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The latest on globalisation

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The latest on globalisation

In 2003 the G8 summit coincided with an anniversary that went unnoticed. Twenty years earlier, in May–June 1983, an article entitled ‘The globalization of markets’, by Professor Theodore Levitt was published in the Harvard Business Review. The direct and simple nature of its argument was to make it one of the most quoted and influential articles in the field of business management.

According to Professor Levitt, national differences and preferences would no longer carry any weight in the face of the progress and reduced costs associated with international products and brands. With everyone in the world travelling either physically or, in most cases, via satellite television, the desire to buy products and brands sold in other countries would also greatly increase.

In short, while recognising that the world was indeed round, companies had a vested interest in regarding it as flat, and treating it like a single market. This was the strategy adopted by Coca-Cola, McDonald’s and Microsoft, and by the many companies that followed in their wake. The main obstacle to the globalisation of markets was decentralized organisation and its symbol – national marketing directors who, by their very nature, could not help but promote the opposite argument, the one that justified their position.

Twenty years later, how far has this prediction of globalised markets been fulfilled? Anyone who travels knows that the same brands are found in countries throughout the world, whether it is Philips, Michelin, Sony, Hugo Boss, Nike, HSBC or Axa. However, beneath the surface, what do companies really think of globalised brands? Is it still what they want? Is it still their ideal?

It should first of all be pointed out that Professor Levitt’s prediction was based essentially on factors associated with production and on the unmistakable competitive advantages of economies of scale. In fact, most globalisation has taken place at production level, which is why it has been the target of some of the criticisms levelled by the antiglobalisation lobby.

In her very interesting book No Logo (1999), Naomi Klein berates the companies that do not have factories and, as a result, wash their hands of anything that goes on in the archaic factories of their Asian subcontractors. Nike is a good example of this.

By contrast, when Jean Mantelet, the creator of Moulinex, tried to keep employment in Upper Normandy at all costs, it ultimately cost him his company (but not the brand). The movement towards globalization of the upstream (production) stage is therefore unavoidable. Successful companies have globalised their factories and supply chains to bring them closer to their markets and/or take advantage of lower costs. The car industry is a typical example.

It should, however, be recognised that this is a movement that has affected products more than services. While the circulation of the flow of money and information no longer encounters any barriers and is instantaneous, the movement towards the relocation of, for example, the processing of financial information, data files and bank databases is only just beginning.

UK banks and insurance companies have taken the initiative by finding in Bangalore, the Indian equivalent of Silicon Valley, a well-qualified but much less expensive workforce. Call centres serving French customers are often based on the island of Mauritius.

There is one point on which the forecast of globalised markets can be challenged – the downstream stage of brands and products that are a long way from the predicted standardisation. Of course, you find Porsche and Jaguar worldwide, but these are exported brands, like Chanel. They are the standard bearers of a particular country or culture, and appeal to an international clientele.

The car industry provides a good illustration of why the concept of the global product is in fact a myth. Paradoxically, the most global product that ever existed in the car sector was Ford’s famous Model T – it was totally standardised, with 20 million cars manufactured and sold worldwide. Even though the domestic market was by far its principal market, the Model T was a truly universal product. In 1981, the launch of the famous Ford Escort in the United States and Europe appeared to be a sign of globalisation.

In fact the US and European models only had one part in common – the radiator cap. Hardly a global product! More recently, the Ford Focus was launched in Europe (1990) and the United States (2000), and this time the models from these two world regions had 65 per cent of parts in common. But Ford does not think it can go much further – there are too many structural and long-term factors against it. So what are they exactly?

