Intercultural Business Competencies: Kellogs' Failure in India

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27th Apr 2020 Business Assignment Reference this

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ABSTRACT

Kellogs is an American multinational food manufacturing company based in Battle Creek, Michigan, United States of America. The company is one of the largest food companies in North America, and was rated as one of the most valuable food brands worldwide in 2018. Kellogg manufactures and market cereals and food – veggie foods, crackers, waffles, cookies, etc – for immediate consumption for the convenience of its customers. This report describes how Kellogs operated in international markets with more emphasis on India who is a country with diversified culture and a developing nation. The company in a bid to expand her horizon across countries established out outlet in India in 1994 and witnessed failure owing to various reasons spanning across lack of proper communication as the company failed to prove to Indians that their products are good enough for them. They also advertised their cereals and foods as a more healthy food than the traditional Indian foods. This created a bad impression to the customers because it portrayed that India foods are not so good for breakfast. In addition, they over-priced their products which made the sales of the company concentrated only on the metro city but the major population of India is in the villages. This made their sales not to be as expected. Furthermore, it doesn’t match the food and taste preferences of Indian breakfast as they don’t consume cornflakes and wheats for breakfast. This clearly shows their lack of understanding of Indian’s culture. To analyse the challenges faced by Kellogs in India, Hofstede six dimensions framework was employed. The report concluded that when leaders of multinational businesses or their staff members have proper understanding of various cultural issues with the aid of Hofstede’s six Cultural Dimensions, such problems can easily be analysed from various point of view and necessary actions taken to address the identified problems. The study further recommends that multinational companies should conduct Market research, acknowledge cultural practices, business strategy customization for Indian market and reduction of prices.

BACKGROUND

In today’s world, with vast investments opportunities, many big companies in America are eager expand their business horizons outside America (their home country) in order to expand their tentacles and penetrate the world market at large. However, the business strategy that works on the average American consumer does not in all cases result in positive outcomes in other countries of the world. The reason for such strategy failure spans across various reasons ranging from differences in culture, lack of adequate experience as well as lack of proper understanding of the proposed market, to mention a few. Over the years, some Multinational Companies have suffered various forms of failures in various countries, while others could not survive in some peculiar markets. It is however worthy of note that many American blockbusters found it very difficult to survive in India and other Asian markets, with reasons mainly due to improper understanding of buying habits as well as local demands of the prospective countries. Often times, the adoption of the American business strategy in other countries led to their failure and eventually an exit of the proposed country. This report aims at analyzing the various problems faced by Multinational Companies, using Kellogs as a case study.

INTRODUCTION

Kellogs is an American multinational food manufacturing company based in Battle Creek, Michigan, United States of America. The company is one of the largest food companies in North America, and was rated as one of the most valuable food brands worldwide in 2018. Kellogg manufactures and market cereals and food – veggie foods, crackers, waffles, cookies, etc – for immediate consumption for the convenience of its customers. Over the years the company has witnessed series of improvements in the quality of products produced by employing innovations and various techniques.

The continuous growth of the company and the need to for diversification led to the company acquiring Salada Foods, which produced deserts and tea, in the year 1969. Fearn International was further acquired in 1970 to make sauces and soups as part of the company’s product line. While Mrs. Smith’s Pie company and Pure Packed Foods were acquired in years 1976 and 1977 respectively. The various acquisitions made by the company played a crucial role in the Kellogs growth as well as helped the company to diversify its product range. Over the years, the company has established in various continents of the word – North America, Latin and South America, Europe and Middle East, Africa, Asia and Oceania

Kellogg witnessed impressive growth in sales in 1980s, which made the company to attain an all-time height in her business having about 20 locations across 18 countries all over the world, generating yearly revenue above $6 billion. However in the 1990’s the company saw the need to expand her business horizon out of the United States of America and United Kingdom. India’s booming economy and a strong market in the food industry made the country attractive as an investment opportunity for Kellogs.

