Marketing Management Theories and Philosophies - Literature review Example

Marketing Management Theories and Philosophies Contents Introduction 3 Overview of Global Strategy Literature 6 Limitations of Levitt’s views 9 Critical Evaluation 10 Conclusion 14 References 16 Introduction In the year 1983, Theodore Levitt, professor of prestigious Harvard Business School, Boston and the Editor of Harvard Business Review, published an article in the review paper named “The Globalization of Markets”. Although globalization was used by the companies long before the introduction of the term, still the theory is considered as the pioneer of modern day global strategy. The article was widely acclaimed by different critiques across the country and the people attached to the marketing team of large corporations gladly accepted this view. In his article, Levitt has stated the view of a new ‘global market’ where uniform products and services are being served by different corporations. According to his view, modern large scale companies should stop emphasizing on the rapid customization of their offerings. Rather, they should provide globally standardized product to different markets. If a product is up to the global standard, then it will be able to serve the four key criteria of meeting with the expected consumer demand. These are: Advanced The more a product is standardized, the more it becomes developed. The reason is simple. To become a product of the global standard, the product’s key attributes must be changed on a regular basis. This means, the technologies and resources of the company must be properly utilized to improve the standard of the offering. This means standardized product offerings are, indeed, more advanced in nature. Reliable The degree to which consumers can trust on the product offerings is called the reliability of the product. Standardized product offerings used by a company are reliable in nature as the consumers who are using the products are well aware of the offerings standardized nature in other markets. Manufacturing of standardized products are bounded by quality norms and practices. This ensures that the product produced is not perceived unreliable to the consumers. Functional Whenever a global company tries to offer its product offerings to a new market, the consumers in the market often behave indifferently because of their lack confidence on the functional properties of the brand. The consumers should perceive the brand properly functional and better than the competitors in terms of its functional prospects. Standardized products ensure the functionality of the brand. Low priced Every large global corporation seeks to achieve cost leadership advantage in the marketplace. But, as the global corporations are large scale in nature, the huge overhead restrains them from lowering the price. The price of the product can only be reduced if a standard product is produced on a continuous basis. This sequential operation results in declining unit labor cost and overhead, ultimately cost leadership strategic advantage of the company in the marketplace. According to Levitt, the well knowledgeable customers are heading towards a ‘convergence of tastes’ and thus, every global corporation should maintain its ‘economics of simplicity’ and the success of future global corporations depends on their adopted strategies. “Everywhere everything gets more and more like everything else as the world’s preference structure is relentlessly homogenized” (Levitt, 1983). This paper is presented to analyze the traditional views of globalization strategy as mentioned Levitt thirty years ago and the changing scenario of global strategy in modern day context. The purpose of this article is to review and evaluate various perspectives and theoretical basis of formulating a global strategy in according with Levitt’s Globalization viewpoints and to provide an integrated conceptual framework of global strategy that can synchronize the traditional global corporation views with modern day business situations. Lastly, from this article, implications of the historical study performed by Levitt with respect to emerging markets can be deduced which can provide necessary background for future research as well as incorporate into the changing internationalized management practices. Overview of Global Strategy Literature In academia, interest in global strategy by organizations has been strong for last three decades. A number of perspectives were proposed to examine this issue of increasing global competition. The most provocative and critically evaluated theory was Levitt’s “Globalization of Markets”. The Globalization of Markets In the backdrop of the changing world of 21st century, the world is becoming more like a single market. Despite having deep rooted cultural differences, the worldwide consumers are becoming more and more homogenized. Thus traditional multinational’s strategy of customizing the products according to the needs of the diversified markets may become a source of their competitive disadvantage. Internationalized organizations are opting strategies to develop more advanced, functional, reliable and standardized products, at the right price, on a global scale. The converging commonality of modern day world is a result of technological advancement. Almost every knowledgeable customer is wishing to experience advanced products/services offerings via the new technologies. Cultural differences resulting from the demographic and psychographic difference of the customers cannot accurately predict the polycentric approach of multinationals strategy. Rather, Levitt proposed that going global can be successfully achieved if a company opts for