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Then & Now: Theodore Levitt’s Globalization of Markets

Prof. Theodore Levitt (Harvard Business School) stated almost two decades ago that “[t]he globalization of markets is at hand. With that, the multinational commercial world nears its end, and so does the multinational corporation”

How does today’s global business environment comport with his vision? He may not have been prescient, but he pointed the way foreshadowing the tumultuous developments.

Whether called “Multinational Corporation” (MNC) or “Global Corporation” (GC), the animal is the same animal – only it has gone through evolutions across the decades. Levitt used the name of MNC for the previous form, and the name of “Global Corporation” for the next evolved form. At the time of Levitt’s writing (1983) he characterized the MNC as “operating in a number of countries, adjusting its products and practices in each – at relatively high costs.” He contrasted this “old” MNC form to the “new” corporation, the “Global Corporation” (GC), as one which “operates in difference countries without adjusting its products and practices – and at relatively low costs.”

I think the current iteration of management practices and the corporation’s role in globalization is evolving – at an accelerated rate – and this may be the “new” nature of the GC: adaptability. (A return to “old” MNC, Levitt may say.)

Several trends contribute to this evolving form:
– Our times are driven by technology
– Our times are driven by the leadership of certain countries’ companies and their associated larger culture – particularly American.
– The dotcom boomers such as web-related companies, IT/SW companies on the network side, telecom companies, and even companies which supported these companies (management consulting firms) all colluded, hand-in-hand with voracious VC’s, to the feeding of new funding practices, management practices, and expectations.
– Wall Street catapaulted along, and international money markets fed the tidal ripple effect in the rest of the world.

It is no wonder then, as instant cable news and the Internet bandied about American firms’ ridiculously large valuation numbers achieved in embarrassingly short times; as MTV and other tv shows made American culture and material desires the standards-bearer for personal consumption; as McDonald’s, Nike, Coca-Cola, Starbucks, and Citibank made the American culture physically ubiquitous; and as Americans/Europeans and “western” ways of conducting business dominated WTO/IMF/World Bank/UNDP negotiations; that there should be backlash and resentment against all things American/western – not least of all the capitalist way of doing things and its tentacled manifestation, the Global Corporation.

Now, in our post-dotcom, 9-11 and domestic terrorist attacks era, the nature of the corporation is once again evolving to the changing landscape. Levitts’ perspective, that the global/human commonality of scarcity drives the efficiency model and the desire for money, is valid…

But I’d like to add that our era now requires GCs to pay more attention to the needs of locals – and that some measures of social responsibility need to be taken. Human life and the operation of corporations cannot be all about efficiencies and profitability.

Levitt’s perspective is essentially based on the need for standards – an agreeable position that is difficult to reinforce – because human being are inherently territorial, and seek to differentiate… Particularly under situations of duress (New Zealanders or Native Americans losing their land, heritage) or even of age (teens across races, religious, are affected by raging hormones).

Today’s industrial revolution of technology has made communication instantaneous, feeding the creation and fast growth of a global culture. In the world of technology, without a doubt this need is great – IEEE has made good inroads in this, along with the W3 Consortium (Tim Berners-Lee’s group).

In the realm of trade, certainly the need for standards is also clear. WTO has made significant steps in addressing the need for all countries to abide by the same set of rules. Further, in commercial products, the human desire for the newest or the best is as naturally unavoidable as crows’ attraction to shiny objects, so standardization of “high quality” is an ever rising bar as innovations percolate.

However, today’s global era demands that GCs do need to adapt to the local tastes, they should understand what the customer wants, and not presume to know the customer better than the customer himself. Purchases are not based upon price alone, unless they are generic products… Broadly speaking, purchases are emotionally driven – which is why “brand” means more now than ever as homogenization spreads. Even with technology-related products.

Today’s GC is both “fox” and “hedgehog” – Ikea’s success makes it methodology an attractive model to study. It has maintained both its own standards, as well as made regional/local adaptations. Toys-R-Us and McDonalds have also found it beneficial to pay attention to “[d]ifferent cultural preferences, national tastes and standards, and business institutions”. Any GC seeking future profit must be both in China. So, Levitt’s example of Hoover is for me an indication for the “new” GC to make adjustments in its attitude. Lacking knowledge about new features available, buyers stated what they thought they wanted. With new marketing promotions, they discovered other more desirable features. But the corporation’s attitude, I think, should still be of giving the customer what he wants – not being “thoughtlessly accommodating” – but of thoughtfully sharing.

Several trends have catalyzed the arrival of today’s era:
– Technology at the enterprise level has transformed economies of scale across industries, contributing to M&As.
– M&As have proliferated across media, communications, consumer products, and distribution channel industries, contributing to the homogenization of information as well as products offered.
– But perhaps the most powerful of all, the “product” and brand of American culture has homogenized the global “taste” for products. As with Italian fashion culture, the “brand” of a culture is a powerful motivator to purchases, in addition to the individual- and country-level trends mentioned above, which drive the GC’s evolution. Low price regardless of features, or heavy promotions regardless of price, are alone not the primary drivers of purchases. Brand associations are very powerful – and as GCs continue to merge and acquire each other and homogenize products, and consumers get swept up in common consumption tastes, product lines will increasingly rely upon “perceived” value differentiations that branding cloaks products in.

Convergence is happening, yes. But not to the exclusion of addressing sub- or micro-level overseas sensitivities or practices. Some markets (China) are simply too large or variegated to be forcibly and quickly changed by GCs without the GCs themselves making significant adaptations in their own practices and products. GCs who adapt to standards but also address local environmental conditions, cultural and institutional needs are the ones that find a smoother path to market entrance and market share.