In September 1994, Kellogs launched her Indian location making it their 30th location in the world with a total investment of about $30 million, making wheat flakes, cornflakes as well as Basmati rice flakes. The launch of Kellogs in India was highly profiled with a lot of attractive marketing. However, the breakfast cereals which was first marketed in the country witnessed an initial sales growth – as customers were making a one-off sales – and suddenly dropped drastically and led to the failure of the company. The reasons for this failure are highlighted below:

  • There was lack of proper communication as the company failed to prove to Indians that their products are good enough for them.
  • They advertised their cereals and foods as a more healthy food than the traditional Indian foods. This created a bad impression to the customers because it portrayed that India foods are not so good for breakfast.
  • They also over priced their products which made the sales of the company concentrated only on the metro city but the major population of India is in the villages. This made their sales not to be as expected.
  • It doesn’t match the food and taste preferences of Indian breakfast as they don’t consume cornflakes and wheats for breakfast. This clearly shows their lack of understanding of Indian’s culture

Communication Failure

Kellogs failed communicate to Indians that beef was among the ingredients used to prepare some of the cereals produced. This was perceived by Indians as total deceit and saw Kellogs as an unfaithful organization because they opines that Kellogs know that Hinds has contradicting beliefs when it comes to consumption of beef. Hindus became astonished to know that some of the cereals produced by Kellogs which they have been eating for years contained galatin that has beef in it and it was not disclosed in the box. Beef consumption is a very contradicting issue in the beliefs of Hindus because the seat of many deities, which is a cow is held sacred. This got the Hindus upset and they sought for the apology of the company and the resignation of her CEO, Mr. John A. Bryant for failing to disclose that beef was part of the ingredients used in some of cereals and asked for immediate withdrawal of the products from the market.

Advertising Failure

The advertising strategy employed by Kellogs also contributed to her failure in India. The company in her promotional campaign suggested that Indian’s traditional breakfast was not healthy enough as it lacks the necessary nutrition required for a healthy living. Kellogs wishes to change the eating habits of Indians with her cereals varieties by discouraging Indians from eating their traditional Paranthas or Idli Dosas as breakfast. This came as a shocker to the home-based producers of local foods in India and began a campaign that discouraged Indians from patronizing Kellogs products.

Premium Pricing Policy and A-Class town failure

The price placed on products by companies determine largely on the success or otherwise of the company in any market. The pricing policy adopted by Kellogs in India was a dollar-to-rupee policy and this made the company not to attract massive customers. The average price charged for Kellogs products was Rs 21 per 100 gm. However Mohun’s Cornflakes – a competitor – sells its products for an average price of Rs. 16.50 for 100gm. This showed that Kellogs products were in fact over priced and consumers saw them as premium products. With this, Kellogs was only able to satisfy the needs of customers in the A-Class town who are wealthy, while its competitor, Mohun, penetrates the larger market with its cheap and affordable products. In the same vein, small brands like Champion sold its products for prices almost equal to half of the price charged by Kellogs.

Taste Preference Failure

The Hindus are known for their keen traditional way of life which also transcend to their feeding habits. When Kellogs entered India, it planned to introduce new products for breakfast with high quality of crispy flakes. However, adding hot milk on flakes resulted in having a soft flakes. This showed that Kellogs failed to do proper research on the knowledge of the Indians and their needs in terms of tastes.

ANALYSIS OF THE CHALLENGE USING HOFSTEDE’S SIX DIMENSIONS THEORY

The above listed challenge will be analysed with the aid of hofstedes six dimensions of culture. This theory was postulated by Dr Geert Hofstede, a Psychologist as a framework to understand cultural differences across various countries in the world and to decipher the ways of business operations across the different cultures. This theory postulates that differences in culture is capable of acting as a barrier to communication between multinational companies and the market they enter. This theory suggests how best to understand differences identified and working out ways deal with the differences in a more effective way. When it comes to doing business internationally, cultural dimensions forms an integral part. This is because the knowledge and understanding of different cultural views can assist managers of multinationals to understand the international market they enter into and makes their entry a successful one (Cleverism, 2019).

