Globalization of Business
Numerous things have contributed to the globalization of business. Advances in computer assisted design and manufacturing and robotics have reduced the dependency on labour, increased production efficiency and increased market flexibility by reducing economic order quantity. Advancements in transportation have shrunk the distances between resources, processing and markets. Levitt too has stated that with the advancement of technology the world is becoming a smaller market and due to that people around the globe have more information about the world, that’s why companies today cannot sell their older version products to lesser developed world as the consumers there will not accept it, that’s why Nokia always markets its new products simultaneously around the world. In his article Levitt suggests that the future belonged to companies that make and sell “the same thing, the same way, everywhere” (Levitt, 1983). Such companies can take advantage of the apparently global converging taste and preferences, driven by world wide media and marketing channels. Where taste where not already converging they could be made to do so by selling customers globally standardized forms of product and services that present superior value over local versions. Some authors indicate that in order for a company to take advantage of the convergence of the global marketplace, and possible economies of scale, marketers need to begin to look for similarities between markets instead of differences (Hu and Griffith, 1997).
While others indicate that the cultural aspects of markets are not becoming homogeneous. The dimension on which standardization authors base their discussion is the wants and needs of the global market (Hu and Griffith, 1997). It is said that wants and needs are converging on a technological dimension and certain markets are demanding similar product technologies throughout the world. Levitt has also stated that in order for a company to become global and become an effective world competitor, they need to provide superior quality product with high value and at lesser price. He also states that companies who produce high quality products at low cost operations and sell those products at low price will be the companies that will be truly a global organization. Levitt states that organizations operating in a single market or even a single nation don’t standardize everything they make or sell.
They have product lines instead of single standardized product version, this is because even within a market there are differences and that could either local, regional, ethnic and institutional differences. Similarly global companies too need to create different product lines for the global market and have multiple distribution channels because the global market is too like a single market where its customers want the same core product but may have difference that could be regional, cultural or ethnic. Thus having created different versions of the same product and marketing them in there right market could lead a company to global success and good examples of such companies are Coca Cola, Pepsi, McDonald’s etc. if a company cuts its cost and prices down and increases its quality and reliability customers will prefer its world – standardized products. The Japanese have repeatedly vindicated this theory, as did Henry Ford with the Model T (Levitt, 1983).
Globalization in many industries is being driven by a number of interrelated structural factors. These breakdown under four main headings – global market convergence, cost advantages; global competition and government influence (O’Higgins, 2003).
1) Global market convergence: more and more consumer needs and taste are being homogenized. Moreover globalization is intensified when global firms find it convenient to hire suppliers who are themselves globalized. For example a globalized Ad agency will be in a better position to run world wide campaigns for a global consumer than a local Ad agency.
2) Cost Advantages: fewer products should be standardized rather than a wide variety of products will also bring down cost; central sourcing also provides company with buying power with suppliers who can be sought from all over the world for example IKEA.
3) Global Competition: companies need to be global in nature like its customers and rivals in order to benefit the fruits of globalization. By becoming globalized they can have advantage in markets where the competitors are not global.
4) Government influence: government to help in globalization with help of free trade policies, governments invite global companies to open their plants or manufacturing units in those countries.
A global strategy entails certain practices related to major market participation, product standardization, activity concentration, uniform marketing and integrated competitive moves (Yip, 1995) the whole should be treated as one big market and thus greater the market share greater the potential for quality and cost benefits. It is also important to be present in a number of key markets to gain advantage over competitors.
The benefits of international standardization include cost savings, better planning and distribution, greater control across borders and consistency with customers. This is what exactly argued that the advancement of technology in communication and transportation has homogenized markets around the world as a result customers have started to demand high quality products at low prices. Thus this has led to changes in the competitive dynamics of companies, who are now trying to provide consumers with high quality and reliable products or service at low prices. Despite the number of benefits associated with standardization as Douglas and Wind (1987) pointed out that global marketing standardization is feasible only under certain conditions. These include the existence of global market segment, potential synergies from standardization and availability of communication and distribution infrastructure to deliver the firm’s offering to target customers worldwide.
