Managing Marketing Standardization in a Global Context Boris Sustar, Roxana Sustar. Journal of American Academy of Business, Cambridge. Hollywood: Sep 2005. Vol. 7, Iss. 1; pg.
302, 8 pgs INTRODUCTION The evolving world of international business is witnessing the emergence of additional players, including firms from the former Eastern block. These firms are playing a game of catch-up as they attempt to learn the intricacies of doing business in today’s global economy. The speed at which this process is occurring varies across nations. Firms in Slovenia, the Czech Republic and Hungary, for example, are rapidly acquiring the skills necessary to compete on the world stage. These firms have adopted both general approaches to marketing as well as targeted actions, which have been influenced by the local environment.
This article will discuss the possibility of standardizing marketing programs and the factors influencing the process of cost lessening, as they apply to the case of Slovenian firms. LITERATURE BACKGROUND The literature in this area broadly examines the numerous variables that affect standardization. Both internal and external components impinge upon the decision to standardize the marketing program of product, price, distribution and promotion (Kreutzer, 1988).
The magnitude of differences in local physical, economic, social, political and cultural environments, are being invalidated by the globalization of markets. As a result, there may be no differences between domestic and international marketing (Perry, 1990).
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However, a standardized marketing cannot be set once and for all. Matching firms’ resources with environmental requirements, anticipating changes in consumers’ needs, and forecasting competitors’ behaviour (Easton, 1988; Kogut, 1988) are critical business activities for developing effective standardized export marketing initiatives (Akhter and Laczniak, 1989).
The literature concludes that economic environment (Hooley et al. , 1993; Huszagh et al.
, 1992; Sullivan and Bauerschmidt, 1988), political environment (Kobrin, 1988) and cultural environment (Jain, 1989), effect standardization process. An objective of this study is to test environment and standardization correlation for emerging economies in order to instruct firms’ management in Slovenia to pursue efficient standardization. Based on the literature we study how environmental factors result in standardization. Organizational characteristics, such as firm size, global marketing experience and the marketing strategies of management in exporting firms (Koh, 1991) compose the internal factors, which create the conditions for global standardization. The nature of a firm’s products, markets, technological orientation, and resources (Lim et al. , 1993) determine competitive advantage in international markets and possibilities for profitable standardized approaches.
Strong corporate cultures and management practices with regard to quality, innovation and product performance (e. g. , the ‘quality, service, cleanliness and value’ principle of McDonald’s) are a further determinant of profitable marketing standardization (Schuh, 2000).
Other studies (Michell et al. , 1998) pointed out that products are much more standardized and promotion, distribution and price more localized. In contrast to this conclusion, the high price strategy seems to work well everywhere and can be standardized as well (Botschen and Hemetsberger, 1998).
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The efficient globalization of markets leads to global products, global brands and global advertising respectively (Ayal and Zif, 1979) however standardized advertising does often not optimally fit with the cultures (Raaij, 1997).
The literature is not completely uniform that distribution practices are the least standardized elements of the marketing mix (Ozsomer et al. , 1991; Botschen and Hemetsberger, 1998).
An objective of this study is in addition to test marketing strategies and standardization correlation for emerging economies in order to instruct firms’ management in Slovenia to pursue efficient standardization. Marketing mix strategies are versatile internal factors of standardization in comparison to firm size and / or business experience, which are more fixed and firm internal factors of standardization. As intensive restructuring of Slovenian firms is taking place the study is giving special attention to an internal factors, which are controllable in short term.
This does not diminish a need to study supplementary firm characteristics in order to explain detailed factors of standardization. Based on literature findings therefore we limit the study to a demonstration of marketing mix elements and their impact on standardization process. DATA AND METHODOLOGY Data sources A written questionnaire was sent to a random sample of 1230 Slovenian exporting firms, representing approximately 18 percent of all exporting firms in the country. From this sample, 298 responses were received, for a response rate of 24.
2 percent. Two (2) respondents were bankrupt firms and were therefore not used in the study. The questionnaires were addressed to general managers or executives involved in making strategic business decisions. All of the fifteen (15) questions were of closed type.
