Globalisation Driving the World to a Converging Commonality? (Levitt, T. 1983)
Theodore Levitt (1983) instigated a vigorous argument twenty years ago when he suggested
that the world was being driven to a converging commonality. The world driven by changes
in technology and particularly the dramatic changes taking place in communication was
effectively shrinking the world and was, he argued, having the effect of driving consumer
tastes to a “converging commonality”. This would he argues result in the global
standardisation of products.
Levitt was certainly influential. Sir Martin Sorrell, chief executive of WPP, well remembers
the day the article appeared. At the time - May 1983 - he was finance director of Saatchi &
Saatchi, then a relatively small outfit that was briefly to become the world's biggest
advertising and marketing conglomerate. "I read the piece and I remember giving it to
Maurice (Saatchi) saying 'this is a key article'. We distributed it to all our key clients and
said 'this is the way the world's going and this is the way the Saatchi agency will be
positioning itself'." Maurice Saatchi became a passionate believer in Prof Levitt's theory
and set about establishing Saatchi as a global operation that would market the new global
brands with global advertising campaigns. Soon after the article appeared, the agency put
theory into practice with its "Manhattan" advertisement for British Airways, a science
fiction-style spectacular that appeared to show the whole of New York's Manhattan island
coming in to land at London's Heathrow airport. Describing British Airways as "The
world's favourite airline", the same advertisement was dubbed into 20 languages and
shown in every country in the world with a developed television network - 35 in all.
Partly as a result of Maurice Saatchi's advocacy, Prof Levitt's prophecy reverberated in
boardrooms around the world. Even so, in 1983 it looked a bit of a futuristic fantasy. Many
of the world's markets were still closed and nearly a third of its population lived under
communism. By the end of the 1980s, however, as the barriers to world trade came down,
Prof Levitt was beginning to look more right than he could ever have imagined. People in
former communist countries celebrated their freedom by cracking open cans of Coca-Cola,
MTV embraced the globe's youth and, in 1990, McDonald's opened in Moscow.
In the 1990s, the share prices of global brand-owners such as Coca-Cola, McDonald's and
Walt Disney soared as investors savoured the companies' growth prospects. Another sign of
the times was the trend for companies to brand or rebrand themselves with global-sounding
names seemingly plucked from Esperanto, such as Diageo, Novartis and Invensys. Then,
something un-expected happened: a reaction set in. People around the world started
demanding more local sovereignty and more protection for their cultural identities. Most
worryingly for global brand-owners, consumers in newly opened markets started expressing
a desire for local products - which, as local manufacturers adopted western business
methods, were simultaneously showing a big improvement in quality. Tomkins, R., (2003).
The idea of global economic convergence has proven to be a myth, making data gathering
on emerging markets essential. Philip Parker points the way to information sources back in
the early 1980s, many argued that a globally standardised strategy was the future. Convergence
and standardisation went together. Why? Because consumer tastes and preferences were
converging across regions, countries and economies. The idea was that companies should cut
costs and conquer the world with global economies of scope, scale and branding. Geographic
differences would disappear as managers focused on the global village. Parker, P. (2001).
By the end of the 1990s, most global brand-owners were switching chief executives as their share
prices plummeted in response to slowing growth rates. In March 2000, in a signed article in the
Financial Times, Douglas Daft, Coca-Cola's new chief executive, offered a startling analysis of
what had gone wrong. Coca-Cola, Mr Daft wrote, had traditionally been a "multi-local" company
but as globalisation had gathered pace, it had centralised its decision-making and standardised its
practices. "We were operating as a big, slow, insulated, sometimes even insensitive 'global'
company and we were doing it in a new era when nimbleness, speed, transparency and local
sensitivity had become absolutely essential to success," he wrote. But Coca-Cola had learnt its
lesson, Mr Daft said. It was that "the next big evolutionary step of 'going global' now has to be
'going local'. In other words, we have to rediscover our own multi-local heritage."
Astonishingly, it was almost the opposite of what Prof Levitt had advocated. Yet now it is the
almost universally accepted wisdom. The one-size-fits-all approach is out; "think local, act
local" is in. Coca-Cola owns not one brand but more than 200, mostly local; McDonald's varies
its menu to suit local tastes; MTV has different programming to suit different countries and
regions.
While homogenisation has affected some product categories - mainly in the technology sector,
where there are no cultural barriers to overcome - the paradox of globalisation is that it has led not
to a convergence of tastes but to a vast increase in the number of choices available to consumers.