geocentric strategy. He has explained this theory with numerous examples of companies such as Coca Cola, General Motors etc. Levitt’s ‘globalization of markets’ theory was successful in separating the idea of global corporation and multinational corporation. Global vs. Multinational Corporation The theory defines two organizations in two different ways. The definition of Multinational organization is a decentralized institution with distributed resources and delegated responsibilities that helps them to perform foreign operations in accordance with the local differences. This system of managing global market is predominantly focused on the polycentric and region-centric views internationalization (Bartlett and Ghoshal, 1989). On the other hand global corporation is a centralized hub, a structural configuration based on group-oriented behavior that requires extensive communication and complex system of personal interdependencies and commitments. Multinationals response according to the local needs, but the global companies believes in integration in a global scale. The base of classification between these two is on the organizational aspects. The strategies between multinational companies and global corporation are different. In case of multinationals, the company is obliged to address each market as a separate entity. This view is valid on the view point of general marketing strategies of a company because it accepts the regional demographic and social differences between different communities. But global corporations, due to their involvement in manufacturing and selling of geographically standardized products; accept that standardized product will be used as global competitive advantage strategy if the international market accepts it. Investing in other countries can be done in different ways. In case of multinationals, the company invests in other countries but not possess coordinated product offerings. Broad image of the marketplace to invest in the present scenario is the main criteria for multinational companies. A truly global company can be located in different countries, but they are focused on creating a single company culture with one set of processes that facilitate a more efficient and effective single standardized global operation. Levitt’s view of globalization and global corporation was widely accepted as a mean to internationalization in a broad scale. Economics of scale in standardized business offerings was the key to success and it was immediately accepted by many corporations that were going global. He has also introduced a term called the ‘Republic of technologies’ which signifies that everything is becoming similar due to convergence of technologies in every aspect of product offerings. In business, this trend has pushed the market towards a global community. For example, Corporations involved in doing business with Steel, Chemicals, Petroleum, cement, agricultural commodities and equipment, construction, banking and financial services, computer manufacturing, transportation, pharmaceuticals and telecommunications are all doing business in a standardized single market focused way. Difference in cultural opinion, variation in consumer tastes and preferences across national boundaries, and single market focused ethnocentric business institutions are examples of the past. Consumer tastes and preferences are constantly shaped and changed. But the enormous variety of global community resides inside the World’s single ‘domestic’ market. The process of world homogenization forces the modern businesses to expand their business with cost reducing global focus. With better and cheaper communication and transport facilities, small market segments are gradually merging into a large single one and they are exhibiting same behavior. Distant competitors are now feeling the pressure of the presence of the single market scenario and the irresistible urge towards economics of scale cannot be argued. Two factors shape the world-technology and globalization. The first one helps to determine human preferences. On the other hand, the second one explains the economic realities, i.e. how much preferences evolve and diverge or gradually converge. The economics of scale operation leads to reduction of costs and prices. This is the way in which modern global corporation contrasts with old multinationals. Global corporations believe that instead of making superficial differences within and in between countries, standardized product offerings can be good way to capture the market with low price, high quality and added reliability. Thus a truly global company will shape the factors of technology and globalization into their global strategic policy. Companies that do not accept the global realities will become the victims of those that exercise global practice. Limitations of Levitt’s views In spite of providing a broad perspective on globalization, Levitt’s view of Globalization of market has some limitations. They are as follows: The standardized view of internationalization can only be applied if the company is well renowned and the product (brand) is well known to the customers. In case of a small sector business, standardized product manufacturing can lead to complete institutional failure. Global cultural differences cannot be ignored if the regional and cultural differences between people change the value perception of the offerings. Critical Evaluation Standardized product offerings to many markets were supported by many giants. Optimum global strategy with single standardized product and sell it through a standardized marketing program were the way to achieve cost leadership advantage. The first disagreement came from Hout