The Devolution of the Marketing Function in South African Multinational Companies to their Subsidiaries within Africa Craig O’Flaherty MBA Full-Time 2015 A research paper submitted to the Graduate School of Business, University of Cape Town, South Africa in partial fulfilment of the requirements for the Masters of Business Administration degree 09 December 2015 Supervisor: John M. Luiz
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The Devolution of the Marketing
Function in South African Multinational
Companies to their Subsidiaries within
Africa
Craig O’Flaherty
MBA Full-Time 2015
A research paper submitted to the Graduate School of Business, University of
Cape Town, South Africa in partial fulfilment of the requirements for the Masters
of Business Administration degree
09 December 2015
Supervisor: John M. Luiz
ii
ABSTRACT
This research examines the way in which South African multinational companies
(MNCs) devolve the decision-making power of their marketing function to their various
subsidiaries in Africa. Qualitative research is conducted with senior marketing
executives from 15 MNCs across seven different business sectors. The research finds
that the centralisation of decision-making occurs when a business has a global brand or
corporate identity to protect, as well as when economies of scale and scope can be
achieved by attaining efficiencies gleaned from centralising procurement for the group.
Economies of scale are found as being a “by-product” of implementing global brands
and clustering countries within close geographic proximity to one another.
Decentralisation is found to occur when psychic distance is greater between the
headquarters (HQ) and its subsidiaries, as heterogenic market conditions make the
devolution of power to the subsidiary essential to survive and prosper. Furthermore, the
extent to which the devolution process takes place, is profoundly dependent on the
capacity and capability of the marketing resources, coupled with the existence of
institutional voids that are evident within subsidiary environments. The research
suggests that group marketing strategies should be set by HQs, and that strategies then
need to be devolved to subsidiaries, while providing guidelines from which they can
develop an execution strategy that is relevant to their market.
Keywords: marketing; devolution; multinational companies; Africa; South Africa
iii
DECLARATION
I, Craig O’Flaherty, declare that this research paper is my own work, except as indicated
in the references and acknowledgements. It is submitted in partial fulfilment of the
requirements for the Masters of Business Administration degree at the Graduate School
of Business, University of Cape Town. It has not been previously submitted for any
degree or examination in this, or in any other university.
1.1 PURPOSE OF THE STUDY .................................................................................. 11.2 CONTEXT OF THE STUDY ................................................................................. 11.3 RESEARCH QUESTION ..................................................................................... 21.4 SIGNIFICANCE OF THE STUDY .......................................................................... 21.5 LIMITATIONS OF THE STUDY ............................................................................ 31.6 ASSUMPTIONS ................................................................................................ 31.7 RESEARCH ETHICS ......................................................................................... 4
CHAPTER 2: LITERATURE REVIEW ............................................ 5
2.1 INTRODUCTION ............................................................................................. 52.2 THE STRUCTURE OF MNCS ............................................................................. 52.3 THE ROLE OF THE MARKETING FUNCTION WITHIN MNCS .................................. 82.4 ECONOMIES OF SCALE AND SCOPE ................................................................... 92.5 BRAND UNIFORMITY .................................................................................... 112.6 PSYCHIC DISTANCE ..................................................................................... 142.7 CONCLUSION .............................................................................................. 19
CHAPTER 3: RESEARCH METHODOLOGY ............................... 20
3.1 RESEARCH DESIGN ....................................................................................... 203.2 POPULATION AND SAMPLE ............................................................................ 21
3.2.1 POPULATION ......................................................................................................... 213.2.2 SAMPLE AND SAMPLING METHOD ............................................................................ 21
3.3 THE RESEARCH INSTRUMENT AND PROCEDURE FOR DATA COLLECTION ............. 213.4 DATA ANALYSIS AND INTERPRETATION .......................................................... 213.5 LIMITATIONS OF THE STUDY .......................................................................... 22
CHAPTER 4: RESEARCH FINDINGS, ANALYSIS, AND DISCUSSION .................................................................................. 25
4.1 INTRODUCTION ............................................................................................ 254.2 ECONOMIES OF SCALE AND SCOPE ................................................................. 254.3 BRAND UNIFORMITY .................................................................................... 304.4 PSYCHIC DISTANCE ...................................................................................... 354.5 CENTRALISATION VS. DECENTRALISATION ...................................................... 394.6 CONCLUSION ............................................................................................... 45
CHAPTER 5: RESEARCH CONCLUSIONS .................................. 47
5.1 INTRODUCTION ............................................................................................ 475.2 CONCLUSIONS OF THE STUDY ........................................................................ 475.3 RECOMMENDATIONS AND IMPLICATIONS ........................................................ 525.4 SUGGESTIONS FOR FURTHER RESEARCH .......................................................... 53
2009; Vrontis, 2003). To a lesser extent, economies of scope are also derived from a
logistical point of view, for example one of the interviewees mentioned that they could
achieve considerable cost savings by printing point of sale material in South Africa and
sending it to nearby neighbouring countries in the Southern African region. Harvey et
al. (2003) support this notion as they mention that cost advantages can be attained
through shared marketing, production, and logistical systems.
