Harvard Style CitationPeter Prevos 2008, ‘Converging Commonality and Business Strategy’, hypotheticorp.org, weblog post, accessed 5 February 2012, <http://hypotheticorp.org/wp/research/essays/convergence/>.
APA Style CitationPeter Prevos, (2008, October 25). Converging Commonality and Business Strategy [blog post]. Retrieved from http://hypotheticorp.org/wp/research/essays/convergence/
MLA Style CitationPeter Prevos. “Converging Commonality and Business Strategy” hypotheticorp.org n.p., 25 Oct. 2008. Web. 5 Feb. 2012
It is often said that the world is becoming increasingly smaller. Whereas it used to take months to travel from Australia to Europe, the trip can now be undertaken in one day and electronic communication enables people to instantly deliver messages across the world. These changes in the “spatial and temporal contours” of existence have reduced the significance of space and created a globalised world (Scheuerman, 2008). Global movement of people, information and products has many implications for strategic planning in an international corporation.
In the first part of this essay, the question whether the world is becoming homogeneous from a marketing perspective will be discussed. The second part of the essay deals with the impact of homogeneity on the nature of strategy for multinational companies.
Theodore Levitt (1983) introduced the term ‘globalisation’ to management discourse. His central thesis is that a “powerful force drives the world towards a converging commonality” (Levitt, 1983, p. 92), allowing international businesses to become global by standardising their product and service offering. Convergence of consumer needs and wants is caused a proletarisation of communication, transport of goods and travel — increased wealth and greater technological efficiency enables more people to enjoy cosmopolitan benefits, previously reserved for the upper classes.
Levitt wrote his thesis during the height of the Cold War, a time when the world was divided and people wished for a more unified globe. Levitt proclaimed a world were differences are disappearing and that “no one is exempt and nothing can stop the process” (Levitt, 1983, p. 93). His eschatological belief in a monocultural end-state for the whole of the globe gained prominence when the Iron Curtain was demolished and hopes for a unified world were abound. American philosopher Francis Fukoyama (1992) even proclaimed that the end of history itself was nigh, with the world converging towards a liberal democracy.
The relationship between converging commonality and technology can be explained when looking at culture from a symbolic interactionst perspective where culture is defined as a “system of shared meanings, attitudes and values and the symbolic forms in which they are expressed” (te Boekhorst, Burke and Nijhof, 1992, p. 20). The symbols of culture are transmitted through communication and with low threshold global communication, local cultural expressions have a global reach. It is this mechanism that Levitt believed to cause the inevitable convergence of all cultures.
The importance of convergence to business is partly related to the role material objects play in culture. Objects are important symbols that express underlying values. Following Goffman’s (1959) theatrical metaphor, people require objects as ‘props’ for the social roles they play. People in positions of power, for example, communicate through clothing and “hold their jobs partly because they look like executives, not because they can work like executives” (Goffman, 1959, p. 55). Through international travel and worldwide communication, the image of the company executive has been standardised and the three-piece suite has become the world standard for people in powerful positions. This is no more apparent when observing a meeting of the United Nations, a multicultural organisation, where almost everybody wears the same type of outfit, instead of clothing traditional to their respective cultures.
On the other hand, increased global communication has also created a greater diversity in the marketplace. Consumer are becoming more sophisticated because of the increased scope of communication, requiring a flexible and responsive strategy, instead of standardisation (Stonehouse et al., 2004). The existence of converging commonalities in certain markets does, however, not imply that cultures themselves are converging. One object can perform simultaneous forms of social work and communicate different values in different contexts. The iPod is an example of a fully standardised product that is sold in exactly the same configuration all over the world. The music people listen to is, however, different in every culture. An Australian music connoisseur might listen to Nick Cave, while their Indian counterparts might prefer ‘Bollywood’ products and in Arab counties, Quran readings are more popular. The market for electronic music players is, from a marketing perspective, totally homogeneous, but the underlying cultural values are heterogeneous. Some research even suggests that countries are diverging rather then converging and that, despite recent developments in communication and travel technology, physical proximity remains and important factor in the similarities between cultures (Craig, Douglas and Grein, 1992).
Convergence can, according to Levitt (1983), only occur when corporations ask people what they “want out of life”, rather then what product or service specifications they prefer. This is in line with Levitt’s seminal paper in which he coined the term Marketing Myopia for those organisations that define their produce or service offering too thinly (Levitt, 1960). What people want out of life is largely determined by psychology, which is largely independent of culture. The common goals cited by Levitt are “alleviation of life’s burdens and the expansion of discretionary time and spending power” (Levitt, 1983, p. 100).
