The Globalization Of Markets Critical Review

The Globalization of Markets

Article by Theodore Levitt

Critical Review

By

Nancy Sachdeva

1Copyrights Reserved

Levitt’s argument

• New technology has “proletarianized” communication, transport, and travel

• “a new commercial reality—the emergence of global markets for standardized consumer products”

• Converging Consumption Pattern : Almost everyone, everywhere wants global products

• Wish for Modernity

• Prefer low prices to supposed national characteristics

• The Earth is Flat

2Copyrights Reserved

Levitt’s argument

• Global Corporation Vs. Multinational Corporation

• Hedgehog vs. Fox

• The cultural differences are becoming more and more “homogenized”

• Fox knows lot about a great many things : Multinational corporations knows a lot about great many countries and adapts to supposed differences

• Hedgehog knows everything about one great thing : Global corporation knows everything about one great thing to be competitive on world basis as well as nationally.

3Copyrights Reserved

Strategy

• Companies should move from multinational to Global Corporation

• Do not adapt to superficial differences but force suitably standardised products globally

• “Offering everyone simultaneously high-quality, more or less standardised products at optimally low prices”

• Market standardized products of high quality at a cost lower than that of competitors due to “enormous economies of scale in production, distribution, marketing, and management.”

4Copyrights Reserved

Strategy

• Few standardized markets instead of many customized markets.

• Mission is modernity at lowest prices.

• “Nobody takes scarcity lying down; everybody wants more.”

• There is no other appeal like price. People like money, and they want to spread it over as many goods as they can.

5Copyrights Reserved

Republic of Technology

• Convergence, tendency to become everything like everything else

• Standardization of High Tech and High Touch products: McDonalds, Coca-Cola, Pepsi, Sony Televisions, Revlon cosmetics, Levi jeans, Hollywood Movies.

• Levitt’s claim “Nothing is exempt.” Not steel, not automobiles, not food, not clothes. Variety costs money, and the modern consumer demanded the best for less.

6Copyrights Reserved

Distinction vs. Difference

• Language, nation rules, Distribution Channels are distinctions and not differences. This translates to Standardization at high Quality levels.

– Japan Cars : Right Hand

– Export Cars to US and Europe : Left Hand

– Japanese Sell office machines through distributors in the US but directly at home

– Japanese Speak Portuguese in Brazil

– Ramadan Times - business after 10 pm

7Copyrights Reserved

Distinction or Difference????

• McDonalds - Process may be standardized but product is not, Menu is customized

• Coca Cola and Pepsi Brand names are Global, but the product is different in terms of sweet content.

• Levi Jeans – Styles may be affected by Bollywoodmovies, varieties

• Apple - Products Universally Accepted

• Dell - Distribution Channel changed for India

• Islamic Financial Culture : Murabaha8Copyrights Reserved

Standardization

• “If a company forces costs and prices down and pushed quality and reliability up - while maintaining reasonable concern for suitability – customers will prefer world standardized products”

• Henry Ford T model, Japanese companies, Korea(TV sets) etc

• Economies of Scale in Standardization

• Small local segments => Global equivalents

9Copyrights Reserved

Marketing Concept

• Multinational corporations are thoughtlessly accommodating.

• Company should know more about what the customer wants than the customer himself or herself does, or at least more than the customer can articulate.

• Failure of Hoover Washing machine.

10Copyrights Reserved

McDonalds in Altamura

• Restaurant in Altamura, Southern Italy in 2001

• Forced out of Business by a local baker

• Reasons for Failure : – Pushing Home Image too hard and too fast

– Did not try to Localize

– Not Understanding Local customers’ preferences first

– Locals Felt city was being occupied by a Foreign Entity

11Copyrights Reserved

Challenging Tradition

• “Wider the company’s global reach, the greater the number of regional and national preferences it will encounter for certain product features, distribution systems, promotional media”

• “Evidence of Failure because of lack of accommodation is often evidence of other shortcomings”

• Failure: Revlon in Japan• Success: Outboard Marine Corporations, Contac

600, Komatsu• Recent Example : Walmart

12Copyrights Reserved

Future of Komatsu

• Komatsu: Japan-centric Global Strategy

• Caterpillar redesigned its products to use identical components and invested in few large scale manufacturing facilities.