The first is that energy is very cheap in the United States, which it will never be again in Europe. Low-energy innovations that have an enhanced value in Europe are regarded as irrelevant in the United States. This is why the engine type cannot be the same in both regions.The second is that vehicle standards and testing remain primarily national and in any event regional. Manufacturers therefore have to adapt their vehicles to suit the specifications and requirements of local test centres. Safety standards in the United States are less stringent than in Europe and Asia.The third factor concerns structural differences such as the type of roads, climate, humidity and the resulting use of vehicles. This therefore involves very different drivers of preference on either side of the Atlantic.The last factor is the customers themselves. Everyone knows that the Germans like a certain type of comfort, the British and French another. Today, manufacturers are flocking to China which alone will shortly represent 25 per cent of the growth of the world car market. They are opening factories and establishing joint ventures like PSA Peugeot Citroën, but not with the aim of slavishly duplicating European models. It is impossible to appeal to a market of 300 million Chinese who now have the financial resources to access the market without taking account of the customers themselves.

The time has in fact come to recognise the post-global brand – the brand that no longer tries to adhere unreservedly to the model of total globalisation, which is no longer perceived as ideal. Of course, globalisation at the upstream or production stage remains a priority in many sectors. Like the car sector, which has reduced costs by sharing production platforms, companies can still save more money by creating a smaller number of product platforms that are able, if the need arises, to produce differentiated models. The service sector could also benefit from upstream globalisation.

However, the further you go downstream and the closer you get to the customer, the more obvious it becomes that the global concept tends to be replaced by the regional or local concept in the case of a large country. There will therefore never be a car that is truly global, but a more American type for the United States, and other types that are characteristically European and Chinese. This has already happened on other mass-consumption markets. For example, the strategy of the US company Procter & Gamble is based on regionalisation, with the US flagship brands Tide, Whisper and Clairol becoming Ariel, Allways and Wella in Europe. The company has a factory in Europe for all its detergents.

It is becoming more and more common for companies to develop products for specific geographical regions, in the way that Hennessy created Pure White for Europe. Dannon (USA) could not sell its drinkable, low-fat yoghurts in Europe since they neither correspond to local taste nor meet the current food standards requirements. It is however true that initiatives designed to open up regional markets, such as the EU, Mercosur and Alena, help to make the region, in the broader sense of the term, a relevant market segment. Furthermore, it is at regional level that the world’s markets, and even its historical and cultural communities, are at their most permeable.

Finally, even when a brand appears to be global, when it is distributed and well known in countries throughout the world, closer examination reveals that the product is often far from standardised – it is more of a composite, hybrid or highly adapted product. For example, l’Oréal differentiates between the cosmetic products of its so-called global brands by basing them on the four types of climates in China, since they determine four skin types.

The idea of a global market and the standardization that it implies, has usefully served to start a basic movement in all companies. But over-globalisation leads to loss of relevance, a lesson that companies have often learnt to their cost since 1983. This is why today’s brands are post-global – they have assimilated the myth and distanced themselves from it without exactly renouncing it. Today, it is more appropriate to refer to selective globalisation.

Why are American brands ideogically more global, and the European ones less so? We hypothesise that the American globalised brands were exports of successful brands that had taken many years to find their optimal functioning and positioning in the United States. The idea that this equation of success would simply apply elsewhere seemed to be taken for granted, for the United States themselves constitute a non-homogeneous market.

As an example, it is noticeable that Wal-Mart’s first store outside the United States, in Mexico, was created 30 years after the creation of Wal-Mart (Bell, Lal and Salmon, 2003). Its worldwide competitor Carrefour opened its first foreign hypermarket in 1969, only six years after it created its first store. Unsurprisingly Wal-Mart applied the rules that made its success in the United States, but in some countries, more remote from the United States than Mexico, such as Brazil, the golden rule of everyday low price does not seem to work. The average Brazilian consumer is instead eager to capitalise on special bargains. Carrefour, being unsure about its optimal formula, was more open to the specificities of the new countries.

The same holds true for Nestlé, number one food company in the world. How can Nestlé be sure that the situation is the same everywhere when it comes from a small country like Switzerland? In fact Nestlé internationalized to four countries its first-ever product, powdered milk, four months after it was launched in Switzerland. We tend to favour extreme solutions (to be or not to be global?), for they are rhetorically more provocative. Real life is in the middle, but it is more complicated. People have to collaborate in the organisation. Then the question becomes how to build a collaborative organisation (Hansen and Nohria, 2003).

What is new then? Realism in globalisation, the mark of the post-global brand.