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Relevancy of Levitt's views on Globalization in 21st century

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This essay aims at evaluating Theodore Levitt’s concept of homogenized needs and converging economy as a result of globalization. During the course of the essay, the main points of Levitt’s article are highlighted followed by major critiques and suggestions for global organisations in the end. Throughout the essay, the impact of information and communication technology is highlighted.

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Relevancy of Levitt's views on Globalization in 21st century

  1. 1. ANANYA JAIN 1 Relevancy of Levitt’s views in 21st century By Ananya Jain, MLitt in Marketing Under the guidance of: Professor John Fernie, International Marketing Aim: This essay aims at evaluating Theodore Levitt’s concept of homogenized needs and converging economy as a result of globalization. During the course of the essay, the main points of Levitt’s article are highlighted followed by major critiques and suggestions for global organisations in the end. Throughout the essay, the impact of information and communication technology is highlighted. “All in all, ideation is relatively abundant. It is its implementation that is more scarce”, (Levitt, 2002). Professor Levitt was a firm believer that implementation is the bottom line than just the ideation. His article ‘The Globalization of Markets’ published in the issue of May 1983, Harvard Business Review, highlights ‘homogenized’ world preference structure that leads to creation of ‘Global Corporations’ opposing Multinationals. Professor Levitt’s views were like an analysing lens to understand global markets. Most important take-aways from the article were: First, consumers accept standardized products if they are high quality-low cost globally. High quality and low costs can co-exist, they are compatible, and twin identities (Levitt, 1983). In context of business environment, theory suggests that good quality is expensive since the relationship between level of quality and product price is inversely proportional (Donnelly, Gibson, and Ivancevich, 1987). Simply put, to achieve higher quality, firms must invest more, thereby increasing costs. However, if firms think about quality systematically, over-time, they can lower their manufacturing, recall, and warranty costs, hence lowering the overall price (Aragon et al., 2017). Levitt suggested that if the focus is on global standardized products and their production, distribution, and marketing strategies keeps global competition in foresight, then high quality could be achieved at low costs through economies of scale (Levitt, 1983). This lower price advantage shall increase worldwide demand for standardized product giving rise to homogenized markets. For example, Coca-Cola and Pepsi standardize their products (bottles) and have similar channels of marketing and distribution globally leading to lower costs and increased demands (Deichert et al., 2006). Second, technology that supports convergence has homogenized the globe. Levitt argued that the global corporations accept the fact that technology drives consumers towards the same
  2. 2. ANANYA JAIN 2 demand preferences and spending power, i.e., economic realities where then economies of scale lead to reduction in costs and prices (Levitt, 1983). For example, Intel Corporation is the market- leader in the microprocessor industry because of their lower costs in production facility. They believe in a simple concept, as the production volume goes up; the efficiency increases, and the costs decreases (Jorgenson, 2015). Third, consumers prefer low prices not feature preferences and heavy promotions regardless of the price (the case of Hoover Ltd.). Levitt explained that the practice of preserved marketing concept and lack of imagination often let multinationals attitude survive when the customers wanted the benefits of global standardization, but for a short span (Levitt, 1983). For example, Red Bull proved to excel the global marketing strategy at competitive pricing and crazy promotions. The youth of both, the east and the west tend to recognize the brand for its cool-element. It created a new category in the F&B industry, the energy-drink market in just a span of 25 years (Siminoff, 2017). Fourth, corporations must find markets that are similar-to their product’s market segment to increase their global reach. Even smaller target-markets have their global equivalents everywhere resulting in a global competition on price (Levitt, 1983). For example, Gillette supports a local approach with an umbrella global marketing strategy. They sell products for both men and women as these segments are common in respect to their needs and wants globally (Campaignlive.co.uk, 2005). Lastly, he suggested that corporations should never assume that customer is a king who knows his own wishes. The customers ‘say’ that they want certain features but their behaviour ‘demonstrates’ that they would take other features provided it is priced and promoted right (Levitt, 1983). For example, Sony Ericsson Walkman faced negative report prior to its launch where the researchers called it a graveyard-brand. However, the company recognized the brand’s potential and opportunity to differentiate by leveraging nostalgia. Despite of the brand targeting just the youth, the Walkman became an instant hit among all age-groups. Their brand story does not include any market research firm since it was based on pure intuition and realization of opportunity (Nathan, 1999). Thus, it is quite clear that Levitt believed the world is converging to a homogenized market where global corporations can cater big-markets with suitable standardized products. According to his theory, corporations that fail to adapt to this new global-reality could become victims of the global