Five-point and three-point Likert scales were used for the majority of the questions. Five (5) questions required yes / no responses or specific answers and two (2) questions required numerical determination. Some of the respondents were queried by phone when responses were ambiguous or incomplete. Table 1 provides more detailed information about the variables that were included in the statistical analysis. Enlarge 200%Enlarge 400%TABLE 1. Data information on variablesMethodologyThe statistical package SAS was used to analyze the data.
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The dependent variable was set to be marketing standardization and the calculation of Pearson coefficients among the various variables indicated that certain responses were correlated. Principal component analysis with orthogonal rotations was then used to investigate these relationships and examine factors involved in the standardization of marketing. The Varimax method of orthogonal rotation made factors as intuitively meaningful as possible. It is considered a disadvantage to choose a rotation subjectively because the analyst may try to force the factor loadings to fit his / her own preconceived hypotheses. The selection of these factors was thus based upon a criteria revealed in Table 2. Enlarge 200%Enlarge 400%TABLE 2.
Varimax rotated factor loadings of standardization of marketing mix RESULTS AND DISCUSSION On the basis of the statistical findings, a useful model of factors, which affect marketing standardization for Slovenian firms, can be traced. Based upon the results of the sample firms, it can be reasonably stated that standardization of international marketing for Slovenian firms is affected by the factors such as environment and the marketing mix strategy, i. e. product, price, distribution, and promotion. Environment The first factor, environment, in its broadest sense, deals with those elements external to the firm. This factor accounts for 15.
23 percent of variance. Global marketing decisions about product, price, promotion, and distribution are no different from those made in the domestic context (Perry, 1990).
However, the environment within which these decisions are made is unique to each country. Hence differences in environment are a valuable concern affecting the feasibility of standardization (Jain, 1989).
The more firms learn about local conditions in international markets, the more they are able to perceive the similarities, the more they are able to standardize the marketing mix among markets, and the better they perform (Solberg, 2002).
Findings of the study do not differ from conclusions in traditional literature.
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Slovenian managers have caught up to their Western counterparts in the sense that they understand environmental factors will inform and shape their marketing strategies. This is a reversal of the situation that existed under communism, when firms often paid more attention to their internal capabilities, but very little attention to the needs of the market. During the communist era, there were many products for which there were no markets and other products where supply never satisfied demand. Slovenian firms are now pursuing cost-efficient strategies for capturing market share in foreign markets.
This process can be facilitated if a firm’s approach can be standardized across many markets. The first factor is composed of variables that are integral to the success or failure of the standardization process and prominent in determining the macro-segmentation of the markets (Jain, 1989; Whitelock, 1987).
There were four variables identified within the environment factor: economic stability (ECSTAB), economic development (ECDEVEL), political stability (POLIT), and cultural similarity (CULTUR).
The first variable, economic stability (ECSTAB) is included because the standardization of marketing policy is facilitated by a stable macro-economic situation. To date, Western literature has perhaps reflected its own relatively stable economic condition and tended to play down the significance of economic stability in standardization (Hooley et al. , 1993).
However, some authors (Huszagh et al. , 1992) have found broad linkages between stable macro-economic conditions and strategies for standardization in business enterprises. In the case of Slovenian firms, two-thirds of exports are to countries in the European Union whose domestic economies are stable and whose markets are relatively homogeneous. Greater European economic integration has created an environment in which standardized and long-term lasting marketing strategies may be implemented. With Slovenia’s integration into the European Union, the significance of the European market to its economic success appears likely to increase.
In contrast, exports to once prominent destinations in the former Yugoslavia have dropped from 50 percent prior to 1991 to less than 19 percent in 2003 as a result of the past conflicts in the region. There are strong impediments to standardization in such an environment. Marketing strategies in the Croatian market, for example, are subject to continuous change as import duties affecting prices are frequently imposed or removed. Closely related to economic stability is stage of economic development (ECDEVEL).
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In developed nations, where per capita GNP and demand are high, standardization and its benefits is more easily implemented. More than 75 percent of Slovenian exports (the number slightly varies over time) are to countries that enjoy both economic stability and an advanced level of development.
The reduction of tariffs in target developed countries resulted in eased product regulations in target countries, wider availability of profitable ways to ship to foreign developed markets, as well as a decline in currency values relative to that in foreign countries. These are all determinants that affect the standardization of marketing mix (Sullivan and Bauerschmidt, 1988).
