The Globalization of Markets | My Assignment Tutor

CHAPTER 1Theodore Levitt’s “TheGlobalization of Markets”An Evaluation After Two DecadesRichard S. TedlowRawi AbdelalTwo decades ago, Theodore Levitt published “The Globalizationof Markets” in the Harvard Business Review. Doing business acrossnational borders had long been a topic of academic analysis, butLevitt’s article, published in the “magazine of decision makers,”was aimed separately at business managers. It hit its target.Levitt himself was “globalized” by 1983. He was world famousfor his provocative pronouncements on the new thinking and newaction needed to propel business management into the new worldit had to create. His articles were widely translated and anthologized, and the Harvard Business Review made a small fortune selling his reprints. When Levitt spoke (through the medium of theprinted word), managers listened.Teaching globalization today, it is not difficult, with the pricelessbenefit of hindsight, to see the flaws in Levitt’s argument. In thepages that follow, we make those flaws quite clear. We do, however,believe that this article remains important not just as an artifact ofits time but as a picture of the world from which managers can benefit today. It is no accident that this article is still so widely read.In this chapter, we seek to locate globalization in the contextof Levitt’s oeuvre. We then offer a new way of thinking about thisarticle, an angle of vision that we believe demonstrates its enduring usefulness.11COPYRIGHTED MATERIAL12 THE GLOBAL MARKETThe Marketing Message of Theodore Levitt“And if you want biographies,” Friedrich Nietzsche once wrote, “donot look for the legend ‘Mr. So-and-so, and his times,’ but for onewhose title might be inscribed ‘a fighter against his time.’” That isthe role—as a “fighter against his time”—that Theodore Levitt hasplayed during his intellectual life.This was a role he earned the right to play. Levitt mastered“normal science” before setting off in search of new “paradigms.”1His doctoral dissertation, “World War II Manpower Mobilizationand Utilization in a Local Labor Market,” was squarely in the mainstream of academic endeavor.2 Firmly grounded in economicsthrough his doctoral training at Ohio State, Levitt proved he couldsatisfy the most rigorous standards of his profession by publishingin the American Economic Review, the Review of Economics and Statistics, the Journal of Finance, and elsewhere.3Levitt’s goal, however, was always to make a difference—a bigdifference not only in his own discipline but in academics as awhole and indeed in society. He wanted to think creatively. It wasthe combination of his background in formal economics alongwith a jagged streak of lightning called genius that enabled him tosucceed at so doing. One of Levitt’s articles is entitled “MarketingSuccess Through Differentiation—of Anything.”4 His own greatestachievement in differentiation has been of himself.Theodore Levitt has written numerous articles that havechanged the way important people think about important matters(which was his own standard when he served as editor of the Harvard Business Review). Among the most noteworthy of these is “TheGlobalization of Markets,” published in 1983.5The article’s argument is that new technology, which has “proletarianized” communication, transport, and travel, has created “anew commercial reality—the emergence of global markets for standardized consumer products” of a hitherto undreamed-of magnitude. The era of the “multinational corporation” was drawing to aclose, Levitt asserted. The future belonged to the “global corporation.” The global corporation did not cater to local differences intaste. Those differences were being overwhelmed by the ability ofthe global corporation to market standardized products of highquality at a cost lower than that of competitors due to “enormouseconomies of scale in production, distribution, marketing, andmanagement.” The global corporation was being called forth by anew era of “homogenized demand.”Levitt’s claim was breathtaking in its inclusiveness. “Nothing,”he declared, “is exempt.” Not steel, not automobiles, not food, notclothes. Variety costs money, and the modern consumer demandedthe best for less.Levitt is a man of the world, quite aware of the conflicts thatpockmark it. He makes reference to the 1979 Iranian uprising thatresulted in the downfall of the shah, to the Nigerian-Biafran civilwar, to life in Bahia in Brazil and in Krasnoyarsk in Siberia. Butthough beliefs might differ sharply from one nation or region tothe next, consumption patterns were converging. The rebels inIran were wearing “fashionable French-cut trousers and silky bodyshirts.” In Biafra, “soldiers carrying bloodstained swords” were “listening to transistor radios while drinking Coca-Cola.” The worldwas witnessing nothing less than the “vindication of the Model T,”the basic transportation vehicle of which Henry Ford said, “It takesyou there, and it brings you back.”There is no other appeal like price. People like money, andthey want to spread it over as many goods as they can. What theglobal company understands, which the multinational does not, isthe power of scarcity: “Nobody takes scarcity lying down; everybodywants more.”If “The Globalization of Markets” were the only article one hadever read about marketing, one would find its argument compelling. But in the context of its times, what Levitt was proposingwas little short of a revolution in both how companies organizedthemselves and in how they thought about what they were doing.Levitt’s argument flew in the face of hallowed