Harvard Business Review

May/June 1983

Critique by: Art Madsen, M.Ed.

Transnational Research Associates

June 1999

Comprehensive Question No. 1:

Dr. Levitt in his article "The Globalization of Markets" indicated that

world markets are becoming more homogenous. Is he right?

Professor Levitt develops a cogent and coherent argument when he discusses the standardization of products, demand and markets in his cited HBR article. By acknowledging that there has been a distinct shift from the localized marketing practices of the early part of the 20th century, he correctly assesses the new trend toward globalization of virtually all vital products and services. Those companies which fail to adapt, he argues, will not be able to survive the competitive pressure of inexpensive, high-quality goods invading their historical territory.

His analysis points toward certain indicators which clearly display the dramatic changes characterizing the last two decades. Writing in the 1980s allows him sufficient insight into what has occurred in the years following World War II, and enables him to identify what will occur in the 1990s and beyond. Europe and North America have led the way, certainly, but Japan, Taiwan and Korea have also assisted in the process. Trade patterns in the last three decades reveal, for all to see, the expansion of Japanese markets, featuring US products such as SmithKline Contac 600, and US markets, conversely, featuring Japanese products such as Kawasaki and Toyota. These major trends are also mimicked, on a lesser scale, by third-world nations (Mexico, Brazil, even the Congo) where automobiles, for example, are being assembled under low-wage conditions and where the phenomenon of homogenization is beginning to take hold, as well. The classic examples of Coke and Pepsi, cited universally by marketers, are only models, now extremely well-entrenched everywhere, and other major players such as Ford, John Deere, IBM, and AT&T have begun to spread their products and services where exponential demand is growing, as a function of ever-more-sophisticated worldwide communications and information availability.

In fact, with the ever-spiraling improvement of communication, which was occurring in the 80s as Levitt wrote, the growth of markets for goods once known only in a few countries has now become not only widespread, but homogenous and uniform. Levitt speaks at length of the German and Italian competition for producing a washing machine. He describes market forces which were about to drive the German manufacturer out of business, because the Italian model was less expensive and more universally admired by housewives. The 'homogenization effect' takes place when a standard model wins the hearts and minds of a worldwide clientele. True, Levitt admits, everyone would like to have a deluxe washing machine, but actual consumer behavior constitutes the bottom line. In this example, the Italian model (small, efficient, cheap and relatively durable) was victorious. And this victory led to the concept of 'uniformity of demand' and the ability to mass-produce (taking advantage of economies of scale) such machines, maximizing profits and homogenizing the industry.

Similarly, key brands of detergent, or certain medications, have become known throughout vast areas of the world. In Africa, the leading detergent is OMO. In America, Tide or Cheer seem to dominate. Yet, slowly, as marketers begin to understand the actual behavior of the global customer, these brands are fusing into one. Once Proctor & Gamble understands that soapy suds are appreciated in Africa and frowned on in North America, minor adjustments can be made and massive profits realized. While the formulas of some products may differ, the notion of homogenization is still valid. Everyone needs detergent; everyone needs basic commodities.

However, Levitt alludes to the complexities of homogenization when he refers to Teradyne's attempts at exportation of technology. While Teradyne produced two lines of products to accommodate Japanese tastes and American, it needed to adapt its marketing strategy to each nation, as well. This dual-pronged approach led to a number of dilemmas. Such dilemmas often lead to the downfall of a company, Levitt points out, if they are not handled expertly. So, while the Japanese needed this product, their preference for a differently designed "testing system" created problems for Teradyne, placing cracks in what would otherwise have been a process of uniformization or homogenization. It is important to recall, incidentally, that such uniformity can occur, and, as globalization takes hold, frequently does occur, at all levels of the supply-demand and production-sales chains. In Teradyne's case, they felt they could bifurcate (Japan vs US consumer preferences) the product line and survive.

Although it can be seen that there are ripples in the various stages of developing global markets, as well as contractual intricacies, certainly these temporary inconsistencies are evened-out, and ultimately the products provided are not only of high quality, but are inexpensive and universally sought. As globalization and standardization occur, demand becomes uniform, predictable and increasingly strong, as entire geographic sectors are added to international markets already established along the lines of earlier industrial models.