  3. 3. ANANYA JAIN 3 competition as a global competitor will constantly standardize its offering everywhere until it exhausts all possibilities to retain, reinstate, digress its resources (Levitt, 1983). But is this kind of thinking relevant in today’s world? With globalization converging the economy, there are situations like the Brexit that hint towards pulling back to our roots and shells to protect our national interests (Giles, 2017). The fact that nations want to preserve their local culture and resources is broadening with instances where nations are rolling out policies like America-first (whitehouse.gov, n.d.), Kiwis-first (Greenfield, 2017), Japan- first (Usuda, 2017), Filipino-first (Patajo-Kapunan, 2015), so on and so forth. This is contrasting to Canada’s ‘post-national’ country approach (Foran, 2017). Another instance, Trump’s ‘beautiful border wall’ that will separate Mexico from USA (BBC News, 2017) suggests that nations want to protect their local communities, businesses, interests, and rights (D'Souza, 2017). The idea of global markets is fading away. As a few theorists suggest, the global market-economy was a result of political decisions in the past and it can be shaped by future political decisions (Elliott, 2016). Corporations that believed global approaches can overpower the local differences often fall prey to the local competition. Wal-Mart is a giant in the United States but failed miserably in Germany with their EDLP (every-day-low-prices) approach because of the cultural differences that it chose to over-look (Fernie et al., 2006). The customer service notion and labour regulations in United States are very different from Germany which were the major reasons for its failure (Fernie et al., 2006). Brands that adopt the ‘do-not-touch-the-brand’ school of thought often face difficulties due to the cultural and regional differences. Such was the case of Henkel detergent in European countries as it brawled with economies of scale and consumer preferences (Lagace, 2003). Another prominent example is Facebook in Japan. In its initial years of operations, Facebook lost its market share to rival Mixi due to the cultural difference (Japanese are sensitive about privacy concerns and self-disclosure) (Acar, 2011). However, it is trying to regain its position by tweaking a few changes in its approach like instead of friends-networking site, it positioned itself as a business-networking site; timely updates during frequent earthquakes; declaring people as safe during major disasters to list a few (Acar, 2011). Market-leaders like P&G learnt their lesson when they changed their international marketing strategy from a global-product-strategy to a transnational-global-strategy. It seemed like they confused globalization with standardization. They shifted their marketing outlook from a
  4. 4. ANANYA JAIN 4 standardized-product-for-all to a global-product that encapsulates the local tastes and expectations of consumers (Warren, 2012). Mr. Marc Pritchard, Chief Brand Officer, P&G said, "We are shifting towards thinking about how we can operate in a way where we have ideas that travel globally, but we still have to execute at the local level" (Neff, 2009). Paul Polman, CEO, Unilever (Ex-Managing Director, P&G UK; Ex-CFO, Nestle) sees a difference between sharing knowledge and forcing a single global direction in every market (Neff, 2009). According to him (in support of Levitt’s views), something about marketing should absolutely be global. However (in contrast with Levitt’s views) he said, “at the end of day, you have-to win in the local market, it does not serve anything to have a standard product globally and not win anywhere.” (Neff, 2009). Business leaders and theorists who have analysed Levitt’s strategies believe that it is not knowledge of global markets that should be the aim for reading Levitt but a starting point for managers to analyse these (Silverthorne, 2003). Authors also suggest that Levitt, both, under-estimated and over- estimated the impact of globalization. However, they do agree that Levitt was point-on for understanding consumer behaviour. The consumers do not know what they want but they prefer something over the other (Silverthorne, 2003). Steve Jobs, an iconic visionary, the one who made the world see apple differently once said in an interview after winning Entrepreneur of the decade award in 1989, “You can't just ask customers what they want and then try to give that to them. By the time you get it built, they'll want something new” (Gendron, 1989). Levitt suggested that multinationals create unnecessary complexities through their marketing concepts by asking customers what they want rather than observing their behaviour (Levitt, 1983). These days, however, companies are relying on market-research firms and behaviour analysts to judge and plan their activities in global markets. It has become a new business line since researchers now become the advisors to new players in an open territory. Good-old giants like Kodak, Sony Ericsson, and Apple did not rely on such firms but just their intuition (Mortal Journey, 2010; Nathan, 1999; Grendron, 1989). Supply-side globalization due to economies of scale exist today but not demand-side. Without considering consumer-characteristics, a company cannot expect to grow by positioning itself in all the markets. For example, Polaroid tried to enter the French market with their standardized marketing approach. They used the same marketing gimmicks and advertisements that were used in
