Opinion

The perils and pitfalls of globalisation

farmerAgencies jumped on the globalisation bandwagon unaware of the disruption it could cause them, writes Michael Farmer

The globalisation bandwagon has been a busy place for the past few decades, ever since Theodore Levitt of Harvard Business School popularised the issue in a famous 1983 article in The Harvard Business Review. “The world’s needs and desires have been irrevocably homogenised,” he wrote. “The global competigtor [must] seek constantly to standardise its offering everywhere.”

Globalisation meant that big brands, sold all over the world, should seek to ‘standardise’ their positioning and messaging. An American Express Gold Card should mean the same thing around the world. So should a Ford Focus or (who knows?) a Big Mac. Handled successfully, globalisation could strengthen brands… or lead to their demise if local markets reject the global marketing.

Ad agencies – who were quick to claim globalisation expertise – rose or fell with global brand success. What they did not envision was the degree to which globalisation could disrupt their operations, undermine their morale and depress their profitability.

A case example – disguised but true – illustrates the case.

In 2010, an Asian car company (‘AsiaCarCo’) with manufacturing operations in its home country, the US and Europe decided to globalise the marketing of its car brands. Up to this point, individual car brands had each been marketed ‘locally’. According to its new global CMO, Guido Mannino, an Italian national, “our product line is an absolute pig’s breakfast of brand names that mean something different in every country. Pricing, positioning, and competitive performance are all over the map. We need to sort this out. We will develop and conduct our global marketing operations from a new marketing centre in Singapore.”

AsiaCarCo worked with a single global creative ad agency, ‘GlobalLocal Advertising Agency (GLA)’, headquartered in New York City, with local agency offices in 57 countries in the world. GLA handled the AsiaCarCo account on a decentralised basis, with regional fee budgets based on regional agency headcount and costs for North America, the UK, Europe/Russia, Latin America and Asia-Pacific. There was no overall GLA client head for the account.

Mannino flew to New York to discuss his globalisation strategy with Nigel Heathcliff, the CEO of GLA. “I want GLA to establish a creative center in Singapore, under a global client head, where we will create global strategies and creative content for our various car brands around the world. Your local offices will take this content and adapt it for their needs. We will pay you a single global fee for your operations; you can distribute the fees around your network as appropriate. We will retain some local marketing budgets by country, of course, but the bulk of your remuneration will come from the global budget.”

Heathcliff quickly agreed, seeing this as an opportunity to solidify GLA’s relationship with AsiaCarCo. He appointed Jerome Moore, a British GLA executive, as the AsiaCarCo global client head, and after a number of meetings between Moore and Mannino (“Moore is the right man for the job,” Mannino affirmed), Moore moved to Singapore and began hiring to establish a global office for GLA.

Costs for this office approached $6 million per year. Mannino contributed $2 million for the first year, telling Moore that he should finance the remaining $4 million out of the savings to be achieved from GLA agency offices around the world. GLA offices would be creating adaptations rather than originations, and this would lead to significant agency headcount reductions in North America, Latin America, the UK, Europe, Asia-Pacific and China.

To carry out the globalisation program, Mannino needed to inform his local marketing country operations about the new strategy, and to direct them to adapt GLA originations from Singapore rather than develop originations on their own. He also had to direct them to cut their local agency fee budgets significantly. This was tricky, since he did not really have marketing authority over the individual countries.

Jerome Moore, at GLA, needed to inform the local GLA country agencies about the new policy, and to determine how much their budgets could be cut so he could submit a single invoice to Mannino for the global Scopes of Work (SOWs). To do this, he needed to find out what the country SOWs had been under the ‘local marketing policy’, and what they would be under globalisation. This was tricky for Moore, since he had no organisational authority over the operations of individual office operations, and he had no independent information about the local SOW for AsiaCarCo.

The outcome was a predictable disaster. The local AsiaCarCo marketing organisations refused to participate in the globalisation program, rejecting the originations developed under Mannino’s authority by GLA in Singapore. The local GLA agencies happily participated in this mutiny, retaining their local fee budgets. Moore and GLA Singapore were stuck with the additional globalisation costs of $4 to $6 million per year. The AsiaCarCo client became significantly unprofitable for GLA.

The organisational conflicts fostered by the mutiny consumed the participants for two years. Mannino resigned from his AsiaCarCo post to take a ‘better job’ in Europe. His CMO successor fired GLA and brought in a new global agency. Jeremy Moore left GLA with a black mark against his name; he was perceived to have failed at globalisation.

Globalisation, as we can see, involves more than a shifting of creative work from local offices to a global centre. Importantly, it requires a shift in power, from local CMOs to a global CMO, and from local agency client heads to a global agency client head. This shift requires CEO and CFO involvement at agency and client – globalisation is a corporate, not just a marketing strategy.

Marketing Guru Ted Levitt chided advertisers for lacking the imagination and nerve to globalise at a faster rate. What he left unsaid was the nature of the associated organisational challenges.

Michael Farmer is chairman and CEO of Farmer & Company LLC, and author of the award-winning book Madison Avenue Manslaughter: an inside view of fee-cutting clients, profit-hungry owners and declining ad agencies

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