et al. (1982), arguing the single approach of effective global strategy. They said that effective global strategy cannot be achieved with a single approach, but it is a mix of many tricks. These include exploiting economics of scale through global volume, large capital investments position, and proper management of interdependencies. According to them, global strategy is nothing but leveraging the competitive edge across interdependent and interrelated markets to change the scale of scope of competition. In contrast with Levitt’s view, another view was introduced simultaneously. Known as the broad product portfolio view (Hamel and Prahalad, 1985, pp. 139-48), it believes that global strategy requires several product varieties, so that capital investments in technologies, brand building and distribution network building can be shared. This is also known as the cross product line subsidization across markets. They supported the view of diversified product portfolio explaining it to be the primary factor of defending competition across markets. Levitt’s view completely ignored the strategic flexibility perspective of global strategy. The modern world economy is highly volatile in nature and an uncertain incident in the marketplace can lead to reduced selling of standardized products. The marketers must focus on the strategic flexibility of global strategy that can create options to turn the uncertainties of the volatile global economy into business advantage (Kogut, 1985). The focus of business must shift to the multiple sourcing strategies, that is, changing the objectives of production from profit making to changing factor costs and exchange rates, arbitrage operation to take advantage of the imbalances in different information markets. Kogut believes that businesses should match strategic fit into strategic flexibility in order to gain sustainable comparative advantage. According to Porter (1986), interdependencies among various country markets can deduce that a global strategy has two basic dimensions: configuration of value added activity and co-ordination of activities across diversified markets. His views were more focused on three broad generic strategies of an organization which can be used in any business condition: Differentiation, Cost Leadership and Focus. Hence, according to porter, success of business achieves through integration of firm’s competitive position in the marketplace. In contrast to Levitt’s view, Quelch and Hoff (1986) emphasize the importance of local market focus. They recommended that firms should be responsive to the local market needs in order to go global and capture other markets. Approaching and capturing a different market in foreign country requires efficient use of global marketing idea rather than product/service standardization. The organizational structure must encourage transfer of information across markets. The concept of development and effectiveness in local market delivery is the key proposition of doing business. Businesses must ‘think global’ but ‘act local’. Bartlett and Ghoshal (1988; 1991) contended that globalization and localization forces must work together for transformation of industries and success of any global business depends on the proper synchronization of global efficiency and national flexibility. This is called transnational capability of doing business across national boundaries. Local flexibility can result in securing the business foundation that can be properly utilized to approach globally. Collis (1991) has proposed that Levitt’s traditional geocentric view of approaching the market cannot get success if the important interdependencies across different national markets are considered accordingly. Sources of global competitive advantage can be from five different factors: Economics of scale (Levitt, 1983), accumulated international experience and exposure (Douglas and Craig, 1989, pp. 47-58), possession of global brand name (Levitt, 1983; Ohmae, 1985), learning curve effect (Porter, 1985), and the cross subsidization that a multimarket presence confers (Hamel and Prahalad, 1985). The industrial organizational model and the resource based model of business structure provide the necessary idea about the limitations of Levitt’s view. In modern day scenario, to cope up with the changing global market, the business must not contain its views on only one strategy of doing business. Standardized product offerings can be a source of competitive advantage until the market is saturated. If the business market is dominated by too many competitors, then it is quite obvious that the market will get saturated very soon and the competitors will try to introduce new product/service offerings in order to get the large share of pie. Levitt’s views and other evaluating literatures are alone not enough to provide a proper framework of going global. For instance, the industrial organizational model of business believes that companies achieve core competencies if the external environment of the company is analyzed in a proper manner. Resource based model is simply the opposite of this one where internal resources and capabilities are considered to be the first preferences. It cannot be denied that both the internal and external factors of an organization should be considered to achieve key competencies and the core processes can effectively produce & distribute standardized product offerings at low cost. Thus, there should be a complete mix of all the ideas. Another view is that, Levitt’s geocentric approach considers global market as same based on the homogeneity of the marketplace, but the core cultural differences across different nations can lead to strategic inflexibility. Levitt’s