levitt convergence thesis

Theodore Levitt's 'the Globalization of Markets': An Evaluation after Two Decades

Harvard NOM Working Paper No. 03-20; Harvard Business School Working Paper No. 03-082

30 Pages Posted: 26 Feb 2003

Rawi Abdelal

Harvard University - Business, Government and the International Economy Unit

Richard S. Tedlow

Harvard University - Entrepreneurial Management Unit

Date Written: February 2003

Theodore Levitt was one of the first scholars to write a high-impact article on globalization aimed at business managers. Now, two decades later, "The Globalization of Markets" is still widely read. Rather than agreeing with Levitt, however, most observers today believe that his arguments were flawed and his predictions have not been borne out. To be sure, we agree that not all of Levitt's predictions came true. Nevertheless, his article does offer enduring insights; and those are what we want to explore. Understanding Levitt's "globalization" as an analytical lens through which to view the world is highly useful. Indeed, Levitt's central insight - that "preferences are constantly shaped and reshaped" - is crucial for both managers and scholars. What constitutes globalization, in Levitt's (and our) way of thinking, is interaction that changes things, rather than leaving them the same. Successful firms and the managers who run them do not leave the world as they found it. Rather than taking consumer preferences as a given, successful managers have treated them as outcomes. Following Levitt, then, we can see that the global market is not solely what firms find. The market is, to some important extent, what firms make of it.

Keywords: Theodore Levitt, Globalization, Business Managers, Consumers, Consumer Preferences, The Global market

JEL Classification: B20

Suggested Citation: Suggested Citation

Harvard University - Business, Government and the International Economy Unit ( email )

Morgan Hall 287 Harvard Business School Boston, MA 02163 United States

Richard S. Tedlow (Contact Author)

Harvard university - entrepreneurial management unit ( email ).

Cambridge, MA 02163 United States 617-495-6688 (Phone) 617-496-4877 (Fax)

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The Transfer of Governance from the Nation State to a Corporate Global Economy

By José G. Vargas-hernández

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The Globalization of Markets

• Theodore Levitt

Many companies have become disillusioned with sales in the international marketplace as old markets become saturated and new ones must be found. How can they customize products for the demands of new markets? Which items will consumers want? With wily international competitors breathing down their necks, many organizations think that the game just isn’t worth […]

A powerful force drives the world toward a converging commonality, and that force is technology. It has proletarianized communication, transport, and travel. It has made isolated places and impoverished peoples eager for modernity’s allurements. Almost everyone everywhere wants all the things they have heard about, seen, or experienced via the new technologies.

• TL Theodore Levitt was a professor emeritus of marketing at Harvard Business School and former editor of Harvard Business Review.

Historical Perspective: Levitt Shaped the Debate

Agree or disagree—and even his colleagues disagree—Theodore Levitt's controversial article "The Globalization of Markets" reshaped the debate on globalism and consumer marketing, and continues to provide modern managers with constructive ways to view markets.

That was the message from Harvard Business School professors Richard S. Tedlow and Rawi Abdelal, who provided a historical perspective on Levitt's work at the Globalization of Markets colloquium held May 28-30.

The twentieth-year anniversary of the article has given many critics an opportunity to point out its many flaws, starting with Levitt's prediction of a global marketplace ruled by standardized products sold at low prices.

"Everyone says the article is wrong, and everyone reads it twenty years later. Why?" asked Abdelal.

Tedlow portrayed Levitt as a gifted economics scholar rooted in the real world who, on one hand, could write a doctoral dissertation titled, "World War II Manpower Mobilization and Utilization in a Local Labor Market" and, three decades later, pen an opinion piece for The New York Times headlined, "Yes, Throw Money at Problems."

"Ted made a lot of trips, and one is from normal science to provocateur," Tedlow said. "Ted's outrageous; there is just no other way to put it."

For example, in the aforementioned "Throw Money" article, Levitt made this statement: "Every sustained wave of technological progress and economic development everywhere has been fueled by greed, profiteering, special privileges, and megalomania."

"Really?" Tedlow asked. "Every one, Ted?"

But his outrageousness had a point, Tedlow continued. What Levitt did in "The Globalization of Markets," as well as in other influential books and articles on marketing, was to "grab business people by the lapels, shake them, and say, 'Wake up!'," Tedlow said. You couldn't ignore Levitt, and what he said, the way he said it, and the questions he posed changed the nature of the debate.

