The gap is an international retail enterprise with over 500 stores launched across the globe. Although the brand is well known among potential consumers, the company failed to achieve the expected success in both domestic and international markets during 1998-2001. The organization encountered significant declines in sales and a decrease in the overall profit. The strategies implemented by Gap did not help it to increase competitiveness, while such retailers as Uniqlo in Japan offered similar products that effectively substituted Gap clothing and were more demanded by the local consumers.
Case Analysis: Identified Difficulties
The significant Gap’s difficulties were interrelated with the failure to customize merchandise according to the preferences of the local consumers. It means that the company failed to develop an adequate localization strategy when entering new markets and, as a result, could not manage to predict customer needs and interests and apply the analysis results for strengthening its competitive position.
In Japan, Gap wrote information on clothing tags in English and maintained employee compliance with the business principles and corporate values adopted in the U.S. stores. However, the cultural elements of organizational performance, e.g., instruments and methods for building customer-employee relationships, which are appropriate for the domestic market, may not be suitable for other cultures and may provoke a reverse outcome in the efforts aimed at the customer attraction increase.
It is observed that when entering a culturally distant market, a company needs to adapt its strategy to improve the effectiveness of operations (Ramos, 2012). At the same time, a preliminary environmental analysis allows the obtainment of valuable information and data which can be used to address customer needs throughout the stages of product development and advertising more effectively. The external cultural analysis inherent in the adaptation strategy can also be useful for the selection of an appropriate product positioning and pricing.
When Uniqlo sells jackets for $25, it is inadequate to set a twofold price for a similar product, and Gap thus needs to consider other pricing options associated with greater flexibility. Hence, the lack of strategic adaptation, neglect of beneficial effects of a thorough environmental analysis, inefficient knowledge management, absence of cultural readjustment, as well as the blind devotion to the standards adopted in the U.S. stores create barriers to the achievement of Gap’s success.
For the improvement of its position in the international market, Gap needs to develop broad outside and inside perspectives. Since cultural readjustment is essential to the effectiveness of internal and external organizational activities, the company’s leadership needs to be capable of perceiving the cultural differences of a host country and adjust the operations to these differences.
The researchers observe that organizations need to consider three critical factors influencing the success in the international market: “market orientation,” “entrepreneurial orientation,” and “learning orientation” (Gnizy, Baker, & Grinstein, 2014, p. 478). The analysis of these factors can facilitate the development of a strategic approach towards efficient integration into the market. The market orientation implies the outside perspective – Gap needs to evaluate the external environment to make the successful decisions regarding segmentation, positioning, and pricing, elaboration of the effective supply chain management, interaction with the local stakeholders, etc. (Gnizy et al., 2014).
The entrepreneurial orientation relates to the management of different internal organizational functions such as production, IT integration, allocation of resources, and development of employee communication (Gnizy et al., 2014). When implementing the domestic principles and standards of business conduct in other countries, Gap should recognize the importance of the local working conditions and readjust the organizational culture to the norms and cultural peculiarities of a hosting state.
The learning orientation is primarily associated with knowledge management, including the accumulation of information related to the internal and external environments, its storage, and sharing across the organization. The informational flow and knowledge management are regarded as key elements in the integration of different internationalization strategies (Wang & Suh, 2009). An efficient knowledge management strategy ensures the cohesion among distinct organizational departments, facilitates the coordination of separate cross-sectional activities and procedures and supports the development of the corporate culture and integration of new values.
Justification and Predicted Outcome
“Using an adaptation strategy can enable the company to get higher revenue by convincing more customers who usually have a different need from the company’s home market’s consumers” (Ramos, 2012, p. 6). As it is mentioned in the case study, customization of services and products creates significant benefits for the international companies operating in different regions. For instance, Wal-Mart’s decision to sell mooncakes during the New Year holidays in China allows the U.S. enterprise to attract more potential customers by recognizing their needs, traditions, and preferences.
In this way, the company makes its services more appealing to the targeted audience and promotes brand awareness more efficiently. Similarly, by implementing an adaptation strategy, Gap will manage to customize its merchandise according to the identified consumer needs and avoid the mistakes in experimenting with product designs such as when it had introduced the Japanese punk fashions in the U.S. stores and failed to catch the interest of the American consumers.
When entering new markets, companies pursue various benefits such as access to new customer groups, increase in exploitation of organizational core competencies, decrease and spread of financial risks, and achievement of cost-efficiency. However, it is essential to pay attention to the situation in the hosting cultural, political, legal, and economic environments to understand the actions of local competitors, increase own competitiveness, and, in this way, attain “privileged access to customers or suppliers” (Greenwald & Kahn, 2005, par. 1).
The examination of a hosting culture and peculiarities of business conduct in a region may be considered the primary premise for strategic efficiency. “The more local a company’s strategies are, the better the execution tends to be” (Greenwald & Kahn, 2005, par. 8). Even in the context of globalization, the demands, needs, tastes, and styles of business conduct vary from one country to another. Thus, the consideration of local culture is vital for the development of right localized strategic objectives, efficient integration of products or services into unfamiliar markets, and the attraction of local business partners and customers.
The success of the internationalization process depends on the development of appropriate strategic goals and the consequent understanding of organizational strengths and weaknesses. The strategies employed by Gap throughout 1998-2001 interfered with business sustainability and profitability increase in the regional markets. The overview of Gap’s difficulties makes it clear that a transformation of a strategic approach should be made.
Product and service customization, strategic adaptation to cultural peculiarities, and interests of the local customers may help the company to overcome the financial challenges, facilitate customer attraction, and develop the organizational culture in a way to improve the overall business performance in a region. Moreover, it is possible to say that the localization of business strategy is the basis for the successful entry into culturally distant markets, attainment of business stability, and strengthening of competitive position in the global economy.
Gnizy, I., Baker, W., & Grinstein, A. (2014). Proactive learning culture: A dynamic capability and critical success factor for SMEs entering foreign markets. International Marketing Review, 31(5), 477-505.
Greenwald, B. & Kahn, J. (2005). All strategy is local. Harvard Business Review. Web.
Ramos, M. (2012). Internalization strategy: Between adaptation and standardization. Web.
Wang, Y., & Suh, C. (2009). Towards a re-conceptualization of firm internationalization: Heterogeneous process, subsidiary roles, and knowledge flow. Journal of International Management, 15(4), 447–459.