22THE GLOBALIZATION OF MARKETSTheodore Levitt

Many companies have become disillusioned with sales in the international marketplace asold markets become saturated and new ones must be found . How can they customizeproducts for the demands of new markets? Which items will consumers want? With wily in-ternational competitors breathing down their necks, many organizations think that thegame just isn't-worth the effort .

In this powerful essay, the author asserts that welt-managed companies have movedfrom emphasis on customizing items to offering globally standardized products that are ad-vanced, functional, reliable-and low priced . Multinational companies that concentratedon idiosyncratic consumer preferences have become befuddled and unable to take in theforest because of the trees . Only global companies wilt achieve long-term success by con-centrating on what everyone wants rather than worrying about the details of what everyonethinks they might like .

A powerful force drives the world toward a con-verging commonality, and that force is technol-ogy. It has proletarianized communication,transport, and travel. It has made isolated placesand impoverished peoples eager for modernity'sallurements. Almost everyone everywhere wantsall the things they have heard about, seen, or ex-perienced via the new technologies.

The result is a new commercial reality-theemergence of global markets for standardizedconsumer products on a previously unimag-ined scale of magnitude. Corporations gearedto this new reality benefit from enormous econ-omies of scale in production, distribution, mar-keting, and management. By translating thesebenefits into reduced world prices, they candecimate competitors that still live in the dis-abling grip of old assumptions about how theworld works .

Gone are accustomed differences in nationalor regional preference . Gone are the days whena company could sell last year's models-orlesser versions of advanced products-in the

Source: Harvard Business Review (May-June 1983), pp .92.-102.

Reading 22 / The Globalization of Markets 307

less-developed world. And gone are the dayswhen prices, margins, and profits abroad weregenerally higher than at home .

The globalization of markets is at hand . Withthat, the multinational commercial worldnears its end, and so does the multinationalcorporation .

The multinational and the global corpora-tion are not the same thing. The multinationalcorporation operates in a number of countries,and adjusts its products and practices ineach-at high relative costs . The global corpo-ration operates with resolute constancy-atlow relative cost-as if the entire world (ormajor regions of it) were a single entity ; it sellsthe same things in the same way everywhere .

Which strategy is better is not a matter ofopinion but of necessity. Worldwide communi-cations carry everywhere the constant drum-beat of modern possibilities to lighten andenhance work, raise living standards, divert,and entertain . The same countries that ask theworld to recognize and respect the individual-ity of their cultures insist on the wholesaletransfer to theet of modern goods, services, andtechnologies. Modernity is not just a wish but

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also a widespread practice among those whocling, with unyielding passion or religious fer-vor, to ancient attitudes and heritages .

Who can forget the televised scenes duringthe 1979 Iranian uprisings of young men infashionable French-cut trousers and silky bodyshirts thirsting with raised modern weapons forblood in the name of Islamic fundamentalism?

In Brazil, thousands swarm daily from pre-industrial Bahian darkness into explodingcoastal cities, there quickly to install televisionsets in crowded corrugáted huts and, next tobattered Volkswagens, make sacrificial offer-ings of fruit and fresh-killed chickens toMacumban spirits by candlelight .

During Biafra's fratricidal war against theIbos, daily televised reports showed soldierscarrying bloodstained swords and listening totransistor radios while drinking Coca-Cola.

In the isolated Siberian city of Krasnoyarsk,with no paved streets and censored news, occa-sional Western travelers are stealthily proposi-tioned for cigarettes, digital watches, and eventhe clothes off their backs .

. The organized smuggling of electronic equip-ment, used automobiles, western clothing, cos-m.etics, and pirated movies into primitiveplaces exceeds even the thriving undergroundtrade in modern weapons and their militarymercenaries .A thousand suggestive ways attest to the

ubiquity of the desire for the most advancedthings that the world makes and sells-goods ofthe best quality and reliability at the lowestprice. The world's needs and desires have beenirrevocably homogenized . This makes the mul-tinational corporation obsolete and the globalcorporation absolute .

LIVING IN THE REPUBLIC OFTECHNOLOGY

Daniel J. Boorstin, author of the monumentaltrilogy The Americans, characterized our age asdriven by "the Republic of Technology [whose]

supreme law . . . is convergence, the tendencyfor everything to become more like everythingelse ."

In business, this trend has pushed marketstoward global commonality. Corporations sellstandardized products in the same way every-where-autos, steel, chemicals, petroleum, ce-ment, agricultural commodities and equip-ment, industrial and commercial construction,banking and insurance services, computers,semiconductors, transport, electronic instru-ments, pharmaceuticals, and telecommunica-tions, to mention some of the obvious .