Globalization of markets does not provide any exposure to the national level competence making and strategic fitting of a global business. For this reason, a conceptual framework has been developed based on the works of different researches. The framework suggests that there must be an integration of the internal and external factors of a business if it is focused on expanding in newer market. Effective global strategy has five core dimensions: major market participation, product standardization: activity concentration, uniform marketing, and integrated competitive strategy (Yip, 1989, pp. 29-41). This view is the modified approach of Levitt’s view of global operations and global corporation. The framework is shown below: Figure: An integrated conceptual framework of Globalization (Zou and Cavusgil, 1995) From the figure, it can be seen that proposal of expansion of business beyond the perimeter of the country requires two things at the first position, the external analysis of the firm and the internal analysis of it. This is nothing but the Industrial Organizational Model and Resource Based Model of business. An integration of these factors helps in setting the global strategy. In this global strategy, Levitt’s product standardization is also a key element but not the primary strategy. From the model, the key propositions that can be derived are: Global strategy of an organization is dependent on the organization’s response to external driving factors. Internal organizational factors help an organization to build its global strategy and an effective blend of the internal and external driving factors provides the organizations necessary ability to perform a chosen strategy (Barney, 1991). Conclusion In the conclusion it can be said that based on the analysis of Levitt’s view of global strategy, and the conceptual integrated framework, several research dimensions can be expanded in future to enhance the internationalization process of a firm. Global strategy is multidimensional in nature and the different dimension of global strategy shown in the conceptual framework can change the firm’s global financial and strategic performance. In order to expand into the global market, a single multinational or single global corporation view is not enough. Both the external and internal factors of the organization along with the ‘globally local’ strategy must be incorporated. Business units competing in global industries must evaluate both internal and external organizational before opting for a globally standardized strategy. Strategic business units must develop an organization wide market orientation strategy which will not only be focused on the global markets, but also nurture an organization culture that is appropriate to global strategy conception and implementation. Successful global strategy is not a single formula of standardization but a multidimensional and coherent mix of a set of actions. These include participation in all major markets across the world, product standardization and feasible marketing programs. The value adding activities should be synergized into the multinational business operations. Finally, because of the reason that external globalization drivers, internal resources of an organization, global strategy and global performance are all multidimensional in nature, business units must set performance goals before formulating the global strategy. Global business must continuously monitor the external changes in the macro environment and adjust their global strategies accordingly to achieve the desired performance goals. Global strategy must not only incorporate broad, strategic direction of doing business but also must specify the way through which activities such as sourcing, research and development, manufacturing, and marketing can be coordinated in a global basis. References Barney, J., 1991. “Firm resources and sustained competitive advantage”. Journal of Management. Vol. 17 March. Bartlett, A. and Ghoshal, S., 1989. Managing Across Borders: The Transnational Solution. Boston: Harvard Business School Press. Bartlett, C. and Ghoshal, S., 1988. “Organizing for worldwide effectiveness: the transnational solution”. California Management Review. Autumn. Bartlett, C. and Ghoshal, S., 1991. “Global strategic management: impact on the new frontiers of strategy research”. Strategic Management Journal. Vol. 12. Collis, D.J., 1991. “A resource-based analysis of global competition: the case of the bearings industry”. Strategic Management Journal. Vol. 12. Douglas, S.P. and Craig, C.S., 1989. “Evolution of global marketing strategy: scale, scope, and synergy”. Columbia Journal of World Business. Autumn. Hamel, G. and Prahalad, C.K., 1985. “Do you really have a global strategy?” Harvard Business Review. Vol. 63, July-August. Hout, T., Porter, M.E. and Rudden, E., 1982. “How global companies win out”. Harvard Business Review. Vol. 60. Kogut, B., 1985. “Designing global strategies: comparative and competitive value added chains”. Sloan Management Review. Autumn. Levitt, T., 1983. The Globalization of Markets. Boston: Harvard Business Review. Ohmae, K., 1985. Triad Power: The Coming Shape of Global Competition. New York: Free Press. Porter, M.E., 1986. “Competition in global industries: a conceptual framework”. Competition in Global Industries. New York: Free Press. Quelch, J.A. and Hoff, E.J., 1986. “Customizing global marketing”. Harvard Business Review. Vol. 64, May-June. Yip, G.S., 1989. “Global strategy … in a world of nations?” Sloan Management Review. Autumn. Zou, S. and Cavusgil, S.T., 1995. “Global strategy: a review and an integrated conceptual framework”. European Journal of Marketing. 30, 1. Read More