principles of marketing both and what seemed to be the stark realities of the worldas it was in 1983.Consider, for example, what had come to be known during thequarter-century prior to the 1983 publication of “Globalization” as“the marketing concept.” We do not mean a marketing concept;in fact we must italicize the article: the marketing concept.6By 1983, this idea, so simple that it scarcely seems to deservethe label “concept,” was that companies should give customerswhat they want. The marketing concept gained currency duringTHEODORE LEVITT’S “THE GLOBALIZATION OF MARKETS” 1314 THE GLOBAL MARKETthe 1950s and was founded on the belief that the “problem of production” had been solved. Supply-side shortages not being in theoffing, there was no need for companies to be guided by a production analogue to the marketing concept. “The sales concept,”such as it was, had also fallen into disrepute in the literature. Thesales concept was about pushing a product onto the consumerthrough sales techniques.7 The “sales concept” was waning as earlyas 1941. IBM, for example, which was in the process of developingone of the greatest sales forces in history, was instructing its salespeople by that time to tell prospects that their job was not “to sell”but “to serve.”8Thus, we arrive at “the marketing concept.” Behind the phraselay the idea that business begins not with the factory but with thecustomer. Marketing was the most important of business functionsbecause it drove everything else—or at least that was the ideal. Inpractice, businesses kept seeming to revert to the satisfaction oftheir own internal needs at the expense of customer desires. Lookaround, and you will find that this is true today. The promise ofcustomer satisfaction is omnipresent. (No company promises customer dissatisfaction.) Delivering on the promise is a good dealless common.There are two specific references to the Marketing Concept in“Globalization,” and the idea is alluded to elsewhere without beinglabeled. Levitt treats this central idea of his discipline withoutmuch respect. Somehow, corporations had allowed themselves tofall prey to “the perverse practice of the marketing concept andthe absence of any kind of marketing imagination. . . .” (p. 98).“Most executives in multinational corporations are thoughtlesslyaccommodating. They falsely presume that marketing means giving the customer what he says he wants rather than trying to understand exactly what he’d like.”What Levitt appears to be saying is that it is up to the companyto know more about what the customer wants than the customerhimself or herself does, or at least more than the customer canarticulate. He uses as an illustration the failed attempt by Hooverto market its washing machine throughout western Europe. Thecause of this failure was Hoover’s “‘proper’ marketing orientation.”The company conducted consumer research at a fine-grained levelthat revealed that customers in various countries wanted differentfeatures. The manufacturing costs of providing these featuresdrove the price of the appliance up, and the product did not sell.What went wrong? Two things. First, Hoover asked the wrongquestions. It sought, in the type of phrase for which Levitt becamefamous, to learn “what features [customers] wanted in a washingmachine rather than what they wanted out of life.”9Second, Hoover paid too much attention to what people saidand too little to what was actually going on in the marketplace.Did everyone want a washing machine specifically customized totheir living space? Yes. Was everyone willing to pay substantiallymore money for such a washing machine, thus depriving themselves of other possessions? No. “[People] preferred a low-pricedautomatic . . . even though [it] failed to fulfill all their expressedpreferences. The supposedly meticulous and demanding Germancustomers violated all expectations by buying the simple, lowpriced Italian machines” (p. 98).The conclusion was that a cursory examination of the Hooverstory would leave one with the belief that global marketing isimpossible because of the strength of national wants and needs.But what a little digging reveals is that we have seen a “distortedversion” and the “perverse practice” of the marketing concept. Andwe have seen something else: what Levitt referred to as a “failureof nerve.”Marketers must be more than mere receptacles of information(which is sometimes poorly specified and collected). They mustactively mold the markets to which they sell. If Hoover had actedin that aggressive fashion, it would have succeeded. With will andvision, global marketing could become a reality.Levitt was well aware at that time of the appeal of low prices.10In recent years, Clayton Christensen of the Harvard BusinessSchool wrote The Innovator’s Dilemma,11 a book that became worldfamous and in which he asserted ideas quite similar to Levitt’s.Christensen’s thesis is that in their rush to give customers preciselywhat they want, companies customize too much, spend too much,and therefore charge too much. They thus leave themselves opento the “disruptive innovator,” marketing a product that is not perfect in terms of every function and feature but is good enough anda lot less expensive. Although Christensen’s book is not concernedwith world trade, the basic market dynamic he sees conforms toTHEODORE LEVITT’S “THE GLOBALIZATION OF MARKETS” 1516 THE GLOBAL MARKETLevitt’s. Variety is often generated by organizational dynamics internal to the firm. Customers tend to be unwilling to pay as much forthat variety as marketers may like to think.In one sense, the ideas in “The