ARTICLE REVIEW
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Global v/s Multinational
Article Review
Introduction
There is no doubt that today’s business environment has changed. Over the past few decades, the rise of transportation, communication, technology and cross cultural integration across the world has seen the rapid rise of consumerism and increasing wants and needs on a global scale. In the article named ‘Globalization of Markets’, (Levitt, 1983), sees the demise of the quintessential multinational corporation and proposes the emergence and dominance of global corporations.
The article goes into details of the many aspects which relate to the rapid globalization of businesses and markets. Some of the factors include, technology, mass production, homogenized wants and so on. The article makes a case for mindset and process changes in most multinationals to ensure that they do not lose out to companies which are operating with a global mindset.
Discussion
Globalization is really making a huge difference to how economics has evolved in the last 50 years (Loots, 2002). Effects of globalization include closer ties and cooperation between countries and markets in the social and business spheres. Levitt, in the article feels that companies must see the world as one market, without giving credence to differences. Although
According to Buckley and Ghauri (2004), globalization is a phenomenon that has brought in many challenges in terms of markets, economics and policy making for growth in developed and underdeveloped countries. With a large influx of Foreign Direct Investment (FDI), many multinationals are optimizing their production and labor strategies that are again leading to divisions among labor forces.
The article by Levitt brings into focus the many deficiencies of traditional marketing and management thinking prevailing today. Levitt feels that customized products and services for smaller and smaller markets is not the right strategy.
Many multinational corporations tend to develop customized products to cater to unique wants and needs in every nation they operate in. This kind of customization leads to higher costs and lower profits and would not be worth the effort for most multinationals. The shift in the global markets with higher competition and changes due to technology, demand a higher focus on standardization to mass markets.
He argues that many multinationals with their high focus on consumer preferences and customization have lost sight of the demand for standardized high quality lower priced products – which are in demand globally. Levitt argues that success in the new economic order will require that organizations think globally – by mass customization of high quality and lower priced products which suit many markets.
This argument however does not defy the basics of marketing theory like segmentation and demand. Though segments will exist within a country, the standardization effort will help in delivering the right product at the right price which will increase off take. It is possible that all of these segments may not be operating in all markets. However success in the global market place will be determined by understanding of key products and segments which can be mass marketed to global regions, rather than customizing a product to each country.
In another article, Cavusgil (1993), talks about how the development of communication, transportation and technology have enabled the development and proliferation of global trade. Many new age businesses like medical imaging, robotics, and innovation have crossed boundaries and can be delivered from any country to any customer.
The world is a global marketplace with customers showing preference for similar wants and needs which can be fulfilled by global corporations using standardized processes and technology to achieve economies of scale and scope.
According to Levitt (1983), the standardization strategy helps in not only targeting cluster of market segments in the global economy, but also helps in challenging competition. The older concept of a domestic product dominating a domestic market is history. No organization can depend on the growth and revenues from domestic products or markets.
Competition from countries with lower costs and higher economies of scale can soon be a competitive threat in any market across the world. According to Ghemawat (2001), there is a still a gap in terms of product market integration.
The greater achievement would be to combine many markets together, based on a common pricing mechanism, which is the real objective of market integration, rather than basing it on quantities of products.
Levitt’s article makes an argument for adopting new technology, innovative mindsets to get future growth and success in global markets. It can be argued that though consumer tastes are changing across the globe and some categories like Colas, Pita bread, Chinese food are gaining rapid adoption; it cannot be generalized to all product and service categories, nor can it be attributed to all markets since “substantial differences exist in between countries (Douglas and Wind, 1987)”.
Levitt’s article makes localization and cultural integration of products to local geographies as a phenomenon of the past with no relevance today. But it can be argues that in many instances, the reverse may be true. Besides the basic case for sales and production as cited in the article, it does not consider the other aspects of markets and marketing to diverse countries.