Nor is the sweeping gale of globalization con-fined to these raw material or high-tech prod-ucts, where the universal language of customersand users facilitates standardization . Thetransforming winds whipped up by the prole-tarianization of communication and travel en-ter every crevice of life.Commercially, nothing confirms this as

much as the success of McDonald's from theChamps Elysées to th& Ginza, of Coca-Cola inBahrain and Pepsi-Cola in Moscow, and of rockmusic, Greek salad, Hollywood movies, Revloncosmetics, Sony televisions, and Levi jeanseverywhere. "High-touch" products are as ubiq-uitous as high-tech .

Starting from opposing sides, the high-techand the high-touch ends of the commercialspectrum gradually consume the undistributedmiddle in their cosmopolitan orbit . No one isexempt and nothing can stop the process .Everywhere everything gets more and more likeeverything else as the world's preference struc-ture is relentlessly homogenized .

Consider the cases of Coca-Cola and Pepsi-Cola, which are globally standardized productssold everywhere and welcomed by everyone .Both successfully cross multitudes of national,regional, and ethnic taste buds trained to a va-riety of deeply ingrained local preferences oftaste, flavor, consistency, effervescence, and af-tertaste . Everywhere both sell well . Cigarettes,too, especially American-made, make year-to-year global inroads on territories previously

held in the firm grip of other, mostly local,blends .

These are not exceptional examples. (Indeedtheir global reach would be even greater were itnot for artificial trade barriers.) They exem-plify a general drift toward the homogenizationof the world and how companies distribute, fi-nance, and price products .' Nothing is exempt.The products and methods of the industrial-ized world play a single tune for all the world,and all the world eagerly dances to it .

Ancient differences in national tastes ormodes of doing business disappear. The com-monality of preference leads inescapably to thestandardization of products, manufacturing,and the institutions of trade apd commerce .Small nation-based markets transmogrify andexpand. Success in world competition turns onefficiency in production, distribution, market-ing, and management, and inevitably becomesfocused on price .

The most effective world competitors incor-porate superior quality and reliability into theircost structures . They sell in all national marketsthe same kind of products sold at home or intheir largest export market. They compete onthe basis of appropriate value-the best combi-nations of price, quality, reliability, and deliv-ery for products that are globally identical withrespect to design, function, and even fashion .

That, and little else, explains the surging suc-cess of Japanese companies dealing worldwidein a vast variety of products-both tangibleproducts like steel, cars, motorcycles, hi-fiequipment, farm machinery, robots, micro-processors, carbon fibers, and now even tex-tiles, and intangibles like banking, shipping,general contracting, and soon computer soft-ware, Nor are high-quality and low-cost opera-tions, incompatible, as a host of consultingorganizations and data engineers argue withvigorous vacuity. The reported data are incom-plete, wrongly analyzed, and contradictory .The truth is that low-cost operations are thehallmark of corporate cultures that require andproduce quality in all that they do . High quality

Reading 22 / The Globalization of Markets S09

and low costs are not opposing postures . Theyare compatible, twin identities of superiorpractice .2

To say that Japan's companies are not globalbecause they export cars with left-side drives tothe United States and the European continent,while those in Japan have right-side drives, orbecause they seal office machines through dis-tributors in the United States but directly athome, or speak Portuguese in Brazil is to mis-take a difference for a distinction . The same istrue of Safeway and Southland retail chainsoperating effectively in the Middle East, and tonot only native but also imported populationsfrom Korea, the Philippines, Pakistan, India,Thailand, Britain, and the United States . Na-tional rules of the road differ, and so do distri-bution channels and languages . Japan's distinc-tion is its unrelenting push for economy andvalue enhancement. That translates into adrive for standardization at high quality levels .

Vindication of the Model T

If a company forces costs and prices down andpushes quality and reliability up-while main-taining reasonable concern for suitability-customers will prefer its world-standardizedproducts. The theory holds, at this stage in theevolution of globalization, no matter what con-ventional market research and even commonsense may suggest about different national andregional tastes, preferences, needs, and institu-tions. The Japanse have repeatedly vindicatedthis theory, as did Henry Ford with the ModelT. Most important, so have their imitators, in-cluding companies from South Korea (televi-sion sets and heavy construction), Malaysia(personal calculators and microcomputers),Brazil (auto parts and tools), Colombia (ap-parel), Singapore (optical equipment), and yes,even from the United States (office copiers,computers, bicycles, castings), Western Europe(automatic washing machines), Rumania(housewares), Hungary (apparel), Yugoslavia(furniture), and Israel (pagination equipment) .