Globalization of Markets” arenot surprising. For years, people had been coming to think of theworld as a single unit rather than as a patchwork of nations and customers. The first armed conflict deemed a “world” war took placebetween 1914 and 1918 (even though it was less a global conflictthan, say, the Seven Years’ War of 1756 to 1763, which stretchedfrom Canada to India). The term global village was coined in 1960.12The realization that radioactive fallout from nuclear weaponscould have global consequences led to the Nuclear Test Ban Treatyof 1963,13 and general concerns for the environment led to EarthDay in April 1970.14 The space race, beginning with Sputnik in 1957and climaxing with the moon landing in 1969, endowed humanbeings with a whole new perspective on “spaceship earth.”Meanwhile, a little closer to home, social critics followingWorld War II were beginning to complain of the very homogenization that Levitt was inviting corporations to exploit. The termCoca-Colonization gained a certain currency during the 1940s and1950s, suggesting the imposition of American cultural values onthe world through the spread of its consumer products.15 In 1967,the French journalist Jean-Jacques Servan-Schreiber published TheAmerican Challenge, in which he portrayed Europe being overrunby American capital and American business organization practices.16 Various domestic observers as well were noting with disapproval the “global reach” of what appeared to be the inexorablygrowing American business firm.17That said, there is another sense in which the ideas in “TheGlobalization of Markets” are daring. In 1983, the world was stillvery much a bipolar place, divided between “communist” and“democratic” nations. The cold war had heated up considerablywith the Soviet invasion of Afghanistan in 1979. It was in 1983 thatPresident Ronald Reagan called the Soviet Union the “evilempire,” and this cartoon-strip phrase struck a responsive chordin much of the American public.18 Those people living under communist regimes knew precious little of markets in the Westernsense, never mind marketing.In 1983, there were, in fact, only a handful of countries inwhich corporations had home offices that sold products or servicesoutside the home country borders. North America, western Europe, and Japan fairly much exhaust the list. Firms located in thesenations accounted for the overwhelming bulk of world trade, andvery little of that trade was with the approximately 32 percent ofthe world’s population living in communist countries.19 Thus,when Levitt spoke of globalization, he was excluding a large portion of the globe as it was at that time.Even among the democratic, capitalist countries, barriers totrade were far more daunting than they have since become. Tariffs,subsidies, orderly marketing agreements, and outright prohibitionswere everywhere apparent. Markets were, and are, governed byrules. Indeed, markets cannot exist without rules.20 The rule-making unit in 1983 (as is also predominantly true today) was neitherthe corporation nor some supranational body such as the WorldTrade Organization. It was the nation in which goods were beingbought and sold, from which goods were being exported and towhich imported. Levitt wrote that technology was the unstoppableforce leading toward globalization, but all the technology in theworld could not have opened up the Japanese home market to foreign imports in 1983.A marketing textbook published in 1972, Marketing: A Contemporary Analysis, devoted only 27 of its 776 pages to internationalmarketing. On the first of those pages, it declares: “Since this chapter is based entirely on distinctions among national markets, it isimportant to establish at the outset that the nation is a meaningful unit for market analysis.”21 Table 1.1, from that textbook, outlines how countries differ and the importance of those differencesfor marketing. Let us look at just one of the entries in this tableand see what impact it might have on the globalization of marketing. The text at the bottom of the last column on the right mentions “Specific restrictions on messages.”When Polaroid introduced in the United States its camera thatdeveloped its own film, the company advertised heavily on television. The product was particularly sensitive to television advertising,which could demonstrate the seemingly miraculous phenomenonof instant photography. It was no accident that by 1960, Polaroidwas selling at more than ninety times earnings as advertisementsprompted excited customers to flock to retail outlets.22 This was theessence of the “pull” strategy in marketing, and it made Polaroidthe channel commander in its product category.THEODORE LEVITT’S “THE GLOBALIZATION OF MARKETS” 17Table 1.1. Elements of a Marketing ProgramFactors Limiting Advertising and Promotion;Standardization Product Design Pricing Distribution Sales Force Branding and PackagingMarket characteristicsPhysical environment Climate Customer mobility Dispersion of Access to mediaProduct use conditions customers ClimateStage of economic Income levels Income levels Consumer shopping Wage levels avail- Needs for convenienceand industrial Labor costs in rela- patterns ability of manpower rather than economydevelopment tion to capital costs Purchase quantitiesCultural factors Custom and tradition Attitudes toward Consumer shopping Attitudes toward Language, literacyAttitudes toward bargaining patterns selling Symbolismforeign goodsIndustry conditionsStage of product life Extent of product Elasticity of demand Availability of outlets Need for missionary Awareness, experiencecycle in each market