Levitt’s thesis of converging commonality can be criticised for simplifying the complexity of international business. Although there are indeed similar needs between people, as suggested by Maslow (1943), cultural characteristics determine the way people seek to satisfy these.
The need for international expansion of business activities was recognised in the nineteenth century by Marx and Engels (1990, p. 37), who argued that the imperatives of capitalism drives corporations to “settle everywhere, and establish connections everywhere”, paving the way for a “universal interdependence of nations”, instead of “local and national seclusion and self-sufficiency”. In more recent scholarship, George Yip identified four specific categories of drivers for globalisation, i.e. market, cost, government and competitive drivers (Stonehouse et al., 2004). Market drivers relate directly to Levitt’s thesis of converging commonality and the creation of global needs. The cost structure of the product or service offering can also drive globalisation in that industries with a high fixed cost, such as car manufacturing, have a tendency to be global in order to increase the market and potential sales volume. Government drivers relate to trade policies and technical standards and competitive globalisation drivers are created by the existence of global competitors in a given market.
Businesses employing a global strategy generally operate in markets with low pressures for local responsiveness and high pressures to minimise cost. The low pressure for local responsiveness allows for a large economies of scale because one standard product can be offered to a large global market. The large size of a global market also gives greater bargaining power to buyers, which puts downward pressure on prices and thus cost leadership is an important aspect of an organisation seeking a global strategy (Hill, Jones and Galvin, 2004). However, as argued above, there are only few markets where there is no need for local responsiveness and customisation.
Stonehouse et al. (2004, p. 308) argue that if the thesis of converging commonality is true, then this would remove “the need for market segmentation and product positioning strategies” and standardised products could be sold worldwide. But, as there are important differences between cultures, as illustrated by the model proposed by Hofstede (1983), the convergence hypothesis is not true. Levitt does, however, not argue that global companies only offer a single product to a single market. Segmentation is a central marketing strategy in a global economy, but the segments themselves are transnational. A particular segment in one country will have “close cousins” elsewhere in the world (Levitt, 1983, p. 94). Global companies need to make distinctions and adjustments in different markets. McDonald’s is a company that employs an international strategy that incorporates local responsiveness, offering the same core products world-wide, but with adjustments to the menu reflecting local tastes (Stonehouse et al., 2004).
The tension between the desire to deliver standardised products in order to achieve economies of scale the need for local responsiveness to meet consumer needs adds a layer of complexity to corporate strategy. Levitt’s view that the focus of a global strategy should be on standardisation of products and marketing does not reflect these complexities and ignores the cultural diversity that shapes consumer needs. The extent to which an industry is global can be determined using the globalisation drivers identified by Yip (Stonehouse et al., 2004). The globalisation drivers can be related to Michael Porter’s framework for industry analysis (Porter, 1979).
Convergence of consumer needs and wants reduces opportunities for differentiation and thus increase threat of entry by new competitors. Global marketing and creating brand equity is a means by which the threat of new entries can be reduced (Stonehouse et al., 2004). This is illustrated by the domination of Apple in the digital music player market. Although there are sufficient alternatives of similar quality, but Apple can maintain their market lead through their brand equity. The economies of scale required to be successful in a global market reduce the threat, as any new entrant will require large investments and time to reach the same point on the experience curve as existing companies. The threat of substitutes is increased by global businesses that invest heavily in research and development (Stonehouse et al., 2004). The market of consumer electronics, with high development cost and short product life cycle, is an example where the threat of substitutes is always very high and thus Apple need to improve their music players to sustain their position as market leader. The large size of a global market increases the bargaining power of buyers, which is counteracted by the reduced bargaining power of suppliers (Stonehouse et al., 2004). In a globalised market and industry, competitive rivalry is very high as it is difficult to differentiate. Operating in a larger market also increases the number of business to compete with.
Recent advances in communication and transportation technology have increased the level interconnectedness across cultures. Cultural expressions have a global reach, which has converged the needs and wants of consumers in certain aspects.
The convergence of consumer needs is, however, only ‘skin deep’ as the cultural values that drive the use of products and services on offer in the global market remain heterogeneous. Although Levitt’s thesis of converging commonality can be criticised for simplifying the complexity of international business, the drive to large achieve economies of scale motivates international corporations to seek truly global strategies.
References
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