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Of course, large companies operating in asingle nation or even a single city don't stan-dardize everything they make, sell, or do . Theyhave product lines instead of a single productversion, and multiple distribution channels .There are neighborhood, local, regional, ethnic,and institutional differences, even within met-ropolitan areas. But although companies cus-tomize products for particular market seg-ments, they know that success in a world withhomogenized demand requires a search forsales opportunities in similar segments acrossthe globe in order to achieve the economies ofscale necessary to compete .Such a search works because a market seg-

ment. in one country is seldom unique; it hasclose cousins everywhere precisely becausetechnology has homogenized the globe. Evensmall local segments have their global equiva-Gents everywhere and become subject to globalcompetition, especially on price .

The global competitor will seek constantly tostandardize his offering everywhere . He will di-gress from this standardization only after ex-hausting all possibilities to retain it, and he willpush for reinstatement of standardizationwhenever digression and divergence have oc-curred. He will never assume that the customeris a king who knows his own wishes .Trouble increasingly stalks companies that

aack clarified global focus and remain inatten-tive to the economics of simplicity and stan-dardization. The most endangered companiesin the rapidly evolving world tend to be thosethat dominate rather small domestic markets.with high value-added products for which thereare smaller markets elsewhere . With transpor-tation costs proportionately low, distant com-petitors will enter the now-sheltered marketsof those companies with goods producedmore cheaply onder scale-efficient conditions .Global competition spells the end of domesticterritoriality, no matter how diminutive the ter-ritory may be.

When the global producer offers his lowercosts internationally, his patronage expands ex-ponentially. He not only reaches into distant

ECONOMIES OF SCOPEOne argument that opposes globalization says thatflexible factory automation will enable plants of mas-sive size to change products and product featuresquickly, without stopping the manufacturing process .These factories of the future could thus produce broadlines of customized products without sacrificing thescale economies that come from long production runsof standardized items . Computer-aided design andmanufacturing (CAD/CAM), combined with robotics,will create a new equipment and process technology(EPT) that will make smalt plants located close to theirmarkets as efficient as large ones located distantly .Economies of scale will not dominate, but rather econ-omies of scope-the ability of either large or smallplants to produce great varieties of relatively custom-ized products at remarkably low costs . If that happens,customers will have no need to abandon specialpreferences .

1 will not deny the power of these possibilities . But pos-sibilities do not make probabilities . There is no con-ceivable way in which flexible factory automation canachieve the scale economies of a modernized plantdedicated to mass production of standardized lines .The new digitized equipment and process technolo-gies are available to all . Manufacturers with minimalcustomization and narrow product-line breadth willhave costs far below those with more customizationand wider lines.

markets, but also attracts customers who previ-ously held to local preferences and now capitu-late to the attractions of lesser prices . Thestrategy of standardization not only respondsto worldwide homogenized markets but alsoexpands those markets with aggressive lowpricing. The new technological juggernaut tapsan ancient motivation-to make one's moneygo as far as possible . This is universal-notsimply a motivation but actually a need .

THE HEDGEHOG KNOWS

The difference between the hedgehog and thefox, wrote Sir Isaiah Berlin in distinguishing

between Dostoevski and Tolstoy, is that the foxknows a lot about a great many things, but thehedgehog knows everything about one greatthing. The multinational corporation knows alot about a great many countries and congeni-ally adapts to supposed differences . It willinglyaccepts vestigial national differences, not ques-tioning the possibility of their transformation,not rg ecognizing how the world is ready andeager for the benefit of modernity, especiallywhen the price is right . The multinational cor-poration's accommodating mode to visible na-tional differences is medieval .

By contrast, the global corporation knowseverything about one great thing . It knowsabout the absolute need to be competitive on aworldwide basis as well as nationally and seeksconstantly to drive down prices by standardiz-ing what it sells and how it operates. It treatsthe world as composed of few standardizedmarkets rather than many customized markets.It actively seeks and vigorously works towardglobal convergence . Its mission is modernityand its mode, price competition, even whenit sells top-of-the-line, high-end products . Itknows about the one great thing all nations andpeople have in common : scarcity.

Nabody takes scarcity lying down ; everyonewants more. This in part explains division oflabor and specialization of production. Theyenabie people and nations to optimize theirconditions through trade . The median is usu-ally money.

Experience teaches that money has three spe-cial qualities: scarcity, difficulty of acquisition,and transience . People understandably treat itwith respect . Everyone in the increasingly ho-mogenized world market wants products andfeatures that everybody else wants. If the priceis low enough, they will take highly standard-ized world products, even if these aren't exactlywhat mother said was suitable, what immemo-rial custom decreed was right, or what market-research fabulists asserted was preferred .The implacable truth of all modern pro-

duction-whether of tangible or intangiblegoods-is that large-scale production of stan-

Reading 22 / The Globalization of Markets S11

dardized items is generally cheaper within awide range of volume than small-scale produc-tion. Some argue that CAD/CAM will allowcompanies to manufacture customized prod-ucts on a small scale-but cheaply. But theargument misses the point. (For a more de-tailed discussion, see the insert, "Economies ofscope.") If a company treats the world as one ortwo distinctive product markets, it can servethe world more economically than if it treats itas three, four, or five product markets .