differentiation Desirability of private sales effort with productsbrandsCompetition Quality levels Local costs Competitors’ control Competitors’ sales Competitive expenditures,Prices of substitutes of outlets forces messagesMarketing institutionsDistributive system Availability of outlets Prevailing margins Number and variety Number, size, Extent of self-serviceof outlets available dispersion of outletsAdvertising media Ability to “force” Effectiveness of Media availability, costs,and agencies distribution advertising, need overlapsfor substitutesLegal restrictions Product standards Tariffs and taxes Restrictions on General employment Specific restrictionsPatent laws Antitrust laws product lines restrictions on messages, costsTariffs and taxes Resale price Resale price Specific restrictions Trademark lawsmaintenance maintenance on sellingSource: Adapted from R. D. Buzzell and others, Marketing: A Contemporary Analysis, 2d ed. (New York: McGraw-Hill, 1972), p. 641.Pull marketing failed in France with the same product and thesame customer benefit. Why? In France, commercials were notallowed on television. That tremendous power of demonstrationcoming right into their living room therefore could not drive customers into stores and pull the product through the distributionsystem. Push marketing, with heavy reliance on the retailer, wasthe only alternative.23 This one illustration could be multiplied athousandfold.One of the authors of Marketing: A Contemporary Analysis, thetextbook just referred to, was Theodore Levitt. What had happened in the decade between the publication of the textbook and“The Globalization of Markets” to change his mind? A lot. Theposition of the United States as economic hegemon was beingrapidly eroded. The oil shocks of 1973 and 1979 had exposedAmerican vulnerability to shortages of the most basic of raw materials of what was still the auto-industrial age. The disastrous war inVietnam and the Watergate scandal had fundamentally shaken thepublic’s faith in government. The stagflation of the Carter administration during the late 1970s did nothing to restore that faith.On the business scene, the decade was just as gloomy. In industry after industry, from television to tires, American firms were losing share in foreign markets as foreign-based corporations weremaking significant inroads in the United States. In 1980, theUnited States ceased being the world leader in automobile manufacture, a position that it had held since the introduction of theModel T Ford in 1908.24 The bilateral trade deficit between Japanand the United States in this industry alone had reached previouslyunimaginable levels.In this context, the moment had come for new ideas, and sothe timing of “The Globalization of Markets” was perfect. Perhapsby intellectual reorientation, changes could be made in the organization and operation of business that would lead to a rebirth ofgrowth and greatness. Perhaps the remarkable changes in technology that were taking place would enable globalization to become a reality if business executives had the courage to cast asideold ideas and adopt the new views that the future demanded.Levitt did not hedge his bets in “Globalization.” Indeed, it is thecategorical nature of his expression that makes the article so easy tocriticize.25 But therein also lies its genius. As often with Levitt’s work,the medium is the message. He does not offer a “ten-step program”THEODORE LEVITT’S “THE GLOBALIZATION OF MARKETS” 1920 THE GLOBAL MARKETsystematically to improve the efficiency of marketing beyond the borders of the home country. Instead, he shouts, “Wake up!”What we now propose to do is discuss the extent to which markets really have become globalized. We have read Levitt’s article,and we are awake. When we look around, what do we see havinghappened between 1983 and today?Two Ways to Think About GlobalizationThere are two ways to think about globalization—as a trend and asa heuristic—and most people do not distinguish between them.26We argue that they should and that if they did, they would look atthe economic environment in which they make decisions in a moreuseful way. The first way to think about globalization is as an actualprocess of economic integration: the acceleration of flows of goodsand capital and perhaps many other things as well. In this sense,there may be not a single globalization process but many linkedprocesses of globalization, each of which demands an answer tothe question: “The globalization of what?” Thus, we hear and readabout the globalization of finance, of trade, of policy ideas, of culture, of almost anything else. This is perhaps the most commonway people think and talk about globalization, and it is useful.This first conception of globalization—as an evolving trendchanging the world in which we live—inherently creates a certainkind of debate because there are naysayers who marshal evidenceto suggest that the economic integration we have supposedly seenin the past decades is either not new, historically speaking, or, whenlooked at in strictly economic terms, not nearly as complete as itsvotaries would have us believe.The historical question rests on whether the world economywas more globalized in the late nineteenth and early twentieth centuries, the heyday of the gold standard and British hegemony, thanit is today. Some find that levels of trade and financial integrationwere higher (or at least as high) then as now. This historical concern with globalization rests on a particular counterfactual aboutthe past and the future, and it is a debate encapsulated by the question, “Is globalization