The Globalization of Markets

Theodore Levitt’s seminal article ‘The Globalization of Markets’ (Harvard Business Review 1983) caused many companies to examine their international advertising strategies and to adopt a global strategy. What problems do you see in such an approach?

INTRODUCTION

New product introduction in today’s technology-driven markets carries significant risk. New product failure rates can be as low as one out of every three products (Antil, 1988) or as high as the 90 percent of new grocery products which are withdrawn within a year of their introduction. New technology, improved communications, increased profit demands and shorter product life cycles have added to the inherent risk (Rosenau, 1988).

Timely and responsive new product development has become even more critical in the highly competitive global environment. The need to respond quickly to these dynamic global market forces requires the firm to integrate rapidly the perspectives and needs of both product developers and potential consumers (Barton and Krause, 1985).

Globalization

Levitt (1983) pioneered the concept of globalization, asserting that in an era of global competition, the marketing strategy of successful companies is evolving from offering customized marketing mixes to each individual country market toward that of offering a single standard market mix on a global basis. Although the promotional aspects of globalization have been widely discussed, the global product strategy development side has been long ignored. However, increasing interest in the strategic linkages between product policy and manufacturing have been observed (e.g. Cohen and Zysman, 1987; Hayes and Wheelwright, 1979).

With the aggressive competition from European and Japanese multinational firms that emphasize related manufacturing, US firms have realized that product innovations alone cannot sustain their long-term competitive position without a product policy linking product and manufacturing process innovations (Wheelwright, 1985). Progressive companies worldwide are increasingly using a holistic method, the sprint method as in rugby; the ball gets passed within the team as it moves as a unit up the field (Takeuchi and Nonaka, 1986). Today’s global competition represents a fiercely competitive environment in which importance is placed on increasing returns to scale and lowering production costs (Kotabe, 1990) and at the same time requiring speed and flexibility.

The success of globalization

The confluence of several competitive and organizational forces has radically redefined the global strategy landscape. Successful organizations need to balance the benefits that accompany a multi-domestic, country-by-country approach. For example, Korean consumer electronics giant LG Electronics has found success by customizing its global product suite to meet local conditions in each of its markets. LG manages a deft balancing act with three dimensions: large scale manufacturing operations spread across the globe, R&D leadership in and satellite R&D centres in major markets, and locally customized marketing and sales approaches. An exclusive focus on any one of these dimensions would not deliver the sustainable success LG has established.

The marketplace is increasingly becoming global and there are indeed many successful global products. Among consumer durables, the Mercedes car is a universal product. Among the non-durable goods, Coca-Cola is ubiquitous. Among industrial goods, Boeing jets are sold worldwide as a global product (Jain, 1987). As a result of this globalization, many companies have discovered that it takes more than the accepted basics of high quality, low cost, and differentiation to excel in today’s highly competitive multinational markets.

Every industry is global (and the death of distance)

Conventional wisdom about which industries are local and which are global is falling to the wayside. For example, cement has usually been considered a local commodity, produced and consumed locally in the same country or region because of high transportation costs. With demand in China and other markets escalating, the cement industry has globalized. Innovative developments in cement and dry bulk products shipping methods have impacted the international cement trade in recent years. Gasoline has also become a global commodity. In 2006 the US imported 13 percent of its gasoline from Venezuela, Europe and other regions. Reliance, the huge Indian company, has built the world’s largest refinery complex in Gujarat state in India with the objective of exporting much of the output to the US, at least until demand rises in India (Levine and Barta, 2006

Globalization of firms increasing ‘parallel’ interdependence

By globalization of a firm we mean that an already highly internationalized firm (in terms of spatial extension and penetration on individual national markets) increases its integration and coordination of activities and resources in different geographical areas. This view of globalization is in line with changes in practice observed by Ernst et al (2002:1418) identified as a shift underway “from ‘multinational corporations’ with their focus on stand-alone overseas investment projects to ‘global network flagships’ that integrate their dispersed supply, knowledge and customer bases into global production networks”. This first dimension of globalization is represented by the efforts of a multinational company to increase the scale of the operations on the ‘same level’ of the various supply chains in which it is involved. Ernst et al (2002) mainly deal with manufacturing but the same principle holds for firms involved in transportation, retailing etc.