Why Remaining Differences?

Different cultural preferences, national tastesand standards, and business institutions arevestiges of the past . Some inheritances diegradually; others prosper and expand intomainstream global preferences . So-called eth-nic markets are a good example . Chinese food,pita bread, country and western music, pizza,and jazz are everywhere . They are market seg-ments that exist in worldwide proportions .They don't deny or contradict global homogen-ization but confirm it .

Many of today's differences among nationsas to products and their features actually reflectthe respectful accommodation of multinationalcorporations to what they believe are fixedlocal preferences . They believe preferences arefixed, not because they are but because of rigidhabits of thinking about what actually is . Mostexecutives in multinational corporations arethoughtlessly accommodating. They falselypresume that marketing means giving the cus-tomer what he says he wants rather than tryingto understand exactly what he'd like . So theypersist with high-cost, customized multina-tional products and practices instead of press-ing hard and pressing properly for globalstandardization .

I do not advocate the systematic disregard oflocal or national differences . But a company'ssensitivity to such differences does not requirethat it ignóre the possibilities of doing thingsdifferently or better.There are, for example, enormous differ-

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ences among Middie Eastern countries . Someare socialist, some monarchies, some republics .Some take their legal heritage from the Napole-onic Code, some from the Ottoman Empire,and some from the British common law; exceptfor Israel, all are influenced by Islam. Doingbusiness means personalizing the business rela-tionship in an obsessively intimate fashion .During the month of Ramadan, business dis-cussions can start only after 10 o'clock at night,when people are tired and full of food after aday of fasting. A company must almost cer-tainly have a local partner ; a local lawyer is re-quired (as, say, in New York), and irrevocableletters of credit are essential . Yet, as Coca-Cola's Senior Vice President Sam Ayoub noted,"Arabs are much more capable of making dis-tinctions between cultural and religious pur-poses on the one hand and economic realitieson the other than is generally assumed . Islam iscompatible with science and modern times ."

Barriers to globalization are not confined tothe Middle East. The free transfer of technol-ogy and data across the boundaries of the Euro-pean Common Market countries are hamperedby legal and financial impediments . And thereis resistence to radio and television interfer-ence ("pollution") among neighboring Euro-pean countries.

But the past is a good guide to the future .W;ith persistence and appropriate means, barri-ers against superior technologies and econom-ics have always fallen . There is no recordedexception where reasonable effort has beenmade to overcome them . It is very much a mat-ter of time and effort .

A FAILURE IN GLOBALIMAGINATION

Many companies have tried to standardizeworld practice by exporting domestic productsand processes without accommodation orchange-and have failed miserably. Their defi-ciencies have been seized on as evidence of bo-

vine stupidity in the face of abject impossibil-ity. Advocates of global standardization seethem as examples of failures in execution.

In fact, poor execution is often an importantcause. More important, however, is failure ofnerve-failure of imagination .

Consider the case for the introduction offully automatic home laundry equipment inWestern Europe at a time when few homes hadeven semiautomatic machines. Hoover, Ltd .,whose parent company was headquartered inNorth Canton, Ohio had a prominent presencein Britain as a producer of vacuum cleanersand washing machines . Due to insufficient de-mand in the home market and low exports tothe European continent, the large washing ma-chine plant in England operated far below ca-pacity. The company needed to sell more of itssemiautomatic or automatic machines .

Because it had a "proper" marketing orienta-tion, Hoover conducted consumer preferencestudies in Britain and each major continentalcountry. The results showed feature preferencesclearly enough among several countries (see theExhibit) .The incremental unit variable costs (in

pounds sterling) of customizing to meet just afew of the national preferences were :

$18.20 at the exchangerate of that time .

Considerable plant investment was needed tomeet other preferences .

The lowest retail prices (in pounds sterling)of leading locally produced brands in the vari-ous countries were approximately

£ s. d.

Stainless steel vs .enamel drum 1 0 0Porthole window 10 0Spin speed of 800 rpmvs. 700 rpm 15 0Water heater 2 15 06 vs . 5 kilos capacity 1 10 0

£6 los Od

Product customization in each countrywould have put Hoover in a poor competitiveposition on the basis of price, mostly due to thehigher manufacturing costs incurred by shortproduction runs for separate features . BecauseCommon Market tariff reduction programswere then incomplete, Hoover also paid tariffduties in each continental country.