today really different than globalization ahundred years ago?”27 One could push this line of thought evenfurther back in time to the early modern world or back even further to the Phoenicians.28 There was world trade before there werenations in the modern sense.The economic question about globalization implies a differentcounterfactual: that the integration of markets for goods and capital is complete, and the evidence brought to bear on the questionmost often deals not only with the size of the flows but the differences in prices in national markets for goods as well. Here againthe debate is not settled, but the available evidence certainly indicates that markets for goods and capital are quite far from “perfectintegration,” as the economist would put it.29 In other words, theissue is whether the world’s markets really function as though theyare, in the words of Kenichi Ohmae, “borderless.”30 The answer isthat they do not, save perhaps a few instances in Europe, Asia, orNorth America that did not encompass the broader perspective ofthe whole world.Rivers of ink, undammed by a great many smart and wellinformed scholars, have been spilled on these historical and economic debates that surround the process of globalization. Wecannot resolve the debates in this chapter. Indeed, we are happyenough to conclude the following: that the markets for goods andcapital across national borders are more vibrant than they were atthe end of World War II (though not, perhaps, before World WarI) and that there are some new aspects of the process of globalization (such as increasing intra-industry, even intrafirm trade) as wellas some not-so-new aspects. One of the drivers behind all of thisactivity certainly was technology, but technology has been only partof the story.Much more profound has been the revolution in politics: theideological triumph of markets that led so many governmentsaround the world to embrace the world economy. This revolutionis not independent of technology. To some important degree, thetwo are intertwined. Would the Berlin Wall have fallen had therebeen no television or no fax machine? Television made it clear,even to the illiterate, that there was a cornucopia of consumergoods generated by market economics that communist nationsknew not of. One of the hottest items that Western “subversives”smuggled (literally) into the former Soviet Union were blue jeans.This is evidence that in some form, Coca-Colonization persisted.Even such consumer goods, long taken for granted in the West,THEODORE LEVITT’S “THE GLOBALIZATION OF MARKETS” 2122 THE GLOBAL MARKETwere not at all trivial to people to whom they were denied. Andtechnology meant that knowledge of such products literally floatedover the most heavily fortified of national borders on the air.31One of the most important lessons derived from the study ofhistory is not only that today’s reality is different from yesterday’sbut that it may also be different from tomorrow’s. Governmentschose openness before World War I, but they chose closure afterit. Governments have chosen openness again in recent years. Mightsome of them try to close their borders once again in the future?Politics is fundamentally unlike technology in this respect. Thesteam engine, or atomic weaponry, once invented, can never bemade to disappear. The genie is out of the bottle. The rules thatgovern trade can, by contrast, be changed by the stroke of a pen.An advantage of conceiving of globalization as a process is that itbrings such thoughts to the forefront.But what does all this mean for the business manager, Levitt’starget audience? Addressing this question is a task our colleague atHarvard Business School Pankaj Ghemawat has performed admirably in the Harvard Business Review. Starting implicitly from thepremise that the Levitt thesis is flawed, he argues that national markets are more “distant” in various ways than most managers appreciate. According to Ghemawat, national markets may be distantculturally (including religion, race, social norms, and language),administratively (including political and economic relationships),geographically, and economically (including disparities in wealthand income).32 Moreover, Levitt’s analysis does not help us to understand any of these distances. Geographical distance still limits theextent to which some markets can be penetrated with some products and services. Economic distance does so even more, since countries have not converged in their incomes during the past twentyyears. Far from it. With the exception of several East Asian countries,poor countries have stayed poor, and rich countries have stayed rich.Administrative distance is shorthand for world politics, and the politics of trade, finance, and production have unambiguously changed:the embrace of market-oriented policies by countries around theworld is a defining feature of the cold war world and has been evenmore of the post–cold war world. This policy convergence set thestage for the economic processes in which we are interested. Without international cooperation and openness, the expansion of trade,finance, and production across national boundaries would havebeen impossible. Why this happened is a fascinating question,about which scholars do not agree except on one point: that it wasnot solely or perhaps even primarily technological change, as Levittargues, that led to the political change that made the expansionof markets possible. Technological change played a role, as we suggested in our brief discussion of television. But although technology may have played a part in the drama of this great