are:
1. Inbound Logistics - relationships with suppliers and include all the activities
required to receive, store, and disseminate inputs.
2. Operations - are all the activities of the manufacture of products and
services - the way in which resource inputs (e.g. materials) are converted to
outputs (e.g. products)
3. Outbound Logistics - include all the activities required to collect, store, and
distribute the output.
4. Marketing and Sales - Essentially an information activity -activities inform
buyers about products and services induce buyers to purchase them, and
facilitate their purchase.
5. Service - includes all the activities required to keep the product or service
working effectively for the buyer after it is sold and delivered.
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Any or all of these primary activities may be vital in developing a competitive

advantage. For example, logistics activities are critical for a provide of distribution
services, and services activities may be the key focus for a firm offering on-site
maintenance contracts for office equipment. These five categories are generic and
described here in a general manner. Each generic activity includes specific
activities that are different in various industries.
2.3.2 Support Activities

Support value activities involved in competing in any industry can be divided into
four generic categories, also shown in Figure 2-1. As with primary activities, each
category of support activities is divisible into a number of distinct value activities
that are specific to a given industry. (Porter, 1985, p.40)
1. Procurement - is the acquisition of inputs, or resources, for the firm.
2. Human Resource management - consists of all activities involved in
recruiting, hiring, training, developing, compensating and (if necessary)
dismissing or laying off personnel.
3. Technological Development - pertains to the equipment, hardware, software,
procedures and technical knowledge brought to bear in the firm's
transformation of inputs into outputs.
4. Infrastructure - serves the company's needs and ties its various parts
together, it consists of functions or departments such as accounting, legal,
finance, planning, public affairs, government relations, quality assurance
and general management
The support activities are shown across the top of Figure 2-1 because they are a
part of all of the firm’s operations. They are not directed to the customer, but they
help the firm to perform its primary activities. Support activities often are viewed as
“overhead”, but some firms successfully have used them to develop a competitive
advantage, for example, to develop a cost advantage through innovative
management of information systems (http://www.quickmba.com/strategy/value-
chain/).
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2.4 The Role of Value Chain

Some useful views about the role of value chain:
The application of the value chain can divide a firm’s activities into different items,
and this makes it possible that firms see clearly the important variance of effecting
costs and compare differences in the unit costs of competing firms in the chain.
The concept of the “Value Chain” has significantly evolved since Michael E.
Porter’s theory on “Value Chain Analysis.” Furthermore Porter’s analysis looked at
optimizing the vertical flow of activities in the confines of the enterprise, it initially
evolved to also include activities of firms upstream (suppliers) and downstream
(channels), which, when optimized within this broader context, contribute to an
increase of value creation. The role of the value chain however does give us an
insight and lays down a useful framework allowing us to consider the activities
involved in production of services and products in relation to customer significance.
Day and Wensley (1988) find that the value chain can be used to guide the firm’s
present activities as well as making the improvements for the future. It provides a
systematic approach of identifying the firm’s value creating activities and of
stressing the degree to which the particular view of attributes satisfies customer
needs. In addition to customer-focused analysis, it is useful then to compare the
firm’s value chain with those of its principal competitors. “The value chain analysis
leads logically to the next stage, that of designing and developing a future value
chain that will generate competitive advantage relative to competitors’ potential
value chains” (Partridge & Perren,1994, p.28-29).
From above views we can see that it is very crucial for a firm firstly to make a
correct decision of the value chain analysis within an organization, and then to
confirm the corresponsive competitive advantage and finally to achieve the
strategic goal of the firm.
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3. Value Chain Analysis

3.1The Purpose of Value Chain Analysis
Value chain analysis gives us a framework of activities those inside and outside a
firm, and makes the competitive strength of the firm combine together. So, it
assesses the value of each activity which increases the products and services to a
firm. A firm seems to be a whole of machinery, equipment, people and money,
once all these things are made systematic in the firm’s activities it can be able to
produce products and services that customers are willing to pay. Porter (1985)
argues that the ability to perform particular activities and to manage the linkages
between these activities is a source of competitive advantage. Value chain
analysis is a way of assessing competitive advantage by determining the strategic
advantages and disadvantages of the full range of activities that shape the final
offering to the end user. Value chain analysis makes a company better understand
which segments, distribution channels, price points, product differentiation, selling
propositions and which value chain configurations (i.e., linkages between
activities/processes within and outside the company) will yield to the greatest
competitive advantage. (http://www.aicpa.org/cefm/value_chain_02)
3.2 Cost Analysis of the Value Chain

The value chain is a series of activity collection of value-creating which is
connected by various kinds of links. That is to say, the value chain is not
independent activity, but a system formed by interdependent activities. The value
chain analysis describes mainly the integration of relative activities from raw
material suppliers to end-user of products. The goal of a firm is to maximize value
creation and at the same time to reduce costs by minimizing. The costs and value
drivers have been determined by every value activity. Shank and Govindarajan
(1989) study that three steps are considered in some what greater detail: identify
the value chain, diagnose cost drivers and develop sustainable competitive
advantage. The value chain has opened a road for the management with a
powerful analysis tool of the strategic planning.
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3.2.1 Cost Drivers of each Value Activity

Each activity that a firm performs will have a basic cost structure and behavior.
Porter (1985, p.62-118) calls the elements of activities cost “cost drivers” and he
described ten categories. To Analyses these drivers is very important for a firm to
determine the sources of its competitive advantage correctly. The ten drivers are:
Economies and diseconomies of scale, Learning and spillover, Pattern of capacity
utilization, Linkages, Interrelationships, Integration, Timing, Discretionary policies,
Locations, and institutional. The traditional costing approach focused on the
operations within manufacturing whereas value chain cost analysis concentrates
on customers’ value perception.
3.2.2 Structural and Executional Cost Drivers

There are at least five strategic choices by the firm regarding its basic economic
structure that drive cost position for any given product group: Scale-economies,
Scope Capital intensity, Experience curve effects, Technology requirements, and
Complexity of product line (Riley, 1987). The rest drivers which Riley (1987)
defines executional cost drivers shows the firms ability to manage itself
successfully, it includes the following: Workforce commitment to continuous
improvement, Total Quality management, Utilization of existing capacity, Product
design or formulation, Exploitation of external linkages. According to Partridge and
Perren (1994, p25), “Analysis costs through the value chain, as an important
aspect of value chain analysis and design, is an essential in the search for
competitive advantage.”
3.3 The Strategic Frameworks for Value Chain Analysis

The value activity is a foundation of constructing the firm’s competition advantage,
firms are involved in all kinds of value activities, though all these activities are
necessary for the success in firms, to confirm those activities are still very
important that support the competitive position of the firms. So, for a firm, setting
up and strengthening this kind of advantage will most likely succeed on the basis
of key value activity. On the other hand, because the value activity has already
10
been arranged in the value chains of firms, so long as to compare with other firms,
it is easy to find the advantage of one's own competition. Value chain analysis is a
tool that firms can use to gain the goal of competitive advantage. Donelan and
Kaplan (1998, p.7) offer that “there are two useful frameworks for value chain
analysis: the industry value chain and the company’s internal value chain.”
3.3.1 The Company’s Internal Value Chain

All the value-creating activities within a firm make up the firm’s internal value chain.
To analysis it can help a firm make advantage of their strategic internal value chain
activities. The value chain is not a collection of some independent activities, but a
system formed by interdependent activity. The value activity is connected by the
internal relations of value chains, there are connections between the basic
activities, the different support activities, basic activities and support activities.
These connections are relations between a certain activity and another activity,
competitive advantage stems from these connections frequently. For example,
service cost will perhaps reduce greatly by means of product design with high cost,
strict material specification or tight process control , and finally make the total cost
comes down. The key to analyzing the company’s internal value chain is to
understand the activities within the company that create a competitive advantage,
and then manage those activities better than other companies in the industry.
Donelan and Kaplan (1998, p.8) stated, there are four steps:
-Identify value chain activities
-make a decision which one is strategic
-identify costs to value chain
-use the activity-cost information to manage the strategic value chain activities
better than other companies in the industry.
For example, in 1980, the General Electric Company (GE) was the tenth-largest
industrial corporation in the United States. GE’s management systems, and
specially its system of strategic planning, were highly regarded. GE was divided
into SBUs, each of which employed specialists in strategic planning. Both
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managers and planners were asked to take part in the corporate strategy-planning
seminars. SBU managers were required to use a formal technique to help them
define and report their business plans. Among the subjects were environmental
assumptions, competitors, and strategy alternatives (“G.E.,” 1970).
3.3.2 The Industry Value Chain

To analyses the industry value chain that consists of all the value-creating
activities within the industry can help a firm assess its strategic position in the
industry. Donelan and Kaplan (1998) propose that the Industry value chain begins
with the basic raw material and ends with the product end-user consumer. The
connection exists not only within firms’ value chain but also exists among firm's
value chains, suppliers, channel value chains and buyer's value chains. The
various kinds of ways that supplier and channel buyer carry on can influence the
cost or interests of firms, on the contrary, too. An example, the supplier offers a
certain product service for a firm, the marketing channel has value chain that
makes firm’s products circulate, the firm’s products show that purchase input
outside of buyer's value chain, so each of their own activities and the connections
among the value chains will offer a chance to strengthen competition advantage of
a firm.
Firms should pay more attention to the internal and external relations of value
chains. To plan these relations, firms can gain the unique cost advantage and on
the base of it as well as can realize the differentiation. The competitor may often
imitate a certain activity or a certain behavior of a firm, but these connections
between the value chains are very difficult to plagiarize. Donelan and Kaplan
(1998) have confirmed the following:
Value chain analysis provides insights into complex internal and external
linkages. For example, improving product design may lower production costs;
treating suppliers as partners may reduce upstream costs or improve supply
quality, and vertical integration may strengthen a company’s strategic
position in the industry. (p.13)
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3.4 The Value System

The value chain includes three upstream and two downstream activities. Upstream
activities, such as inbound logistics, warehouse and consolidation operations, and
outbound logistics, are concerned with purchasing, inventory management, and
transport operations, and in most companies are highly centralized and tightly
controlled. Downstream activities, like sales and marketing and customer service,
are focused on the local market with the possible exception of certain regional
advertising and promotional functions. The firm’s value chain links upstream
suppliers and downstream buyers of the value chains. It is a part of a larger
system. Porter calls this the value system. (Porter, 1985, p.34) See Figure3-1
follows:
Figure3-1: The Value System
As in most industries it is not usual that a single firm carries on all activities by
itself, for example, from product design, produce, and delivering to end user.
Frequently, firms are elements of a value system, so value chain analysis should
include the whole value system. It would be less realistic that only to see the value
chain exists within a firm. Linkages exist in a firm’s value chain as well as between
value chains. If a firm shows a high degree of vertical integration, that is to say the
firm has a better coordination of upstream and downstream activities. A firm which
has a relative low degree of integration can cause a negative influence on the
suppliers and channel partners. For example, an automobile manufacturer may
have its suppliers as close as possible to him as to minimize transport costs and
reduce parts inventories. The development of a competitive advantage relies not
only on the firm unique value chain, but also on the value system that is a part of
the firm.
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3.5 Buyers Value Chain Analysis

Buyers also have value chain, and a firm’s differentiation derives from how its
value chain relates to its buyer’s chain. The relation between buyers and the firm
are potential sources of competitive advantage, where value for the buyer in the
form of lower costs or improved performance is generated through a firm’s
influence on the buyer’s value chain. Most firms operate within a part of a vertically
integrated chain of manufacture and supply. Yet it is there that the customer's
value view is very important. A buyer's view of a new car relies on the value added
by the manufacturer, the component suppliers, the agent or distributor and the final
customer.
Partridge and Perren (1994) stress that if companies want to offer certain
customers the best value in comparing with their competitor, they should identify
the activities in the value chains to create a ‘value package’. The value chains that
companies perform with achieved lowest cost and specific products and services
should be able to satisfy the customer’s demand and do better than their
competitors. According to Partridge and Perren (1994, p.28-29), “Customer value
is the sum of all tangible and intangible benefits, direct and indirect, come from a
vendor relationship. These benefits result in either cost savings or increases in
profitable revenue generation for customer.”
3.6 Interactions between Value Chains

Value chain activities are connected closely each other, that is to say, one value
chain activity often has influence on the cost or the performance of other ones.
Linkages may exist within the firm, with the value chains of other strategic
business units, between primary activities and also between primary and support
activities, both horizontally and vertically, and outside the firm with suppliers and
customers. Linkages between activities can be very important in creating
competitive advantage and corporate success. It is shown in Figure 3-2 (Morris &
Hergert, 1989, p.182):
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SUB 1
INTERRELATIONSHIP
SUPPLIE SUB 2 BUYER
VERTICAL LINKAGE INTERNAL LINKAGE
Figure 3-2. Linkages and Interrelationship
3.6.1 The Horizontal Linkage