Most recent standardization studies support the contingency perspective of international marketing, instead of total standardization or total adaptation (Zou, 1997). It seeks a balance between the two, maintaining that the degree of standardization is determined by the external environment and internal organizational factors. Jain (1989) proposed a conceptual framework of marketing programme standardization that summarized the contingency perspective. His framework proposes that the degree of standardization is determined by the target market, market position, nature of product, environment, and organizational factors.
In the past all researches done, were viewed from the perspectives of US firms operating in economies of less developed countries. However Zou in his article Standardization of international marketing strategy by firms from a developing country (1997) has shown a different perspective from the viewpoint of Columbian export firms and their strategy of marketing standardization. As shown in the study the Columbian firms pursued different strategies for standardization for the various dimension of their international marketing strategy. Their standardization strategies in comparison to US firms are different, where US firms give a higher importance to the standardization of the core product and pricing it was seen that Columbian firms gave more importance in standardizing to their promotional budget and peripherals of their product and less to the other international marketing strategy dimensions. This also suggest that when developing countries enter the international market they tend not to follow their domestic market strategy, since a well developed market may not exist in most developing countries, their domestic strategy may not be efficient or developed enough to compete in the international market and provide the firm with the desired success. Thus, the contingency framework of international standardization has to be modified in developing countries to take into account the less developed market system in those nations (Zou, 1997).
The study also shows that the export would have increased if the Columbian firms had stressed on standardizing their product, since the core product defines the functionality of the product and often expensive to modify (Zou, 1997) and also try to standardize their pricing strategy. He suggests that developing countries at an operational level should try to standardize their product and price and avoid standardizing peripherals and customer service when foreign markets culturally different to domestic markets and thus they should adapt and tailor it to liking of the consumers. Zou (1997) suggests that since the price in developing countries is usually low, standardizing price can help penetrate the foreign market and increase sale, thus confirming the same theory suggested by Levitt (1983) for a successful global marketing strategy: product/services of the best quality and reliability at the lowest price.
Why Ted Levitt wasn’t wrong about globalization
Ted Levitt predicted that technological development in communication and transport is shrinking the world and making it a smaller market. He also stated that theses advancements in technology would homogenise the wants and needs of consumers all around the world. He also stated that technology is driving the world to “single converging commonality” and that everyone will embrace the fruits of technology and that no one is insulated from the attractions of modernity (Mitchell). For this reasons he suggested that firms need to focus on a more global level and unlike multinational companies they should see the world as a single market and make products and their product lines to satisfy different consumers of the same market segment and in order to be successful the firms need to focus in standardizing their core product and pricing strategy and start providing products of good quality and reliability at low prices.
Today we see that consumers around the world have an overwhelming desire for dependable, world standard modernity in all things at low prices and they all want the “life alleviating” fruits of modern technologies. Levitt also stated that companies need to become a global company instead of multinational company in order to standardize their marketing strategy – product, price, promotion and distribution systems and likewise all multinational companies are reorganising themselves and becoming a more global company. Even the study indicated by Zou (1997) indicated that Levitt was right when he stated that in order for firms to be successful in international markets the need to standardize their product and provide these products to consumers at a low price and the same has been suggested by Zou to the Columbian export firms that they should focus on standardization of product and price. Thus we see that even twenty years ago Ted Levitt wasn’t wrong about globalization.
References:
Hu, M., Griffith, D. A, 1997, “Conceptualizing the global marketplace: marketing
Strategy implications”, Marketing Intelligence & Planning, 15, 3 117–123.
Mitchell, A. 2003, “Why Ted Levitt wasn’t wrong about globalization”, Marketing Week, Vol 26, Issue 26, p26.
O’Higgins, E.R.E., 2003, “Part 2: Global Business means Global Responsibilities”, Corporate Governance, Vol 3, No.3, pp 52-66
Yip. G.S., 1989, “Global Strategy….in a world of nations?”, Sloan Management Review, Vol 31-1, pp 13- 29
Zou.S, Andrus. D, Norvell, D.W., 1997, “Standardization of International Marketing Strategy by firms from a developing country”, International Marketing Review, Vol 14, 2/3, pp 107 – 122.
