The Globalization of Markets: Theodore Levitt - Essay Example

The Globalization of markets: Theodore Levitt Contents Contents 2 Introduction 3 Discussion 3 Theodore Levitt’s Theory on the Globalization of Markets 3 Global versus Multinational 4 The Republic of Technology 4 Vindication of the Model T 4 2. Marketing Models and Justification of those models on the basis of Levitt’s Theory 5 Maslow’s Need Theory 5 Product Life Cycle 6 Boston Consulting Group Matrix of Tesco Plc 7 Reference List 9 Introduction The rapid expansion of globalization in this 21st century has facilitated the exchange of products, services and ideas to a great extent. Successful integration of countries in terms of international trade development has enabled consumers to obtain products and services from any parts of the globe. Globalization also aided countries and markets to adopt the cultural practices of different organizations of other countries (Ali and Kaynak, 2012). This concept of globalization and homogeneity of markets is a visionary outcome of eminent economist Theodore Levitt. Theodore Levitt was a professor and editor of Harvard Business School who introduced the importance of adopting corporate purpose so that organizations also drive for value addition to customers, rather than doing business on the basis of merely money making motivation (Harvard Business Review, 1984). In this paper, the theory of Levitt on globalization of markets will be critically discussed for understanding how adoption of globalization would change the perspective of companies on markets and consumers. For the purpose of analysis, several strategic management techniques and their application by organization in global framework will also be discussed. Discussion 1. Theodore Levitt’s Theory on the Globalization of Markets Levitt, in his theory had explained that the driving forces of globalization would result in a converging commonality that would enable zed communication and networking for isolated people and places to gain access of the modern amenities and technicalities. The success behind globalization lied in the effort of global market players to standardize consumer products so that the products can be accessible and acceptable to all the consumers from every corners of the world. Such action taken by corporate would benefit the company as well, as they would be experiencing economies of scale in the production, distribution and management process. As the benefit would arise out of the consumers reach and acceptance, the corporate should translate such benefit by reducing the world price. In this way, they would also be able to discriminate their business operations and project their brand image as distinct and superior to the world (Harvard Business Review, 1984). The main areas of concerns taken into account by Levitt in this regard are as follows. Global versus Multinational Though used interchangeably, differences are there between global and multinational companies. In this present era of modernization, the whole world is seen as a global market and the multinational companies are identified as those who are having operations and manufacturing units in multiple countries. Though the strategies are same, application of which would become more beneficial was a subject of matter for Levitt. He also opined that modernity is not an aspiration only; it requires a widespread and uniform practice among individuals and groups. However, when such exercise of globalisation makes people thirsty for bloods, the process needs to be rectified. For instance, during 1976 many people were amazed by the telecast of the fashion show of Iranian youths. When these Iranians are noticed to fight for their subsistence, as a result of rapid innovation of modern weapons and increased competitiveness in the global business circumferences, it is acceptable that the process needs to be changed (Harvard Business Review, 1984). The Republic of Technology The concept of republic of technology is based on the theory that there is an inherent tendency of market to converge towards global unity. This theory leads to establish standardization of products and services in the global context (Quelch and Deshpande, 2004). Such standardization requires the organizations to understand the language of worldwide consumer base and accordingly shape the production and distribution process through incorporating standard raw materials and superior technologies. The global success story of McDonald’s, Coca-Cola etc. is justified on the ground of republic of technology. For instance, the main concept of Pepsi Co. and Coca-Cola products are standardized globally; however, the consistency, flavour and varieties are inbuilt in such a way that ensures recognition by the region specific taste buds (Harvard Business Review, 1984). Vindication of the Model T If a company strives to cut down the cost and price level simultaneously without compromising on the quality and consistency, such products will satisfy the need and aspiration of all consumers across globe. According to