The linkages are consisted of information, goods and services, as well as systems
and processes for adjusting activities. A horizontal linkage is formed by
interrelationships among business units. They provide direct chances to form
coordination among business units. For example, the marketing department gives
sales plan of the next period to all other departments in time and correctly, then
procurement will be able to order the necessary material for the right date, and
transfer order information to inbound logistics, in order to produce products in time
and delivery products punctually and correctly. The firm’s success relies not only
on how well each department completes its task but also how well the different
activities of departments are in cooperation.
3.6.2 The Vertical Linkage

The value chain is not a whole of independent activities but interdependent. It
provides chances for optimization and coordination of problems between activities
within the chain, with the value chains of buyers and suppliers. The extent of
upstream and downstream activities describes the degree of vertical integration of
a firm. As a firm can not operate all activities in one or more value chains within
the firm, it must purchase some things from outside. For example, a firm produces
canned beer, it consumes a large amount of cans, there are too bulky to transport
far or stock in larger numbers. Manufactures of cans have built factories next to
15
their main clients and deliver the cans ‘Just in Time’, in this way, the manufactures
save for themselves as well as for their customers. Porter (1985) suggests that
many of the recent philosophies in manufacturing are an acknowledgment of the
importance of linkages.
From the above text, we have talked about the general concept of value chain, the
role, the purpose of value chain analysis and the value chain system. The next
stage we can use this analysis to identify which activity in the value chain is
competitive and strategic, the strategic link is maybe from upstream or
downstream of the primary activities, or direct from the support activities, and
further it can help firms to make a decision in selecting the strategy in the
international marketing. In the following we will discuss the relation between value
chain and competitive advantage and its application in the marketing.
4. Value Chain Analysis and Competitive Advantage

4.1 Competitive Advantage
Dr. Michael E. Porter wrote a book in 1985 called Competitive Advantage, in this
book he describes a framework to suggest how a firm actually creates and keeps
a competitive advantage in its industry, there are two generic types: cost
advantage and differentiation. A firm has a competitive advantage in cost if it is be
able to deliver its products or service at a lower cost than its competitors.
Differentiation is achieved if the firm is able to differentiate itself in some way and it
leads to offering sometimes that is both unique and is desired. Grant (2002, p.227)
defines competitive advantage as: “When two or more firms compete within the
same market, one firm possesses a competitive advantage over its rivals when it
earns (or has the potential to earn) a persistently higher rate of profit.”
Competitive advantage is made up of discrete activities that firms perform such as

design, manufacturing, marketing, and delivery. To assess a firm’s competitive
advantage, it is necessary to separate these activities with technology and
16
economics. Each of these plays a role to choose the generic strategy. Value
chain analysis is a powerful managerial tool for identifying which activities have
competitive advantage potential. A firm’s competitive edge is based on its ability to
perform competitively important activities along value chain better than
competitors.
4.1.1 Two Generic Strategies

4.1.1.1 Cost Advantage
Cost advantage can offer above-average profits if a firm can keep prices at or near
the average of its industry. Cost leader must maintain quality equal to their
competitors for this strategy. Usually, cost leadership comes at the expense of
differentiation. To achieve cost advantage, various cost drivers must be thoroughly
understood because the success of a cost advantage strategy for a business
activity depends on the cost drivers for that activity. Porter (1980, p.62) considers
that “cost advantage is one of the two types of competitive advantage a firm may
possess. Cost is also of vital importance to differentiation strategies because a
differentiator must maintain cost proximity to competitors.” Examples of firms
following this strategy include: Chevrolet in automobiles, Emerson Electric in
electric motors, Briggs and Stratton in gasoline engines, and Commodore in
business machines.
4.1.1.2 Differentiation
The second type of competitive advantage described by Porter is differentiation.
“Differentiation is the act of designing a set of meaningful differences to distinguish
the company’s offering from competitor’s offerings “(Kotler et al, 2000, p.295). A
differentiation advantage can appear from any part of value chain. Differentiation
comes from uniqueness, a firm can create a differentiation by changing individual
value chain activities to improve uniqueness in the end product or by
reconstructing the value chain. In this strategy, one or more characteristics of a
firm and its offerings that are valued by buyers are selected for differentiation. The
17
goal here is to pursue and keep activities against any particular competitor. A
differentiation strategy requires selective adding of costs in main business areas
that are important to buyers. The success of a differentiation strategy depends
upon premium prices, which can lead to above average profits if cost is kept at
parity with competitors. This strategy requires that efficient forms of differentiation
be selected and that costs are reduced in areas that are not relevant to buyer
needs. Differentiation can lower a buyer's costs and improve buyer performance.
This creates added value for the buyer. Approaches to create differentiation
include: brand loyalty (Coca-Cola in soft drinks), superior customer service (IBM in
computers), product design and product features (Hewlett-Packard in electronics),
and product technology (Coleman in camping equipment).
There is an important element to achieve competitive advantage is the competitive

scope of a firm (Porter, 1985). For example, if a firm has a broad scope it may use
the internal relationships between value chains which offer many various products
or consumer segments, whereas for narrow scope it can only provide a certain
target segment. The relations between competitive scope and the value chain give
the basis for determining more important business units and help a firm to build up
a framework which is more efficient in performing the sources of competitive
advantage.
4.2 Determining the Strategic Links of Value Chain Activities

If a firm wants to decide which of the value chain activities is strategic, it must at
the beginning know the product characteristics that are valued by existing
customer, at the same time the firm also can gain the chance how to create value
for its future customers. Quality, service, product feature, or any other tangible or
intangible features of the product or the firm can be involved in these
characteristics. After finding out the distinctive product characteristics, decide
which specific activities in the firm are responsible for generating it. Those
activities show the most important value chain activities or we can say they are
strategic activities that offer a competitive advantage. For example, in 1981,
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Hewlett-Packard defined one of its basic goals as follows: “Provide products and
services of the highest quality and the greatest possible value to our customers,
thereby gaining and holding their respect and loyalty” (Wheele & Hunger, 1983,
p.636-652). Hewlett-Packard demands total philosophy to quality, a philosophy
that begins in the laboratory and extends to every phase of its operations.
Products are designed to provide high performance and long service without
trouble. Careful attention to quality makes Hewlett-Packard meet or exceed
customer expectations. The firm’s goals further state that once a quality product is
delivered to the customer, it must be supported with prompt, efficient service of the
same high quality. Within the computer industry, Hewlett-Packard is rated 90 on
quality. Another example would be IBM’s initial dominance of the personal
computer market. Its products were outclassed by many competitors according to
performance, quality, and price. However, IBM’s products dominated their market
segment because of their software, service, advertising and because IBM was
going to stay around. In IBM’s case, its physical products are not responsible for
creating buyer value, its strategic link in the value chain is their software, service
and etc.
4.3 The Competitive Advantage of Primary Activities in Value Chain

As we know, in value chain system there are two links: upstream activities and
downstream activities, they are included in the primary activities of a firm’s value
chain. The key of upstream activities is suppliers, customers belong to
downstream activities. The relevance of service can not be neglected and it has
been retained within the essential primary activities, as a more modern viewpoint
would describe it as ‘customer relationship marketing’.
4.3.1 The Customer Focused Value Chain

For a century, the dominant corporate model has been to organize along product
lines, now in an increasingly commoditized world, however, the source of value
creation is moving from the product supplied to the use and benefits derived from
the product and after-sales services by end customers. During the 1990s customer
19
focus became more a reality rather than an ideology. By organizing around

customers, instead of the product, firms can maximize customer value, focus on
those "best customers" generating the great number of profits, and increase
marketing and service productivity. Bhide (1986) suggests that customer-focused
assessments start with detailed analysis if customer benefits within end-use
segments and work backward from the customer to the company to identify the
actions needed to improve performance. Ramirez and Normann (1993) have
offered us, in an economy founded on the new logic of value, only two assets
really matter: knowledge and relationships or a company's competencies and its
customers. But knowledge alone is not enough. Obviously, a company's
competencies are worthless without customers willing to pay for them. Thus the
other key asset for any company is its established customer base. A customer-
focused value chain in which all resources and processes intends to serve
customers faster and better is a challenging task for a firm. To achieve sustainable
growth, firms need to take the next step and focus their efforts on their customers
who can promote that growth. A firm should build a value chain that includes
integration of every aspect of the business and to make optimum value to its
customers. Slywotzky and Morrison (1997) used a “customer- centric” approach to
propose a modern value chain in which the customers are the first link to all.
Today, the value chain is also being driven by end-user preferences and demands,
as well as a company's own strategic objectives.
IKEA, with it’s transformation from a small Swedish mail-order furniture operation
into the global home furniture retailer, has a different strategic positioning from its
rivals. IKEA targets young furniture buyers who want style at low cost. Ikea serves
customers who are willing to trade off service for cost and uses a self-service
model with clear, in-store displays. In huge stores, IKEA shows every product
which it sells like an exhibition, and products are put together to offer not only
chairs and tables but design for living, thus customers don’t need to image how
they put the pieces together. For customers they are expected to pick up and
transport what they have bought themselves, IKEA will even offers a roof rack for
20
your car that you can return for a refund on your next visit. Although “do it
themselves” has made much of its low cost position for customers, IKEA still
provides a lot of extra services that its competitors do not such as In-store
supervised children care, playground for children and extended open hours. All
these services are unique and are connected with the need of customers, those
customers are most young, have no much money, and they come to shop at odd
hour. IKEA offers customers something more than just low prices, it makes every
aspect of the business system much easy for customers to take on this new role,
for example, “IKEA prints more than 45 million catalogues every year in 10
different languages, though only 30%-40% of the company’s 10,000 products are
printed in the catalogue” (Normann & Ramirez, 1993, p.66), and these catalogues
you can get at the front door of stores as well as tape measures, pens, and
notepaper to help customers make choices if the salespeople are not available. In
addition, each product has a simple readable label with the name, price, material,
colors, introduction for care, and the indication of the products. There are also
cafes and restaurants so customers can eat and have a short rest here, this
makes IKEA not just a furniture store but a family outing destination. All what IKEA
offers make its customers understand that their role is not to consume value but to
create it. IKEA’ strategy is to know how customers can create their own value and
to create a business system that allows them to do better. Normann and Ramirez
(1993, p.67) conclude that IKEA’s goal is not to relieve customers of doing certain
tasks but to mobilize them to do easily certain things they have never done before.
Band (1991) emphasizes that successful business would be those which moved
closer towards their customers.
4.3.2 The Supplier Value in Value Chain

“Two Japanese automakers have had stunning success building relationships with
North American suppliers- often the same companies that have had contentious
dealings with Detroit’s Big Three. What are Toyota and Honda doing right?”
-- Director, interior systems supplier to Ford, GM, and Chrysler, October 1999
The rapidly development global market had made the industrial environment more
21
competitive. Companies purchase more components and services from suppliers

than before. Suppliers are an increasingly important resource for manufacturers,
and they have a large and direct influence on the cost, quality, technology, and
time-to-market of new products. A key question is to address how to improve
supply chain efficiently and manage the relationship among the supplier partners.
According to Purchasing Magazine’s estimates, comparing with 43 cents of each
dollar from sales in 1996 to buy materials, the 100 biggest U.S. manufactures 48
cents in 2002. Suppliers now can help the companies to increase businesses by
reducing costs, improving quality, and developing new processes and products
which can be much faster than their competitors.
For example, Japanese automobile companies are successful in building the

relationship with their suppliers. During the past ten years, $160 billion Toyota and
$75 billion Honda have made remarkable partnerships with some of the same
suppliers that are at loggerheads with the Big Three and have created latter-day
keiretsu across Canada, the United States, and Mexico. The two Japanese
companies work closely with their suppliers in those areas. In 2003, there were 2.1
million Toyota/Lexus vehicles and the 1.6 million Honda/Acura vehicles sold in
North America, Toyota manufactured 60% and Honda produced 80% in North
America. Furthermore, the two companies source about 70% to 80% of the costs
of malting each automobile from North American suppliers. Toyota and Honda
have managed to make supplier webs in Japan. Hence, they enjoy the best
supplier relations in the U.S. automobile industry, have the fastest product
development processes, and reduce costs and improve quality year after year
(Liker & Choi, 2004). One of the most successful retailers, Wal-Mart has gained
sales and profits increase over the last five years by 89 percent and 53 percent,
respectively--both measures better than twice the retailing industry average. The
company's stock roughly three times between June 1995 and June 1999. Wal-
Mart has broadened its product offering such as fast food, and other items, and
exports its data systems, drive, and efficiency to international markets. Already the
dominant discounter in Canada and Mexico, Wal-Mart is expanding to such other
22
huge markets as China, Indonesia, the U.K., and Brazil. Although the international
division accounted for 5 percent of corporate sales in 1997, its revenues are
projected to reach $27 billion or 17 percent of total sales, by 2000 (Zellner &
Shepard, 1997).
Troy (2000, p.126) notes that “Wal-Mart has set a goal for itself of being in stock
with the right products in right stores. This is where expectations of suppliers have
increased and more aggressive use of Retail Link is expected.” For example,
China with its low-cost manufacturing centre has become one of the biggest
suppliers worldwide of Wal-Mart, they are already sourcing billions of dollars’ worth
of products in China. Wal-Mart bought about $10 billion to $15 billion worth of
goods from China in 2003 and is going to achieve almost double that amount by
2007, other retailers, like Best Buy, Carrefour, and Tesco have also such plan.
Furthermore, they are going to China to purchase an expanding range of goods-
from television and tools to clothing and crockery- for 25 to 50 percent less than
the cost of comparable goods made in developed countries. The result is that
leaders in these sectors are gaining cost advantage over competitors that source
components or finished goods mostly in the developed world (Campbell et al,
2004). Today no matter how deep the relationship is, the clear indication is that
suppliers will be expected to do more and perform at an even higher level, only by
this way Wal-Mart can gain its competitive advantage and achieve its growing goal.
4.4 The Competitive Advantage of Support Activities in Value Chain