People can now buy products from all over the world: global, regional and local. Another paradox
is that technology is aiding the fragmentation. "Prof Levitt was assuming that the only way to get
scale was through standardisation. It was essentially the Henry Ford argument," says Lowell
Bryan, a McKinsey director and a former student of Prof Levitt. "But technology has changed
the economics of production. Now, you can have both economies of scale and also deliver very
discrete, specialised products." Prof Levitt has retired and does not give interviews. But through
an intermediary, he indicates that he stands by his story. "Global consumer products like Coke,
Pepsi, McDonald's and Fuji and Kodak film are not fashioned to meet the needs of certain
markets. They are simply sold in those markets about the same way they're successfully sold at
home," he says. Few would agree that Prof Levitt's prophecy has been borne out. But 20 years
after its publication, his article is still widely quoted and read. And you do not have to be right to
be interesting. "Sometimes, even if they are wrong, ideas can set off a chain of debate that
results in greater knowledge," says Richard Tedlow, professor of business administration at
Harvard Business School. "So a brilliant idea that may not be right but that gets people
thinking can be of greater value than a standard idea that doesn't stimulate thought at all."
Tomkins, R., (2003).
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Globalisation Driving the World to a Converging Commonality? (Levitt, T. 1983)
If you are still thinking this way, it is time to reconsider. The data are in and standardisation
is out. Eighty per cent of companies divide the world into three time zones: the Americas
(Latin America being run out of Miami or New York); the Asia-Pacific segment,
encompassing Beijing, Sydney and everything between; and the Euro segment (Africa and
the Middle East being handled out of London, Paris, Geneva or Athens). This allows
managers to communicate within a segment in business hours. Parker, P. (2001).
Countries that are hot all year round will, in the long term, consume less clothing, food, housing
and energy.
Ted Levitt wasn’t wrong about globalisation!
Which countries will have faster economic growth in the long term? According to
physioeconomics, high growth rates can be expected from countries that currently have low levels
of consumption compared with other countries in the same convergence club (that is, countries
with similar climates and terrain, or similar natural resources). It is not appropriate, in this view,
to compare France with Panama, given that the two countries are not members of the same
convergence club. Rather, France should be compared only with countries in its convergence club
(such as Germany or the UK), or having similar starting conditions (such as climatic or
geographic conditions).
Another perspective is put forward by Alan Mitchell (2003) where he takes a slightly
different perspective asking whether Levitt was wrong or whether we are still missing his
real message. Mitchell suggests that in fact Levitt was not talking about global brands but
rather about the way in which changes in technology was connecting with human needs. He
argues that people globally are embracing the fruit of technology, in the form of
refrigeration, air conditioning and electric lighting, air travel, antibiotics, computing,
communications technology, etc. People around the world have many characteristics which
unit them with characteristics such as; “love, hate, fear, greed, envy, joy..” Levitt, T.
(1983).
Levitt, Mitchell (2003) saw these factors as universal and part of the drive towards easing
the problems of life and the expansion of discretionary time and spending power. Mitchell
accepts that there is a general recognition that the old style Multi National organisation has
been found to be too slow and cumbersome; however he argues that Levitt has been
vindicated in a number of important areas such as the impact of technology and
organisational evolution. Levitt he says was also on the right track with regard to the issue
of global branding and the importance of global market segments and global brands “..have
a natural advantage where ‘globalness’ is an essential part of the ingredient (Visa for
instance) and in science and technology driven markets, where there are only one or two
best answers..” (Mitchell, A. 2003, pp 27).
Finally Parker, P. (2001) introduces another factor that should be taken into account
suggesting that the colder countries of the world (whether adjacent neighbours or not), seem
to be converging to the same level of economic wealth and consumption. Absolute latitude,
in fact, explains some 70 per cent of the cross-country variances in income per head and is
the single most important factor explaining economic divergence compared with many
other variables. Convergence clubs are, in fact "climatic clubs". This effect has been
increasing since the second world war, especially as more countries adopt capitalist
economic systems. Why is this? First, it is clear that all value chains end with a consumer.
All industrial products are transformed via manufacturing or some other value-enhancing
process, which in turn are transformed or distributed to end users. These users consume
clothes, housing, food, entertainment, transportation and other goods (clothes, food and
housing represent between 60 and 95 per cent of all things consumed on the planet).
While this view of conditional convergence may seem obtuse, it has secure roots in physics and
its effects on human physiology. The world is not a set of countries, but climatic zones with
varying resources bases and economic regimes.
Summarise the key issues and perspectives and evidence raised here and evaluate their
relevance to International Business.
References:
Tomkins, R., (2003), “Happy birthday, globalisation: 20 years ago Theodore Levitt
prophesied the age of the global corporation” The Financial Times, May 6, 2003 p14
Levitt, T. (1983), “The Globalisation of Markets”, Harvard Business Review May/Jun. Cited
in de Wit, B & Meyer, R, (1998), “Strategy Process, Content Context, an International
Perspective” 2nd Ed, West. Pp 733-741.
Parker, P. (2001), “Developing strategy for a not-so-global village The Financial Times,” ”
The Financial Times, Jan 22, p12.
Mitchell, A., (2003), “Why Ted Levitt wasn’t wrong about globalisation,” Marketing Week
June 26, pp26-27.
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