"It was the combination of his background in formal economics along with a jagged streak of lightning called genius that enabled him to succeed at so doing," Tedlow and Abdelal wrote in a recent paper on Levitt.

As a prediction of things to come, it's not hard to criticize "The Globalization of Markets," Tedlow said. One example: Polaroid France. Launching the Polaroid camera in France, the company followed Levitt's standardized marketing approach. Problem was, French TV at the time was non-commercial, and Polaroid could not create the consumer "pull" that TV spots in the U.S. provided.

Ted's outrageous; there is just no other way to put it. — Richard S. Tedlow

But even if we agree that "The Globalization of Markets" is wrong, it does not mean it is not insightful and useful for today's managers, Abdelal told the audience. Think of Levitt's views as a heuristic, an analytical lens to view global markets.

For example, Levitt's work underscores the difference between internationalization and globalization, between a multinational and global corporation. Internationalization reflects the dominance of traditional actors such as multinational companies and national governments. The multinational produces goods crafted for those local markets. Globalization, by contrast, "is about new types of relations and new kinds of economic actors," wrote Tedlow and Abdelal. The global corporation produces standardized goods for all markets.

The distinctions between regional, international, and global markets are critical points to be considered by today's modern manager, Abdelal said. According to the Tedlow and Abdelal paper, "The real reason to read Levitt is not to find out what is true about global markets, but how a manager ought to begin thinking about them."

In the end, Levitt both overestimated and underestimated globalization, Abdelal said. For one, he did not anticipate that some markets would react against globalization, especially against Western globalization.

But Levitt also underestimated the power of globalization, Abdelal said. He did not foresee how nationalisms—which Levitt saw as a threat to globalization—could transform themselves and actually embrace global capitalism, as occurred in the former Soviet Union.

But Levitt was dead-on in his view on the malleability of consumer preference, Tedlow said. Before Levitt, traditional marketing wisdom declared it was the role of the marketer, through careful questioning and study, to understand the wants of the customer. Levitt argued that that approach is limiting—you hit home runs by presenting the customer with something he didn't know he wanted, Tedlow said, such as George Eastman's Kodak Brownie camera in 1900.

With Levitt's help, companies today understand that the market is what they make of it, not what they find.

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“The Globalization of Markets” by Theodore Levitt Essay

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• As a source of information (ensure proper referencing)
• As a template for you assignment

Central Theme

Critical analysis, main takeaways.

Levitt had authored several texts that became very influential in the business world, and his 1983 article on globalization is one of those texts. The author examines globalization’s phenomenon to stress that large companies that operate internationally have made a qualitative transition from treating the world as a collection of diverse markets to regarding it as one same market. This shift is the driving force of the globalization of markets. To illustrate it, Levitt compares multinational corporations to what he calls global corporations. Operating in several countries, multinational corporations adjust their policies and practices and products and services, to the specific characteristics of each country. It is posited for multinational corporations that people need and want different things in different parts of the world, which is why a significant effort is required to explore local demand and address them.

In contrast, global corporations treat the world as a single market. Unlike multinational corporations, they do not posit that people buy differently in different parts of the world. Instead, they assume that there is universal demand, and they address it. Levitt pays special attention to this universal demand that has become an integral part of globalization. Rather than discovered, this demand is constructed by global businesses to a large extent. The shifting understanding of trade in the 1980s affected the way companies approached the market: previously, the concept had been that companies should supply to customers what customers think they want and need; at the time Levitt’s article was written, the concepts were that businesses should supply to customers what customers will want and need. Somehow, corporations like Coca-Cola managed to have their product drunk in numerous countries across cultures, although it is the same everywhere.

The author compares multinational and global corporations to the fox and the hedgehog, as Isaiah Berlin described. The fox knows a lot about a great many things, and the hedgehog knows everything about one great thing; similarly, a multinational corporation knows a lot about many national markets, and a global corporation knows that the single factor of standardizing what it sells and how it operated will allow it to address the world as a single market.

Levitt’s article is written to be understood by both professionals and non-professionals, which makes it appealing. The author provides many examples to support his points, which makes the article valid and reliable. In several textboxes, additional readings are provided, which allows the reader to obtain a more comprehensive understanding of the addressed issue. Levitt’s great mastery of dealing with business concepts is evident in how he explains quite intelligibly the complicated process of globalization of markets. All these are the strengths of the article.