According to Porter(1985, p. 38), five primary value activities are those "involved in
the physical creation of the product and its sale and transfer to the buyer as well
as after sale assistance", support activities "support the primary activities and
each other by providing various firm wide functions," including procurement,
technology development, human resource management, and firm infrastructure.
Support activities often are viewed as “overhead”, but some firms successfully
have used them to develop a competitive advantage, such as technical leadership
and HRM.
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4.4.1 The Core Competence of Value Chain

If a firm wants to stay ahead in today’s rapidly changing commercial environment,
the firm needs to constantly think about its strategy for the business. While poor
strategy can cause low-performance, failure to correctly perform good strategy can
do the same. We have known about SWOT approach which is used to analyses
the strengths and weakness of a firm’s resources and competences, and the
opportunities and threats existed in the competitive environment, (Partridge &
Perren, 1994) but SWOT has not mentioned the strategic capability, differentiation
and strategic advantage. Here value chain und core competence can do better.
Competencies are the technologies, specialized expertise, business process and
techniques that a company has accumulated over time and package in its offerings
(Normann & Ramirez, 1993).
Hamel and Prahalad point out that the top executives will be judged primarily on
their ability to exploit their core competencies and those of their organizations
rather than on past performance. He defines core competencies as “the collective
learning in the organization, especially how to coordinate diverse production skills
and integrate multiple streams of technologies” (Hamel & Prahalad, 1990, P82).
Most firms gained world leadership with only a few basic competencies. For
example, Honda has its competency in engines and power trains, Canon in
precision mechanics, fine optics and microelectronics, Sony in miniaturization and
video technology and 3M in substrates, coatings and adhesives. Though these
firms compete in totally different markets, they have common, unique
competencies which play a very important role in achieving global competitive
advantage. For example, Dell Computer Corp. does not produce computers, but it
uses the Internet to promote activities among its suppliers and trading partners
that do make components and parts. Dell's core competency is managing the
build-to-order process. Fingar and Aronica (2001) have argued that Dell goes
beyond the internal focus of Porter's value chain analysis and manages the end-
to-end industry value chain. The management of core competencies is one of the
most important strategic challenges facing a firm given their crucial relationship to
24
superior profitability. Once created, core competencies cannot be simple

stockpiled for use when needed. Rather, these core competencies require
constant use to maintain corporate fitness (Teece, 1990). So, firms must treat the
management of core competencies as a strategic issue.
4.4.2 Technology Leadership

The core technology of a business unit involves the specific use of labor and
capital in transforming inputs into outputs. According to Segev, (1997, p.134),
“Technology is an important strategic variable that interacts with many other
variables including organization size, control system, degree of centralization,
mechanism, and professionalization.” Facing the increasingly dynamic competitive
environment, how science and technology pattern the world of business? Clark
(1989, p.94) offered, “The competition is intense, international, and unforgiving.
But it is only when we come across a minor diemaker trying so hard to compete
with technology that we are living in a new age.” Metro AG shows its muscle with
technology, for example, In Jan.2004, Metro Group AG, the fifth largest retailer in
the world made a 13,000 sq. ft. place to exhibit the latest technology tests which
are being implemented in its Future Store in Rhineland, Germany. In the display
they discussed the technology-driven pilot store that uses radio frequency
identification (RFID) and other technologies. It is not customary for the Germany-
based retailer, instead a public show of its technology leadership, and it made this
as a challenge to Wal-Mart. Dr. Gerd Wolfram, project leader of Metro's Future
Store Initiative, said: "It does have a little bit to do with the fact that Wal-Mart is
making a lot of noise, yes," (Stankevich, 2004). For a firm it is quite important to
know the technology core and use it to strategic planning and finally to achieve
competitive advantage in its industry.
Clark (1987) mentioned that to take a global view of technical competence. A firm
should use scientific and technical knowledge with existing strengths in marketing,
human resource management, and producing, the Japanese automobile industry,
use a new design process, like CAD in designing products. ‘Volkswagen invests
25
$26.8 million in new visualization centers’ (Carmona, 2004). German auto

manufacturer Volkswagen is revolutionizing vehicle development with a $26.8
million investment in two unique visualization centers that will allow engineers and
designers to work in virtual three-dimensional (3-D) space without touching a
single piece of metal. This powerful computer technology is called Real-Time Ray
Tracing, 3-D objects are displayed, moved, and modified instantly and interactively
on a special large projection screen called Powerball. With the visualization
centers, engineers will be able to get a realistic and detailed impression of a
planned vehicle during the early stages of development. Developers, designers,
and engineers from all departments will work together at the visualization centers,
hence they can make the vehicle development process more efficient and
considerably reducing cost and time expenditure. Clark (1987) concludes that the
technological advantage of advanced countries is often mentioned a potential
source of comparative advantage in world trade.
4.4.3 Human Resource Management

Human resource management is an important link of support activities in the value
chain, in today’s business environment, companies continually need to improve
their internal and external environment in order to meet the challenge and get the
opportunities to keep competitive and growing. Porter (1985) studies that human
resource management can help a firm obtain competitive advantage by lowering
costs, increasing sources of product and service differentiation, or both. A firm can
achieve competitive advantage if it manages these activities with a strategic view
through human resources. Schuler (1990) stresses, people issues have become
business issues. Especially in today’s fast changing world economy, the traditional
way (economic, strategic, pricing, etc.) to gain competitive advantage for a firm is
no longer enough and also becoming less effective. Additional sustained
competitive advantage may come from executives recognizing and creating
organizational capabilities through better development of human resources (Ulrich,
1986). In USA top managers of many companies now pay more attentions to
human resources function and specialists. There are two reasons: one is that the
26
mangers are improving HRM and treat it as a way of keeping the competition
position of their companies in nowadays increasingly challenging world economic
market, such as the challenges from Japanese companies. Another as Miles and
Snow (1984) find, the mangers are aware that HRM plays a very important role in
the further development of the world economy with a high-technology. An example
is about human resources services, role and strategy in HP. The company started
with the view that high returns were possible from moving products as fast as
possible from basic design to the market. HP is enlarged fast in its industry. So far
as the company has a different design or technological advantage, a new product
idea is improved and a market is followed. Because of fast growth and resource
redevelopment, especially on management and technical personnel, human
resources management carries a very different part of activities. Human resources
at HP at both the vision and the corporate level have the constant task of making
new group, and searching and spreading managerial and technical resources.
The company looks for such people both inside and outside the company and at
the same time the company worries about the valued managers’ vacation. In this
situation, human resources department carries on a necessary company’s
activities, it helps to identify and develop relevant human resources. At HP, main
human resources come from the outside and used in many units and divisions, as
well as developed internally. Hence, the complete human resources strategy at
Hewlett-Packard and other Prospector companies can be viewed as acquiring
human resources (Miles & Snow, 1984).
Now more and more companies recognize that their employees themselves are a
kind of source of competitive advantage. Schuler and Jackson (2000) consider
that HR professionals play four key roles: strategic business partners; innovators;
collaborators and facilitators. For example, United Technologies Corporation (UTC)
is a diversified, global, high technology company, with revenues exceeding $25
billion. Its business groups include Otis Elevator, Pratt & Whitney, Sikorsky Aircraft,
Carrier, and Hamilton-Sunstrand. In the corporation the development of human
resources leaders take a relevant part as well as other processes. To fully use of
27
human resources, the business enroll and hire about 10 master degree (including
MBA degrees and specialized degrees) graduates a year into the HR function,
These experienced hires are used to meet specific needs and they are
encouraged to improve their capabilities and to finish a personal development plan
with the coordination of the company’s common process. All HR leaders and
candidates for leadership positions take part in a week long program, the Human
Resource Business School, to make training for their challenge roles. The training
gives a business view about HR, makes an emphasis on the integral importance of
people issue in business strategy through a case study and then company’s own
business strategies. The programs also addresses best practices in formulating
HR strategies, effectively leading change, and measuring business influence,
furthermore, the program examines changing HR roles, provides multi-rater
feedback on demonstrated capabilities, and guides individual development
planning(Walker & Stopper, 2000). It is very essential for a company to understand
its own potential resources, optimize the choice of such resources and promote
HR as a key source of creating the competitive advantage for the company. A
Towers Perrin world-wide study sponsored by IBM (1992) showed that HR in the
2000 will be responsive to a highly competitive marketplace and global business
structures (Perrin, 1992).
5. Value Chain Application in International Marketing Strategy

5.1 Value Chain and Marketing
Facing the constant perfection of world market economy, various kinds of
marketing theories have been pointed out, but some marketing perspectives more
likely stay on the marketing of firm’s own products and promotion of the internal
system, however marketing is no far firm’s own question, is not the marketing
questions of individual organization, but all organizations in value creation
activities of the whole value chain. Kotler (1972) argues that the core concept of
marketing is the transaction. A transaction is the exchange of values between two
parties. The things-of-value need not be limited to goods, services, and money;
28
they include other resources such as time, energy, and feelings. The primary
marketing theory is that marketers create value for the customer, the marketing
organization and the economy. Marketers or their marketing members can create
or add value in many links of the value chain. As the front of realizing the firm’s
value, marketing uses the value chain theory, explores the value of firms and
forms the marketing system gradually basing on the value chain. First and
important is marketing will be the keeper of the value chain model. This model is
the most useful indicator in the age of information, it helps to guide the companies’
external activities, such as ensuring the effective competing against other chains
as well as within the chain, and at same time making attention to the new change
in the market. The change of market will bring the change of the chain, may be
chance or risk. All the activity has something to do with strategic marketing that
marketing department are willing to implement.
5.2 Conceptual Views about Marketing

In the 1960s marketing was primarily focused on consumer marketing with a
heavy emphasis on mass marketing. Business-to-business marketing was
primarily addressed in sales courses, this is later known as the old concept of
marketing or selling concept (Kotler, 1976). In 1967, Kotler presented a “new
marketing concept”, it is defined as "The performance of business activities that
direct the flow of goods and services from producer to consumer or user" (p.5).
The new concept pointed out a customer-oriented focus and defined marketing as
“. . . the analyzing, organizing, planning, and controlling of the firm's customer-
impinging resources, policies, and activities with a view to satisfying the needs and
wants of chosen customer groups at a point" (p.12).
The marketing concept has changed since years, it connected marketing activities
more closely with overall organizational activities. The main task and goal of an
organization is to determine the needs, wants and values of its target markets and
manage the organization to supply the consumer's expected satisfaction more
effectively and efficiently than its competitors. Houston (1986) suggests the
29
following:
The marketing concept follows that an entity achieves its own exchange
determined goals most efficiently through a thorough understanding of
potential exchange partners and their needs and wants, through a thorough
understanding of the costs associated with satisfying those needs and wants,
and then designing, producing and offering products in light of this
understanding. (p.85)
Kotler (1991) argues, in the 1990s marketing was seen as a managerial and social
process, still aimed at satisfying the needs and wants of individuals, and of groups
through value creating offerings.
5.3 International Marketing Strategy

Segev (1997, p.39) defines strategy as “the organization’s long-term goals and the
means to achieve them.” Marketing strategy is mainly concerned with elements of
the marketing mix-the product which is offered, pricing policies, promotion efforts,
and channels of distribution International marketing is seen to differ from domestic
marketing because of complications introduced by the interface between nations
and differences in market structure among nations (Thorelli, 1973).
“International marketing makes a solid effort in addressing the environmental,

external, and internal strategic dimensions, and implementation issues that are of
major concern to the new international market entrants” (Czinkota & Ronkainen,
1995, p.95). One can not divide international marketing strategy apart from the
companies’ all worldwide strategy, Porter (1986) in his article hints that in some
global strategies marketing should play a role to support an overall strategic
position.
About international marketing strategy, during the last ten years there were a lot of
empirical research discussing about the relationship between business-level
strategy and company performance. Two relevant views are mentioned in the
international marketing literature are: the extent to which customers’ needs are
30
homogeneous across nations, another is the conditions under which international

marketing strategies can be successfully standardized (Jain, 1989). Researchers
have been concerned with these issues because of the impact of marketing on
value chain activities, and consequently, on performance (Samiee & Roth, 1992).
5.3.1 Global Marketing Strategy