How to Make a Creative Analysis

In the Hoover case, an imaginative analysis ofauto matic washing machine sales in each coun-try would have revealed that :

1. Italian automatics, small in capacity and size,low-powered, without built-in heaters, with por-celain enamel tubs, were priced aggressively lowand were gaining large market shares in all coun-tries, including West Germany .

2. The best-selling automatics in West Germanywere heavily advertised (three times more thanthe next most promoted brand), were ideallysuited to national tastes, and were also by farthe highest-priced machines available in thatcountry.

3. Italy, with the lowest penetration of washing ma-chines of any kind (manual, semiautomatic, orautomatic) was rapidly going directly to auto-matics, skipping the pattern of first buying'handwringer, manually assisted machines and'then semiautomatics.

4. Detergent manufacturers were just beginning topromote the technique of cold-water and tepid-water laundering then used in the United States .

The growing success of small, low-powered,low-speed, low-capacity, low-priced Italian ma-chines, even against the preferred but highlypriced and highly promoted brand in West Ger-many, was significant . It contained a powerfulmessage that was lost on managers confidently

Reading 22 / The Globalization of Markets 313

wedded to a distorted version of the marketingconcept according to which you give the cus-tomer what he says he wants. In fact the cus-tomers said they wanted certain features, buttheir behavior demonstrated they'd take otherfeatures provided the price and the promotionwere right .

In this case it was obvious that, under pre-vailing conditions, people preferred a low-priced automatic over any kind of manual orsemiautomatic machine and certainly overhigher priced automatics, even though the low-priced automatics failed to fulfill all theirexpressed preferences. The supposedly meticu-lous and demanding German consumers vio-lated all expectations by buying the simple,low-priced Italian machines .

It was equally clear that people were pro-foundly influenced by promotions of auto-matic washers; in West Germany, the mostheavily promoted ideal machine also had thelargest market share despite its high price . Twothings clearly influenced customers to buy : lowprice regardless of feature preferences andheavy promotion regardless of price . Both fac-tors helped homemakers get what they mostwanted-the superior benefits bestowed byfully automatie machines .

Hoover should have aggressively sold a sim-ple, standardized high-quality machine at a lowprice (afforded by the 17% variable cost reduc-tion that the elimination of £6-10-0 worth ofextra features made possible) . The suggested re-tail prices could have been somewhat less than£ 100. The extra funds "saved" by avoiding un-necessary plant modifications would have sup-ported an extended service network and aggres-sive media promotions .

Hoover's media message should have been :this is the machine that you, the homemaker,deserve to have to reduce the repetitive heavydaily household burdens, so that you may havemore constructive time to spend with your chil-dren and your husband. The promotion shouldalso have targeted the husband to give him,preferably in the presence of his wife, a sense of

U.K. £110France 114West Germany 113Sweden 134Italy 57

obligation to provide an automatic washer forher even before he bought an automobile forhimself. An aggressively low price, combinedwith heavy promotion of this kind, would haveovercome previously expressed preferences forparticular features.The Hoover case illustrates how the perversepractice of the marketing concept and the ab-sence of any kind of marketing imagination letmultinational attitudes survive when custom-ers actually want the benefits of global stan-dardization. The whole project got off on thewrong foot. It asked people what features theywanted in a washing machine rather than whatthey wanted out of life. Selling a line of prod-ucts individually tailored to each nation isthoughtless. Managers who took pride in prac-ticing the marketing concept to the fullest didnot, in fact, practice it at all. Hoover asked thewrong questions, then applied neither thoughtnor imagination to the answers. Such compa-nies are like the ethnocentricists in the MiddieAges who saw with everyday clarity the sun re-volving around the earth and offered it asTruth. With no additional data but a more*34" height was (in the process of being adopted as) a standard work surface height in Europe .tMost British and Swedish homes had centrally heated hot water .ttWest Germans preferred to launder at temperatures higher than generally provided tentrally .

searching mind, Copernicus, like the hedgehog,interpreted a more compelling' and accurate re-ality. Data do not yield information except withthe intervention ofthe mind. Information doesnot yield meaning except with the interventionof imagination .

ACCEPTING TIME INEVITABLE

The global corporation accepts for better or forworse that technology drives consumers relent-lessly toward the same common goals-al-leviation of life's burdens and the expansion ofdiscretionary time and spending power . Its roleis profoundly different from what it has beenfor the ordinary corporation during its brief,turbulent, and remarkably protean history . Itorchestrates the twin vectors of technology andglobalization for the world's benefit . Neitherfate, nor nature, nor God but rather the neces-sity of commerce created this role.