policytransformation, experts agree that it was a supporting actor, notthe star of the show.It is on the issue of cultural distance that Ghemawat and Levittmost clearly disagree. For Ghemawat, cultural distance is a parameter that firms should analyze and take for granted. But Levitttells us this is changing, in part through the influence of firms.What we can see clearly is that the world of consumers did notbecome fully homogenized in the twenty years since Levitt wrotehis article. If it were true, then the symbols of the twin towers ofthe World Trade Center would not have been so full of meaningfor those who admired and despised them.The events of September 11, 2001, are full of tragedy and ironywith regard to the debate about the globalization of markets.Rather than homogeny, it would appear that modern products andservices have generated a profound and unanticipated reaction.Groups of religious fundamentalists are using the fruits of hightechnology—the aircraft, the Internet, cellular telephones, andothers—to attack the businesses that have created that technologyand the governments under which these businesses have prospered. These antimodernists employ the most modern means tofight the modern world, which they seem to view as a godless kleptocracy. Al-Qaeda has no “homogenized” consumers.If a prediction about trends in market integration were theonly contribution of Levitt’s article, then the usefulness of the concept of globalization to today’s manager would be beyond questionable. Indeed, we have discovered a veritable cottage industrydevoted to the task of exploring how wrong Levitt was about thetrend. But if Levitt is so wrong, why would anyone still read his article? We should preface our discussion of this point by emphasizing that people do. When Harvard Business School professorPankaj Ghemawat created the course “Globalization and Strategy,”THEODORE LEVITT’S “THE GLOBALIZATION OF MARKETS” 2324 THE GLOBAL MARKEThis M.B.A. students read Levitt on the first day of class, and it is stilltrue in 2003 when Tarun Khanna teaches it. In 2002, students inDebora Spar’s doctoral seminar, “The Political Economy of International Business,” at Harvard Business School still read Levitt—onthe first day of class. The introduction to John Quelch and Christopher Bartlett’s Global Marketing Management has exactly one footnote:to Levitt’s article.33 This is almost twenty years later, when practicallyeveryone is prepared to pronounce Levitt’s argument wrong. Onemight well say that this is a puzzle that needs to be explained.We can explain it. The reason to read Levitt is to find out notwhat is true about global markets but how a manager ought tobegin to think about them. It is one thing to say that what Levittargued about globalization was wrong, that what he predicted didnot come true, and that the implications he derived for managerswere (almost outrageously) overdrawn. It is quite another to suggest that therefore his analysis was not deeply insightful. We believeit was, and that if one treats Levitt’s views on globalization as aheuristic, as an analytical lens through which to understand markets that cross national borders, then the continuing usefulness andremarkable prescience of an article that is maligned as often as it ismisunderstood in the early twenty-first century becomes clear.If one understands globalization as a heuristic, it becomes clearthat there can be more than one heuristic. And this is the secondperspective on globalization, shared by many other scholars, moreoften political scientists and sociologists than economists. PankajGhemawat has translated the work of economists into English(from algebra) for managers. We want to offer just a suggestion ofwhat might be gained by making the pertinent work of political scientists and sociologists similarly accessible.Our View: Levitt’s Globalizationas a Conceptual LensGlobalization has not always been a word, and the phrase global markets is a recent invention as well. There were perfectly good wordsto describe the markets of the world—words like international—and the firms that operated in international markets—like multinational. So why would Levitt insist on using the language of theglobe? The answer is to indicate a qualitative change in the character of the world’s markets, not a quantitative change. The worldthat Levitt described did not consist of more trade; it consisted oftrade that was different and transformative. This is what is missingfrom the economists’ account of globalization and from thedebates about globalization as a process. From Levitt’s perspective,one could not resolve the debate he sought to spark about globalization with data on world trade as a percentage of world product,or the size of capital flows across national borders, or how manycountries have high ratios of exports and imports to their grossdomestic product, or whether the price of an undifferentiatedproduct was the same in Boston or Bombay. All those measures areof how internationalized the world economy is, not whether it isglobalizing.The distinction between internationalization and globalizationis a deeply meaningful one and important for managers to understand. The reason is that in principle, the evidence about the sizeand expansion of markets could be consistent with both, since theyare ways of describing the world, of interpreting the economicinterdependence of societies living in different countries. We areamazed to find that the most provocative idea in Levitt’s article isso systematically misunderstood. For Levitt, globalization is a concept that describes much more than just an