“Companies must learn to operate as if the world were one large market-
ignoring superficial regional and national difference.”
-----Theodore Levitt
Because of improved and developed transportation and communication systems

there is a rapid growing internationalization of business and the integration of
markets worldwide for many goods and services. As a result, more attention is
focused on integrating and coordinating marketing strategy across national
boundaries to take advantage of potential collaboration in international
performance. The business world is now changing more globalized every day.
Coca-Cola, Levi's jeans, Fritos corn chips, Honda automobiles, McDonald's
burgers, Inter-Continental Hotels, Caterpillar tractors, IBM PCs, Avis rental cars,
Hermes scarves, Colgate toothpaste, Swissair, Kodak film, Omega watches, Sony
Walkman, Heineken beer, and Madonna are everywhere! Lazer and Shaw (2000)
consider that the global changes, such as the introduction of the euro,
instantaneous capital flows, the emergence of large-scale global conglomerates
through mergers and acquisitions, countries' increasing acceptance of free-market
ideology, and improving communications technologies, are making the marketing
manager's job much more challenging. Increasing force from global competition
has made companies reconsider the perspectives of formulation of global strategy
and the globalization of markets. Recent years there are many discussions about
the plan and applicability of such strategies. Although there are a lot differences
between countries and cultures, basic human needs are the same all around the
world. Hence, managers need not stress these differences specifically in their
international strategies. The same products sold domestically can be sold in
international markets with only small changes in product characteristics. This
31
practice has the clear benefits of economies of scale, A basic view of international
marketing is that a firm's global marketing strategy has a positive effect on its
global market performance (Levitt 1983), According to the literature and the
rational analysis, Zou and Cavusgil (2002, p.43), defines global marketing strategy
as “the degree to which a firm globalizes its marketing behaviors in various
countries through standardization of the marketing-mix variables, concentration
and coordination of marketing activities, and integration of competitive moves
across the markets.” A domestic marketing strategy is concerned with the content
of the elements of a specific marketing program in a single country, whereas the
global marketing strategy is stressed on the relationship among the firm's
marketing operations across countries.
From the definition of the global marketing strategy we can know that there are
three major perspectives about the component of the global marketing strategy:
standardization (Jain, 1989), configuration-coordination (Porter, 1986), and
integration (Yip, 1995). Perhaps the most influential view is the standardization
perspective (Jain, 1989). It views a firm as pursuing a global marketing strategy if
its marketing programs across different countries are standardized, particularly
with regard to its product offering, promotional mix, price, and channel structure
(Johansson 1997; Keegan 2000).
5.3.1.1 The Standardization of International Marketing Strategy

With globalization of markets and competition, foreign markets have become
increasingly viable and natural opportunities for growth-oriented domestic firms.
Jain (1989, p.70) offers, “It has been argued that the worldwide marketplace has
become so homogenized that multinational corporations can market standardized
products and services all over the world, by identical strategies, with resultant
lower costs and higher margins.” Consumers in different parts of the world tend to
require the same products and have the same choice. In this business world, the
strategy for business competing globally is necessary to meet the requiring of the
global market. Standardization of marketing strategy refers to offering a common
32
marketing program and / or process on a national, regional, or worldwide level

(Sorenson & Wiechmann, 1975). McDonald Corporation markets its services
through 12,000 outlets in 59 countries. The company keeps standardized for its
equipment technology, product offerings, customer services, cleanliness, value,
and operational systems. Although its menus are a little different from country to
country, its core product offering stay on a global basis. The strategy of
standardized positioning and sale channel belong to McDonald’s global marketing.
The same as Coca Cola, its products are sold in more than 160 countries, the
Coca Cola company use relative standard brands, advertising, packaging,
positioning, and sale channel in its global markets. Jain (1989) finds that industrial
and high technology products are more likely candidates for standardization than
consumer products. “Industrial products typically fill specific needs that do not vary
greatly from one country to another” (p.74). For example, IBM and the
manufactures of many industrial products design, produce, and promote their
products on a global basis.
According to Jain (1989), standardization has two aspects: marketing program and
marketing process. The term “program” refers to different aspects of the marketing
mix which can be classified as product design, product positioning, brand name,
packaging, retail price, basic advertising plan, sales promotion, role of sales force,
management of sales force, type of retail outlets, and customer service, while
“process” means tools that helps with program development and implementation,
so the focus is on the marketing philosophy, principles, and technology which are
used in the planning and preparation of marketing programs. In some cases
marketing process is even more important and feasible to adopt uniform systems
for international market planning and decision making than it is to standardize the
content of marketing programs (Walter, 1986). For example, technology in
automobile industry and computer industry plays a relevant role in marketing.
Standardization is the key managerial issue of international marketing
management (Boddewyn & Grosse, 1995). Standardization makes it possible that
MNCs gain economies of scale in the areas of production, promotion, distribution,
33
and research and development (Jain, 2001). More important, a standardization

strategy helps firms to provide more consistent offerings to their customers and
more uniform, marketing planning and control procedures to their overseas
operations (Whitelock 1987).
5.3.1.2 The Configuration-Coordination Perspective

The second perspective of global marketing strategy is configuration and
coordination of a firm's value-chain activities. Porter (1986) recognizes the
interdependency among different country markets and contends that a global
strategy has two basic dimensions: one is configuration of value-adding activities,
it refers to a company that competes internationally has to know in which place in
the world to perform the activities in the value chain, and another is co-ordination
of the activities across markets, it suggests that how companies should relate
activities in different countries to each other. He thinks that global strategies
include either getting advantage from coordination or from concentrating activities
from a global perspective. For example, Toyota manufactures almost everything in
Toyota city, and uses a very standardized way in marketing in most countries of
the world, while General Motors has a lot of production and R & D in different
regions of the world, also disperses marketing but uses a different way in
international markets comparing with Toyota, such as GM uses different brand
names (Opel, Vauxhall, etc.) corresponding to its major world markets.
5.3.1.3 The Integration Perspective

As the third perspective of global marketing strategy, it is focused on how a
company’s competitive activities are planned and performed across country
markets. Yip (1989) stresses that, a main point to get global marketing success is
to take part in all major world markets to achieve competitive goal and make
effective integration of the company’s competitive battles across these markets. In
global industries, operations in different countries have interaction between each
other, and a company must be able to help some operations in some markets with
resources created in others.
34
5.3.2 Relationship Marketing

To create value, and more specifically, to create customer value, is increasingly
seen as the next source of competitive advantage (Woodruff, 1997). This
economics-based view of value states that consumers spend their money so as to
maximize the satisfaction they get from products. What the most recently develop
in value research is considering customer value from the view of relationship
marketing, or relationship value, though the theoretical works in this area are still
limited, relationship marketing has been one of the key developments of modern
marketing science (Hennig-Thurau, 2000) and has created `enormous research
interest', as its basic principle explain marketing practice better than other theories
(Sheth, 2000). This emphasis on relationships is more likely to give a new scope
of marketing and lead to a new ‘general theory of marketing’ (Sheth, et al, 1988),
Ravald and Gronroos (1996, p.23) conclude: “The relational aspect as a
constituent of the offering is not taken into account ... We suggest that the
relationship itself might have a major effect on the total value perceived. In a close
relationship the customer probably shifts the focus from evaluating separate
offerings to evaluating the relationship as a whole.” Further work by Gummesson
(1999) considers there are a lot of fundamental values in relationship marketing,
the core value is the emphasis on inter-party collaboration and the creation of
common value. Gummesson's concept of ‘total relationship marketing' stresses
long-term win-win relationships with customers. Here, value is co-produced
through the interaction of a number of additional stakeholders including suppliers,
customers, competitors and others. For companies this side of research is relevant
because it can have a critical influence by understanding relationship value in
long-term relationships and then to decide a company is taking a relationship
marketing approach to its customers or not. All businesses, including
manufacturing firms, should understand themselves as service businesses
because customers buy benefits, not products. Usually, the physical product itself
is only one part of the total value creating activities for the customer, customers’
expectations are around the service aspects of the offered product. Service can
build a customer relationship. For example, on the package or Procter & Gamble’s
35
Crest toothpaste, there is a toll-free telephone number, customers can call if they
have questions or comments about the product. What customers ask as well as
their names and addresses are put into the data warehouse of the company. In
this way, the product becomes a service and a two-way relationship between the
marketer and the customer, for the customers they buy not only a physical product
but an improved dental health.
5.4 The Extended Views of Value Chain in International Marketing Strategy

5.4.1 Value Chain Marketing
About value chain marketing it is not conceptual discussed in many literatures. The
Strategic Planning Group from Canada gives us their perspective about it. They
find that value chain marketing represents a strategic approach which aligns your
marketing processes with the values of your customers. Value chain marketing
includes two implications, firstly, a firm is one part of the value chain of the whole
industry, its value is realized only though the collaboration of other links in the
value chain. Hence, value chain marketing is an integrated marketing process that
integrates the resources of upstream and downstream. The model presented
below can be used to establish a framework for determining the value your
business decisions and strategies will create for your customers. If a firm wants to
provide maximum value for its customers, it is important to identify customers’
needs and wishes by analyzing each component of the value chain, and then
makes a decision to meet the needs completely at a price that the customers will
pay and meanwhile it will be profitable for the firm.
Value Chain = Competitive Advantage
Total Value will only be Achieved If All Components are delivered in an Integrated
Fashion. (tspg-consulting.com/02valuechain.htm)
36
Figure: 5-1: Value Chain Marketing (Source: © The Strategic Planning Group)
Kathy Hanson, director of marketing for a division of United HealthCare

Corporation, proposes that value chain marketing is the power of a plan (the tools
to document and implement the plan), golden links in a firm’s chain (brand the
product or service to enhance the business image and the attract customers), and
discover firm’s value proposition (find “suspects”, “prospects” and “buyers”). Value
chain marketing will help a firm to define, segment and target the market with a
focus on the attributes that contribute to the business’s visibility, identity, customer,
loyalty and image. (http://www.nuskills.webex.com/nuskills/mywebex)
5.4.2 Integrated Value Chain

Businesses in recent years have begun changing their focus from supplier and
goods connection to supplier integration and then on to value chain integration.
According to Monczka and Morgan (2002, p.26), “This level goes to the core of a
business itself. It makes sourcing and supply management a key part of business
strategy and looks for ways to better integrate specific customer segments with
different suppliers' contributions to total solutions. It represents a whole new level
of complexity and sophistication.”
37
Here is an example, "In addition to our traditional role as the primary liaison
between supplier companies and SEMATECH, we will continue to play a leading
role in driving both evolutionary and revolutionary improvements in the supplier
value chain,"—Graham, incoming SISA president. SEMI/SEMATECH is a 12-
year-old chip industry supplier association, it has renamed itself Semiconductor
Industry Suppliers Association (SISA) in order to make sure that the name clearly
describes the organization's mission. SISA‘s aim is to focus on semiconductor
supplier infrastructure requirements and to help concentrate the supplier
infrastructure. Paul Peercy (outgoing president of SEMI/SEMATECH) thought the
new name, SISA, is consistent with the evolving role of the semiconductor industry
supplier base. "Today, these suppliers are absolutely essential to the continuing
rapid advancement of semiconductor technology," he said. "They are the enablers
of each successive technology transition, providing the materials and equipment
needed to execute device shrinks and develop new processes, equipment and
technology for decreasing feature sizes and increasing wafer size. Equally critical
is their role in meeting capacity ramps when escalating consumer demand could
result in product shortages" (Singer, 2000, p.30).
SISA focuses on expanding value chain integration and engineering performance.