  5. 5. ANANYA JAIN 5 the American market- it proved to be a commercial failure (Kapferer, 1992). It could not create a similar pull in France as in the US (Silverthorne, 2003). In this sense, the concept of ‘choice- architecture’ is relevant here (Thaler and Sunstein, 2008). The way a choice is presented, influences the decision-makers choosing pattern (Johnson et al., 2012). Two contradictory approaches can be: too few options like Ford Model T- you can have any colour as-long-as it’s black (Kurylko, 2003), or the danger of too many choices- tyranny of choice (Schwartz, 2004) like in cafeterias additional foods can be “trigger foods,” resulting in seemingly unrelated additions that would otherwise have not been made (Hanks et al. 2012). The corporations need to understand that it may just be coincidence of globalism. Corporates consider globalism at birds-eye view whilst at consumer level, despite of converging needs, the purchase choice is individualistic and egocentric (Buzzell and Quelch, 1988). Languages, symbols, psycholinguistic factors pose a barrier to Levitt’s standardized product. For example, Glaxo Laboratories ‘Imigran’ (international name for Sumatriptan drug) could not launch in France until they changed the name since the French were sensitive to the topic of immigration (Kapferer, 1992). Today, corporations are well versed with ‘Think Global, Act Local’ school of thought referring to- Glocalization (Kotler and Keller, 2009). Levitt used Coca-Cola as an example to explain the standardization approach, however, according to Douglas Daft (Ex-CEO, Coca-Cola), the world changed but they did not. They kept standardizing their approach and products while the world wanted more flexibility and local-sensitivity. They eventually had to change from going-global to going-local when they lost international market share to their rivals (Ball, 2003). Since corporations face a turmoil in determining the extent to which they should globalize and glocalize, various approaches have been identified to help them like the framework for alternative global marketing strategies which identified five strategies ranging from global to local and midway routes (Schiffman & Kanuk, 2009). Philip Kotler who is known as the father of modern marketing (Mahajan, 2014) believes that global companies know that all good marketing is local and thus they are going glocal (Hollensen, 2014). According to him, glocalization should not be a substitute of globalization but a step forward into unique insights of a global marketing strategy (Kotler and Keller, 2009). An approach to deal with this can be separating the product from the brand. McDonald’s is famous for its glocalized approach because it localizes according to the tastes and culture of each country it enters whilst maintaining the brand image globally. For example, its signature offering in
  6. 6. ANANYA JAIN 6 India is Chicken Maharaja Mac and not the universally famous Big Mac Beef Burger. This is because consumers in India do not eat beef since they worship the holy cow (Kannan, 2014). With passing time, the so-called global brands are emerging to be transnational as they stay true to their home identity but adapt to local and national differences along with needs and wants of customers. Brands like Nestle and Unilever know when and how to hit the nerve and increase their sales (Sirkeci, 2014). New dimensions to global consumer includes Global-Citizens, Global-Dreamers, Anti-Globals, and Global-Agnostics (Holt, Quelch and Taylor, 2004). According to them, if corporations base their marketing strategy in a way that will attract anti-global consumers, they could also capture the masses. Levitt’s focus was on technology that converges the needs and demands of consumers globally. Online marketing with practices like SEO (search-engine-optimization) and SMM (social- media-marketing) have made national boundaries irrelevant since consumers know about products and services available everywhere and anywhere globally (Economics Online, n.d.). However, with increased transparency comes increased competition and customers ultimately decide with their purchase decision, who wins the marketplace. Supply-side synergies can be praised with lean chain and value based networks. But the challenge lies in the demand-side synergies (The Telegraph, 2015). Corporations needs to understand their customers closely and link their offerings in a way that they prefer, for this, Levitt is a starting point for understanding markets, but managers do have a long way to go.
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