increase in economicexchange across borders; it describes a change in the character ofthose exchanges, which then transforms the societies engaged inthe exchange.Thus, Levitt’s central argument is that communications technology has allowed all societies to engage modernity, leading themtoward the “same common goals—alleviation of life’s burdens, andthe expansion of discretionary time and spending power.”34 Theimplications for firms are his central, enduring insight: “Preferencesare constantly shaped and reshaped.”35 Thus, globalization implieseconomic activity in the absence of national boundaries, whereasinternationalization implies an increased number of transactionsacross the borders of nation-states, which are still very much controlled by governments that can choose, and unchoose, openness.Global corporations operate in a globalized economy, whereas multinational corporations flourish in a highly internationalized economy. Levitt insists that “the multinational and global corporation arenot the same thing.”36 The multinational corporation producesTHEODORE LEVITT’S “THE GLOBALIZATION OF MARKETS” 2526 THE GLOBAL MARKETgoods tailored for national markets, while the global corporationproduces standardized goods for all markets.These views have, in retrospect, provided Levitt with bedfellowshe may not have expected, because while not necessarily strange,they are strangers to some scholars of economics and business. Wehave in mind political scientists and sociologists. For the mostastute students of globalization among these social scientists, theLevitt interpretation of globalization has become quite standard,although his name rarely appears in their footnotes. Perhaps hisoverstatement was overkill, or perhaps these scholars should be better informed of what is written in the Harvard Business Review.Either way, there is no getting around the fact that Levitt’s viewson globalization have become part of an emerging paradigm inthe study of the politics of the world economy.For political scientists and sociologists, who have developedtheir insights outside the radar of many managers, the distinctionbetween globalization and internationalization as ways to understand the world is largely an elaboration of Levitt’s basic insight intowhat economists would call the “endogeneity of preferences”—thatpeople might change their minds about what they want depending on how they interact with others. Economic globalization isconvergent and transformative, while economic internationalization is divergent and additive. Globalization is a description of anew kind of density of economic interactions among societies,while internationalization implies a reduction in national restrictions in commercial exchange. Globalization results from convergence of the preferences of consumers, who are increasinglymembers of a global society; internationalization results from thebehavior of firms and governments in a merely international economy. Globalization is about new types of relations and new kindsof economic actors; internationalization emphasizes the behaviorand attributes of traditional actors, such as multinational firms andnational governments.37The issue for an individual firm is to take these conceptuallenses and look at their markets through them. Is your marketglobal or international? These are important debates to have, justas the two debates about globalization as a process are important.But answers are more elusive, since the real question is not whetherthe globalization heuristic is right or wrong, but whether it is useful or not—useful to understand the world, useful for marketingstrategy, and useful for production strategy. One can think aboutthe degree to which a market, or even the world economy, is internationalized. The internationalization of trade and finance hasebbed and flowed during the past 150 years, primarily in responseto the conditions for political order in the world economy.38 Butwhether a market is globalized, in Levitt’s terms, is a matter of qualitative change.The best tool for managers to understand their markets maybe neither globalization nor internationalization. There are otherideas about how best to describe the world economy and the markets that compose it. Regionalization, for example, is another lensthrough which to view markets.39 Regional integration tends toincrease trade among members of a region, and perforce divert itfrom those outside it. And so the European Union, the NorthAtlantic Treaty Organization, the Association of Southeast AsianNations, MERCOSUR, and various other regional groupings havechanged the world’s markets in ways that neither Levitt nor analysts of globalization can describe. To make things more complicated, the world’s regionalisms are different. Each regionalism hasits own logic and process, its own dominant countries, its own formal and informal political and economic ties. Managers must alsotherefore consider the differences between, for example, a processof European economic integration (with Germany at its center)based on formal rules and a distinctly different process of Asianeconomic integration (with Japan at its center) based on informalbusiness and social networks across borders.40 In any case, it mayturn out that the regional strategy, rather than the global or thelocal strategy, becomes the dominant response of firms.The central point is that each of these concepts—globalization,internationalization, and regionalization—is merely a concept, andjudgment is required to apply each of them to specific situations.We believe that for many managers, the analytical lens of