Through these specific efforts suppliers of SISA can get more communication and
information, standardize quality assessment, and develop main manufacturing
strategies, and carry on best business practices against other world-class
industries. The continuous proceeding SEMI/SEMATECH's mission will make the
suppliers as leaders of the of worldwide semiconductor industry. The idea behind
SISA's value chain integration (VCI) is to "facilitate opportunities between member
companies to define a balanced set of supplier priorities, develop industry-unique
solutions, and improve communications throughout the supply chain." SISA's
value chain programs are designed to engage member companies from all levels
in the supply chain in joint pre-competitive projects to improve quality,
performance, cost, and reliability of products and services. VCI promotes a
38
common language, understanding of requirements, and coordination between

suppliers and customers (Singer, 2000).
Madsen who is senior associate at Northeast Consulting Resources Inc. has noted
that value chain integration "changes the power dynamics between customers and
vendors." Suppliers do not need to guess what customers want any more, or make
much effort to get the demand. The process starts with an order that the customer
gives and is connected back through a series of links to the producer, or further
back to the supplier of component parts. As this happens, all the necessary
services are connected. "Currently, the customer-facing system is disconnected
from the production chain," "In the new model, the channel is assembling to order.
Buyers specifying products set off a cascade of parts requests, assembly
schedules, shipper notifications, and financial arrangements... All of that happens
the moment the order is placed." This kind of way will help companies to quantify
demand and make quick marketing decisions (Haimes, 1998, p.36-40).
DELL COMPUTER'S factory, on the west coast of Ireland, supplies custom-built

PCs all over Europe. The orders direct enter into the factory through Dell's website
and call centers, and then the company transfers details to its suppliers, telling
them which and how many parts it needs, and when it needs, the whole computers
are finished only in a few hours. As suppliers of Dell's have fast route to get
information about their orders via their corporate extranet, they can arrange their
production, and delivery the production at once so that their customer is able to
receive the right components and let the production line keep moving smoothly.
Dell connects its suppliers directly with its customer database to be sure that they
will know about any changes in demand immediately and at same time Dell joins
its customers into its supply chain across its website, thus Dell can effectively
implement the progress of orders from the factory to their customers. Dell uses a
fully integrated value chain by setting up an “information partnership” with its
suppliers and customers and treats them as collaborators who together find ways
of improving efficiency across the entire chain of supply and demand, and shares
39
the benefits. The company's founder and boss, Michael Dell, agrees that the
Internet gives customers unprecedented power to seek out the lowest prices, but
argues that it can also be used to deepen relationships and ultimately build far
greater customer loyalty than before. If you don't create an integrated value chain,
he says, don't expect to survive. John Dobbs of Cambridge Technology Partners,
a leading systems integrator, helpfully defines it as: ``A process of collaboration
that optimizes all internal and external activities involved in delivering greater
perceived value to the ultimate customer'' (“Economists”, 1999, p.11-15).
5.4.3 Collaborative Value Chain

Today, in a lot of companies more and more executives at the highest corporate
levels are trying to develop the value chain strategies in order to strengthen the
relationship with business partners. And they are now recognizing that a higher
level of collaboration and information sharing are so necessary that they can
improve not only the operations of their own companies but also the whole value
chain in which they participate. Alliance between companies are a fact in today’s
business, companies may come from different parts of the world or different links
of the supply chain. In the world economy, a well-developed ability to create and
keep successful collaboration make companies has competitive advantage. How
can we define collaboration? Some different definitions of collaboration mentioned
in the literature, according to Gray (1989, p.227), “Collaboration as a process of
decision making among interdependent parties; it involves joint ownership of
decisions and collective responsibility for outcomes.” From the definition we can
see collaboration in today’s business environment means trading partners working
together to a common goal and end. Value chain collaboration involves gaining
trust of partners and sharing reliable data. That is a major conclusion of the view.
Youngberg (vice president, global supply chain practice) and O’Laughlin report,
“The findings strongly show that companies with top-performing value chains
share a wider range of information with their customers and suppliers the do those
with poor-performing value chains.”
40
In BRIEF (2002) reported, Hewlett-Packard Co. (HP) and Pricewaterhouse

Coopers L.L.P (PWC) have entered a global alliance to develop and market
collaborative value chain software. HP will do much of the development work such
as improve its technology development strength while PWC will concentrate on
consulting on the software's use. The companies will conduct joint marketing
initiatives. HP and PWC will target a range of industries, in which for example,
high-tech, aerospace, automotive and consumer packaged goods are included.
There are 200 employee of HP will learn something new about PWC’s value chain
operations solutions practice. The two companies will make a tight collaboration in
marketing and sales. They provide also executive seminars, marketing tours, and
sales training programs as well as direct marketing campaigns. Matt Porta, PWC's
manager of collaborative value-chain strategies, said what the company
understands about customer relationship management and industry-by-industry
knowledge will help them decrease the risk. Mr. Porta stresses that ``Numerous
third parties have ranked PWC Consulting as a leader in CRM, supply chain, e-
markets, database integration and enterprise resource management. So it makes
sense from a business perspective, since we have the knowledge, skills, expertise
and abilities in all of these areas'' (Clark, 2001, p.4). Collaboration is becoming a
main part of the strategies that trading partners seek to achieve advantage within
the value chain. The goals that trading partners want to gain are increased market
share, lower transactions costs, strengthened customers loyalty, high customer
service, and increased competitive advantage. The manufactures, suppliers, and
retailers that set up collaborative relationships with their trading partners together
gain market speed, improve execution, and reduce their activity costs.
HP and PWC are the leaders of international marketers, they will also expand their
collective international marketing fields, as PWC owns customers around sixty
countries while HP operates its global marketing performance, they plan to use
their extensive marketing connections among manufactures. Bruce Toal, HP's
marketing manager said, speed of implementation will be stressed as a marketing
message, “Within 90 days you can be automating your purchase order process,”
41
``We've seen a 300% jump on reducing costs on excess inventory,'' he said.

``We've seen a return on investment on this to pay for itself in a year's time frame''
(Clark, 2001, p.4). A business relationship between companies is not just a
transaction, but a link between individual companies that can take many forms and
contains for additional collaboration. It is a common agreement to continue to do
together and in that way its value gives the potential for the chances. The value
chain views prove that collaboration and information sharing contribute a lot of
benefits, such as delivering goods on time, reduced inventory costs, and improved
product quality by using the knowledge of all partners. For example, (“Managing
Logistics”, 2001) 51% of respondents in excellent or very good chains report the
tangible benefit of inventory reduction, only 18% in poor chains so report. Overall,
35% of respondents say they have reduced inventory through collaboration. Sam
Walton, the Wal-Mart establisher and collaboration pioneer, challenged the
relationship between retailer and supplier and pointed out a wholly new model.
"Vendor partners" which is defined by Walton showed a dramatic model changing
for many and made a new way of looking at the business and the end-user. Wal-
Mart was one of only a few companies that knew well trading partner relations
while constantly growing barriers in value creating activity. The company set up
such a relationship with Procter & Gamble in one of the first vendor-managed
inventory (VMI) initiatives. VMI was a method to teach the producer and taking its
attention on downstream retail processes and the consumer (Ireland, & Bruce,
2000).
If companies develop mechanisms, such as structures, processes, and skills,

which is for connecting organizational and interpersonal differences and achieving
real value from the partnership then they have active collaboration. It ensures
communication, coordination, and control, and makes both partners' resources are
fully used and both companies' own needs and goals are represented. Kanter
(1994, p.98) notes, “the strongest and closest collaborations are value-chain
partnerships, such as supplier-customer relationships. Companies in different
industries with different but complementary skills link their capabilities to create
42
value for ultimate users.” The views in those relationships are practical and the
partners are trying to improve the co-activities in a lot of performance so that within
each organization of the partners they may bring a physical shift. Companies can
take part in a lot of kinds of relationships at the same time, and partners in each
relationship may act a different role. In CARIBBEAN BUSINESS on Dec. 23, 2004
reported, ‘Metro Toyota among top five Toyota dealerships worldwide’, Metro
Toyota President Francisco Ramos said, since the opening Oct.15, Metro Toyota,
a state-of-the-art auto dealership on PR-2 in Bayamon with a $12 million
investment and 65 workers, has become Toyota’s local sales leader and one of
the top five dealerships worldwide of Japanese Automaker Toyota Motor Corp.
During October they gained sales leadership among local Toyota dealers with 386
units sold, The room is equipped with a fully glass-enclosed air-conditioned two-
story showroom, an Internet Café with high-speed internet access, a state-of-the-
art-service department with 20 service bays, a fully stocked parts and accessories
department, and car rental services. What Metro Toyota does wants to make an
impression for customers that they provide a “no sales pressure” atmosphere, and
a modern open office facility, there customers can free accept or cancel an offer.
Metro Toyota expects to gain an average of 400 new units a month and get $100
million in annual sales.
5.4.4 The Virtual Value Chain- Information Based Marketing

With the developing of networked information system, a division of market system
comes out. The age of electronic commerce has fundamentally revolutionized
business strategy, structure and competition, Rayport and Sviokla (1995, p.21)
emphasize that “Every business today competes in two worlds: a physical world of
resources that managers can see and touch, and a virtual world made of
information. The latter has given rise to the world of electronic commerce, a new
focus of value creation. We call this new information world the marketspace to
distinguish it from the physical world of the marketplace.” The so-called
marketplace such as raw material, resources and products still play a role in the
value chain. Companies still need to think about the traditional problems about the
43
physical value chain of a product or service, for example inbound logistics,

production process and marketing & sales, however in recent years, there are a lot
of changes in the areas of electronic commerce and international trade.
Information becomes a factor of success in its own right in competition in future
markets, in order to activate information, marketing is forced to adapt to the
conditions of information networks in the virtual marketplace (marketspce). The
virtual world is quickly growing and being characterized by digitalized information
and communication channels. The virtual market is in cyberspace, there
information is dealt, processed and used, and through virtual value creation chains
brings information within data networks, this can be referred to as marketspace.
According to Rayport and Sviokla (1994, p.142), “the traditional marketplace
interaction between physical seller and physical buyer has been eliminated. In fact,
everything about this new kind of transaction is a marketspace transaction.” In this
way marketspace can be considered as an intangible market for information. The
importance of both market places shows that competitive successes will be
determined in future by activities in the virtual and the real worlds. The
interrelations between physical (marketplace) and virtual value chains
(marketspace) as well as the creation of new markets can be seen in Figure 5-2
(Weiber & Kollmann, 1998, p.606):
Figure 5-2: The path from the physical to the virtual value chain
44
An example about health care industry, Information-intensive industries cost a

large number of money on information technology; for example, the financial and
banking industries spend 6% and 8% of their operating budgets on IT, in the
health care field with information intensive, it spends about 2.5 % of its operating
budget on IT and the number is increasing rapidly because of basic changes in
health care incentive systems (Kahane, 1996), even so the investments in IT are
increasing because the health care industry takes a system called fixed payment,
it is able to measure quality, increase responsibilities, provide more efficient
incentive, more effective cost, and pay more attention to patient satisfaction. A
concrete situation, for example, physicians want to decide ordering an MRI or
recommending empirical therapy with bed rest and medications, if they have
efficient and suitable information of different tests, they would like to use the way
with less harmful and less cost. By doing this, patient get much less stress
because of improved care and reduced cost. Moreover, health care with IT support
can improve the institutions' capacity to know what is happening in the clinical
world, new digital computerized records of patients make contribution for medicine
while people will be able to take better care of themselves by making use of this
information. This is a result of the virtual value chain. For the institutions they have
more chances to collect information efficiently, to catalogue it over the
infrastructures of on-line services and the World Wide Web, and to provide
information to people who want to become informed about diseases and therapies
and able to make their decisions and their physicians. Open information will
empower the consumer and reduce overall costs - again, all because of improved
virtual value chain management. Through this model patients will win across
improved access to information while providers will win by analyzing data about
patients and also to best-practice information as well as through efficient point-of-
care access to medical information. Health care institutions will win by making use
of their new digital assets and by providing timely feedback information that
provide integrated continuing medical education for their workforce. The well
managed virtual value chain has significant influence on a company, and even on
the entire industry, 80% of all costs in the trillion-dollar health care field are from a
45
doctor's decision. If companies can provide the right information to doctors, they
will have the chance to change 80% of all health care costs while improving the
quality of the service (Kahane, 1996).
Because of rapidly growing networked communication structures and a division of

relevant markets into physical value chain and virtual value chain, companies are
facing the new demands. Making use of information is the key point of structural
change in market system. As experienced marketing professionals, today they
need to understand complex processes such as cross-selling, target marketing
and segmentation. But it is still not enough to achieve the final goal to customers.
Though companies have made more data and a wide rang of information than
before, companies which want to get more revenue must make intelligent use of
information as a tool to make an impact on consumers’ buying activities. Weiber
and Kollmann (1998, p.611) have confirmed, “due to the particular importance of
information for the market systems marketplace and marketspace it is necessary
that marketing is concentrated on the utilization of information ("information-based
marketing").” Marketing should go into information-based marketing, the demands
are especially considered if companies on the information-based market expect to
achieve competitive advantage in marketspace from the factor of production
information. Information-based marketing is a relative new concept that in its
simplest forms means using information to get more return on a marketing
investment. Normally the first step of marketing plan is to develop the theory, but
marketing decisions should be made by a lager number of analysis and financial
analysis. Credit-card marketers are among the most advanced users of
information-based marketing techniques. Facing competitive conditions, in the
early 1990s one top-20 credit-card provider understood that the only way it would
be able to meet its business goals was to have a central information warehouse
that could support marketing needs for analysis, segmentation and selection
(Lebowitz & Hale, 1998). A bank with information-based marketing, can acquire
new checking relationships and credit card accounts between bankers and
customers, For example, Capital One Financial Corp., later was then the credit
46
card subsidiary of Signet Bank, Richmond, Virginia, implemented its information-

based corporate strategy in 1988. Capital One uses a special information-based
strategy. This strategy combines advances in information technology and
advanced analytical techniques with a strong focusing on market testing. Its goal is
to develop a broad range of credit-card. In order to achieve it, Capital One collects
enormous databases of information on 200 million consumers and detailed data on
10 million customers. The data is stored in a data warehouse that includes
information on buying behavior, payment records and other main statistics. With
this Capital One is able to offer 3,000 credit-card variations comparing with the
industry norm of Gold or Regular. In the market, they test and analyze
performance and profitability of some 4,000 different product, pricing and feature
combinations. The result proves that the information-based marketing strategy is
so effective that Capital One's customer base has grown more than ten times
since 1988 and twice since its initial public offering in November 1994 (Lebowitz &
Hale, 1998). “Capital One now is one of the largest issuers of MasterCard and
Visa credit cards in the United States. At year-end 1996, return on equity was 23
percent, while net interest margin stood at a hefty 9.05 percent”, according to
Capital One's 1996 annual report. One of the summary point from Weiber &
Kollmann (1998, p.615) “In the market system divided into marketplace and
marketspace, information becomes the central competitive advantage through
interactive information processes between supplier and consumer, so that in the
future, companies, aided by information-based marketing must concentrate more
on the acquisition and analysis of information for customer-oriented output
bundles.”
6. Value Chain and the Choice of International Marketing Strategy