• Centralize Manufacturing of components and assembly plants in each of major global markets

• Differentiated products to local responsiveness

• Komatsu loss market share to Caterpillar

13Copyrights Reserved

Organizing to Win

• Product reliability, quality & aggressively low prices, sales compensation packages, transformed distribution systems is key to success

• But some differences between nations are unyielding

• Teradyne corporation – US & Japan. Marketing Effort?

• No right answer – depends on company, capabilities, reputations, resources and even the cultures.

14Copyrights Reserved

Business Realities

“The successful global corporation does not abjure customization or differentiation for the requirements of markets that differ in product preferences, spending patterns, shopping preferences and institutional or legal arrangement. But global corporations accepts and adjusts to these differences only reluctantly, only after relentlessly testing their immutability, after trying in various ways to circumvent and reshape them.”

15Copyrights Reserved

Relevancy of Time

• In 1983, there were only a handful of countries in which corporations had home offices that sold products or services outside the home country borders.

• North America, western Europe, and Japan

• These nations accounted for bulk of trade but very little was with Communist Countries

• Thus when Levitt spoke of globalization, he was excluding a large portion of the globe as it was at that time.

16Copyrights Reserved

Homogenization

• Chemicals, petroleum, steel, sugar and the like

• Industrial and consumer products: handheld calculators, semiconductor chips. Personal computers, LCDs

• Reason for success of Apple, Intel

• Homogenization of choices: Not a convergence of tastes but in the number of choices available to consumers.

• People can now buy products from all over the world: global, regional, local, e-buy

17Copyrights Reserved

Heterogeneity

• Consumers in different Tastes and Preferences and demanded different types of vehicles

• Automobile Industry

• North American: Pickup Truck but South and West have it as 2nd or 3rd car

• European countries- pickup trucks as utility vehicles, Bought by Firms rather than individuals.

• Structural Differences like type of roads, Climate, Humidity

• Customers themselves18Copyrights Reserved

The one-size-fits-all approach is out

• Different marketing practices in Britain and Japan compared to US - soft sell vs. Hard sell

• Consumer electrical systems : North America are based on 110V while European countries on 240V

• Dannon (USA) could not sell its drinkable, low-fat yoghurts in Europe : Local taste nor meet the current food-standards requirements.

19Copyrights Reserved

The one-size-fits-all approach is out

• GSM is common in Europe while CDMA is common in US and Asia

• Nokia, Motorola Ericsson need to customize product offering

• Dell changed its model because of Indian Consumer

• KFC : In Japan, KFC sells tempura crispy strips. In Holland, it features potato-and-onion croquettes. In China, KFC's chicken is spicier

20Copyrights Reserved

Products vs Brands

• Holiday Industry : Mahindra Holidays

• Standardised Brand but not the product

• Coca-Cola has up to 2800 different beverages, mostly local - Thumbs Up local brand to India

• McDonald's varies its menu to suit local tastes

21Copyrights Reserved

Economies of Scale vs. Scope

• Technology has changed the economics of production.

• Possibility of economies of scale and also deliver very discrete, specialized products.

• MTV has different programming to suit different countries and regions : Digital and Satellite technology have made localization of programming cheaper and easier.

• L’Oreal differentiates between the cosmetic products of its global brands by basing them on the four types of climate in China, since these determine four skin types

22Copyrights Reserved

To Conclude….Relevancy to Today

• Ideas right or wrong, relevant or irrelevant to today’s times but can set off a chain of debate that results in greater knowledge.

• "So a brilliant idea that may not be right but that gets people thinking can be of greater value than a standard idea that doesn't stimulate thought at all.“ Richard Tedlow, professor of business administration at HBS

23Copyrights Reserved