globalization—certainly of the extreme variety—will not significantly helpthem to understand their markets better or to defeat their competitors in them. John Quelch and Edward Hoff made substantiallythe same point just a few years after Levitt wrote his essay, arguing,THEODORE LEVITT’S “THE GLOBALIZATION OF MARKETS” 2728 THE GLOBAL MARKET“Too often, executives view global marketing as an either/orproposition—either full standardization or local control. But whena global approach can fall anywhere on a spectrum from tightworldwide coordination on programming details to loose agreement on a product idea, why the extreme view?”41 Levitt was rightthat when a global strategy works, it works astonishingly well. Butwe believe global strategies work, and will work, much less frequently than Levitt predicted.42Concluding ReflectionsIn sum, we offer some reflections on the two globalizations thatexist uneasily in Levitt’s article—the process and the heuristic—the former about which he was mostly wrong and the latter forwhich his analysis is immensely useful. Levitt foresaw the power ofglobalization. In some ways, he overestimated its power, as we haveseen. Even in France, a country that is in many ways very tightlyintegrated with both the European and the world economy, society has reacted against this very power and bought so many copiesof a book entitled L’Horreur économique to make it a recent bestseller.43 With Enron’s behavior in the state of Maharahstra inmind, Indian novelist Arundhati Roy, author of The God of SmallThings, wrote an influential antiglobalization essay that put fortha parable about Rumpelstiltskin.44 Environmental protesters havedescended on Seattle and Geneva. Governments too tend to bejealous of their autonomy from markets, as Malaysia’s celebratedand infamous (depending on whom you ask) capital controls during the Asian financial crisis indicate.45 Today we would placethese reactions to globalization among the milder and less disconcerting of them.Levitt assumed that globalization, the process of which he discerned so early on, would proceed until its ultimate completion.However, there have been many pitfalls along the way. The politicaland social constraints on globalization that appear more evidentto us every day may not undermine the process of globalization,but they will probably prevent it from reaching an end point.However, Levitt also underestimated the power of globalization. He wrote about nationalism as though it is a force that inherently pushes against the pressures of globalization.46 But even somenationalisms have been transformed. Many of the nationalist movements that arose as the Soviet Union was disintegrating sought toembrace capitalism and democracy and anything else deemed byglobal civil society to make a state advanced, modern, and especially “European.” Their idea was that if whatever came before—Soviet communism—was wrong, then its opposite must be right.Not only were we reminded about how variable nationalisms canbe in their goals but how much the world really did change duringthe past twenty years.47What constitutes globalization, in our way of thinking, is interaction that changes things rather than leaving them the same. Successful firms and the managers who run them rarely leave the worldthe way they found it. The same is true of the global economy,whose markets have, as Levitt predicted, been transformed by theefforts of firms to listen more deeply to consumers. Rather than taking consumers’ preferences as given, as facts of lives and markets,they have treated them as outcomes themselves, with profoundeffect. Not all consumers have been persuaded, and not all marketstransformed. Some are merely still international. Some are regional.But there are some global markets out there, and Levitt’s story hasrightly convinced managers to think about whether those are theirmarkets, and if not, whether they can be made so by their efforts.If all markets were global, the world of managers would becomedull. One strategy would fit them all; the relentless drive for scaleand scope would dominate their thinking. In that sense, Levitt waswriting about the end of business history, just as Fukuyama hadwritten about the end of political and economic history, when afew ideas were ascendant, with nothing to challenge them.48Fukuyama fretted that our world at the end of history wouldbecome a boring place, as Levitt’s world of globalized marketswould have been for us. We are lucky that he was wrong about theoutcome.And we are lucky that he was right about the way the globalmarkets work, through changes in preferences as firms and consumers, capitalisms and cultures, interact with one another. Globalization is transformative. The market is not what firms find; themarket is what firms make of it.THEODORE LEVITT’S “THE GLOBALIZATION OF MARKETS” 2930 THE GLOBAL MARKETFinally, we are also unlucky that Levitt was right. We now livein a world where people react negatively as well as positively to theentreaties and devices of dominant, global, and often emphaticallyWestern firms. One other thing Levitt missed was the possibilitythat the globalization of markets would produce reactions againstit. The various fundamentalisms of the world are frequently antimodern, occasionally anti-Western, and sometimes strikingly violent. Some societies may have witnessed increasing homogeneityin their preferences, but others have seen increasing heterogeneity, a divergence from the direction of trade and financial integration, a withdrawal from the marketization of social life.


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