While there must be some adaptation of marketing strategies among these developed nations, there are certain national market characteristics and problems of cultural diversity left over from the past (Dalgic, 1992).
This adaptation is more prevalent when dealing with markets in developing or emerging economies.
In designing marketing strategies for less developed countries, Slovenian managers have found that marketing strategies must be tailored to smaller segments and that these segments are changing and evolving fairly rapidly over time in comparison to those in developed nations’ markets. Thus, segmentation, as a concept, is extremely useful in this standardization context (Kreutzer, 1988).
Political stability (POLIT) is another variable in this factor. Political developments affect domestic and foreign business along with the strategic elements of the marketing mix (Akhter and Laczniak, 1989).
Political elements are potentially fragmenting forces of the environment (Kobrin, 1988), but will be a contributing factor to a firm’s behaviour only when management perceives this uncertainty and considers it to be relevant (Rice, 1984).
This political aspect is particularly significant in light of the situation in the former Yugoslavia, where it has become difficult or even impossible to market products. Attitudes towards products made in Slovenia are changing in tandem with the political vagaries of the southern regions, further complicating efforts to market Slovenian goods. The focus of Slovenian firms has subsequently shifted to other European markets where competitive marketing strategies based on standardization can be more effective. According to the literature the study showed that interest in standardization of Slovenian export to politically stable and unite markets is identical to interest of firms from EU member countries. These markets are politically stable and offer consistent treatment to Slovenian firms, with only minor aberrations. This study of Slovenian firms was not able to support the idea that the role of political risk in decision making, referring here to standardization, is less significant than other environmental variables, even in markets perceived to have high levels of political risk (Rice, 1984).
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The fourth variable, which is somewhat less significant, is cultural similarity between the destination market and Slovenia (CULTUR).
The greater the cultural compatibility of the product across the countries in question, the higher the degree of standardization (Jain, 1989).
Export markets exhibiting a degree of cultural similarity including similarities in corporate culture, are sought after by Slovenian firms. This concordance enables managers in Slovenian firms to standardize promotional activities, distribution strategies, etc. and easily translate domestic marketing programs for the foreign market.
These findings are consistent with the findings from studies of firms in other, primarily developed countries. Language is also a consideration; linguistic differences and possible negative connotations may hinder the adoption of a global brand image, forcing greater strategy adaptation (Baalbaki and Malhotra, 1993).
Because many Slovenians speak German and due to the country’s Austro-Hungarian history, it is not surprising that Germany and Austria are among the top export markets for Slovenian products. The findings regarding environment in the study do not differ from empirical results in other countries and in the literature. Slovenian managers must follow looking for similarities within international environment so as to increase possibilities for profitable global standardization. Product The second factor in the analysis is concerned with product attributes.
While the term ‘product attributes’ encompasses a wide range of potential characteristics, the most essential of these in the Slovenian context are product lines (LINE), brand names (BRAND), and customer base (CUSTOM).
A number of other attributes such as quality, product life cycle, technology and packaging were not as significant to the standardization of the marketing mix for the surveyed firms. This is different to findings of Tomas et al. (2000) indicating that two of the studied product attributes (product quality and appearance) can be standardized in global marketing strategies. Assessing the size of the product line (LINE) is a subjective process. In the questionnaire, managers of different firms had contrasting conceptions of what constitutes a narrow, normal or large product line.
The question was structured so that managers could make their own assessments, a useful approach given that these conceptions of product line size differ considerably across industries. A common proposition in the scarce literature (Samiee and Roth, 1992) states that the narrower the product line, the less difficult the process of standardization. The present study did confirm this general observation. It appears that firms with narrow- to average-size product lines are more likely to carry out standardization of their marketing mix.
On a three-point Likert scale, with a ‘1’s pacified as narrow and a ‘3’ designating wide, the mean response was 1. 71 (standard deviation equals 0. 76), indicating that Slovenian managers view their product lines for export as being of narrow to average size. Conversations with managers provided additional support for this finding.
The next variable in this factor is concerned with brand names (BRAND).