In the United States two industries becameglobal long before they were consciously awareof it. After over a generation of persistent and

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Exhibit Consumer Preferences as to Automatic Washing Machine Features in the 1960s

Features Great Britain Italy West Germany France Sweden

Shell dimensions* 34" Low 34" 34" 34"and narrow and narrow and wide and narrow and wide

Drum material Enamel . Enamel Stainless Enamel Stainlesssteel steel

Loading Top Front Front Front FrontFront porthole Yes/no Yes Yes Yes YesCapacity 5 kilos 4 kilos 6 kilos 5 kilos 6 kilosSpin speed 700 rpm 400 rpm 850 rpm 600 rpm 800 rpmWater-heating Not Yes Yestt Yes NotsystemWashing action Agitator Tumble Tumble Agitator TumbleStyling features Inconspicuous Brightly Indestructible Elegant Strong

appearance colored appearance appearance appearance

acrimonious labor shutdowns, the UnitedSteelworkers of America have not called an in-dustrywide strike since 1959 ; the United AutoWorkers have not shut down General Motorssince 1970. Both unions realize that they havebecome global-shutting down all or most ofU.S. manufacturing would not shut out U .S.customers. Overseas suppliers are there to sup-ply the market .

Cracking the Code of Western Markers

Since the theory of the marketing conceptemerged a quarter of a century ago, the moremanagerially advanced corporations have beeneager to offer what customers clearly wantedrather than what was merely :convenient. Theyhave created marketing departments supportedby professional market researchers of awesomeand often costly proportions. And they haveproliferated extraordinary numbers of opera-tions and product lines-highly tailored prod-ucts and delivery systems for many differentmarkets, market segments, and nations .

:Significantly, Japanese companies operatealmost entirely without marketing departmentsor market research of the kind so prevalent inthe West. Yet, in the colorful words of General.Electric's chairman John F. Welch, Jr., the Jap-anese, coming from a small cluster of resource-poor islands, with an entirely alien culture andan almost impenetrably complex language,have cracked the code of Western markets.They have done it not by looking with mecha-nistic thoroughness at the way markets are dif-ferent but rather by searching for meaning witha deeper wisdom. They have discovered the onegreat thing all markets have in common-anoverwhelming desire for dependable, world-standard modernity in all things, at aggres-sively low prices . In response, they deliverirresistible value everywhere, attracting peoplewith products that market-research technocratsdescribed with superficial certainty as beingunsuitable and uncompetitive .The wider a company's global reach, the

Reading 22 / The Globalization of Markets 315

greater the amber of regional and nationalpreferences it will encounter for certain prod-uct features, distribution systems, or promo-tional media. There will always need to be someaccommodation to differences. But the widelyprevailing and often unthinking belief in theimmutability of these differences is generallymistaken. Evidence of business failure becauseof lack of accommodation is often evidence ofother shortcomings .

Take the case of Revlon in Japan . The com-pany unnecessarily alienated retailers and con-fused customers by selling world-standardizedcosmetics only in elite outlets ; then it tried torecover with low-priced world-standardizedproducts in broader distribution, followed by achange in the company president and cutbacksin distribution as costs rose faster than sales .The problem was not that Revlon didn't under-stand the Japanse market; it didn't do the jobright, wavered in its programs, and was impa-tient to boot.

By contrast, the Outboard Marine Corpora-tion, with imagination, push, and persistence,collapsed long-established three-tiered distri-bution channels in Europe into a more focusedand controllable two-step system-and did sodespite the vociferous warnings of local tradegroups. It also reduced the number and types ofretail outlets. The result was greater improve-ment in credit and product-installation serviceto customers, major cost reductions, and salesadvances .In its highly successful introduction of

Contac 600 (the timed-release decongestant)into Japan, SmithKline Corporation used 35wholesalers instead of the 1,000-plus that es-tablished practice required. Daily contacts withthe wholesalers and key retailers, also in viola-tion of established practice, supplemented theplan, and it worked .

Denied access to established distribution in-stitutions in the United States, Komatsu, theJapanese manufacturer of lightweight farm ma-chinery, entered the market through over-the-road construction equipment dealers in rural

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areas of the Sunbelt, where farms are smaller,the soil sandier and easier to work . Here inex-perienced distributors were able to attract cus-tomers on the basis of Komatsu's product andprice appropriateness .

In cases of successful challenge to prevailinginstitutions and practices, a combination ofproduct reliability and quality, strong and sus-tained support systems, aggressively low prices,and sales-compensation packages, as well as au-dacity and implacability, circumvented, shat-tered, and transformed very different distribu-tion systems. Instead of resentment, there wasadmiration .