Strategy

v Access to international markets

v Spotting new markets

v Building exports

v The extent to which the business will be competitive in international markets

v The effect on decision making of the existence of trade blocs

v Consideration on the necessity and importance of acquisitions

Source: [online] Available from http://www.bized.co.uk/educators/16-19/business/external/presentation/global1.ppt

Trade Blocs

Trade Blocs influence the case of the ease of access to new markets and affect the relative cost of trading in different regions of the world e.g. EU, NAFTA. Locating within a trading bloc could help to reduce long term trading costs (e.g. Japanese companies building plants in the UK to help overcome exposure to the Common External Tariff)

International Growth

v Growth not just through expansion of the size of the firm but also through external growth:

v Acquisitions – mergers, takeovers

v Multi-National Corporations – global presence

v Brings with it a range of issues for the business to consider – PEST

Factors

Global factors that influence business strategies.

Source: [online] Available from http://www.bized.co.uk/educators/16-19/business/external/presentation/global1.ppt

Political

Political Change regime change through coup, violence, etc. Change in government through democratic election can influence future business strategy.e.g. the opportunities that are now available in Russia and Eastern Europe following the collapse of communism. Political Uncertainty in countries like Zimbabwe, Sudan, Venezuela. Political uncertainty can lead to a fall in investment by businesses and influence decisions on expansion and business ventures War/Terrorism create uncertainty

Economic

Tax Systems, Investment Considerations and Allowances, Sophistication of Financial Markets ease with which capital can be moved and raised, Commodity Prices, oil, energy, metals, Monetary and Fiscal Policies , interest rates, tax regimes, government aid, Internal Regulation and Bureaucracy, can be stifling, Exchange Rates.

Social

Religious Considerations – appropriateness of some business ventures – e.g. selling condoms in staunchly Catholic countries, Impact on local communities of business development availability of jobs, training, environmental impact for these communities, Impact on the environment – can impact on the businesses image, Ethical considerations, Cultural issues

Technological

Access to bandwidth, PC ownership, Technology and sales – processing payments and sales, Compatibility of technologies in Business Management – accounting systems, language differences, etc.

Example of Chinese firms going global

We have an example of so many Chinese firms which going global, issues and some problems which firms are facing when going global is part of this process, although success ratio is remarkable and we already said it is inevitable but companies have to overcome these problems to work properly and get better revenue

Lenovo merge with IBM, In December 2004, Lenovo acquired IBM PC branch with 1.5 billion dollars, and China Mobile Communications Corp is near a $5.3billion pact to acquire Millicom International Cellular SA of Luxembourg, which operates in many of the world poor nations. Huawei’s global transformation, in 2003, Huawei settle in court with Cisco Systems for patent issues. Haier has production bases in China, Pakistan, Bangladesh, Indonesia, the Philippines, Malaysia, Iran, etc, in 2004 alone, Haier applied for 695 patents, 2.7 patents per day

Communication challenges

v Chinese companies’ inefficient conflict management style,

v Low proficiency in understanding local cultures,

v Lack of 24/7 service communication with the customers

Inefficient cultural localization

v It is not easy to overcome barriers of language, corporation cultural difference, national cultural difference, and hiring habits after M & As.

v Teams of multinational employees working together now in Chinese companies

v M & A causes core talents departure

Insufficient understanding of cultures

v The most serious problem facing Chinese companies is a lack of international experience and weak marketing and management structures, including communication skills.

v This is why Lenovo let IBM managers to stay after the acquisition

Perception and marketing

v Current perception of Chinese brands: cheap, poor value, low quality, produced by communists.

v “Chinese brands suffer from negative perceptions, and perhaps, negative realities.” Reported by brand consulting firm Interbrand.

Ineffective conflict management style

v The Nanfu vs. Duracell case

v Cultural tariff is a deeper tariff than trade tariff.

v Chinese companies need to take on more social responsibilities in local societies. (the India iron mine case)

v The best policy of adaptation is to transform from “going global” to “Going local”

Interpretive and Critical Approaches to Social Conflict

v Conflict is deeply rooted in cultural differences in the context of social, economic, and historical conflict.

Political factor

v Resentment against Chinese companies, perceiving them as being government controlled (Lenovo vs. Dell)

v China National Offshore Oil Corporation (CNOOC) lost its deal to Chevron in its Unocal bid in 2005.

v The Chinese companies are not taking over the world, their investment value is only a fraction of the world’s total.

Conclusion

Continued globalization is inevitable and there are few industries, if any, untouched by global competitive forces. The secondhand clothing sold in Zambia, and the technical support call from Canada to a technician with a Canadian accent based in India are a profusion of buyers and sellers coming together regardless of distance or borders. While there surely will be some bumps along the road, further integration between people, countries, governments, cultures, and organizations is going to happen and every industry is going to be impacted. Some industries will see the impact in more substantial ways than others but, overall, no industry will remain untouched.

References

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