48
Proposition 2 argued that the centralisation of marketing strategy is apparent when
brand uniformity is imperative to an MNC. The research found that where the MNC has
global, Pan African, or regional brand/s in their portfolio, and/or when communicating
their corporate brand across a multitude of markets, they will centralise the marketing
strategy in order to ensure uniformity in brand communication. This supports Matanda
and Ewing (2012), as they stress that a centralised strategy is key to portraying and
managing the implementation of corporate and brand images across diverse customer
markets. In addition, it was confirmed that a degree of autonomy in the execution of
strategy is vital in order to ensure that the brand resonates within the bespoke market
conditions of subsidiaries. This is supported by Strizhakova and Coulter (2013), who
suggest adopting a “glocal” approach so that core brand positioning is within global
brand parameters, while also allowing for local refinement.
Proposition 3 referred to the relatively large psychic distance between the host country
of the HQ and the subsidiary as being a key reason why MNCs would decentralise their
marketing function. The research confirmed that no two markets are alike and that it is
therefore essential that a considerable portion of the strategic process is decentralised to
ensure that there is localised strategy in place to execute the overall group marketing
strategy in a manner that is relevant to their market conditions, and the resources at their
disposal. This supports the work of Vrontis et al. (2009), who argue that no one strategy
can be used to compete in multiple countries, due to diverse market conditions. The
interviewees, when referring to cultural nuances, confirmed that the fluid and volatile
nature of the political, economic, social, and technological landscapes, infer that a
decentralised structure has to be in place in order for subsidiaries to respond to ever-
changing market conditions in a timely and relevant manner. This argument is
supported by Ghemawat (2001), as he addresses the distance between countries with
specific regard to the cultural, administrative, geographic, and economic conditions, and
the need to decentralise decision-making to subsidiaries as a result.
Figures 1, 2, and 3 illustrate how the marketing function of South African MNCs is
devolved to their subsidiaries.
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Figure 1: Determinants of the centralisation of the marketing function in South
African MNCs
Figure 1 encapsulates the research findings with regards to what causes MNCs to
centralise their marketing strategy. The research suggested that there are three main
driving factors that contribute towards a centralised approach: pursuing economies of
scale and scope; achieving brand uniformity across multiple regions; and a lack of
marketing resources available in country in terms of capacity and capability, both within
the subsidiary, as well as externally, in the form of third party agencies.
Economies of scale and scope are achieved by clustering a number of markets to derive
efficiencies through various marketing activities, for example by assigning one media
agency to an East African cluster. Economies of scale are often achieved indirectly as
an outcome of brand uniformity, which is the second reason why MNCs choose to
centralise their marketing function. This is necessary when one needs to communicate
global, regional, or corporate branding across many countries on the continent, or globe.
In this case, singular brand messaging needs to be achieved through a centralised and
standardised approach. In light of the nature of today’s “global” customer, it is essential
that MNCs have consistency in the application of their messaging. The centralised
50
approach derives cost savings through the process of achieving uniformity. It was also
found that the marketing function is centralised in cases where there is a lack of
marketing resources from a capacity and capability point of view.
Figure 2: Determinants of the decentralisation of the marketing function in South
African MNCs
Figure 2 depicts the three main factors that cause MNCs to decentralise their marketing
function: the relatively large psychic distance between the HQ and a subsidiary; the
availability and competency of marketing resources within the subsidiary; and the
existence of institutional voids within African countries.
With regard to psychic distance, it emerged that each market has heterogenic conditions
in which they operate. The unique set of circumstances that each country faces with
regard to political, economic, social, and technological factors, and the volatility of
African markets, means that autonomy is needed within subsidiaries in order to function
appropriately.