Levitt notes that human nature remains constant, and planning for predictable consumer desires, while not a piece-of-cake, is at least feasible. Corporations making the transition from multi-national status to global status are aware of these dynamics. Of course, not all multinationals have either the expertise or intention to convert to global firms, but many do so. Those that succeed, all the while remaining solvent and profitable, are those whose products become household words from Bangladesh to Burma and Sri Lanka to the Sudan. Indeed, the homogenization of markets, of demand and of product lines is a phenomenon related to standardization, but also to the dynamics of consumer behavior. The 21st Century will surely explore new vistas in this direction as Levitt predicts. He, in this sense, seems to be very much "on track" in his thinking, as expansion and homogenization of world markets continue to occur.

Comprehensive Question No. 2:

What driving forces did Levitt discuss and what indicators

might have caused him to envision these driving forces?

Professor Levitt is an eloquent spokesperson for the role which technology is assuming in the late 20th Century. Although he could not foresee, in 1983, the tremendous impact which the Internet would have on global markets and consumer demand, he nonetheless demonstrates, in his referenced article, deep insight into the driving forces which, then and now, are reshaping the nature of commerce worldwide. Throughout his analysis, Levitt refers to primary aspects of consumer behavior which constitute the basis for the globalization of business. The motivations or impelling forces leading to massive expansion of consumption are well understood by this recognized specialist on the globalization of business.

The writer, whose article appeared in perhaps the world's premier business journal, cites technological advances as bringing even third-world populations into contact with new products. He states that improved communications and dissemination of information flow are at the root of creating a "driving force" which consists of consumer-based desire for the latest products and innovations. In fact, he refers to the "ubiquity of desire for the most advanced things..." and knows that this demand is fueling worldwide industrial and manufacturing expansion. He points out that new global markets, created by these 'driving' desires, add even more energy to the spiraling production cycle. By learning how to lower costs, increase quality, and meet consumer demands everywhere, through standardization, firms like Coca-Cola, Pepsico and McDonald's have mastered the vital characteristics of global business. Citing Teradyne and SmithKline as good examples of global companies, he points out that, even though they are smaller firms than Coca-Cola, they have begun to grasp how important it is to capitalize on global demand...which, in itself, is a tremendous driving force, predicated on technology and improved information flow such as, in the 1980s, television, radio, print-media, and international telex and telephone.

Professor Levitt clearly emphasizes the theme that the nature of business is shifting. No longer is the multinational firm at the pinnacle of success and prominence; but, rather, the global corporation has supplanted it. These two types of firms differ substantially, he notes, because demand for products has changed. The multinational company has, traditionally, catered to specific demands in closely defined geographic markets, and adjusts its products or services to each country. On the other hand, recognizing the driving force of technologically based consumer demand, global firms have focused on low-cost, standardized products. Further, they pursue production of these items with what Levitt calls "resolute constancy."

There are, and were in 1983, growing indications that the global consumer -- driving global markets -- will, in fact, globalize the nature of business, and this is the central thrust of Levitt's predictions. Indeed, Levitt seems to have been one of the first theorists to structure his perceptions of business in this sense and may well have been in the forefront of 'coining' or recognizing the entire notion of the global corporation driven by international demand for standardized products leading to, as he says, "alleviation of life's burdens and expansion of discretionary time and spending power."

Those three goals are convincingly dynamic driving forces in themselves.

The firms which know how to do this best, that is produce and market products making life easier, will succeed. But they must accommodate these driving forces of global demand with cost-reduction in mind and they must, like dynamic Japanese firms, be "implacable in execution" of their plans to do so, as Henry Kissenger stated in his Years of Upheaval. Levitt, having quoted Kissenger in his Harvard Business Review article, seems to agree entirely with him. Both men are visionaries of global marketing and understand the forces driving business on this unprecedented scale.

Comprehensive Question No. 3:

What do you consider to be the most important issues in

Global Marketing? Provide practical examples for each issue.

Marketing is a field that cannot be viewed as an independent entity. Surely there are many commercial specialties and academic disciplines which are related directly or indirectly to the complex web of strategies, approaches and initiatives which comprise the field of marketing. For example, psychology is clearly related, as is sociology. Because of this cross-disciplinary inter-relatedness, the phenomenon of global marketing has far-reaching implications for societies on all continents. I would like to discuss three issues I feel are critically related to the phenomenon of global marketing as it seems to be developing in recent decades.