6.1 Value Chain as a Basis for Planning Overall Strategy
“It is not something that is being left to the purchasing department. It has reached
the highest levels in the corporation. People see it as a key element of strategy”
-------- Robert Neubert, Ernst & Young's national
47
director of automotive and industrial products services
In the value chain (Porter 1985) companies create value by transforming inputs
into more refined outputs. The process of value creation is sequential, and then
value is added at each step. The strategic challenges connected with managing a
value chain are becoming more and more considerable. When market managers
think about the level of executive involvement, value chain management has
clearly become “a strategic imperative” in most companies. "People who pay
attention to their value chain and formulate formal strategies for their value chain
can have a substantial positive impact on the top line of their organization." says
Glenn Dalhart, a partner in Ernst & Young's supply-chain-management consulting
practice (Sheridan, 2000). A basis for planning overall strategy has been
emphasized by Normann and Ramirez (1993), they argue that the importance of
value creation is as a part of the strategic process, a value perspective of strategy
is: “Strategy is the art of creating value. It provides the intellectual frameworks,
conceptual models and governing ideas that allow a company's managers to
identify opportunities for bringing value to customers and for delivering that value
at a profit”(p.65). This points out that the value chain presents both an analytical
and a facilitating concept, and value strategy in value chain means mainly the form
of positioning a company in the right place on the value chain- the right business,
the right products market segments and the right value-adding activities (Normann
& Ramirez, 1993).
6.2 Upstream and Downstream and the Marketing Strategy

As mentioned previously，from the analysis of the concept and composition of the
value chain, we know that companies’ value activities can be divided into two
members: upstream and downstream members. In the companies’ basic value
activities, an upstream provides the supply of the raw material, R & D, and
operation that are put into a business process. For example, a computer
producer’s chip and disk drive supplier are upstream members of the value chain.
Downstream member like sales and marketing and customer service consumers
48
the output of a company’s business processes, for a computer manufacturer, this

would be a distribution, retailer, or an end-user consumer. The key of the upstream
activities are product which connects closely with the technical characteristic of the
products, its level has a direct impact on the whole value chain system. For
example, once a new product or a new technique is developed, it can be use in
many markets and regions, and its advantage will be of universal significance. On
contrast, the key of the downstream is customer, each marketing activity has
something to do with the characteristic of the consumers, of course, and the
choice of the marketing strategy must be made according to the local market
circumstance, local culture, and so on.
6.2.1 The Upstream Advantage-Global Marketing Strategy

The influence of the rapidly changing world marketing environment brings the new
problems, challenges and chances for the international business or marketing
programs. Companies must recognize and assess the situation and select their
strategies accordingly, thus they can survive and compete effectively in a dramatic
economic environment. Many companies around the world are trying to meet
these changes by internationalizing their activities.
The impact of globalization (for procurement and marketing purposes) has made
the value chain a more useful method to recognizing and assessing business
opportunities (Walters & Lancaster, 2000). The upstream activities can be affected
through the role of international marketing strategy in which it plays the most
important role (Porter, 1986). According to Porter (1986, p.20), “the prototypical
global strategy is one where the firm gains scale or learning curve advantage from
having high-volume production of a common line of product varieties. Clearly, if
this approach can be carried out effectively, it will unlock potent and competitive
advantage due to scale and learning in the upstream activities of the value chain.”
Thus for a product if the upstream link plays a crucial role in the marketing then it
may rely on the product technology and/or having massive production. Its
competition is most likely a competition of global market. Large-scale commercial
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passenger airplanes, compact cars, and computers all belong to this kind.
Therefore, if the management and the operation of MNCs mainly depend on the
advantage of upstream link, then they may adopt the global marketing strategy.
Due to the changing of the world from divided national markets to linked global
markets, international marketing is becoming more and more relevant to
companies. Globalization makes trade more liberalized and consumer needs more
homogenized and brings competitive advantage in global markets. Companies
have to think and do globally so that they can survive in such a rapidly changing
environment. There is a positive relationship between rapid changes in technology
and global standardization. It is also seen clearly that firms emphasizing
standardization are more likely to be affected by competitor-led product changes.
Rapid changes in technology make it necessary to retool and retrain expenses
and therefore make a focus on more concentrated manufacturing for the global
market so as to pursue a wider range of geographic markets. If technology
changes are relatively slow, then firms may tend to stress customization. It is also
clear if firms place less emphasis on standardization but put much emphasis on
the development of a highly skilled sales force, possibly because of the diversity of
products and markets served.
An example about the global marketing strategy of the Bosch Group, in 1886,
Robert Bosch established the "Workshop for Precision Mechanics and Electrical
Engineering" in Stuttgart. This was the birth of today's globally active Robert
Bosch GmbH. From the first day of operations in 1886, the company has been
providing the revolutionary technological advances, among the products, some are
well-known, some may be never seen, but they all impact our lives in more ways
than you can imagine. The "Bosch Group" has been in successful operations for
almost 120 years and is the world leader in many different fields. Today the
company manufactures products at 227 locations on every continent, 171 of which
are situated outside Germany. From a small factory to a global multi-national
enterprise, the Bosch Group reported annual sales of 34 billion euro and was
operating in 50 countries in 2001, it has 218 subsidiaries, 34 of which are domestic,
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and the rest are located overseas. The company was employing 221,000 people
at the start of 2002. Its business includes not only the automotive industry, but
automotive technology products such as gasoline, diesel and chassis systems and
car electronics. The group provides also many other products and services,
including power tools, industrial technology, security solutions, household
appliances and broadband networks. As we know, Germany is famous worldwide
for its high quality, reliability and perfect technology. Bosch has expanded on this,
that is to say it has even done better in the development, manufacturing and sale
of products, which are designed and delivered across the world to the strictest
German standards you can find anywhere today. Every day, 18,500 Bosch
scientists, engineers and technicians around the world work to push forward their
state-of-the-art and shape the future. More than 2,370 patent applications were
filed in 2001. In the same year, Bosch's R & D spending amounted to 2.3 billion
euro, most of it allocated to the automotive technology. All these has made Bosch
own the advantage of the product technology or the advantage of the value chain
upstream link, thus the company is able to adopt the global marketing strategy
successfully to market its products worldwide. The marketing experience is also
effective in China. Following the policy of reformation and opening in China, Bosch
entered the Chinese market in the mid-1980, until now the company has relied on
the amount of 600 million US dollars investment and 2-digit growth rate annually to
become the successful model of the MNCs in China market. Bosch is unceasingly
sharing the innovative science and technology and the advanced knowledge with
China. Bosch China has become one of the most important and dynamic
development sectors of Bosch group. (http://www.bosch.com.cn/content)
6.2.2 The Downstream Advantage-Relationship Marketing Strategy

In the economic activity, the key of downstream of the value chain is consumers,
each marketing activity, such as advertising, channel strategy, promotion method
and so on, has something to do with the characteristic of the consumers, therefore,
the choice of the marketing strategy must be made according to the local market
circumstance, local culture, and so on. Slywotzky and Morrison (1997) propose a
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“customer-centric” method to suggest a modern value chain in which the customer

is the first link and everything follows. The managers must know the customer
needs and priorities, the channels that can satisfy those needs and priorities, the
services and products best fitted to flow through those channels. They conclude
that the value of any product or service is the result of its ability to meet a
customer’s priorities.
Moore (2000, p.46-49) finds, “As part of the value chain model, marketing must
continually model the end customers of the value chain, even if the company
never actually communicates directly with them.” What is most important in the life
of everyone is the end user to pay for each body else and to make sure to finish
their suggestion. The role of the company in the value chain can become strong by
linking up with the end user, and if the company has difficulties in substituting, it
should try to find other intermediaries to exchange some other suppliers. For
product marketing, if the downstream holds the leading position, then the
competition nature of this industry is very likely a multinational market with a
pattern of mutually independent partial competition. On the strengths of the
downstream advantage, MNCs make their strategy often have the distinct local
and regional characteristic. Kotler (2004) suggests that current marketing is
moving from a transaction-orientation to a customer-relationship-building
orientation. Marketing has moved from a focus on the mass market to a focus on
market segments to a focus on one-to-one customer relations.
An example about the P & G’s marketing strategy in China, the Procter & Gamble
Company was founded in 1837 by an Englishman, William Procter and an
Irishman, James Gamble. As consumer product giant Procter & Gamble markets
over 250 brands to nearly five billion consumers in over 140 countries. 1n 2004, as
members of Dow Jones Sustainability Index (DJSI) ,P&G was selected as the
Consumer Products sector leader in the global listings for the fifth year
consecutive year . In 1988, the Company announced a joint venture to
manufacture products in Guangzhou, China. This was the Company's first
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operation in the largest consumer market in the world. Until now, the total amount
of investment of P & G in China has exceeded 1 billion dollars. The purpose of P &
G is providing branded products and services of superior quality and valuing that
improve the lives of the world’s consumers. As a result, consumers will reward the
company with leadership sales, profit and value creation. The P & G Company
always advocates the consumer supreme principle worldwide, in China the same.
In order to thoroughly understand the Chinese consumers, the company has
established the perfect market investigation and study system in China. It carries
out the consumer tracing and attempts to establish the lasting communication
relations with consumers. Meanwhile the P & G Company has established the
huge database in China's market R & D department in order to analysis timely the
consumer’s opinion and then feedback to the production department, so as to
produce the products that are more suitable for the Chinese consumers.
(http://www.pg.com.cn/aboutus/about-02.htm)
The P & G company discovered that, the 21st century marketing are facing the
status that the consciousness of consumer to recognize brands is becoming more
and more strong, Along with the unceasing emerging of more and more brands in
the market, the pressure between the brand competes has become more and
more heavy. As one of the MNCs the P & G Company is similarly facing the
challenge: How should the company innovate and what are they doing to meet the
change? Firstly, to strengthen the integrated marketing concept, the goal of
integrated marketing is to give the consumers more opportunities to choice. The
consumer is supreme, is the most important factor in the marketing. Secondly, to
carry on the consumer approving marketing, The P & G hopes marketing is not
only the unilaterally sale, but an interaction process, only through the marketing
then makes the consumer have reaction and acceptance to the P & G’s marketing.
Thirdly, through the effective appraisal method to make quantification what the
company has performed. The P & G is willing to know to how much degree the
effectively appraised advertisement and the marketing have affected consumer's
purchase decision.
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The 21st century marketing is facing a new value chain, what the P & G has done
starts still from the consumers, but in the new value chain, between the consumer
and advertising agent, the media and the advertising company is acting a more
vital role, they already fully understand the demand of the company, as well as
consumer's need. This kind of new value chain is realized in the past three years
through the cooperation between P & G and CCTV (China Central Television). All
the innovation that P & G has done in the marketing lies in catching the
information which the consumer needs, the consumer can image. They hope the
communication with consumers could influence as far as possible the buying
activities of consumers. "Being intimate with the life, beautify the life" is the P & G
Company’s philosophy. The company tries all the best to make close to consumer,
the customer, the partner, and the market change, thus to make synchronization
with the world development. Facing to the consumer's innovation strategy, P & G
will be ready to create more opportunities together with CCTV, and take much
more benefit to the consumer.
6.3 Case Study- The Choices of the Marketing Strategy of Three Joint
Venture Automobile Companies in China
6.3.1 Status of the Chinese Automobile Industry
With rapid economic development China has become the biggest “Big Emerging
Market (BEMs)” and has attracted a lot of multinational corporations to make an
investment in China. Since the beginning of the economic reform in late 1970s, the
Chinese government has offered a preferential policy for foreign investment and
opened industry after industry to foreign participation. Major MNCs have all taken
positions in China, and many of them have expanded their operations in the
country as they gain more experience, and as new policies create such big
opportunities. An example about the automobile industry in China, in 1956 with the
help of the Soviet Union China had its automobile industry, the first car factory
(FAW-First Automobile Works) was set up to produce the Jiefang ("Liberation") line
of mid-size trucks, but only with a few years growth then the industry was followed
by a change in policy that brought it back down, until 1978, the industry was under
54
a strict centrally planned system with only two automobile assemblers. Today, with
many MNCs China’s automobile production and sales figures are both projected to
exceed 5 million units, up some 20 percent year-on-year, in 2004, industry experts
said. Car production alone is inclined to reach 2.6 million units, Xinhua reported. In
2003, China produced 4.44 million autos and sold 4.39 million, an annual increase
of 35.2 percent and 34.21 percent respectively. China's imports of automotive
products increased 84 percent year-on-year to US$14.45 billion in 2003, according
to the latest customs statistics. Among the imports of automotive products,
complete vehicles reached 125,129 units and the value of these imports jumped
63 percent to US$5.25 billion (“World IT Report”, 2004). China will lead Asia's
sales growth both this year and next, with 1.3 million more vehicles sold in 2004
than 2002, which is closely mirrored by growth in auto production, forecasts Global
Insight. Sales and production in the next 10 years will swell by more than 4.3
million and 4.5 million units, respectively. By 2013, China will account for 11% of
global sales and 24% of non-Japan Asian sales (Zachary, 2003). Before
considering the successful marketing strategies of three joint ventures in China, it
is necessary to assess and analysis how important the Chinese market is to the
parent corporations.
6.3.2 The Research of Three Automobile Companies in China

