Why Ted Levitt wasn’t wrong about globalisation

Marketing guru Ted Levitt has been criticised for overestimating the rise of global brands. But that wasn’t what he meant at all, contends Alan Mitchell

Has globalisation reached its sell-by date? Twenty years after Ted Levitt sparked a rumpus with his essay The Globalization of Markets, globalisation is fast becoming a dirty word, not only among critics such as Naomi Klein, but in business circles too. As Richard Tomkins pointed out in a recent Financial Times article, many attempts to build global brands have failed miserably. Professor Levitt’s belief that “as new media and technology shrank the world, people’s tastes would converge creating a single global market that would be dominated by the world’s most successful brands” was, he concludes, “mistaken”.

But was Levitt mistaken? Or are we still missing his real message?

Levitt’s real focus was not on brands (in fact, he didn’t mention the term “global brand” once throughout his entire essay) but on how technologies connect with human needs, and how this affects organisations and markets. Technology, he said, is driving the world to “single converging commonality”. No matter what race, religion or culture they come from, people are embracing the fruits of technology, whether in the form of refrigeration, electric lighting, the car, air travel, antibiotics, computing, mobile telephones, TV and so on. “No place and nobody is insulated from the alluring attractions of modernity,” said Levitt.

Likewise, even though people around the world are different – and even though these differences will persist – there are many characteristics that unite them. “The Chinese are different in a whole variety of visible ways from the Germans and the Zimbabweans,” Levitt wrote, “but still all three are remarkably alike regarding love, hate, fear, greed, envy, joy…” The relentless drive of technology – and the essence of global convergence – he argued, was its appeal to a human universal: the relentless drive “toward the alleviation of life and the expansion of discretionary time and spending power”.

In the face of these universal technologies and universal needs, traditional multinational companies – which replicate themselves many times over from country to country – were redundant on two counts.

First, they duplicated things that didn’t need to be duplicated. There were enormous cost savings and economies of scale to be reaped by standardising things such as product and packaging specifications, and centralising buying of raw materials, media and so on.

Second, multinationals added unnecessary complexity. And marketing was often the main culprit. By “asking people what they wanted in the way of features alone rather than seeing what they visibly wanted of life itself”, national marketing departments ended up delivering an ever-proliferating array of different product and packaging features, at ever greater cost. In the process, they created “awesomely large and costly marketing departments complete with ponderously professional market researchers”.

Levitt argued that if companies could strip away this complexity to realise new, global economies of scale, they could cross national boundaries and “discover the one great thing. That is, the overwhelming desire for dependable, world-standard modernity in all things, and at aggressively low prices”.

So in what way was Levitt actually mistaken? First, can anyone show any evidence, anywhere that consumers around the world don’t want the “life-alleviating” fruits of modern technologies? There may be huge issues as to whether people can afford them but, the world over, people want them. We all want more discretionary time and spending power.

Second, it’s now widely accepted that old-style multinational organisations are slow, cumbersome and costly to run. What have all the great global corporate reorganisations of the past few decades been about, if not pursuing the quest of eliminating unnecessary duplication, gaining speed, and realising buying and production synergies?

So in all three main areas – technology, underlying consumer demand and organisational evolution – Levitt has already been vindicated. The only area where controversy still rages is the one area he didn’t address – global brands.

The fact that so many large companies are focusing their efforts on a small handful of megabrands with global critical mass suggests that Levitt was on the right lines when emphasising the importance of global market segments.

At the same time, however, he probably overestimated the speed and extent of market convergence. And certainly, at times, he seems to equate globalisation with Americanisation. It’s in these delicate areas of judgement that brand strategies are truly tested. So what is the likely outcome? Here’s a suggestion.

Global brands have a natural advantage wherever “globalness” is an essential part of the proposition (Visa, for instance), and in science- and technology-driven

markets where there are only one or two “best” answers (these are often business-to-business markets).

Globalising brands also have an advantage where an organisation is really able to unleash the synergies and economies of scale that Levitt talked about – without incurring new “dis-economies” of scale from increased size, complexity and so on. But please note: what people want in this case are not global brands per se, but the benefits of globalisation – those life-alleviating technologies at lower cost. And that’s turning out to be harder than he predicted.

Take the example (from a McKinsey case study) of the multinational soap powder brand in India, whose ingredient and production costs were nearly twice as high as its local competitor’s, and whose marketing costs were over four times higher. McKinsey’s recommendation – “to focus on cost reduction, operational efficiency and simplicity” – echoes Levitt 20 years earlier.

Meantime, global brands also have a natural disadvantage wherever human meaning, identity and culture are centre stage: where there is no single “right” answer. In fact, when cultures meet and clash, the possibilities tend to multiply, which makes brand managers’ jobs even more difficult. They need to ride two opposing trends at the same time.

So, as ever with branding, the best answer is that it’s horses for courses. There is only room for a relatively small number of global brands. Increasingly, they will provide the context in which many more vibrant local brands will strut their stuff. Globalisation is a hugely important trend, but it’s not the only trend. And when it comes to globalisation, Levitt is still the best read there is.

Alan Mitchell, asmitchell@aol.com

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