Slovenian firms are increasingly establishing their own-brand names (46. 8 percent), which do not consist of a broad range of different products for a range of buyers. Instead production is focused the sale of a standard product with a standard brand name and marketing mix. Thus, Slovenian firms find it easier to standardize their promotional activities to coincide with this approach. The creation of own-brand names and the standardization of this process also make it easier to achieve economies of scale in production, which increases the profits.
Brand names have been identified as very significant factor for the standardization of international market activities in Eastern bloc countries (Hooley et al. , 1993; Kustin, 1993).
In this manner, standardization leads to growth possibilities for Slovenian firms beyond those available in the domestic market. As a result, these firms can expand into international markets, fully capture economies of scale and realize their full growth and profit potential.
The development of private brands is more suitable for local economies, while own-brands are seen as appropriate for the global marketplace (Sandier and Shani, 1992).
In addition, some Slovenian firms may be using private local brand names in export (24. 6 percent), thus shrinking the possibilities for standardizing brand strategy. With respect to the third variable in the factor, customer base (CUSTOM), there was an average of 19 buyers for the export products of individual Slovenian firms. It could be argued that the number of buyers is dependent upon the product types and the industry, which is in question; however, this study shows a low correlation between product type and size of the customer base. It is reasonable to assume that a broad customer base enables greater standardization (Samiee and Roth, 1992), but for the Slovenian case, the question is subtle.
Opposite to traditional literature the study indicates that the customer base of Slovenian firms cannot be considered broad by most standard definitions. Furthermore, Slovenian firms sell a considerable proportion of their exports to intermediaries. Conversations with managers indicate that the size of the customer base was not as significant for standardization as was the degree of market coverage that could be achieved through its distribution channels. It is often the case that intermediaries cannot provide the coverage necessary to enable standardization. Therefore, a major concern for Slovenian firms is to find a moderate number of efficient intermediaries who can enable marketing mix standardization. We encourage efforts of Slovenian managers to broaden customer base using all marketing means to increase possibilities and benefits of standardization.
Price Pricing is the third factor identified in the analysis and is composed of three variables. The first variable is the price competitiveness of Slovenian goods in foreign markets (PRICOM).
The second is price discounts and rebates (REBAT).
The third variable, personal or non-personal selling (PERSON), although not generally considered to be a pricing attribute is for the Slovenian context, as explained below, a promotional characteristic connected to pricing. Products that are competitively priced (PRICOM) thus garnering greater market potential and share are and / or must be more standardized. When queried about the price competitiveness of their products in foreign markets, managers’ responses averaged 3.
24 on a five-point Likert scale, where a ‘1’ indicated no price competitiveness at all and a ‘5’ indicated very high price competitiveness (standard deviation equals 0. 98).
This indicates that Slovenian products are not highly competitive in terms of their quality, but rather possess slightly higher above-average price competitiveness. This follows the pricing pattern suggested by Shaw (1994).
In Shaw’s study, most of the British firms interviewed did not appear to have the quality products to match the Germans and their pricing reflected the strategy, that they were serving basic customer needs rather than superior performance needs.
Price was therefore a more significant element of the standardization of marketing mix for the British firms. Furthermore, in a survey by Thach and Axinn (1991), it was found that Canadian firms were more pricing competitive and used government incentives and credit supports more than US exporters, perhaps due to their more prevalent availability. Although, this was not at a statistically significant level, it demonstrates how artificial mechanisms can support price competition and distort natural behaviour. High costs of raw materials and labour are the primary reasons why Slovenian firms have not been able to price their products more competitively on world markets. Should the price competitiveness of their products increase to higher levels, Slovenian firms would more likely engage in greater standardization and its benefits in global markets.
Price discounts and rebates (REBAT) represent the second variable in this factor. Survey results show that Slovenian firms tend not to use discounts and rebates for customers in different countries. Varying price discounts and rebates for customers, such as random discounting, periodic discounting etc. (Tellis, 1986), presents an obstacle for standardization; the fact that Slovenian firms do not use this tool indicates that they are opting for pricing standardization. The average score was 2. 02 (standard deviation equals 0.
55) on the five-point Likert scale, where a ‘1’ indicated no discounts and a ‘5’ indicated that every buyer needs a special discount. Their standard pricing strategy is seen as not flexible with preference given to equal treatment among customers. Personal and non-personal selling (PERSON) are generally part of promotion however the factor analysis reveals it as a third variable closely associated with pricing. A survey response of ‘0’ indicated use of personal communications in promotion, whereas a ‘1’ indicated non-personal selling and promotion, such as advertising, sales promotion and publicity.
