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GLOBALIZATION OF MARKETS Theodore Levitt is often considered to be the first to recognize the trend towards globalization and states that: “companies must learn to operate as if the world were one large market ??? ignoring superficial regional and national differences…” In addition, he argues that the companies that do not adapt to the new global realities will become the victims of those that do. Theodore Levitt’s 1983 article about the globalization of markets is one of the most discussed essays on this subject.
Many companies have become disillusioned with the sales in the international marketplace as old markets become saturated and new ones must be found. Levitt in his essay asserts that well-managed companies have moved from emphasis on customizing items to offering globally standardized products that are advanced, functional, reliable and low priced. Only global companies will achieve long-term success by concentrating on what everyone wants rather than worrying about the details of what everyone thinks they might like.
According to Levitt a powerful force drives the world toward a converging commonality, and that force is technology. It has proletarianized communication, transport, and travel. It has made isolated places and impoverished peoples eager for modernity’s allurements. Almost everyone everywhere wants all the things they have heard about, seen, or experienced via the new technologies. Levitt wrote this essay in 1983. Today technology has been much more developed and there are lots of innovations that we face everyday.
Facebook, iPhone, 3G communication are just a few examples we experience today. Levitt says that the result is a new commercial reality-the emergence of global markets for standardized consumer products on a previously unimagined scale of magnitude. Corporations geared to this new reality benefit from enormous economies of scale in production, distribution, marketing, and management. By translating these benefits into reduced world prices, they can decimate competitors. Levitt also cites in his essay that accustomed differences in national or regional preference are gone.
The days when a company could sell last year’s models or lesser versions of advanced products in the less developed world, and the days when prices, margins, and profits abroad were generally higher than at home are also gone. He also cites that with the globalization of markets, the multinational commercial world and the multinational corporation near their end. According to Levitt, the multinational and the global corporation are not the same thing. The multinational corporation operates in a number of countries, and adjusts its products and practices in each- at high relative costs.
The global corporation operates with resolute constancy ??? at low relative cost ??? as if the entire world (or the major regions of it) were a single entity; it sells the same thing in the same way everywhere. Levitt argues that which strategy is better, is not a matter of opinion but of necessity. Worldwide communications carry everywhere the constant drumbeat of modern possibilities to lighten and enhance work, raise living standards, divert, and entertain. It is evident that the ubiquity of the desire for the most advanced things that the world makes and sells ??? goods of the best quality and reliability at the lowest price, has become global.
The world’s needs and desires have been irrevocably homogenized. This makes the multinational corporation obsolete and the global corporation absolute. Levitt cites that ancient differences in national tastes or modes of doing business disappear. The commonality of preference leads inescapably to the standardization of products, manufacturing, and the institutions of trade and commerce. Success in world competition turns on efficiency in production, distribution, marketing, and management, and inevitably becomes focused on price.
The most effective world competitors incorporate superior quality and reliability into their cost structures. They sell in all national markets the same kind of products sold at home or in their largest export market. They compete on the basis of appropriate value- the best combinations of price, quality, reliability, and delivery for products that are globally identical with respect to design, function, and even fashion. If a company forces costs and prices down, and pushes quality and reliability up, while maintaining reasonable concern for suitability, customers will prefer its world-standardized products.
The global competitor will seek constantly to standardize his offering everywhere. The strategy of standardization not only responds to the worldwide homogenized markets but also expands those markets with aggressive low pricing. According to Levitt, 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 arrangements. But the global corporation accepts and adjusts to these differences only reluctantly, only after relentlessly testing their immutability.