The availability of sufficient and capable marketing resources within subsidiary
environments was another key factor in justifying a decentralised approach. The
51
availability and competency of resources includes having a marketing team that can
operate within subsidiaries, as well as having third party marketing agencies and
suppliers that can provide support that is in line with the MNC’s standards. Intervention
from HQ was found as not being necessary within these circumstances.
Institutional voids within subsidiary market environments was a clear underlying factor
as to why MNCs pursue a more decentralised approach. The interviewees implied that
Africa is particularly complex, as local environments face capacity, infrastructure, and
institutional issues. This is addressed by Khanna and Palepu (2010) and Luiz & Ruplal
(2013), where they warn that when doing business in Africa, one should be mindful of
the institutional voids that are existent, such as weak institutions, poor infrastructure,
and inconsistent government policies. As a result, one should be prepared to improvise
accordingly.
Figure 3: Marketing devolution framework
52
Figure 3 draws conclusions as to what the “ultimate” marketing devolution framework
should look like. It shows how marketing strategy should ideally be devolved from both
the HQ, as well as from subsidiary level. This is done in order to create a win-win
scenario, whereby both parties have the opportunity to give input as to the strategic
direction of the marketing plan. What is important to note is that the extent to which the
marketing function is devolved is dependent on the factors mentioned and depicted
above in figures 1 and 2. Once an agreement has been reached from a strategic planning
perspective in terms of the level of involvement of each party, the subsidiary can carry
out the execution of strategy within their market
5.3 Recommendations and Implications
The significance of this study is that it can help companies with regard to how they
should adjust their marketing strategies to lower income countries where there are high
levels of institutional voids and where there is a rapidly changing consumer income
profile. By highlighting and outlining the factors that determine when a centralised or
decentralised approach to marketing strategy should be considered, companies are able
to assess the situation that their subsidiaries find themselves in, and can therefore
choose an appropriate course of action.
Where factors favour a more decentralised approach, group marketing strategy should
be developed from the HQ and then handed over to the subsidiary, while maintaining
certain parameters, for example through the use of frameworks and/or templates. This is
in line with Mintzberg and Waters (1985) “process strategy”. This allows for a
considerable amount of autonomy for the subsidiary to develop a local execution
strategy that is relevant to their market conditions, in order to deliver on the group’s
goals. By having a significant amount of autonomy within the subsidiary, Freedman's
(2013) “fluid and flexible” approach to strategy can be adopted, and subsidiaries will be
able to react to sudden changes in market conditions, as well as to competitor threats.
A centralised approach should be considered when an MNC wishes to attain economies
of scale and scope as well as brand uniformity across multiple markets. A lack of in
country marketing resources, as far as capacity and capability is considered, will also
53
have a major influence over the degree to which the centralisation of decision-making
can occur. In these cases, the subsidiary would focus on the execution of strategy that
has been handed down to them from HQ. What is important to note here, is that even
though the strategy is developed from a central point, it is crucial that a large element of
this strategy is tailored to the market conditions in which the subsidiary finds itself. In
essence, thinking globally and acting locally is the key to success.
5.4 Suggestions for Further Research
The research was predominantly based on the devolution of marketing strategy within
the African context. It would be useful to extend this body of research to understand
how MNCs approach this in other emerging markets across the globe.
The research looked at devolution from a South African MNC perspective. Future
research could look at whether a different approach should be applied in Africa by that
of an industrial-originated organisation, and whether a South African MNC could have
a competitive edge over these non-African competitors, on the grounds that they may
have “home ground advantage.”
One could investigate how the budget for the marketing function is allocated and
distributed between the HQ and its subsidiaries, and determine what effect this may
have on the devolution process.
Finally, one could quantitatively measure what effect the subsidiary’s local market
capability, in terms of external third party and internal human resources, has on the
extent to which the devolution process takes place.