Levitt, at the initial stage of globalization it is justified to hold the theory but as the process of globalization proceeds the companies should concentrate on market research reports to understand the regional needs, taste and preferences in order to present right product at a right price for the right consumer group. Even the large companies operating in a single big nation should adapt their products in order to satisfy the needs of consumers from different parts of the country (Sheth and Parvatiyar, 2001). However, as they customize the products for a particular market segment, it becomes difficult for them to satisfy homogenized demand of global customers. Large scale customization of products in global arena will also drive the consumers to forgo the benefits of economies of scale in production as well. Research of Levitt has also shown that finding a global counterpart in terms of market structure and consumer specification is not very difficult for a company and hence homogenized of products will provide the companies an incentive on their cost consideration (Harvard Business Review, 1984). 2. Marketing Models and Justification of those models on the basis of Levitt’s Theory During the progression of globalization process, market researchers have identified several theories and techniques of strategic marketing. Rationale of the companies behind adopting all these theories such as Maslow’s Theory of Needs, Product Life Cycle, BCG Matrix, PEST Analysis etc was to make their production and operational process efficient and to establish their existence in global marketplace (Douglas and Craig, 2006). In the next segment, all such theories will be evaluated in order to understand the justification of Levitt’s theory in the contemporary global business framework. Maslow’s Need Theory In 1954, Abraham Maslow introduced a theory on hierarchy of individual need. How Levitt’s theory of globalization can strive to satisfy all these five hierarchical needs will be discussed in details. The first stage is psychological needs of human being such as food, water, and clothes etc. which are basic and required to be fulfilled at any cost. Such psychological needs can be satisfied by providing the consumers the most elementary product (Robbins, 2009). Taking example of a bread manufacturer, for satisfying hunger of an individual in this stage of hierarchy, no product differentiation is needed. Manufacturing of similar product will lead to satisfy the need for all consumers across the globe. Once the psychological needs are fulfilled, consumers shift to the next hierarchy of need which is safety need. In this segment, consumers concentrate on personal, financial and health related safety and security of themselves and their family as well. Hence, consumers in this segment of hierarchical need focuses on the production process and market reputation of the bread manufacturer in order to ensure that all kind of safety measures are adopted by the company and the products are having good reputation in market. Once the need is satisfied, individuals are elevated to social need. Influences of peer group, friends, and colleagues become more prominent. Derived satisfaction of one group member by using a product highly influences others among the group to use the product. The next need in Maslow’s hierarchy is self-esteem. Individuals in this need become more conscious about their reputation in the society, self-respect, competency and self-confidence. Hence in this segment, consumers’ attention shifts towards acquiring branded products rather than products from local manufacturer. The final stage of need hierarchy is self-actualization in which individuals realise their potential and desire to accomplish any wish which is unfulfilled till date. Such motivation arises when individuals achieve all the fundamental aspects of life. Therefore, individuals tend to strive for the best product available in the market (Robbins, 2009). Product Life Cycle The Product Life Cycle indicates the entire lifecycle of a product starting from inception or introduction of a product in the market, its growth over a period of time, consequent maturity and signs of decline. Introduction This is the most expensive task for a company as it involves extensive research on the size of market, consumer specification and technological consideration. The stage also involves huge costs as it requires a series of pilot testing to understand the consumers’ response towards the product and massive promotional activities in order to highlight it in a competitive global market segment. Launching of product may drive the company to incur an initial loss; successful product introduction will fetch huge profit in the long run (Harvard Business Review, 1965). Growth In this phase, the company starts realising increment in sales and revenue. Hence, soon the product exceeds the breakeven point and experiences positive profit. At this point, the company also concentrates on product and brand differentiation. As consumer acceptance increases for the product, the