Dr Geert Hofstede, a Psychologist, developed and published cultural dimensions model in the tail end of the 1970s after his research of a decade. The study was carried out by Hofstede in 1967 and 1973 on workers of IBM who works in over 50 countries. The initial theory was based on four dimensions for analyzing cultural differences. He however His model has ever since became a standard model recognized in the international community for the understanding of differences in cultures across countries of the world. Hofstede studied people who worked for IBM in more than 50 countries. Initially, he identified four dimensions – masculinity vs. feminity, individualism vs. collectivism, uncertainty avoidance and power distance – that could distinguish one culture from another. Later, he added fifth and sixth dimensions, with the assistance of Michael Minkov and Drs Michael H. Bond. These are:

According to Hofstede, culture is the programing of the mind that separates one category of people from another. He used the word ‘category’ to imply ethnicities, nations, regions (within or across a nation), religions, gender, occupations or even organisations. Below are the elements of the Hofstede framework.

Power Distance Index

The power distance is an index that considers the degree to which power and inequality are endured.

In fact, it is the magnitude to which multinationals and the societies they find themselves in accept the differentials in power. Hofstedes defined Power Distance as is the level to which less powerful members in organisations and institutions within a given country expect and accept the fact that power is unequally distributed. On this dimension, India has a high score of 77. This is an indication that top-down and hierarchical structure is applicable in the organisations and society. Indian’s attitude could be said to be that who is boss dependent of holder of power for direction.

A country with a high Power Distance Index score is an indication that the society accepts power distribution in a hierarchical and unequal manner. However, a low Power Distance Index indicates that power is shared and widely spread in the, which means that unequal distribution of power is not accepted by members of the society. This explains why Indians turned their backs at Kellogs when they realized that the company failed to communicate the presence of beef in the ingredients used to prepare some of their cereals.

Individualism/Collectivism

This dimension explains the relative significance of individual in relation to group interests. The high side of the dimension which is referred to as individualism, could be explained as a special likeness for a kind of framework where it is expected of individuals to cater for themselves and their nuclear families. Collectivism on the other hand represents special likeness for a framework where individuals is allowed to expect their relatives or colleagues in any group they find themselves in to cater for them in exchange for their incontrovertible loyalty.

From the model analysed, India has a score of 48, shows that the society is one with both individualist and collectivistic characteristics. While the collectivist aspect opines that there is an intense likeness for being part of a bigger social framework that individuals in the society are expected to behave in line with the good deeds of the defined groups they belong to. In situations like this, the individual’s actions are basically affected by concepts of various types such as opinions of the immediate family one belongs to, that of the extended family, work-groups or neighbours as well as in which there is one affiliation or anther towards. Collectivism on the other when someone is being rejected by his or her peers or ridiculed by the immediate and extended group one belongs to, this makes him or her purposeless with a high degree of desolation.

The prevailing level of philosophy and religion in Indian society is the resultant effect of Indians being individualistic because Hindus holds their believes in reincarnation – recycling of birth and death – which they believe that the manner in which an individual behaves has connection with the kind of life he or she lived in his previous life. Therefore, people in Indians are responsible individually for the way and manner they leave their respective lives which they believe will have a direct impact on their subsequent rebirth into the world. The Individualist aspect of Indian society is seen as a result of its dominant religion/philosophy – Hinduism. The Hindus believe in a cycle of death and rebirth, with the manner of each rebirth being dependent upon how the individual lived the preceding life. People are, therefore, individually responsible for the way they lead their lives and the impact it will have upon their rebirth.

Uncertainty Avoidance

This is a dimension in the Hofstede theory that relates to the way and manner in which the society handles the truth that the future is uncertain and can never be determined by anyone. They question then now is: should we attempt to have control over the future or sit back and allow the future to occur? This equivocation comes with great concern and various cultures has over the years learnt how best to deal with this concern in a number of various ways. It is worthy of note that the degree to which members of a particular culture feels unsave and threatened by the equivocation of the future which made them to create ideas, norms, beliefs and various institutions to try to prevent these uncertainty will reflect in the score seen on the Uncertainty Avoidance as seen on the model.