54
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APPENDIX A
Table 1: Profile of respondents and companies
Respondent Position of Respondent Company Company
Sector Subsidiaries in
Africa
1 Global
Marketing Director (HQ)
Major Banker #1
Banking and
Financial Services
Mauritius, Namibia & Botswana
2
Group Marketing - Projects &
Capabilities, Marketing for Rest of Africa
(HQ) Major
Banker #2
Banking and
Financial Services
Angola, Botswana, Democratic
Republic of Congo, Ghana, Kenya,
Lesotho, Malawi, Mauritius,
Mozambique, Namibia & Nigeria 3
Head of Marketing &
Corporate Affairs
(Subsidiary)
4 Global
Marketing Director (HQ) Major
Distiller Food and Beverage
Kenya, Tanzania, Zimbabwe, Mauritius, Namibia,
Botswana, Swaziland, Angola
& Ghana
5 Marketing Director
(Subsidiary)
6 Group
Commercial Director (HQ)
Major Commodity
Producer
Food and Beverage
Malawi, Zambia, Swaziland, Tanzania &
Mozambique
7 Marketing
Director Africa (HQ)
Major Brewer
Food and Beverage
Tanzania, Botswana,
Mauritius, Nigeria, Zimbabwe, Ghana,
Ethiopia, Mozambique,
Malawi, Kenya, Zambia, Nigeria, Lesotho, Uganda, South Sudan &
Swaziland
8 Marketing Director
(Subsidiary)
62
9
Business Executive:
Group Marketing &
Corporate Strategy (HQ)
Major FMCG
Producer
Food and Beverage
Kenya, Cameroon, Nigeria, Ethiopia &
Zimbabwe
10
Head of Communicatio
ns and Marketing Services -
Offshore (HQ)
Major Hotelier Hospitality
Tanzania, Kenya, Mozambique,
Nigeria, Seychelles & Zambia
11 Managing Director
(Subsidiary)
12 Regional
Marketing Manager (HQ) Major
Media Broadcaster
Media
Kenya, Ghana, Uganda, Nigeria,
Tanzania, Zambia, Namibia,
Mozambique & Botswana
13 Managing Director
(Subsidiary)
14 Group
Marketing Manager (HQ)
Major Outdoor Media
Provider
Media
Angola, Botswana, Lesotho,
Madagascar, Malawi, Mauritius,
Mozambique, Namibia,
Swaziland, Tanzania, Uganda,
Zambia & Zimbabwe
15 Marketing Manager
Africa (HQ)
Major Retailer #1 Retail
Botswana, Ghana, Lesotho, Malawi,
Mauritius, Mozambique,
Namibia, Nigeria, Swaziland,
Tanzania, Uganda, Zambia, Zimbabwe
& Kenya
16
Marketing & Business
Development Head of
Planning and Operations
(HQ)
Major Retailer #2 Retail
Botswana, Lesotho, Namibia,
Swaziland, Zambia,
Mozambique, Tanzania, Kenya, Uganda, Ghana &
Nigeria
63
17
Executive Head of Brand & Marketing
(HQ)
Major Telecommu
nications Company
Technology and
Telecommunications
Lesotho, Democratic
Republic of Congo, Tanzania &
Mozambique 18 Head of
Marketing (Subsidiary)
19 Head of
Marketing (HQ)
Major Airliner Transport
Angola, Benin, Botswana, Burundi,
Cameroon, Congo, Cote d’Ivoire, Democratic
Republic of Congo, Egypt, Ethiopia, Gabon, Ghana,
Kenya, Lesotho, Malawi, Mauritius,
Mozambique, Namibia, Nigeria,
Senegal, Swaziland,
Tanzania, Uganda, Zambia & Zimbabwe
20 Managing Director
(Subsidiary)
21 Marketing Director (HQ)
Major Retailer #3 Retail
Namibia, Botswana, Zambia,
Mozambique, Mauritius,
Swaziland, Lesotho & Zimbabwe
22
Head of Group Marketing &
Market Intelligence
(HQ)
Major Retailer #4 Retail
Namibia, Botswana, Zambia, Lesotho, Swaziland
& Nigeria; has plans to open
outlets in Ghana, Angola &
Mozambique
23
Managing Director
(anchor bottler - Tanzania)
TheCoca-Cola
Company
Food and Beverage
Namibia, Mozambique,
Zambia, Botswana, Nigeria, Kenya,
Tanzania, Uganda & Egypt
64
APPENDIX B
Interview Schedule
HQ
1) Briefly describe your current role at your organisation.
2) What components of the company’s marketing strategy are devolved from HQ to
your subsidiaries and what informs this decision?
3) What would you consider to be the strategic versus functional aspects of marketing?
Which of these lend themselves more to decentralisation versus a centralisation
approach?
4) How are marketing strategies communicated between HQ and your subsidiaries?
5) Who is involved in the development and implementation of marketing strategies?
6) How, if at all, does your organisation attempt to balance centralised coordination of
marketing strategies with in country implementation? Are marketing strategies
standardised (globally) or adapted (locally) to suit each market? If so, how well is
this working?