The first of these issues involves the risks associated with depriving a given culture or social system of its traditional "points of reference." Globalization of markets can have a negative impact on the rich heritage or historical base of a society. By eliminating narrowly established industries and enterprises, monolithic firms, such as Walmart or McDonald's, can devastate the pre-existing variety of businesses and irreversibly damage the interwoven fabric of private initiative throughout entire geographic regions. Although it may be useful and proper to encourage the expansion or establishment of certain major industrial or manufacturing firms for reasons related to national or international economic priorities, planning must be especially carefully supervised so as to avoid the smothering of family businesses, arts and crafts, historically significant industries and/or small and medium enterprises.

One appropriate example of community opposition, in recent years, to the radical alteration of local color and atmosphere involved the State of Vermont. When Walmart attempted to locate one of its massive outlets in a small Southern Vermont township, the town, county and state governments fought the giant retailer's initiative and managed to pass Ordinances preventing the destruction of their lifestyle. Walmart is now banned from locating any of its outlets anywhere in Vermont, so vociferous was the outcry.

In France, although there is periodic acceptance of huge industrial complexes in areas not likely to support them, there is also an energetic lobby which serves as watchdog for ecological and environmental concerns. If Rhone-Poulenc or Groupe Elf attempted to erect chemical refineries or petroleum plants in an attempt to expand capacity, local opposition would definitely surface. The extent of the opposition, and its success or failure, would vary; in France, the government would ultimately make the decision.

Indeed, people are conscious not only of the disappearance of favorite products from their grandmother's era, but also of the encroachment of industrial complexes, or concepts, likely to disturb their lives. Globalization of markets is directly linked to feelings of these types, and has implications and ramifications for the 'quality of life' factors so cherished by most nations. Levitt alludes to this recognition when he states,

He goes on to argue that this is a trend which will continue and one that appears inevitable. I find this disturbing to the extent that globalization seems capable of eroding local and national identities and cultures.

Secondly, global marketing, by its very nature, breaks down national boundaries and identities. It could be argued that this is an acceptable development in light of world tensions and economic inequalities. However, 19th century positivist Ernest Renan and a host of more recent socio-theorists, such as Henry Kissenger and Simone Weil from disciplines marginally, but importantly, related to marketing, might find dissolution of the concept of a "nation" somewhat disturbing. How does globalization of markets weaken national identity? It does so by casting a Kentucky Fried Chicken veneer over the winding streets of Old Shanghai, by infusing the notion of the Big Mac into the quaint arcades of the Champs-Elysées, and by foisting Chevrolets onto those, in Milan, who might prefer a Fiat. This is not an argument against globalization, which (as Levitt repeatedly asserts) has a number of redeeming qualities, but it would seem to be an issue highlighting the need to maintain choices and options among the consumer base, thus reinforcing the concept of national identity and unique traditions. Consumers need to have a variety of products, not a single monolithic brand or line. Of course, concepts discussed clearly in Levitt come into play here: the survivors, for better or for worse, will be those firms who can compete viably and sustain their competitive stance over time. Hopefully, as the dust clears, the concept of distinct nationhood, somewhat at risk I suspect, will not be totally eroded by the amalgam of American Whoppers, Japanese Kawasakis or French Chanel products.

Lastly, an issue, or aspect of the impending global economy, which leaps before the eyes when considering the impact of global markets is a far more positive one. Given the risks discussed briefly above, there are also enormous advantages to achieving profitable, stable and technically sophisticated global markets. Life will be improved for all, affording people everywhere more leisure time and more discretionary income. New recreational industries will emerge, as is already the case in France where the 32 hour work-week is being implemented, in addition to the French enjoying the benefits of the global economy. The cost of essential products will drop and affordability will become a central theme in marketing promotions. People's lives will be improved, enlightened and -- even if they are somewhat "banalized"through standardization -- made easier and more survivable in many ways. Third world nations could fall more closely in line, economically and politically, under these circumstances with their industrialized northern-hemispheric partners and tensions (national and individual) would be measurably reduced as technology and wealth were more equitably distributed.Levitt, as early as 1983, seems to hold this out as a distinct possibility.