From the model, India is on a score line of 40 which suggests a low likeness for uncertainty avoidance by the citizens. India believes that nothing is perfect or that nothing will go definitely as planned, so they are patient and tolerance is seen on the high side. Indians does not do things without raising questions

Long Term Orientation

The dimension is used to describe how each society connects with its past when faced with how best to deal with the difficulties of the present and that of the future and that the prioritization of these two known goals are done differently by various societies. The normative societies for example scores low on the dimension are those societies that prefer to hold on to the traditions and norms that they have known for years back while they view changes in the society with great suspicion. On the other hand, those whose culture scores high on the dimension are those that take more pragmatic approach because they promote efforts and thrift in modern education as a means by which they get themselves prepared for the forthcoming future.

India having a transitional score of 51 on the dimension describes that a prevailing preference in their culture cannot be ascertained. ‘karma’ is the concept that prevails in the India philosophical and religious thinking. They do not see time as important as the societies in the western world sees it. This is because India is a country that has great religious tolerance. They consider Hinduism as a philosophy more than religion itself which they believe is the combination of views, ideas, esoteric beliefs and practices.

CONCLUSION

As seen in this report, differences in various cultures of the world has great impact on multinational companies. Series of problems often comes up areas such as communication, relational problems, as well as participation. However, when leaders of multinational businesses or their staff members have proper understanding of various cultural issues with the aid of Hofstede’s six Cultural Dimensions, such problems can easily be analysed from various point of view and necessary actions taken to address the identified problems.

RECOMMENDATIONS

  • Market Research: henceforth, Kellogs and other multinational companies should endeavor to always conduct rigorous and extensive research of the proposed country market in which they want to establish as well as conduct proper observations of the market before entry is made. This is of utmost importance because India is enormous centre for commercial activities with varieties of qualities based on the spending capacity of customers.
  • Acknowledge Cultural Practices: Multinational companies like Kellogs should not try to make customers to look like strangers in their own culture.
  • Business Strategy Customisation for Indian market: It is very crucial that multinational companies like Kellogg’s tailor its processes and procedures to suit whatever country market they enter to suit their market needs. Nevertheless, Kellogs should come up with more products that will be more societal friendly for Indians in order to succeed.
  • Reduction of Price: the success or otherwise of any multinational company entering into developing countries for any services or products is highly dependent on the price it sets for its product. In view of the above, multinational companies are advised to ensure that they penetrate into countries by setting low and affordable prices.

REFERENCES

  • Cleverism. (2019). Understanding Cultures & People with Hofstede Dimensions. [online] Available at: https://www.cleverism.com/understanding-cultures-people-hofstede-dimensions/ [Accessed 7 Jul. 2019].
  • Researchersworld.com. (2019). [online] Available at: http://www.researchersworld.com/vol3/issue3/vol3_issue3_3/Cover.pdf [Accessed 7 Jul. 2019].
  • Icmrindia.org. (2019). Kellogg’s Indian Experience | Free Management Articles | Free Management Case Studies. [online] Available at: http://www.icmrIndia.org/free%20resources/casestudies/Marketing%20freecasestudyp2.htm [Accessed 7 Jul. 2019].
  • Anon, (2019). [online] Available at: https://www.kelloggs.com [Accessed 7 Jul. 2019].
  • Corporate Finance Institute. (2019). Hofstede’s Cultural Dimensions Theory – Overview and Categories. [online] Available at: https://corporatefinanceinstitute.com/resources/knowledge/other/hofstedes-cultural-dimensions-theory/ [Accessed 9 Jul. 2019].
  • Aapress.com. (2019). Hindus upset over Kellogg’s disclosure of beef in cereal products | Asian American Press. [online] Available at: http://aapress.com/health/hindus-upset-over-kelloggs-disclosure-of-beef-in-cereal-products
  • Editorial, R . ${Instrument_CompanyName} ${Instrument_Ric} Company Profile | Reuters.com. [online] U.S. Available at: https://www.reuters.com/finance/stocks/companyProfile
  • https://en.wikipedia.org/wiki/Kellogg%27s
  • Medium(2019). Reflection point: Assumptions and failures: Kellogg’s Cornflakes in India. [online] Available at: https://medium.com/@aditi.oza/reflection-point-assumptions-and-failures-kelloggs-cornflakes-in-India-108fbace93cd

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