What can be considered a weakness is that the article does not feature illustrations or graphs, which is why it looks like a solid piece of text and should be read accordingly. Also, Levitt does not seem to evaluate globalization processes to address the issue of whether they are beneficial or harmful, i.e., whether they contribute to the well-being of society or represent a trend of social deterioration. From today’s perspective, another weakness is that the article was written almost 35 years ago. The concept of technology and globalization as opposing vectors seems somewhat outdated, as both technology and globalization have changed significantly since then. However, from my perspective, I still think that reading Levitt’s article can be useful for business practitioners, as it provides a valuable understanding of how globalization developed initially.

According to Levitt, being successful under global market conditions means adopting a certain vision and practices that allow addressing the global market as a single entity driven by universal demand. The vision is that marketing is no longer to study what customers think they want; it is rather producing something they will want and convincing them that they want it. And the practices are generally those associated with standardization. Levitt stresses the importance of standardization for the globalization of markets, as he declares that what is required from companies is to have a global focus, which means paying attention to the economics of simplicity, and standardizing products is what plays a special role in it.

Global corporations should not overestimate the significance of such factors as cultural differences. Instead, they should acknowledge that the commonality of preferences drives globalization. With the growing amount of common cultural context spread by mass media, people from different countries now have many things they can talk about, and somewhere within this common context, there is a universal demand hidden: something these people would buy despite their differences. According to Levitt, the commonality of preferences signifies the world’s homogenization, which is exactly what global corporations should use to grow and develop.

By standardizing their products and operation, global corporations also manage to drive their prices down, which is also an important aspect of global market success. With low prices and standardized products, companies reach vastly expanding markets and obtain much larger profits. Moreover, they enhance the process of globalization, which Levitt thinks will become more and more important because soon, all the businesses in the world will find themselves operating within a single market.

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Is there convergence across countries? A spatial approach

• Published: 20 February 2014
• Volume 45 , pages 387–404, ( 2014 )

Cite this article

• Heather Berry 1 ,
• Mauro F Guillén 2 &
• Arun S Hendi 3  

We analyze convergence across countries over the last half century as a result of globalizing forces. Drawing on theories of modernization, dependency, the world-system, political trade blocs, and the world-society, we consider economic, demographic, knowledge, financial, and political dimensions of convergence. Using a new methodology, we calculate the minimum volume ellipsoid encompassing different groupings of countries, finding that during the 1960–2009 period, countries have not evolved significantly closer or similar to one another, although groups of countries based on their core-periphery status or membership in trade blocs exhibit increasing internal convergence and divergence between one another.

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Growth in regions.

Global Social Inequalities

Globalization, Freedoms and Economic convergence: an empirical exploration of a trivariate relationship using a large panel

k is in general different for each distance dimension.

In empirical studies on convergence in the economics literature, it is common to use either a regression of growth rates (the beta measure) to examine whether countries are converging to the same steady-state levels ( Barro, 1997 ) or coefficients of variation (the sigma measure) of economic data over time ( Ertur, LeGallo, & Baumont, 2006 ; Magrini, 2004 ). The approach we adopt in this paper is closer to economic studies that have examined coefficients of variation, but we include a broader definition (beyond economic variables) of how countries can differ. In addition, we incorporate a spatial dimension into our analysis by constructing an MVE measure, which determines the extent to which country points compress or expand over time.

Mathematically, this property is derived from the fact that the MVE measure is invariant to affine transformations of V t . If we were to premultiply each v ∈∪ V t by the same fixed, non-singular matrix and add a k -vector to each product, the resultant volumes would not be affected except perhaps by a constant multiple. Since the MVE measure is an index, the constant multiple is irrelevant and would not affect our inference (proof available upon request).

One important point about the MVE method is that it assumes an ellipsoidal form. There are good reasons to assume an ellipsoid as opposed to other shapes. First, as mentioned above, the MVE is not affected by time-invariant issues of correlation and scale (covariance and variance). Consider the following example. A country’s university enrollments, the number of patents a country issues, and the number of scientific articles a country publishes are highly correlated. If we are using all of these variables to determine the world’s volume, we would ideally like to measure the volume on a de-correlated scale. Otherwise, the distance between countries would be artificially inflated (or deflated) and this would in turn artificially inflate (deflate) the volume. The MVE volume is not susceptible to this problem. Also, the variables are measured on different scales (enrollments per 10,000 population, patents per million population, and articles per million population) and thus may not be directly comparable. The MVE volume measure is not susceptible to this issue either.

A regression of volumes on time shows similar patterns of rejection. Kendall’s tau, however, is less restrictive due to its ordinal nature.