Still, some differences between nations areunyielding, even in a world of microprocessors .In the United States almost all manufacturersof microprocessors check them for reliabilitythrough a so-called parallel system of testing .Japan prefers the totally different sequentialtesting system. So Teradyne Corporation, theworld's largest producer of microprocessor testequipment, makes one Tine for the UnitedStates and one for Japan. That's easy.

What's not so easy for Teradyne is to knowhow best to organize and manage, in this in-stance, its marketing effort . Companies canorganize by product, region, function, or by us-ing some combination of these . A company canhave separate marketing organizations for Ja-pan and for the United States, or it can haveseparate product groups, one working largely inJapan and the other in the United States . A sin-gle manufacturing facility or marketing opera-tion might service both markets, or a companymight use separate marketing operations foreach .

Questions arise if the company organizes byproduct. In the case of Teradyne, should thegroup handling the parallel system, whosemajor market is the United States, sell in Japanand compete with the group focused on theJapanese market? If the company organizes re-gionally, how do regional groups divide their ef-forts between promoting the parallel vs. thesequential system? If the company organizes in

terms of function, how does it get commitmentin marketing, for example, for one line insteadof the other?There is no one reliably right answer-no

one formula by which to get it . There isn't evena satisfactory contingent answer. 3 What workswell for one company or one place may fail foranother in precisely the same place, dependingon the capabilities, histories, reputations, re-sources, and even the cultures of both .

THE EARTH 15 FLAT

The differences that persist throughout theworld despite its globalization affirm an an-cient dictum of economics-that things aredriven by what happens at the margin, not atthe core. Thus, in ordinary competitive analy-sis, what's important is not the average pricebut the marginal price ; what happens not in theusual case but at the interface of newly eruptingconditions. What counts in commercial affairsis what happens at the cutting edge . What ismost striking today is the underlying similari-ties of what is happening now to national pref-erences at the margin. These similarities at thecutting edge cumulatively form an overwhelm-ing, eredominant commonality everywhere .

To refer to the persistence of economie na-tionalism (protective and subsidized tradepractices, special tax aids, or restrictions forhome market producers) as a barrier to theglobalization of markets is to make a validpoint. Economic nationalism does have a pow-erful persistence. But, as with the present al-most totally smooth internationalization ofinvestment capital, the past alone does notshape or predict the future. (For reflections onthe internationalization of capital, see the in-sert, "The shortening of Japanese horizon.")

Reality is not a fixed paradigm, dominatedby immemorial customs and derived attitudes,heedless of powerful and abundant new forces .The world is becoming increasingly informedabout the liberating and enhancing possibilitiesof modernity. The persistence of the inherited

THE SHORTENING OF JAPANESEHORIZONSOne of the most powerful yet least celebrated forcesdriving commerce toward global standardization is themonetary system, along with the international invest-ment process .

Today money is simply electronic impulses . With thespeed of light it moves effortlessly between distantcenters (and even lesser places) . A change of tenbasis points in the price of a bond causes an instantand massive shift of money from London to Tokyo . Thesystem has profound impact on the way companiesoperate throughout the world .

Take Japan, where high debt-to-equity balance sheetsare "guaranteed" by various societal presumptionsabout the virtue of "a long view, or by government pol-icy in other ways . Even here, upward shifts in interestrates in other parts of the world attract capital out ofthe country in powerful proportions . In recent yearsmore and more Japanese global corporations havegone to the world's equity markets for funds . Debt istoo remunerative in high-yielding countries to keepcapital at home to feed the Japanese need . As interestrates rise, equity becomes a more attractive option forthe issuer.

The long-term impact on Japanese enterprise will betransforming. As the equity proportion of Japanesecorporate capitalization rises, companies will respondti) the shorter-term investment horizons of the equitymarkets . Thus the much-vaunted Japanese corpor-ate practice to taking the long view will graduallydisappear.

varieties of national preferences rests uneasilyon increasing evidence of, and restlessness re-garding, their inefficiency, costliness, and con-finement. The historic past, and the nationaldifferences respecting commerce and industryit spawned and fostered everywhere, is nowsubject to relatively easy transformation .Cosmopolitanism is no longer the monopoly

of the intellectual and leisure classes ; it is be-coming the established property and definingcharacteristic of all sectors everywhere in theworld. Gradually and irresistibly it breaks down

Reading 22 / The Globalization of Markets 317

the walls of economic insularity, nationalism,and chauvinism . What we see today as escalat-ing commercial nationalism is simply the last vi-olent death rattle of an obsolete institution .

Companies that adapt to and capitalize oneconomic convergence can still make distinc-tions and adjustments in different markets .Persistent differences in the world are consis-tent with fundamental underlying commonal-ities; they ofen complement rather than op-pose each other-in business as they do inphysics. There is, in physics, simultaneouslymatter and anti-matter working in symbioticharmony.