The mean response on the survey was 0. 17 (standard deviation equals 0. 38), indicating a strong use of personal selling. Non-personal selling and promotion in international markets is an expensive undertaking and poses many difficulties for Slovenian exporting firms and firms from other ex-communist countries (Moller, 1984).
Total EU advertising expenditures in the late 1980 s represent 0.
84 percent of the EU gross domestic product compared with 1. 65 percent for the US and 0. 70 percent for Japan (Daser and Hylton, 1991).
In this period of transition, these firms do not have the requisite financial resources to engage in costly non-personal selling campaigns in foreign markets. Thus, these firms concentrate efforts on personal, direct marketing out of necessity (Shama, 1992).
A study of UK firms (Styles and Ambler, 1994) found that greater attention to factors such as personal contact and communication increased the chances for success and subsequently increased the possibilities for standardizing the marketing mix.
In this manner, Slovenian firms are more similar to Taiwanese firms, which use more standardized personal tools for promotional activities when exporting to Europe (Tseng and Yu, 1991).
Product promotion methods also related directly to type of product. Approximately two-thirds of Slovenia’s exports are industrial goods and more likely to be amenable to standardization (Jain, 1989).
According to marketing theory, while advertising (non-personal selling) is the best means of communication for promoting consumer goods, personal selling is most appropriate for the promotion of industrial goods. Since Slovene firms face a lack of financial resources, they have a greater incentive to seek international markets if they are producers of industrial goods, which are less expensive to promote. When asked about pricing attributes that can be standardized, managers connected this question with the notion of cost-efficiency.
Standardizing promotion through cheaper personal selling is consistent with a philosophy of cost reduction for firms in tight financial situations. Furthermore, if firms used standardized promotional attributes in personal selling, it follows that a standardized pricing approach, using price competitiveness as a basis, is easier to implement. Regardless of these country specific determinants Slovenian firms have to exploit opportunities to benefit from standardization, which comes from non-personal modes of sells and promotion in global markets. Distribution The fourth factor accounts for attributes associated with distribution. The first variable deals with the link between direct and indirect exports (CHANNEL) and standardization. The second variable involves the length of direct international distribution channels (DIRECT).
For the first variable (CHANNEL), a survey response of ‘0’ indicated direct selling abroad and a response of ‘1’ indicated selling abroad through a domestic exporting firm. If the second channel was located in the producer’s country, it was considered an indirect channel; whereas, if the second link in the channel was located in the buyer’s country, the channel was defined as a direct channel (Ramaseshan and Patton, 1994).
The mean response was ‘0. 25’, indicating standardization of distribution channels and marketing mixes through direct involvement in international markets. Direct involvement affords Slovenian firms more immediate control over critical elements of the marketing mix.
Chan (1992) found in his study that Hong Kong and Singaporean firms standardized distribution more through direct methods, which performed more effectively than indirect forms. In the communist era, exporting took place through state-owned firms specializing in certain regions. Consequently, Slovenian managers had to adopt their marketing mix to these countries, eliminating any chance for global synergy. In today’s economy as Slovenian firms become more international, they are seeking global synergies and standardized distribution strategies that will lead to lower costs, increased margins and a growth. Andersen and Coughlan (1987) observed that for American firms synergies in the standardization of distribution seemed more likely to integrate distribution channels in highly developed industrialized countries (e.
g. Western Europe) than in Japan and Southeast Asia, which are culturally dissimilar. Questions related to the second variable, the length of direct international distribution channels (DIRECT), refer to the modes of export employed. A response of ‘0’ indicated a long, direct channel in the form of an importer (wholesaler).
A response of ‘1’ indicated a short, direct channel using either, agents, sales subsidiaries of branch offices, or production subsidiaries or branch offices. These forms of short, direct channels were grouped together for the purposes of factor analysis. Standardization of distribution, when short-direct channels are used, raises costs and requires a greater resource commitment by exporting firms (Bello and Verhage, 1989).
However, in the longer term it ensures a higher volume of sales and distribution of exports thus lowering costs per unit over time.