company starts finding new sources of business expansion by opening up new retail outlets and distribution channels. Concentration of companies is shifted towards pricing and promotional strategies when they experience emergence of a number of competitors, (Harvard Business Review, 1965). Maturity In this stage of product life cycle, the product is already established in the market. Saturation of the product demand is an early sign of maturity. Hence, the company experience that most of their target consumer group owe the product. As the product is already established in the market segment, competitors are expected to engage in strong price competition in order to capture market share. Therefore, concentration should be shifted towards product differentiation and securing the tie up with existing distribution channels (Harvard Business Review, 1965). Decline Consequent to the maturity stage, the product experiences declining trend. In this stage, the product starts shrinking mainly because of two reasons. The product may shrink due to saturation of market for the product or the willingness of the consumers to move to the competitors’ product because of less innovation and modification of the company’s product. Decline is inevitable for any product; however, a company may adopt a comparatively less expensive production process or switch to cheaper market for profit making motive (Harvard Business Review, 1965). Boston Consulting Group Matrix of Tesco Plc Boston Consulting Group Matrix is another strategic technique to show a company’s position in the global marketplace. The matrix involves four quadrants: Star, Cash Cow, Question Mark and Dog (Hitt, 2009). The Start shows a position when a company acquires high market share and hold a potency of high growth in the industry segment. Widespread customer base and established customer loyalty ensures a Star position of a company. For instance, Tesco Plc. continues to be a star in the UK supermarket industry with an average 30% of market share, as on 2012 (Hitt, 2009). Cash Cow position shows capability of a firm to derive high return from a comparatively slow growing industry. Recent trends have shown that, maturity of the UK market and saturated demand of Tesco products is driving Tesco to shift from Start to Cash Cow position. In the question mark quadrant, the company tends to capture a low market share in a high growth market. As a result of operating worldwide, whereas in the UK market Tesco Plc. holds a star position, in the emerging markets like India, Brazil and United Arab Emirates, the company is placed in Cash Cow segment (Tseng, Hallagan and McCullough, 2007). Dog is a position that indicates a very low market share of a company in a slow moving industry. Companies in this market segment many go out of business because of their inability to generate sufficient cash from business required to cross the breakeven point and consequently may go out of business. The cassettes companies are experiencing the position of Dog as the products have become unwanted due to innovation and massive expansion of computers and CD enabled music systems (Kotler and Armstrong, 2008). Conclusion Globalization has accelerated the cross border business transactions to a great extent. The concept of Theodore Levitt about globalization of markets has been greatly idolized in this regard. The strategic management techniques are also developed based on this core idea of globalization in order to direct the companies how they can operate effectively in global business platform. All these factors together have contributed towards acceptance and success of globalization process in all markets across borders. Reference List Ali, A. J. and Kaynak, E., 2012. Globalization of Business: Practice and Theory. London: Routledge. Douglas and Craig., 2006. On Improving the Conceptual Foundations of International Marketing Research. Journal of International Marketing, 14(1), pp. 1-22. Harvard Business Review, 1965. Exploit the Product Life Cycle by Theodore Levitt. [Online] Available at: < https://hbr.org/1965/11/exploit-the-product-life-cycle> [Accessed 27 February 2015]. Harvard Business Review, 1984. The Globalization of Markets by Theodore Levitt. [Online] Available at: < https://hbr.org/1983/05/the-globalization-of-markets> [Accessed 27 February 2015]. Hitt, A., 2009. Strategic Management Competitiveness and Globalization. Edinburgh: Nelson Education Ltd. Kotler, P. and Armstrong, G., 2008. Principles of Marketing. New Jersey: Pearson education Inc. Quelch, J. A. and Deshpande, R., 2004. The Global Market: Developing a Strategy to Manage Across Borders. New York: John Wiley & Sons. Robbins, S. P., 2009. Organizational Behavior. New Delhi: Pearson Education India. Sheth, A. and Parvatiyar, D., 2001. The Antecedents and Consequences of Integrated Global Marketing. International Marketing Review, 18(1), pp. 16-29. Tseng, T., Hallagan. and McCullough, 2007. Effects of Firm Resources on Growth in Multi-nationality. Journal of International Business Studies, 38(1), pp. 961-974. Read More