How a certain aloofness can help firms expand globally

When large companies expand into new foreign markets, many of them adapt products and marketing to meet local expectations and tastes: KFC in China added egg tarts and rice porridge to the restaurant chain’s usual chicken offerings, while Coca-Cola has phonetically translated its brand name to mean ‘tasty and joyful’ in Chinese. Such modification is inexpensive, and helps land new consumers quickly and easily.

Yet it is often more profitable in the long run for firms going into new countries to maintain a cultural distance – something often seen as a negative factor relating to a product’s utility abroad – because such a distance can spur cultural adaptation by consumers, says research co-authored by Eden Yin, Associate Professor of Marketing at Cambridge Judge Business School.

“We find that maintaining that ‘cultural distance’ can be an optimal strategy for companies when they go global even not for the purpose of positioning oneself as a more distinctive or premium brand. Such distance, which may create dis-utility to customers in overseas markets, can act as a catalyst for consumers in new countries to adapt culturally to a company and its products,” says Eden. “This can improve the consumer experience in ways that boosts profitability for globally expanding firms in the long run.

“We also find that activities that promote a foreign culture in a new marketing territory can help such cultural adaptation because it boosts consumer appreciation of the foreign culture behind a product originating in another country.”

For IKEA, meatballs and a Swedish accent speaking English

A good example of this at a company level is IKEA, which has kept the Swedish names on its products while serving Swedish meatballs at its in-store cafes – along with (in the UK, for example) advertisements featuring a voice, in English, with an intentionally strong Swedish accent. At an industry level, examples of foreign culture promotion include French vineyards collectively promoting French wine culture through trade shows and other activities, and education programmes supported by Japanese sake brewers. The Korean government has also greatly helped various arms of the country’s entertainment industry through support for the ‘Korean wave’ or Hallyu.

“Consumers often adapt to foreign cultures to enhance their experience of associated foreign products,” says the research by Eden. “Around the world, people have embraced new cultural practices, such as learning to appreciate wines, using chopsticks, or engaging with K-pop, influenced by their interactions with foreign goods and entertainment.”

Linking product promotion with cultural learning is now easier and cheaper due to technologies such as large language models (LLMs) and tools such as Google Translate, not to mention continued growth in global tourism bringing more curious consumers to more destinations.

The way global firms approach international markets matters: about 40% of revenues for S&P 500 companies in the US originate from overseas markets, while some firms have even higher proportions including Apple at 57%. And it’s not only huge firms that are expanding into foreign markets, as improvements in shipping and communication now makes it easier for far smaller firms to also expand internationally.

Model developed by the research finds a U-shaped curve

The research by Eden develops a model that captures the 2-way interaction between commerce and culture, thus spotlighting the role that cultural distance can plan in boosting a firm’s overseas expansion. The key finding: a U-shaped curve.

“Although cultural distance lowers consumers’ utility, it may also compel more consumers to adapt to the product’s original culture, leading to a higher willingness to pay among these adaptors in future periods. We demonstrate that the long-term profit gains from cultural adaptation can outweigh the short-term drawbacks of cultural distance if the proportion of adaptors is sufficiently large and their willingness to pay over the outside option in the subsequent period is significantly higher than that of non-adaptors”.

Shanghai led cultural shifts in all of China

Eden says he became interested in this topic through a conversation that occurred a few years ago with co-authors of the study regarding an interesting cultural phenomenon observed in early 20th-century China, especially Shanghai.

During that time, says Eden, the influx of American films, fashion magazines and commodities have dramatically reshaped the cultural and social landscape of Shanghai and then later of China more broadly. These products from the US allowed Shanghai citizens to establish an urban bourgeois aesthetic in their food, clothing, housing, transport and entertainment that was completely distinct from traditional agrarian civilisation. It could be said that through consuming these products, Chinese society at that time practically underwent a ‘modernist enlightenment’ of daily life. This impact was so profound that the English word modern inspired a sound-alike word in Chinese (‘modeng’) that became synonymous with the culture of modern Shanghai. Such cultural reformation has also spilled into other regions of China, and has subsequently modified the lifestyle, cultural tastes and life aspiration of Chinese society as a whole. In more recent years, brands such as McDonald’s, Starbucks, Lululemon and others have also significantly altered Chinese society in many ways, says Eden.

“Thus, it is clear not only that culture affects marketing practices, which has been investigated extensively in academic literature, but marketing also shapes culture, a fact that has been far less examined,” says Eden.

“We wanted to see if we can prove such a connection theoretically, because we can now argue that marketing is not just a tool for companies to gain profit but also a powerful vehicle for social change for better.”

Culture and commerce interplay has traditionally not been captured in marketing research

The research also breaks new ground for marketing scholarship by examining areas usually left to other disciplines: “The philosophical discourse on the interplay between culture and commerce has traditionally been explored in sociology, anthropology and cultural studies,” say Eden and his co-authors. “Scholars in these fields often emphasise the detrimental effects of commerce, particularly consumerism, on societies. Despite this, marketing – the primary driver of modern consumerism – has seldom engaged in this critical intellectual exchange.”

The research extends the model it creates in various ways, including looking at the effect of competition between 2 global firms, competition in which a local competitor enters the market at a later period, and allowing for consumer adaptation without active learning. These extensions demonstrate the robustness of the model, says Eden.

A powerful catalyst 

The authors conclude by saying that marketing can “serve as a powerful catalyst in shaping cultural and societal change through various means, including product and pricing decisions and cultural promotion activities. These marketing strategies can drive social transformations that are not inherently negative, highlighting the proactive and influential role of marketing and its potential to generate positive cultural and societal impacts.” 

The authors emphasise, however, that culture adaptation does not equate to cultural assimilation: “Consumers in the host country do not need to abandon their own culture. Rather, they learn about and appreciate an additional culture. Even between countries with differing levels of economic development, such positive cultural exchange can occur in both directions.”