The number of firms who use these long-direct distribution modes is 69. 3 percent when including exports through foreign intermediates not owned by Slovenian firms (importers and agents).
The standardization of the marketing mix in this situation is external to the firm, and is in the hands of the intermediaries. This is in accordance with the findings of Seifert and Ford (1989) for US industrial exporters using two major types of distribution channel members: foreign distributors and sales representatives. Both are examples of standardization where firms located on foreign soil with local marketing expertise are engaged. This loss of decision-making control over standardization in foreign distribution is typical for those Slovenian firms who are relatively new to the market and who do not possess control over their distribution channels.
It is worth noting that in Koh’s (1991) survey of US exporters, it was pointed out that firms performed enhanced when they standardized exports directly to final end-users. To benefit from standardization of short direct distribution Slovenian managers will have to internalize international business and thus intensify foreign market presence. Promotion The final factor can be described as the promotional attributes of the marketing mix. The only variable in the factor describes the decision-maker for standardization of promotional activities (DECISION).
Respondents could choose from five options ranging from centralized decision-making to buyer control over promotional activities. Some 35. 6 percent of firms surveyed reported centralized decision-making, 18. 1 percent reported decentralized decision making, and 46. 3 percent reported buyer control of decision-making for promotional activities.
The results indicate that a large proportion of Slovenian firms do not control decisions regarding the standardization of promotional and other related activities. This finding is similar to that found for distribution in factor four, where it became apparent that loss of control over the standardization of the marketing mix was related to insufficient control over distribution channels. It was revealed that management strategies and attitudes regarding distribution and promotion, as part of an overall marketing mix, are highly correlated. These two components, as illustrated, are critical to the standardization of the marketing mix. Despite this fact, Slovenian managers are unable to pursue the standardization process as aggressively as they may wish, because their newcomer status means that they have neither the resources nor the control necessary to do so successfully. If this is generally the case and if we bear in mind that Slovenian firms are relatively small in size compared to MNCs from developed countries, then the conclusions support the work previously conducted by Katsikeas and Morgan (1994).
They showed that larger firms, who possess greater financial resources, are better able to overcome and standardize perceived problems of promotional communications with the export market. It is a necessity for Slovenian managers to utilize the benefits from promotional standardization, which will have to be adopted in internationalization process of Slovenian firms. Promoted findings in the study are in general consistent with empirical results from the literature. Standardization attributes of marketing mix elements, which differ from the traditional literature, are: customer base, price competitiveness, personal selling, long direct distribution and decision-making on promotion control.
These standardization sub-factors are country specific and must be altered by Slovenian managers in order to enjoy total benefits of global standardization. CONCLUSION There is a considerable body of literature covering the standardization of marketing in the international environment. However, authors have differed in their assessment and assignment of significance to each of the specific factors, which address a variety of situations. This study adds to the existing literature by reinforcing some the findings of these authors with respect to the significance of certain factors related to the process of standardization in an emerging economy. One of the very basic findings in this study concerned the significance of environmental factors. Certain conditions such as economic and political stability greatly enhance the possibilities for standardization and its benefits.
The findings in the study do not differ from empirical results in other countries and in the literature. The study suggests that Slovenian managers must follow looking for similarities within international environment so as to increase possibilities for profitable global standardization. The next four factors in the study, explaining 35. 74 percent of variance, are specific marketing mix attributes; product, price, distribution and promotion. The findings in the study are in general consistent with empirical results from the literature. Standardization strategy of marketing mix elements, which differed in the research from a traditional literature, are proven to be customer base, price competitiveness, personal selling, long direct distribution and decision-making on promotion control.
These standardization elements are also country specific and must be altered by Slovenian managers in order to enjoy total benefits of global standardization. Bearing in mind the problems of resource shortages and knowledge gaps of transitional economies, it is clear that the elements of the marketing mix are very country-specific (Aaah and Riordan, 1988).
The environmental context in which Slovenia finds itself greatly affects the strategy of the marketing mix, and the ways in which this marketing mix is constrained has an impact on the extent and degree to which standardization is possible. This study concludes that although it is possible to constructively generalize the descriptive factors that affect standardization internationally, there are a large number of country-specific variables, which significantly impact the standardization process. [Reference]REFERENCESAkaah, I. P.
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