The article cites instances of Hoover, which did not pursue a launch in Europe due to the faulty ‘multinational’ way of assessing consumer preferences in research, rather than their behavior in the market. The case assumes that a launch of a smaller fully automatic washing machine at the right price would have enabled Hoover to capture the market in Italy and Germany compared to competitors.
It can be argued that the article does not take into account factors like the emotional and nationalistic appeal of domestic brands in countries, nor does it attach any importance to differences in business culture and norms, ethics, legalities, trademarks, approaches to marketing in diverse markets.
The article seems to focus more on the first 2 P’s of marketing – Product and Price, deriving many conclusions about the demise of multinationals, without adequate regard to other factors like Place, Promotion. The concept of a globalized corporation is not defined or argued completely. Labor markets are different across the globe and so are labor laws. Management of people, processes, government policy and customers vary across countries.
Global organizations could, for example, follow the standardized strategy and create advertising, but it may not resonate or be relevant with right messaging for all markets. For example, comparative advertising is illegal in Germany (Cateora & Graham, 2005), while advertising on TV is strictly controlled in respect of products types and also content, in many regions.
In the Middle East markets, one cannot advertise non-halal meat products and even services like banking are customized to follow the norms of Islamic banking. Uber, customizes its cars and pricing (sedan, hatch back, SUV), based on the local conditions of road width, traffic density, demand for luxury cars, preference for lower priced transport and so on.
More than a single standardized approach, companies which need to go global need to adopt many entry strategies – international, multi domestic, global or a transnational strategy (Bartlett & Ghoshal, 1989). The firm will need to pursue a strategy on product, marketing, production, cost reduction and optimization. However implementing such strategies can be challenging due to the dependency on cost reductions and local demand (Hill, 2004).
Conclusion
The article by Levitt often refers to technology in the manufacturing sense and not the current ‘digital’ sense. The advent of ecommerce and global processes have enabled the global consumer to buy customized products when, how, and where they want it.
Today, we see many start-ups launching newer and innovative products and services, largely emerging from a latent unsatisfied need or gap in the market.
The success of the digital businesses and start-ups clearly shows that mass standardization is not the order of the day. It fails to provide enough examples in different product categories. It provides a limited view of global business.
Take the case of services like information technology, where companies always customize code to local needs and regulations. Many pizza chains change the menu and topping choices to suit local tastes.
The article presents a very interesting and divergent point of view on globalization but it fails to enhance the scope of its arguments, by relating it to different product categories and a view on the future of global digital business.
References
Bartlett, C. A. and Ghoshal, S. 1989. Managing across Borders: The Transnational Solution, Boston: Harvard Business School Press.
Buckley, P. J and Ghauri, P, N. 2004. Globalisation, economic geography and the strategy of multinational enterprises. Journal of International Business Studies (2004) 35, 81–98. doi:10.1057/palgrave.jibs.8400076.
Cateora, P. R. and Graham, J.L. 2005. International Marketing, 12th edition, New York: Mc
Graw Hill/Irwin.
Cavusgil, S. T. 1993. Globalization of Markets and Its Impact on Domestic Institutions, Indiana Journal of Global Legal Studies: (1) Iss. 1, Article 5.
Douglas, S. and Wind, Y. 1987. The Myth of Globalization, NY, Retrieved 9 May 2016 from:
www.ingentaconnect.com/content/mcb/036/2001.
Ghemawat, P. 2001. GLOBALIZATION AS MARKET INTEGRATION AND THE FUTURE OF INTERNATIONAL BUSINESS, Harvard Business School. Retrieved 9 May 2016 from: http://www.people.hbs.edu/pghemawat/pubs/globalization_as_market_integration.pdf.
Hill, C.W.L. 2004. Global Business Today, 3th edition, New York: McGraw Hill/Irwin.
Levitt, T. 1982. The Globalization of Markets, HBR, May-June 1983, pp. 92-102
Loots, E. 2002. Globalisation, Emerging Markets and the South African Economy, South African Journal of Economics, (70) 2, pp 123–132, March 2002