The earth is round, but for most purposes it'ssensible to treat it as flat . Space is curved, butnot much for everyday life here on earth .

Divergence from established practice hap-pens all the time. But the multinational mind,warped into circumspection and timidity byyears of stumbles and transnational troubles,now rarely challenges existing overseas prac-tices. More aften it considers any departurefrom inherited domestic routines as mindless,disrespectful, or impossible . It is the mind of abygone day.

The successful global corporation does notabjure customization or differentiation for therequirements of markets that differ in productpreferences, spending patterns, shopping pref-erences, and institutional or legal arrange-ments. But the global corporation accepts andadjusts to these differences only reluctantly,only after relentlessly testing their immutabil-ity, after trying in various ways to circumventand reshape them as we saw in the cases of Out-board Marine in Europe, SmithKline in Japan,and Komatsu in the United States .

There is only one significant respect in whicha company's activities around the world are im-portant, and this is in what it produces and howit sells. Everything else derives from, and issubsidiary to, these activities .

The purpose of business is to get and keep acustomer. Or, to use Peter Drucker's more re-fined construction, to create and keep a cus-

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tomer. A company must be wedded to the idealof innovation-offering better or more pre-ferred products in such combinations of ways,means, places, and at such prices that prospectsprefer doing business with the company ratherthan with others .

Preferences are constantly shaped and re-shaped. Within our global commonality enor-mous variety constantly asserts itself andthrives, as can be seen within the world's singlelargest domestic market, the United States . Butin, the process of world homogenization, mod-ern markets expand to reach cost-reducingglobal proportions. With better and cheapercommunication and transport, even small localmarket segments hitherto protected from dis-tant competitors now feel the pressure of theirpresence. Nobody is safe from global reach andthe irresistible economies of scale .

Two vectors shape the world-technologyand globalization . The first helps determinehuman preferences ; the second, economie real-it ies. Regardless of how much preferencesevolve and diverge, they also gradually con-verge and form markets where economies ofscale lead to reduction of costs and prices .The modern global corporation contrasts

powerfully with the aging multinational corpo-ration. Instead of adapting to superficial andeven entrenched differences within and be-tween nations, it will seek sensibly to force suit-ably standardized products and practices onthe entire globe . They are exactly what theworld will take, if they come also with lowprices, high quality, and blessed reliability. Theglobal company will operate, in this regard,precisely as Henry Kissinger wrote in Years ofLpheaval about the continuing Japanese eco-nomie success-"voracious in its collection ofinformation, impervious to pressure, and im-placable in execution ."Given what is everywhere the purpose of

commerce, the global company will shape thevectors of technology and globalization into itsgreat strategie fecundity . It will systematicallypush these vectors toward their own conver-

TURTLES ALL THE WAY DOWNThere is an Indian story-at least 1 heard it as an Indianstory-about an Englishman who, having been toldthat the world rested on a platform which rested on theback of an elephant which rested in turn on the back ofa turtie, asked (perhaps he was an ethnographer ; it isthe way they behave), what did the turtle rest on? An-other turtle . And that turtle? "Ah, Sahib, after that it isturtles all the way down" . . .

The danger that cultural analysis, in search of all-too-deep-lying turtles, wilt lose touch with the hard sur-faces of life-with the political, economic, stratificatoryrealities within which men are everywhere contained-and with the biologica) and physical necessities onwhich those Surf aces rest, is an ever-present one . Theonly defense against it, and against, thus, turning cul-tural analysis into a kind of sociological aestheticism, isto train such analysis on such realities and such neces-sities in the first place .

From Clifford Geertz, The Interpretation of Cultures(New York: Basic Books 1973). With permission of thepublisher.

gence, offering everyone simultaneously high-quality, more or less standardized products atoptimally low prices, thereby achieving for it-self vastly expanded markets and profits . Com-panies that do not adapt to the new globalrealities will become victims of those that do .

NOTES

1 . In a landmark article, Robert D. Buzzell pointed outthe rapidity with which barriers to standardization werefalling. In all cases they succumbed to more and cheaperadvanced ways of doing things. See "Can You StandardizeMultinational Marketing?" Harvard Business Review (No-vember-December 1968), p. 102.2 . There is powerful new evidence for this, even though theopposite has been urged by analysts of PIMS data for nearlya decade. See "Product Quality, Cost Production and Busi-ness Performance-A Test of Some Key Hypotheses," byLynn W. Phillips, Dae Chang, and Robert D. Buzzell, Har-vard Business School, Working Paper No. 83-13 .3 . For a discussion of multinational reorganization, seeChristopher A. Bartlett, "MNCs: Get Off the Reorganiza-tion Merry-Go-Round," Harvard Business Review (March-April), p. 138 .