From Globalization to e-Globalization -- A Further Evolution in the Model for International Business

With the unfortunate passing of long-time marketing and global business visionary Ted Levitt  a couple of weeks ago, I was taken to re-read a number of his most influential works, including "The Globalization of Markets", originally published in the May-June 1983 issue of the Harvard Business Review.   Although Professor Levitt did not coin the term "globalization" as incorrectly asserted in a number of articles memorializing his contributions ( e.g. "Global Small Business Blog", Boston Business Journal, New York Times -- the miscue was corrected in a subsequent erratum to the NYT article), he certainly was instrumental in popularizing the term's use as part of understanding the emerging model for business success in the global market place.

As Levitt construed the term, globalization represented an evolution from the model of the "multi-national" corporation to a new global paradigm.  Whereas the multinational company operates in many different countries and its forte is a facility for adapting to local consumer preferences and marketing strategies, the global company "operates with resolute constancy . . . as if the entire world (or major regions of it) were a single entity."  Using the "hedgehog and the fox" analogy (given new currency in Jim Collins's "Good to Great" -- on this blog's "must read" list at right), Levitt states that "the multinational corporation knows a lot about a great many countries and congenially adapts to supposed differences", while "the global corporation knows everything about one great thing.  It knows the absolute need to be competitive on a worldwide basis as well as nationally and seeks constantly to drive down prices by standardizing what it sells and how it operates."

In a stark reminder of how prescient much of his work was, Levitt subtitles one of the sections in his article "The Earth is Flat", presaging the title of Thomas Friedman's recent best seller by more than 20 years.   In one of his boldest conclusions deriving from his analysis of the impact of globalization and the flattening of the earth, Levitt proclaims "different cultural preferences, national tastes and standards, and business institutions are vestiges of the past."

Although much of Professor Levitt's writings on marketing and business remain as current and insightful as when he first wrote them, I got to wondering whether his concept of globalization as an inevitable driver of standardization has survived the radical impact of the maturation of the internet on global commerce.  Although, he was alive to see the internet bloom over the past 5 to 10 years, his health had been failing for at least the past several years, and to my knowledge he never expressly addressed his view of the internet's effect on the continuing relevancy of his globalization paradigm.   In a post note to his original article, he did anticipate the impact of technology on supply chain logistics and plant change overs and the transition from "economies of scale" to "economies of scope", but he dismissed the impact that this would have on his model, stating that "there is no conceivable way in which flexible factory automation can achieve the scale economies of a modernized plant dedicated to mass production of standardized lines."   On the other hand, he did condition his argument somewhat by stating that his theory held "at this stage in the evolution of globalization".   

While I would be the first to admit that I am no Ted Levitt (indeed I'm not even playing in his league), and I would absolutely welcome other comments or divergent views on this point, including any insights on Professor Levitt's own thinking on the matter from those who knew him more intimately than I, there are at least two ways in which I think the coming of age of the internet may have reversed the march toward global standardization and ushered in a new phase in the evolution of globalization -- which I would suggest might be called "e-globalization".

The first of these impacts is the extent to which the ubiquitous and near instantaneous access to comparative pricing and sourcing information has inverted the balance of power between producers and consumers.  An express tenet of Professor Levitt's globalization paradigm was that global companies could and should dictate what consumers worldwide should demand.   As Levitt put it:

"The global competitor will seek to constantly standardize its offering everywhere.   It will diverge from this standardization only after exhausting all possibilities to regain it, and will push for reinstatement of standardization whenever digression and divergence have occurred.   It will never assume that the customer is a king who knows his own wishes."

This, of course is in direct contravention of the current "I want what I want, when I want it" consumer mentality that drives marketing success and results in a company such as McDonald's having less than twice the market capitalization of Starbucks despite having nearly three times the revenue and five times the net income.   In a recent presentation entitled "How the Internet is Changing Consumer Behavior and Expectations" by Lee Rainie, Director of the Pew Internet & American Life Project,  the author cites with approval the argument in Steve Rubel's Micro Persuasion blog that "the old, Industrial Era model was built on big companies making decisions about what to produce for passive audiences to consume."  Rainie goes on to summarize the finding of the Pew project rejecting this "top-down system" and stating that "in the new Information Era, there is no difference between producers and consumers. . . . Furthermore, consumers decide what is relevant.

In an interesting countermand to Levitt's admonition that the global company will never assume that "the customer is a king", in the cover story in the current issue of Fortune entitled "Sorry, Jack! Welch's Rules for Winning Don't work Anymore", the author expressly proclaims that one of the "new rules"' of business success is that "the Customer is King".

The second impact that the internet has had is its ability to enable even small businesses to locate, create a presence in, and market and sell to global markets at a cost that does not require a large company's capital where-with-all to withstand the risks of international commerce.  Levitt's paradigm of the global company dictating standardized products to an increasingly homogeneous marketplace expressly envisions global behemoths as the companies that can be most successful at this game, citing McDonalds and Coca-Cola as examples.  Unquestionably one of the miracles of the internet enabled global market place is the ability of small businesses to become effective players in foreign markets.  Perhaps the precept of globalization as dictated by Levitt is still applicable to companies large enough to impress their standardization on consumers.   As pointed out in the Fortune article on the new rules for business success, however, even among large companies agility trumps size. 

I think that Ted Levitt would be among the first to challenge established paradigms, including those that he created.   And there is no question that his seminal ideas still resonate with tremendous currency and wisdom.  Indeed, I've added one collection of his works entitled "Ted Levitt on Marketing" to the "must read" list at right.   Nonetheless, companies looking for the recipe for success in today's international markets need to be mindful of the continuing evolution of "globalization" and its rules.

Comments

[Isaias]

A tribute deserving of Ted Levitt. I first learned of Ted Levitt and his work a couple of years ago when I began researching "Youth and Golbalizetion: Opportunites and Chalenges". I found his ideas very seminal and insightful; markets and thier increasing role as determining the shape of the world [temporal and spcial] as well as in shaping our thinking of the globalizing world were particulary influential.
May I did not know any better to try to challenge his ideas. From a perspective of a national of one of the poorest countries in the world, I found the proposition that markets are the inevitable movers or rather horses while the rest of the global arena is destined to follow the direction set for it by the markets ...anachronistic as governments play [at least in my country] a pre-eminent role.
Thanks for the contribution; it provided me with a better understanding of the world of free market and enterprises.
Isaias

[Craig Maginness]

Isaias:

Thanks for the comment. As you can tell from the lack of recent posts, I haven't had much time to blog recently, but I am glad that existing posts continue to have relevance and impact.

Should you check back in to see your comment published, perhaps you would be willing to share the name of the country in which you live. Of course the fact that you are able to use the internet to access what would otherwise be foreign and distant perspectives on the power of markets and consumers says alot about the potential power of information in the internet age to broaden perspectives and maybe even empower people in seemingly disconected places.

All the best,
Craig