After joining WTO, China becomes more and more noticeable in the world, the
worldwide automobile industry groups quicken their steps or are making the
preparations to enter into the Chinese market. However, with the keen competition
in the Chinese automobile market, price war and brand competition have been
already very difficult to obtain final purchase decision of consumers. Many new
marketing strategies that manufactures make are also still very difficult to keep
customer loyal. The competition among automakers is carried out at the same time
on the breadth and depth. Those corporations that are already successful in
marketing in other places in the world face the problem to localize international
brands including how to inject the element of the distinct Chinese characteristics
into the original brand. In the following text we will talk about the marketing
55
strategy of three world well-known carmakers (Volkswagen, General Motor, and

Toyota) in China, and study how they operate in overseas markets and what
makes them successful.
6.3.2.1 Volkswagen AG
With the rising of producing and labor costs in Germany, the country’s international
competitiveness comes increasingly under the microscope, more and more
German companies are investing overseas. As one of the world’s leading export
nations Germany has a reputations for producing high quality, reliable products. In
the 1990’s Germany is one of the world’s leading export nations (“International
Monetary Fund”,1994), but rising manufacturing costs and the depth of the
European recession of the early 1990s has led to a debate within Germany and
Europe as a whole as to the sustainability of the country’s international
competitiveness.( Peel, 1993) High labor and environmental costs and increased
taxation to fund unification have forced many German companies to reexamine
their approach to international markets. In March, 1985, VW was as the first
foreign carmaker to set up a joint venture in Shanghai, China, with the investment
increase, the registered capital of SVW will rich 7.8 billion Yuan and its total assets
reach nearly 30 billion Yuan. Now SVW has become a modern car-making base
with the biggest production scale and the largest product population in China. With
an annual production capacity of 450,000 units, SVW now has seven product
series of dozens versions including Santana B2, Santana 3000, Passat, POLO
and GOL. “Have a unit of Santana and you can travel all over China” SVW
Santana cars have been well-received by the customers for over 20 years. In 2003,
it achieved 215,547 units of sales, being the only car model in China to top an
annual sales volume of 200,000 units. (http://csvw.com/csvw/index.htm)
Besides Shanghai VW(SVW) Volkswagen Group China has another joint venture:
FAW Volkswagen was established on February 1991, a 50-50 joint venture
between China's First Automotive Works and German auto giant Volkswagen AG,
which produces the models Jetta, Golf and Bora as well as the Audi models A4 ,
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A6 and A8. The company is the second largest supplier of passenger cars in China,
the largest being Shanghai Volkswagen. In 2004 projects sales raised to between
350,000 and 360,000 vehicles, “FAW-Volkswagen’s sales growth may slow this
year because its production can’t keep up with demand. It needs another year for
its new plant to begin production,” FAW- Volkswagen spokesman Zhang Yinfu said.
FAW and Volkswagen are now building a factory that would double capacity to
660,000 by about 2007. (http://www.faw-volkswagen.com/intro.htm)
Relying on the quality and reliability of German goods, one of the FAW-
Volkswagen brand- Audi from A4, A6 to A8 attract numerous sight of consumer,
and meet the different demand of segments, among them Audi A8 is the most
expensive and most advanced Luxury-class sedan. In China, the selling target of
A8 is some successful personages, such as government high-ranking officials,
diplomats, business men and etc. The survey shows, the main segment of Audi
car owner is at the age of 26-45, married, have higher education degree, private
enterprise owners and senior executives with monthly income between 20,000-
40,000 yuan. Audi A6 meets different users' demands with different specification
such as A6-1.8L, 2.4L and 2.8L. Audi also imports its A8, TT Coupe and Quattro to
China through the joint venture. Audi, the luxury division of German carmaker
Volkswagen, is aiming to double its Chinese production to 70,000–80,000 units by
2005. In 2002, the company's FAW VW joint venture produced and sold 37,000 A6
models.
6.3.2.2 General Motors

General Motors Corporation can be traced to early last century. As a model and
brand with a long history the reason that Buick could continuously develop is its
accurate positioning. GM has launched three car brands in Chinese market:
Cadillac, Buick and Chevrolet, forming four product bases: Shanghai, Yantai,
Shenyang and Liuzhou. Its products cover many models such as economy, SUV,
medium and luxurious vehicles, among them Buick brand has gained the best
marketing result in the Chinese market. (http://www.gmchina.com/)
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Shanghai General Motors Company Limited (Shanghai GM) was established in

June 1997, it is a 50-50 joint venture with Shanghai Automotive Industry
Corporation Group (SAIC) and the world's largest automaker, General Motors. As
the leading passenger car manufacturer in China and the largest automotive joint
venture in China, it manufactures a family of Buick products, as well as engines
and transmissions. Shanghai GM has an annual production capacity of 200,000
vehicles operating on three shifts. In 2003, Shanghai GM sold 201,188 vehicles.
This was an 81.6% percent increase over the previous year. Its share of China's
passenger car market grew to nearly 9.8 percent, placing Shanghai GM among
the top three passenger car manufacturers in China. GM's vehicle capacity at its
various joint ventures will jump from 530,000 now to 1.3 million in 2007.
In North America Buick was the symbol of the successful middle-aged personages.
After entering the Chinese market, Buick has made a brand reconfiguration. As the
first model of the passenger vehicles Buick entered the Chinese market, on the
one hand it has continued its international basic essential factor, namely Buick
characteristic (security, comfortableness, and high quality), on the other, it has
created the new idea that is appropriate for the Chinese market characteristic. In
2001, the Shanghai GM implemented the strategy-“innovatively integration the
international and domestic advanced resources, realize localization”，through its
fine production, operation, advertisement, service and the technical force
promotion, Buick has build up a successfully brand image in the consumers. In
order to unify the brand management to mold the whole Buick mother brand image,
Shanghai GM used Buick-Regal which is in December 2002 rolled off the line as
brand construction representative, made international brand mark, car name,
model and displacement mark at the rear part of the car instead of symbol
“Shanghai GM”. From a brand to a series of standardization management
Shanghai GM has made successfully introduce the Buick mother brand, and used
its general characteristic to obtain the brand unified impression. Within several
years Buick has extended its brand to four sub-brands such as Regal, Sail, Excelle
and GL8. Each sub- brand used its bright product individuality and become the
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powerful weapon to occupy the market, and obtain the remarkable market share.
6.3.2.3 Toyota Motor Corporation

As the world's second largest car maker Toyota Motor invested a $461 million joint
venture to make its Camry sedan in south China, aiming to catch up with GM and
VW there (Emerging Markets Economy, 2004). Toyota's 50-50 tie-up with
Guangzhou Automobile Group will make sedans in the southern city of Guangzhou,
a magnet for Japanese car and parts makers. The partners will start production in
mid-06 in the city's new Nansha industrial district, with initial capacity of 100,000
Camrys a year. In 2003 Toyota signed an agreement to expand its joint venture
with China's First Automotive Works (FAW). The expansion will include the
construction of a new manufacturing plant in Tianjin, which will produce cars based
on the Toyota Crown model and the joint production of four vehicle models and
technology transfer. Production will begin in 2005 with an initial annual output
capacity of 50,000 vehicles. Toyota and FAW reached an agreement in August
2002, to build 300,000–400,000 luxury sedans, compact cars and sports utility
vehicles per year in China by 2010. (http://www.toyota,com.cn/carline up/)
In the international market Toyota has a lot of kinds of cars including medium-and
luxury class and economy class passenger vehicles. The Toyota brand has
already gradually transformed from a concept of Japanese car to a global car, and
along with the expansion of its sales network and the market Toyota also started
to pay great attention on realizing localization in the overseas. In the Chinese
market, from the Sports Utility Vehicle (SUV) to the series passenger vehicles-
Vios and Corolla, Toyota introduces gradually and enriches them in the Chinese
market. Although at present in the market Toyota series have no upper vehicle
types, it fills the insufficiency through the series of Corolla, Crown, and Camry.
Toyota Motor Corporation has a good image in the global consumers with its
economical performance and the stable quality. Toyota constantly improves its
production, controlling strictly the production quality at the same time introducing
the flexible production pattern and then producing continuously new products. In
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designing, Toyota introduces the real-time design way to shorten the speed of
complete vehicle development to 15 months. Although Toyota enters Chinese
market only with a short time, relies on its abundant strength and the good brand
image setting up quickly two joint ventures with FAW and GAW. Toyota's goals is
a 10 percent market share in China by 2010, compared to 1 percent in 2003, and
try to control at least 10 per cent of the total auto market and 20 per cent of the
passenger car market, which is currently dominated by European and American
manufacturers.
6.3.3 The Marketing Strategy of Three Automobile Companies in China

6.3.3.1 The Marketing Strategy of Audi
Volkswagen Group China carries on its marketing strategy of Audi's brand in China
through three marketing stages, at first and the most important strategy is that
cause of the product technology advantage in the upstream it propagates
extensively the leading technology and quality of Audi , defining Audi brand’s "
foresight" of values with concrete information ， stressing especially on the
technology advancement, the security and comfortableness, Afterwards,
explaining "the fervor" with the life style which represents and with Audi’s
remarkable prestige to emphasize success and the technology and science,
Finally, with the advanced service and the sales network explaining "to be in the
lead".
Audi vehicle has a higher overall degree of satisfaction in upscale vehicle markets,
among them Audi A6 is prominent in Audi series, A6 slightly has the superiority in
many targets appraisal. Because most buyers of Audi have bought cars with other
brands，the main purchase motive is to promote the car grade, commercial image
and individual image all together. Along with the unceasing emerging and
promotion of new vehicle types in the market, Audi is also unceasingly promoting
the perfect technology, sales service and the quality. Meanwhile they have
recognized the need to seek out new market segments and to differentiate their
products and services to better meet customer needs.
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Audi A6 has the obvious superiority in the technology such as power, the steering
system, warm controls system, inner decoration as well as the surface of
carrosserie, from the degree of satisfaction, the level of after-sale service average
of the upscale passenger vehicle is lower than the sale, the quality and the
performance. In the past the upscale vehicle users much emphasized on the
motor and the braking system but now they pay more attention on the
development of the inner decoration and the outlook of the body of cars. The
company has recognized this relevant element and made more effort on this.
Along with unceasingly emerging and improving of new vehicle models, Audi is
also constantly improving its sales services and the performance of quality. The
upscale vehicle after-sale competition includes a much more broad scope, such as
from processes to the service suit to regularly reminding of the maintenance,
Because of multitudinous competition of services enterprise, the entire vehicle
dealer must provide the systematic and standard service to guarantee the stability
of after-sale service market. Relying on the quality and reliability of German goods,
the company has a key source of competitive advantage comparing with the
Chinese traditional market. Equipped with advanced technologies, the new
company is expected to produce 180,000 gearboxes annually, rising to 300,000 by
the year 2005 (“Xinhua”, 2003).
Audi is successful in its marketing strategy in which the technology leading

position and high quality play a crucial role. “High technology, high quality, high
level of comfort” is the best explain for Audi brand. The experience of these years
proved the successful road of FAW-VW. Guided by the market the company
achieves the targets of superior quality - technology leadership - management
innovation - market orientation, in 1991 FAW-Volkswagen was named as
"Enterprise with advanced Technology" by the Ministry of Foreign Economy and
Trade. In 1995, the Company won the award of "Well - Known and Superior
Quality Enterprise in China's Automobile Industry" given by the National Statistics
Bureau. At present, FAW-VW offers a wide range of more than 50 different models
in their Jetta and AUDI series. Thus, FAW-Volkswagen is the only car
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manufacturer in China who produces a medium-class and a luxurious-class sedan

(2001).
Along with the increase of individual consumption community, except the

technology leading role of the marketing strategy of Audi, it has changed the target
segment from the past government vehicle to the successful public figure's fashion,
it has both satisfied the government official's successful image, and also has
obtained the competitive advantage, through a series of public relations activities
and the event marketing, Audi became the named vehicle of the honored guests at
that time the BOAO Forum for Asia and the World Economic Forum 2002, China
Enterprise Summit Meeting. Differentiating from the pattern of other vehicle types
of VW which establishes the large-scale sale, Audi establishes the 4S Audi brand
monopoly shop which collects together with car sales, service, the spare parts
supply, the information feedback of several dozens dealers, to realize the function
of the multi-function integration, the unification image, directly facing end user sale.
6.3.3.2 The Marketing Strategy of Buick

