Case on Globalization
German consumer-goods maker Henkel AG is touting its new Gliss Restore & Refresh shampoo as the world's first hair-care product to address problems caused by the lack of ventilation under a head scarf, including split ends, itchy scalp and unpleasant odor. British-Dutch rival Unilever PLC is also targeting the market with its Sunsilk shampoo. And hair is just the start.
After years of pushing Western-designed shampoos and deodorants in the Middle East, the world's biggest personal-care companies are changing course and selling products made specifically for local consumers' tastes. Procter & Gamble Co.'s Ola0y line targets Persian Gulf customers with skin-lightening creams. Unilever, the world's second-largest consumer-products company, after P&G, has tweaked best-selling products such as Axe deodorant and Sunsilk shampoo with local fragrances.
The goal is to woo young Middle Easterners with cash to spare. Consumer spending in developed markets, by contrast, is still rebounding from the financial crisis. The global Halal market—products made to be permissible under Islamic law—is valued at $2.1 trillion, according to a 2013 report by the Halal Industry Development Corp., a government-sponsored trade group based in Malaysia. Halal cosmetic products are prohibited from containing any pork byproducts such as pig-fat derivatives, which are used in some makeup brands, or the proteins used in some shampoos. They also shouldn't contain alcohol, which is forbidden under Islamic law.
Marketing by major personal-care companies directly to Muslim consumers is still in its infancy. So far, much of the growth has come from small firms providing specialist products in one or two countries. Now global companies are tapping the booming demand. Since 2008, Henkel's Middle East and Africa business has grown three times as fast as the company overall. Regional sales increased 17.6% in 2013 from the previous year.
Still, the region poses many challenges. Executives say political uncertainty in the wake of the Arab Spring makes planning extremely difficult. Tastes vary dramatically by country. In Beirut, for example, a high penetration of Western brands means lines like Henkel's Restore & Refresh have been less successful than in Egypt, where consumers have sought more locally tailored products.
Competition is also intense from local suppliers able to produce imitation products at a fraction of the cost, meaning some companies resort to discounting and special offers. The Middle East is also a lower priority for many companies than China, India or Africa, where enormous population growth and low penetration of consumer goods has attracted greater investment.
Focusing on Middle Eastern consumers marks a strategic shift for Henkel and its rivals. Previously, personal-care companies would release products designed for U.S. or European consumers and assume Middle Easterners would buy them, industry officials say. Rising Middle Eastern spending power has changed that. And since locally focused products are often cheaper to make, they can generate higher profits than similar items sold world-wide—despite rising competition for Middle Eastern customers among the world's biggest consumer companies.
Answer the following questions for this case study:
1. How does this article illustrate globalization? Support your answer.
2. Which of the following globalization forces: political, economic,environmental, social, cultural, competitive, technological, have been presented in the case? If some of the forces have not been explicitly discussed in this case, then how would they affect the global marketplace?
3. Explain which globalization forces are the most significant for decisions made by major personal-care product companies?