The correlations between the MVE and median-based volumes for the economic, demographic, knowledge, financial, and political distance dimensions are, respectively: 0.87, 0.42, 0.79, 0.72, and −0.39.

For all subcomponents, we calculate the Kendall’s tau trend tests restricting the years to 1985–2009. The rejection patterns are similar to the full set of volumes (1960–2009), indicating a lack of evidence for recent convergence.

We calculated the Mahalanobis distance between each country point and the arithmetic mean of all NAFTA country points. We used the maximum of these distances as the hypersphere’s radius.

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Acknowledgements

We thank Associate Editor Ulf Andersson, anonymous referees, Jason Beckfield, Bruce Carruthers, Nitsan Chorev, Frank Dobbin, Vit Henisz, Paul Ingram, Paul DiMaggio, and participants in the World Bank Seminar for helpful comments on earlier versions of this paper. This research received support from the Population Research Training grant (NIH T32 HD007242) from the National Institutes of Health’s (NIH)’s Eunice Kennedy Shriver National Institute of Child Health and Human Development and from the Demography of Aging grant (NIH T32 AG000177) from the National Institutes of Health’s (NIH)’s National Institute on Aging awarded to the Population Studies Center at the University of Pennsylvania. We also acknowledge funding from the Penn Lauder CIBER institute for the collection of the data used in this paper.

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George Washington University School of Business, Washington DC, USA

Heather Berry

The Wharton School, University of Pennsylvania, Philadelphia, USA

Mauro F Guillén

Population Studies Center, University of Pennsylvania, Philadelphia, USA

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Correspondence to Heather Berry .

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Accepted by Ulf Andersson, Area Editor, 17 December 2013. This paper has been with the authors for two revisions.

About this article

Berry, H., Guillén, M. & Hendi, A. Is there convergence across countries? A spatial approach. J Int Bus Stud 45 , 387–404 (2014). https://doi.org/10.1057/jibs.2013.72

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Received : 15 April 2013

Revised : 08 December 2013

Accepted : 17 December 2013

Published : 20 February 2014

Issue Date : 01 May 2014

DOI : https://doi.org/10.1057/jibs.2013.72

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Why Ted Levitt wasn’t wrong about globalisation

Marketing guru Ted Levitt has been criticised for overestimating the rise of global brands. But that wasn’t what he meant at all, contends Alan Mitchell

Has globalisation reached its sell-by date? Twenty years after Ted Levitt sparked a rumpus with his essay The Globalization of Markets, globalisation is fast becoming a dirty word, not only among critics such as Naomi Klein, but in business circles too. As Richard Tomkins pointed out in a recent Financial Times article, many attempts to build global brands have failed miserably. Professor Levitt’s belief that “as new media and technology shrank the world, people’s tastes would converge creating a single global market that would be dominated by the world’s most successful brands” was, he concludes, “mistaken”.

But was Levitt mistaken? Or are we still missing his real message?

Levitt’s real focus was not on brands (in fact, he didn’t mention the term “global brand” once throughout his entire essay) but on how technologies connect with human needs, and how this affects organisations and markets. Technology, he said, is driving the world to “single converging commonality”. No matter what race, religion or culture they come from, people are embracing the fruits of technology, whether in the form of refrigeration, electric lighting, the car, air travel, antibiotics, computing, mobile telephones, TV and so on. “No place and nobody is insulated from the alluring attractions of modernity,” said Levitt.

Likewise, even though people around the world are different – and even though these differences will persist – there are many characteristics that unite them. “The Chinese are different in a whole variety of visible ways from the Germans and the Zimbabweans,” Levitt wrote, “but still all three are remarkably alike regarding love, hate, fear, greed, envy, joy…” The relentless drive of technology – and the essence of global convergence – he argued, was its appeal to a human universal: the relentless drive “toward the alleviation of life and the expansion of discretionary time and spending power”.

In the face of these universal technologies and universal needs, traditional multinational companies – which replicate themselves many times over from country to country – were redundant on two counts.

First, they duplicated things that didn’t need to be duplicated. There were enormous cost savings and economies of scale to be reaped by standardising things such as product and packaging specifications, and centralising buying of raw materials, media and so on.

Second, multinationals added unnecessary complexity. And marketing was often the main culprit. By “asking people what they wanted in the way of features alone rather than seeing what they visibly wanted of life itself”, national marketing departments ended up delivering an ever-proliferating array of different product and packaging features, at ever greater cost. In the process, they created “awesomely large and costly marketing departments complete with ponderously professional market researchers”.