The strategy of General Motors Corporation is at first to form the good brand
image of enterprise among consumers, and along with the development of
enterprise gradually promotes Buick mother brand and sub brand products.
Shanghai GM participates to localize the brand through overall market public
relations. The new positioning of the Buick brand has reflected that GM made a
deep consideration to the Chinese culture, the name of the model originally calls
Buick Regal in North America, but in China it is positioned fitting the Chinese
society characteristic, Shanghai GM uses Regal (Junwei) as major model to
launch the market, through a series of media and the advertisements propaganda,
it has made a successful model impression to the consumers. In addition,
Shanghai GM has succeeded in introducing two services brands: the first one is
“Buick Care”, Shanghai GM requires the dealers to pledge that they must be sure
to provide 24 hours star classes services to the owners of Buick, each year
owners return to the factory to service their cars as well as a series of services
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standard, for example, providing special consultant service, and making the price
transparent. Another one is “Used car replacement, the service brand of
identification, and sales service”, this introduced brand has made Buick provide
standardized and the convenience service in the after-sales service, the idea of
customer orientation service obviously distinguished between other automobiles
services. Meanwhile, the customers gain the experience to know the brand in the
dealing with the dealers, from a personal experience to one kind of reliable
memory; finally customers will form the glorious expectation.
As a product brand Buick supports mutually with the Shanghai GM to realize the
most optimization between the resources investment and the effect of marketing.
The sales system of Shanghai GM makes the customer as the center, meanwhile
through providing the marketing network for the customers ordering service
reduces the factory and dealer's stock pressure, in addition through the using of
the integrated marketing of Buick, Shanghai GM carrier on a series activities, such
as effective marketing channel management, training, product promotion as well
as enterprise image configuring. After-sale service is so important to GM that 80
percent of Shanghai GM's more than 250 Buick dealerships are small stores
mainly devoted to quick service, though they also sell cars. General Motors' early
investment in dealer training is paying off. Sales at Shanghai GM rose 35 percent
in the first 10 months of 2004, to 210,033 units. The overall market grew only 1
percent compared with the first 10 months of 2003, according to Automotive
Resources Asia, a Shanghai-based consulting firm. (http://www.shanghaigm.com)
Shanghai GM has pioneered a one-tier distribution system and a unified pricing
strategy nationwide to guarantee value for its customers. In the aspect of customer
management system Shanghai GM established the very well equipped after-sale
service and information feedback system, and is evaluated in 2002 one of the top-
ten CRM implementation enterprises, in this market, friendly dealerships and after-
sales service are a new competitive advantage. In addition, Shanghai GM also
made the promotion through the car culture. With its customer focus philosophy,
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Shanghai GM has led the Chinese automotive industry in the introduction of new
products.
In the market public relations aspect, GM makes effectively media report for some
activities for example, a contract signing with the government. Its media controlling
force and the fast reaction has successfully created the Buick positive image, on
the media, there is few negative report about Buick. In the social activity aspect,
Shanghai GM creates similarly a kind of symbol of spirit; it supports actively social
welfare activity such as the nationwide sports and the education activity of some
famous colleges. Furthermore, Shanghai GM in 2000 signed an agreement with
Beijing 2008 Olympic Games Bid Committee and became the unique automobile
sponsor. GM's mission in China is to leverage the company's extensive global
resources to provide transportation products and services that deliver the best
combination of technology and customer care innovation.
6.3.3.3 The Marketing Strategy of Toyota

Toyota enters Chinese market only with a short time but by means of the
integration with the Chinese enterprises such as FAW (First Auto Works) and
GAW (Guangzhou Automobile Works), Toyota provides multi-function and unified
service in order to promote its brand construction. Its strategy now is to try to get
closer to mainland markets through local production so that it can compete more
effectively against rivals in the high-end segment of the car market. The massive
spare parts production in China has brought the low cost competitive advantage
for Toyota. "Toyota's strategy is pretty obvious," said Michael Dunne, president of
Automotive Resources Asia, a market consulting company in Bangkok, Thailand,
with offices in Beijing. By continuing the old Xiali, a joint venture with Tianjin
Automobile Xiali Corp., Toyota keeps a low-end model for price-sensitive buyers. It
has been a good seller, racking up sales of about 100,000 in 1999 and heading for
about the same level this year. China's total passenger car market is about
500,000(Treece, 2000). As Toyota first entered China through its spare parts
enterprises, the domestically producing rate of the complete cars which are
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produced in Tianjin already achieves 62%. In the channel management through

the cooperation with the First Automobile Works has made the Toyota products
operate with a lower cost. To cope with China's emergence as an economic
superpower, Toyota must cut manufacturing and tooling costs in half within three
years. Toyota is looking to trim fat from its raw materials and machining costs,
particularly in power train manufacturing. New technology and production
machinery will be required, says Kosuke Shiramizu, executive vice president--
Manufacturing and Quality Management (“Ward's Auto World”, 2002). Toyota has
quickly enlarged its market share of new models through the national widespread
sales and service system of FAW. Besides the traditional marketing methods,
Toyota has successfully carried on the virtual value chain to promote VIOS to
customer.
6.3.3.4 Summary of the Three Companies’ Chinese Market Strategies

After joining WTO the worldwide automobile industry groups quicken their steps or
are making the preparation to enter into the Chinese market. Facing with the
strong international competitors Chinese automobile enterprises are also speeding
up the new models development, launching products with competitive prices. From
the international angle, the foreign automobile groups hold the unique superiority,
their multitudinous product brands and respective sub- brands also gradually will
enter into the Chinese market, for example the Ford group's Jaguar, Landover, the
DaimlerChrysler group’s Dodge, Smart and Chrysler. The following is the summary
about the successful experiences of the three big joint venture automobile
companies in China.
The German Volkswagen AG has successfully introduced the vehicle types with
mature technology like Santana and Jetta. In its two decades development, VW
has established the abundant product brand and the enterprise brand. In addition,
VW proceeded to establish its own after sales service system to offer the
customers full-scale and on-time service and made a closer relationship between
its brand and the local consumers, transiting further to social brand.
65
The General Motors's strategy is firstly to form the good enterprise brand image in
the consumers, along with enterprise's development promoted gradually the Buick
mother brand and the sub- brand products. Through the comprehensive public
relations activity Shanghai GM participated to the construction of the localized
brand. The GM’s superiority lies in that it has the widespread product series and
the potential to introduce the product, at the same time the company also pays
more attention to change the consumers’ impression that the US originally
produced vehicles consume a lot of oil.
As a later entering and fully reinforced company, the Toyota Motor Corporation’s
marketing strategy is to launch the comprehensive market offensive with its low
class cars through the joint ventures with the northern and southern two big
automobiles groups, Toyota reduces its distance with the Chinese society by early
entering the Chinese automobile spare part enterprises. Furthermore, as the first
and the best Japanese enterprise which has successfully launched the American
market, Toyota becomes the strategic representative which merges its unique
enterprise culture into the local society.
Through the analysis of value chain and the value chain extended views it
provides more possibilities and more proposes for the companies those which
have marketed internationally and which are going to enter into the international
market. Each company has its own status, it may have advantage in upstream or
in downstream of the value chain. The companies are able to better understand
their advantage or disadvantage by analyzing the value chain. Meanwhile, under
the help of the extended value chain views make it also possible that the
companies can carry on their marketing strategies accordingly. Whereas now in
this rapidly changing economic world, no companies are independent, no
marketing strategy is unique, and there is no absolute advantage in upstream or
downstream of the value chain, they are relative. From the extended views about
value chain and from many literatures we have seen this change that the
international marketing strategies are becoming more collaborative. A company
66
usually has a key marketing strategy which is supported by other important

elements and gives play to strong points together in the global market like. The
above discussed three companies although are all well-known MNCs, they have
respective decision by making the choice of the international marketing strategy.
7. Conclusion
From the above discussion we can see that value chain analysis can be used as a
strategy-making tool in a lot of different ways. Most normally, companies can use it
to understand the competitive status and marketing changes. Through the value
chain analysis companies are able to identify the various kinds of markets and
consumers, the core competence within the value chain, as well as fully use of
resources. The way of value chain analysis also can be used to develop strategies
both widely and partially so as to gain more competitive advantage. According to
INDUSTRY WEEK's Value-Chain Survey, with research conducted in association
with Ernst & Young, an indication of the need for strategy can be found among
respondents who participate in excellent or very good chains: 68% say they have a
value-chain strategy, and 64% say the strategy is highly effective. Just 14% of
respondents in poor chains have a strategy, and none reported it as highly
effective. The use of value chain analysis implements the strategic management of
a company. It is a framework to be able to offer a lot of benefits to the
management of companies, through the analysis, the manager can understand in
which link the company has competitive advantage and disadvantage.
Global competition is now a fact of economic life for the industrialized nations as
well as for most of the developing economies, and the company’s value chain is
also changing, it becomes merged with those of other value chain members and
tries to create and provide special value to the customer. In "From Value Chain to
Value Constellation: Designing Interactive Strategy" (July-August 1993), Richard
Normann and Rafael Ramirez point out that successful companies increasingly do
not just add value, they reinvent it. The key strategic task is to reconfigure roles
and relationships among a constellation of actors--suppliers, business partners,
67
and customers--in order to mobilize the creation of value in new forms and by new
players. And their basic strategic aim is to “create an ever-improving fit between
competencies and customers”. An example, in the marketing strategy, P & G
China introduced a fully new value chain in which the media and the agent
company act the important role. The media is more active than before. It uses the
CCTV as the medium representative to build the brand, to make the innovation
and finally to realize the brand improving. All the marketing that P & G has
performed is to catch the information that the consumers need, all the
communications the company has made in many channels is to transfer to
consumers. (http://www.quanso.net/zx/200502/1549z28376.aspx)
The choice of the marketing strategy has always involved an inter-firm way, but
now the firms need to use not only an inter-firm approach but also and an external
firm perspective including the end consumer, the suppliers, the distributors, the
retailers and even competitors, all these people may have an impact in this large
market. Thus by means of value chain analysis and the extended value chain
concept we can understand how to make a choice in the marketing strategy and to
meet the challenge the fast changing economic environment.
68
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76
EHRENWÖRTLICHE ERKLÄRUNG
Ich erkläre hiermit eherenwörtlich:
1. dass ich meine Masterarbeit selbständig und ohne fremde Hilfe angefertigt
habe
2. dass ich die Übernahme wörtlicher Zitate aus der Literatur sowie diie
Vervendung der gedanken anderer Autoren an den entsprechenden Stellen
innerhalb der Arbeit gekennzeichnet habe.
Ich bin mir bewusst, daß eine falsche Erklärung rechtigliche Folofen haben wird.
Nürtingen, ( Datum) (Unterschrift)

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Using Value Chain Analysis to Make a Choice of

International Marketing Strategy

approved and supervises by

Dipl. Kfm. Alfred Merz

University of Applied Science

Winter term 2004/2005

Table of Content .....................................................................................................I

5. Value Chain Application in International Marketing Strategy......................28

BEMs Big Emerging Market

Figure 2-1. The Generic Value Chain………………………………………………. ..6

1.2 The Motive of Study

1.3 The Way of Study

2. The Value Chain Concept

flow of activities performed to provide products or services to customers. These

2.2 Definitions of Value Chain

2.3 The Components of Value Chain

These activities can be classified generally as either primary or support activities

2.3.1 Primary Activities

Any or all of these primary activities may be vital in developing a competitive

2.3.2 Support Activities

2.4 The Role of Value Chain

3. Value Chain Analysis

3.2 Cost Analysis of the Value Chain

3.2.1 Cost Drivers of each Value Activity

3.2.2 Structural and Executional Cost Drivers

3.3 The Strategic Frameworks for Value Chain Analysis

3.3.1 The Company’s Internal Value Chain

3.3.2 The Industry Value Chain

3.4 The Value System

Figure3-1: The Value System

3.5 Buyers Value Chain Analysis

3.6 Interactions between Value Chains

SUPPLIE SUB 2 BUYER

VERTICAL LINKAGE INTERNAL LINKAGE

Figure 3-2. Linkages and Interrelationship

3.6.1 The Horizontal Linkage

3.6.2 The Vertical Linkage

4. Value Chain Analysis and Competitive Advantage

Competitive advantage is made up of discrete activities that firms perform such as

4.1.1 Two Generic Strategies

There is an important element to achieve competitive advantage is the competitive

4.2 Determining the Strategic Links of Value Chain Activities

4.3 The Competitive Advantage of Primary Activities in Value Chain

4.3.1 The Customer Focused Value Chain

focus became more a reality rather than an ideology. By organizing around

4.3.2 The Supplier Value in Value Chain

competitive. Companies purchase more components and services from suppliers

For example, Japanese automobile companies are successful in building the

4.4 The Competitive Advantage of Support Activities in Value Chain

4.4.1 The Core Competence of Value Chain

superior profitability. Once created, core competencies cannot be simple

4.4.2 Technology Leadership

$26.8 million in new visualization centers’ (Carmona, 2004). German auto

4.4.3 Human Resource Management

5. Value Chain Application in International Marketing Strategy

5.2 Conceptual Views about Marketing

5.3 International Marketing Strategy

“International marketing makes a solid effort in addressing the environmental,

homogeneous across nations, another is the conditions under which international

5.3.1 Global Marketing Strategy

Because of improved and developed transportation and communication systems

5.3.1.1 The Standardization of International Marketing Strategy