The Globalization of Markets - Deepstash
The Globalization of Markets

The Globalization of Markets

The Globalization of Markets

hbr.org

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The success of global companies

The author asserts that well-managed companies have moved from the emphasis on customising items to offering globally standardised products that are reliable and low priced.

Global companies will achieve long-term success by concentrating on what everyone wants rather than worrying about the details of what people think they might like.

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Technology drives the world

Technology is a powerful force that drives the world toward a converging commonality. The result is the emergence of global markets for standard consumer products.

Corporations geared toward this new reality benefit from enormous economies of scale in production, distribution, marketing, and management. By translating these benefits into reduced world prices, they can wipe out competitors.

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The multinational and global corporation

The strategy of the multinational corporation and the global corporation differs:

  • The multinational corporation operates in several countries and adjusts its products and practices at a relatively high cost.
  • The global corporation operates with constancy as if the whole world were a single entity. It sells the same things in the same way at low relative costs.

The world's needs and desires have been irrevocably homogenised, making the multinational corporation obsolete.

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Living in the republic of technology

Our age is characterised as driven by "the Republic of Technology whose supreme law is convergence, the tendency for everything to become like everything else", writes Daniel J. Boorstin in his trilogy The American.

This trend has pushed markets toward global commonality where standardised products are sold in the same way - steel, chemical, transport, pharmaceuticals, etc. Even MacDonald's, Coca-Cola, rock music, Hollywood movies, Revlon cosmetics. Nothing is exempt. The high-tech and the high-touch ends of the commercial spectrum gradually wipe out the undistributed cosmopolitan middle.  

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Vindication of the Model T

Customers will prefer the world standardised products if a company forces costs and prices down while pushing quality and reliability up. For example Henry Ford (Model T), South Korea (televisions sets), Malaysia (microcomputers), Singapore (optical equipment), etc.

Large companies in a single nation or city don't standardise everything they make. They have product lines and multiple distribution channels. Although companies customise products for a particular market segment, they know they will succeed in a homogenised world because a market segment in one country is seldom unique.

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The most endangered companies

In a rapidly evolving world, the most endangered companies tend to be those that dominate small domestic markets with high value-added products where there are smaller markets. Distant competitors can enter the sheltered markets of those companies by offering cheaper goods.

When a global producer offers its lower costs internationally, it attracts customers who previously held to local preferences. The motivation is to make one's money go further.

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Knowing about many things, and knowing about one thing

The multinational corporation knows a lot about a great many countries. It adapts to supposed differences, not questioning the possibility of their transformation nor recognising how the world is ready for modernity, especially when the price is good.

By contrast, global corporations know everything about one great thing. It knows about the need to be competitive worldwide and seeks to constantly drive down prices by standardising what it sells. It knows about one great thing everybody has in common: scarcity.

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Nobody likes scarcity; everyone wants more

Money has three special qualities:

  1. Scarcity
  2. Difficulty of acquisition
  3. Transience

People value money. But in an increasingly homogenised world market, people want products that everyone else wants. If the price is low enough, they will choose the standardised products, even if it is not quite suitable nor preferred.

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Remaining differences

Different cultural preferences, tastes and standards and business institutions are remnants of the past. Some preferences will die gradually, while others will expand into mainstream global preferences.

Many multinational corporations believe that preferences are fixed. As a result, they falsely assume that marketing means giving customers what they say they want instead of trying to understand exactly what they would like.

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A failure in global imagination

Many companies tried and failed to standardise world practice by exporting domestic products and processes without accommodation. 

Poor execution is an important cause. More important is the failure of imagination. What customers say they want is often different to what their behaviour demonstrates. Many people will discard previously expressed preferences in favour of other features when it is heavily promoted and offered at an aggressively low price. 

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Accepting the inevitable

The global corporation accepts that technology drives consumers toward the same goals:

  • easing life's burdens
  • expanding of discretionary time
  • spending power

Managerially advanced corporations have been eager to offer what customers really want rather than what was only convenient. As a result, they have created huge marketing departments and highly tailored products and delivery systems for different markets and nations. By contrast, Japanese companies operate almost without marketing departments yet have cracked the code of Western markets.

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Cracking the code of Western markets

Japanese companies don't look with mechanistic thoroughness at the way markets are different. Instead, they search for meaning with a deeper wisdom. They discovered that all markets have an overwhelming desire for dependable, world-standard modernity in all things at aggressively low prices.

There are still some differences between nations that are unyielding. Companies can organise their marking efforts by product, region, function, or combination of these. There is no one formula. What works well for one company or place may fail for another in the same place.

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The purpose of a business is to draw and keep a customer

An ancient dictum of economics states that things are driven by what happens at the margin, not at the core. That means in ordinary competitive analysis, what's important is the marginal price, not the average price. What counts in commercial affairs is what happens at the cutting edge.

Companies willing to adapt to and capitalise on economic convergence can make distinctions and adjustments in varied markets. Conversely, companies that do not adapt to the new global realities will be consumed by those that do.

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