Because the Internet has no borders, it is widely viewed as a symbol of globalization. For example, the Net enables a book manufacturer in Arkansas to sell his products in a small village in Spain with just a simple click of a mouse. However, before that book arrives at its destination, it must overcome several traditional obstacles that make the Internet vulnerable. Consumer tastes, language differences, prices and distribution costs limit the global character of the Net, and force companies to develop strategies for each foreign market.
Consider Yahoo!, for example. It operates 22 different portals in 13 different languages, all targeted at different users in various countries. “After all is said and done, the Internet doesn’t seem that global. Moreover, in some companies, such as ChateauOnline, which sell wine online, the magic of the Internet is that products can be ordered to meet specialized, even individualized needs,” notes Wharton management professor Mauro Guillén in an article entitled “What is the best global strategy for the Internet?”
Guillén analyzes the limitations companies must overcome in order to become truly international in the new economy. Contrary to appearances, doing business on the Net is not as simple as clicking a mouse several times. In each country, local laws and consumer habits have an impact, along with the penetration levels of new technology, demographics, national currencies, and product quality. All these factors determine success and failure for electronic-commerce companies.
Moreover, companies need to realize that becoming global is no guarantee of success; they must also be sensitive to local factors. “Being sensitive to local conditions can contribute to achieving sustainable profitability for certain types of goods or services in certain markets on the Internet,” notes Guillén. For example, he says, Yahoo!, e-Bay and Amazon have all adapted their product supply to the peculiarities of various foreign countries.
Distance Remains a Reality
One of the first myths Guillén destroys is the belief that distance does not exist on the Internet. Although the world has clearly shrunk through globalization, Guillén says distance continues to be measured in miles and kilometers. As Mike Comstock, DHL’s manager of planning and e-commerce, once said, “A CD that costs $27 could wind up costing $200 by the time it arrives at some [remote] destinations.”
“It is hard to overstate the need for cost-effective logistics when it comes to distribution of international orders of tangible goods,” warns Guillén. “Moreover, the treatment and restocking of returned goods can become a nightmare, especially if you take into account differences in national regulations and consumer preferences about policies for returning products.” One statistic that stands out in his study: Only 46% of all direct marketing companies that sell online engage in international transactions, according to the Direct Marketing Association.
This implies a serious threat for U.S. companies. If the Internet grows more rapidly in the rest of the world, U.S. companies that do not have what it takes to sell outside their local markets could drop to second-class status.
Moreover, those companies that do not understand differences in infrastructure will not compete in the major leagues of e-commerce. Guillén notes three kinds of fundamental differences in infrastructure: The first difference involves installed international bandwidth, which establishes limits to the speed of data flow. To overcome this barrier, he recommends redesigning web pages so people can download them more rapidly. Companies can also redesign pages and cut down the number of clicks users must make in order to buy online.
Another barrier involves the percentage of users who can access the Internet through computers, televisions or mobile telephones. “In some countries, such as Argentina, less than 20% of all homes have a computer, but more than 50% have cable television. In some countries in Europe and Latin America, there are more mobile phones than fixed lines. Every global Internet strategy must consider these differences,” notes Guillén.
A third factor is the cost of using the Net. In some countries, there is no system of flat fees for web access. That makes it more expensive for people to buy online or simply go surfing. “Local access costs affect the growth potential in a market, and they reveal if companies need to segment a market to become more efficient and profitable there.”
Although English is considered the language of business, many companies lose opportunities by using only English online. As Guillén notes, “Too many e-commerce companies ignore the golden rule of marketing: You must use your customer’s language if you want to sell to him.” Several studies show that more than 80% of all web pages in the United States are only in English.
First, the language barrier limits users’ interest in entering any specific portal. Second, it limits users’ ability to learn in depth about product characteristics, purchasing conditions, and everything else about buying online. A key to the success of companies like Yahoo!, Lycos, Amazon and Dell is that they have created web pages in the local languages of several countries.
For example, computer manufacturer Dell has translated its web sites into dozens of languages. As a result, 20% of its entire sales now come from third-world countries. Guillén believes that percentage will continue to rise.
Beyond adapting pages to each foreign country, Guillén recommends that companies create a page that summarizes their entire site. He also suggests that companies translate that page into several languages and register it on search engines and in local directories. That is a key to overcoming the language barrier when people search online. Another worthwhile option is “to use images and icons instead of words as navigational tools.” However, he emphasizes, “Colors have different connotations in different cultures.”
Just as critically, tastes vary from country to country – especially when there is a cultural connotation, as in food, wine or entertainment. Some portal sites have shot ahead of the competition by embracing cultural diversity. Terra, the Spanish portal, has separate web pages with separate electronic stores in 16 different countries. “The managers for each country are responsible for selecting merchandise and making special offers,” explains Guillén in his article.
Moreover, different countries have different purchasing habits. In the United States, the culture of catalog sales is very well established. That makes it easier for people to move into buying online. However, in countries like Spain, this approach has not had much success. On top of that, it is very hard to standardize sales tied to specific events such as Mother’s Day or St. Valentine’s Day, which are not celebrated in every country, or are celebrated on different dates. Ultimately, sensitivity about pricing varies from one region to another. That forces many companies to adopt a policy of fixing different prices in each country.
This landscape becomes even more complicated if you consider that payment methods and habits vary from country to country. “It’s rare for the majority of adults in a country to have a credit card,” notes Guillén. “Usually, more than 75% of the adult population does not have a card. Moreover, in many countries even those people who have a card are reluctant to use it online because of security reasons.”
7-Eleven, the 24-hour store chain, realized that in Japan barely 10% of all electronic commerce payments were done by credit card. Therefore, the company decided to offer people the option of collecting money and paying bills online, in any of the chain’s 8,000 outlets. “This project, known as 7dream.com, could easily become the dominant buying and selling infrastructure for electronic commerce in Japan,” notes Guillén.
Men and Women, Town and Country
Although the Internet is on a mission to reach the entire world, most of the world’s population still does not have access to the Net. The problem is even more serious if you consider that in most Latin American countries only 10% of all users are women. When all is said and done, women make most decisions about consumer purchasing. In the United States and Europe, 50% of all Net users are women.
“Companies that sell health-related products or services should find it hard to expand their online sales in those countries where few women navigate the Net,” notes Guillén. He warns, moreover, of the differences between Net penetration levels in metropolitan areas and in the countryside. In some countries, most of the population is concentrated in metropolitan areas. This simplifies logistics and distribution. In other countries, however, a significant percentage of people live in rural areas.
What is the best strategy for overcoming these obstacles? “Understand the relative importance of being more sensitive to the local environment, and global integration then becomes a part of the international success strategy of any company, including Internet companies,” stresses Guillén. Nevertheless, he distinguishes two different degrees of local sensitivity.
Those products whose features consumers can easily examine require a higher awareness of local peculiarities. When it comes to goods and services people can see and touch (such as clothing, shoes, collectors’ items or used cars), Guillén recommends that companies implement different strategies for each country. In such a case, pursuing a strong dose of global integration is not necessary.