Levitt argued that if companies could strip away this complexity to realise new, global economies of scale, they could cross national boundaries and “discover the one great thing. That is, the overwhelming desire for dependable, world-standard modernity in all things, and at aggressively low prices”.

So in what way was Levitt actually mistaken? First, can anyone show any evidence, anywhere that consumers around the world don’t want the “life-alleviating” fruits of modern technologies? There may be huge issues as to whether people can afford them but, the world over, people want them. We all want more discretionary time and spending power.

Second, it’s now widely accepted that old-style multinational organisations are slow, cumbersome and costly to run. What have all the great global corporate reorganisations of the past few decades been about, if not pursuing the quest of eliminating unnecessary duplication, gaining speed, and realising buying and production synergies?

So in all three main areas – technology, underlying consumer demand and organisational evolution – Levitt has already been vindicated. The only area where controversy still rages is the one area he didn’t address – global brands.

The fact that so many large companies are focusing their efforts on a small handful of megabrands with global critical mass suggests that Levitt was on the right lines when emphasising the importance of global market segments.

At the same time, however, he probably overestimated the speed and extent of market convergence. And certainly, at times, he seems to equate globalisation with Americanisation. It’s in these delicate areas of judgement that brand strategies are truly tested. So what is the likely outcome? Here’s a suggestion.

Global brands have a natural advantage wherever “globalness” is an essential part of the proposition (Visa, for instance), and in science- and technology-driven

markets where there are only one or two “best” answers (these are often business-to-business markets).

Globalising brands also have an advantage where an organisation is really able to unleash the synergies and economies of scale that Levitt talked about – without incurring new “dis-economies” of scale from increased size, complexity and so on. But please note: what people want in this case are not global brands per se, but the benefits of globalisation – those life-alleviating technologies at lower cost. And that’s turning out to be harder than he predicted.

Take the example (from a McKinsey case study) of the multinational soap powder brand in India, whose ingredient and production costs were nearly twice as high as its local competitor’s, and whose marketing costs were over four times higher. McKinsey’s recommendation – “to focus on cost reduction, operational efficiency and simplicity” – echoes Levitt 20 years earlier.

Meantime, global brands also have a natural disadvantage wherever human meaning, identity and culture are centre stage: where there is no single “right” answer. In fact, when cultures meet and clash, the possibilities tend to multiply, which makes brand managers’ jobs even more difficult. They need to ride two opposing trends at the same time.

So, as ever with branding, the best answer is that it’s horses for courses. There is only room for a relatively small number of global brands. Increasingly, they will provide the context in which many more vibrant local brands will strut their stuff. Globalisation is a hugely important trend, but it’s not the only trend. And when it comes to globalisation, Levitt is still the best read there is.

Alan Mitchell, [email protected]

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• DOI: 10.15640/JMM.V4N2A2
• Corpus ID: 56381724

Marketing Myopia – An Update (How Theodore Levitt Changed Our World? A Look at the Impact on Corporate Management after Five Decades)

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Horizons of decolonization in marketing: a proposal based on the critique of coloniality of the globalization of markets theory, a case study of the application of the kenyan “sheng” language in marketing, horizontes de decolonização em marketing: uma proposta com base na crítica à colonialidade da teoria da globalização de mercados, 5 references, blue ocean strategy., related papers.

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Theodore Levitt, 81; Economist First to Use the Term ‘Globalization’

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Theodore Levitt, 81, the former Harvard Business Review editor who coined the term “globalization,” died June 28 at his home in Belmont, Mass., after a battle with prostate cancer.

Levitt first earned fame in 1960 after publishing “Marketing Myopia,” a Harvard Business Review article in which he called marketing a “stepchild” in most corporations, which he said concentrated too much on creating and selling products. He said certain companies and industries were declining because management defined the scope of their businesses too narrowly.

Levitt first used “globalization” in a 1983 Harvard Business Review article about the emergence of standardized, low-priced consumer products. He defined the term as the changes in social behaviors and technology that allowed companies to sell the same products around the world.

Levitt was born in 1925 in Vollmerz, Germany. His family moved to Dayton, Ohio, in 1935 to escape the Nazis. After serving in Europe during World War II, he attended Antioch College and earned a doctorate in economics from Ohio State University in 1951. He taught at the University of North Dakota and worked as a consultant in the oil industry before joining Harvard’s business school in 1959.

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