7) Can you give me examples of where the centralised marketing approach has worked
better for you? Can you give me examples of where the decentralised marketing
approach has worked better for you? How is this incorporated into the overall
marketing strategy?
8) Would you adopt the same marketing devolution strategy with a subsidiary
outside of Africa versus in Africa? Why or why not?
9) What emphasis does your business place on attaining economies of scale and
scope within the marketing function?
10) In your opinion, are the benefits derived from pursuing this approach more
favourable than that of a more decentralised approach, allowing for more
subsidiary autonomy?
11) Does this approach give an organisation a competitive edge given the size of
the business?
12) What is your/your organisation’s understanding of the term “global brand”? How
important is global branding to your organisation?
65
13) Do you believe that there is “consistency in application”, as far as global brand
management processes/implementation goes across your subsidiaries?
14) How do you monitor and control the effectiveness of global brand marketing
strategy within each country? Is this procedure different in any way to that of
evaluating performance of other brand marketing strategies within your
subsidiaries?
15) What role, if any, does regional culture and other local market dynamics
(political, economic, social, religious, technological) have on the development
of the marketing function?
16) Do you think autonomous decision-making relating to marketing strategy
would benefit your subsidiaries? Would you say your answer would also apply
to your subsidiaries outside of Africa?
17) Do you feel that those subsidiaries, which operate under similar market
conditions to the South African context, are more easily able to adopt a more
centralised approach?
18) Do you see any homogeneity in clusters/regions of markets within Africa in which
you operate? If so, to what extent does this influence marketing strategy?
19) Finally, how would you delineate the ultimate mix between centralised marketing
strategy versus decentralisation when operating in an MNC such as yours, in order
to derive maximum benefit for the business and its key stakeholders in the long-
term?
Subsidiary
1) Briefly describe your current role at your organisation.
2) What components of the company’s marketing strategy are devolved from the group
HQ to your subsidiary and what informs this decision?
3) What would you consider to be the strategic versus functional aspects of marketing?
Which of these lend themselves more to decentralisation versus a centralisation
approach?
4) How are marketing strategies communicated between the group HQ and yourself
within your subsidiary?
5) Who is involved in the development and implementation of marketing strategies?
66
6) How, if at all, does your organisation attempt to balance centralised coordination of
marketing strategies with in-country implementation? Are marketing strategies
standardised (globally) or adapted (locally) to suit each market? If so, how well is
this working?
7) Can you give me examples of where the centralised marketing approach has worked
better for your organisation? Can you give me examples of where the decentralised
marketing approach has worked better for your organisation? How is this
incorporated into the overall marketing strategy for the group?
8) Does your group HQ adopt the same marketing devolution strategy with a
subsidiary outside of Africa versus in Africa? Why or why not?
9) What emphasis does your business place on attaining economies of scale and
scope within the marketing function?
10) In your opinion, are the benefits derived from pursuing this approach more
favourable than that of a more decentralised approach, allowing for more
subsidiary autonomy?
11) Does this approach give an organisation a competitive edge given the size of
the business?
12) What is your/your organisation’s understanding of the term “global brand”? How
important is global branding to your organisation?
13) Do you believe that there is “consistency in application”, as far as global brand
management processes/implementation goes across your subsidiaries?
14) How do you monitor and control the effectiveness of global brand marketing
strategy within your country? Is this procedure different in any way to that of
evaluating performance of other brand marketing strategies within your subsidiary?
15) What role, if any, does regional culture and other local market dynamics
(political, economic, social, religious, technological) have on the development
of the marketing function?
16) Do you think autonomous decision-making relating to marketing strategy
would benefit you? Would you say your answer would also apply to other
subsidiaries within your organisation outside of Africa?
17) Do you feel that those subsidiaries, which operate under similar market
conditions to the South African context, are more easily able to adopt a more
centralised approach?
18) Do you see any homogeneity in clusters/regions of markets within Africa in which
67
your organisation operates? If so, to what extent does this influence the group
marketing strategy?
19) Finally, how would you delineate the ultimate mix between centralised marketing
strategy versus decentralisation when operating in an MNC such as yours, in order
to derive maximum benefit for the business and its key stakeholders in the long
term?
68
APPENDIX C
Table 2: Thematic coding summary
Main theme Sub theme Sources References Proposition
Decentralisation
Strategy implementation 22 104 3
Local adaptation 22 80 3 Local culture 21 46 3 Heterogenic