“The Globalization of Markets” by Theodore Levitt

Introduction

The modern economy is characterized by increased economic and cultural integration, which has promoted international relations as well as international trade. This has been heavily facilitated by globalization. In general terms, globalization refers to global integration of economic, technological, political, and social aspects among different countries (Hamilton 2008).

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In his article titled “The Globalization of Markets” Theodore Levitt, a professor at Harvard school of business anticipated the effects of globalization to international business. According to him, advancement in technology and the changing social behaviours were bound to drastically impact on international business and globalization of the world. Levitt greatly contributed to the widespread usage of the term globalization in referring to economic globalization, which entails trading and investing between countries.

Culture

Culture occupies significant place in every human society (Vyas 1992). Numerous scholars have differed in their attempt to establish a unified meaning to such a broad term as culture. Sorokin defines culture as the actual way of living and thinking, which is expressed through art, literature, religion etc. The entire edifice of an Indian culture is based on the foundation of the spirit (Vyas 1992). The country’s religion, art, literature, and the overall way of life have drawn inspiration from the spiritual outlook. For KFC, a fast food company in America to venture into the Indian market, it has to identify the possible cultural issues likely to arise during the process of marketing and establish measures to counter the negative effects that the company may encounter.

The culture of India is highly influenced by Hinduism and caste system, which has resulted in the establishment of hierarchical relationships (Vyas 1992). KFC should ensure that they uphold and respect the Hinduism governing principles when marketing their business in the region. Since all relationships in India tend to be hierarchical, the company would have to portray its internal and external operations in a hierarchical order in order to maintain the social order prevalent in the region. The Indian culture is heavily oriented towards social status and family relationships.

Group orientation is also prevalent and stems from the caste system and the Indians value for extended family ties. These ties create mutual obligations for deep rooted trust among family members hence promoting the establishment of family businesses, which are operated based on mutual trust. On the other hand, the American business culture emphasizes on intellectualism and contractual business associations. For an American company, employment of individuals on the basis of their social status or family ties amounts to nepotism and negates profitability.

Hindu and Muslim religions heavily influenced the eating habits of the population in India. The Hindu vegetarian tradition still prevails in the region while the Muslim tradition is most popular for meat consumption. Religion orientations may influence the level of demand for KFC products and the company would have to incorporate some of the Indian cuisine in their menu in order to attract more customers. In addition, the language of India is ethnic. This is likely to present a language barrier for KFC in its marketing endeavours. Different states (in India) have different official languages with Hindi being the most prevalent language in the region. KFC marketers have to familiarize themselves with the local languages in order to appeal to the local market.

Market Entry Strategy

The modernization of Chinese legal system, the country’s rapid integration in the global economy and the attractiveness of the Chinese market have played a major role in creating a conducive environment for foreign investors to acquire domestic companies (Yong Li 2005). Company acquisitions in China are subject to different legal regimes depending on the nature of the target acquisition. L’Oreal cosmetic company would therefore have to predetermine the legal form of the target acquisition company in order to identify the legal framework that is applicable to their acquisition project.

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Acquisition as a preferred market entry mode would require extensive information gathering in order to establish the most efficient business to acquire. In China however, there exists significant structural difficulties in information gathering. L’Oreal would therefore have to engage a multi disciplinary team, which is adequately knowledgeable of the Chinese market and the constraints specific to the companies in the cosmetic industry. L’Oreal have to conduct a thorough due diligence by seeking to completely understand the political, cultural, and legal environment of the company that they intend to purchase as well as the performance of cosmetic industry in the local market.

Before China’s accession, the right to import and export goods was awarded to a few Chinese companies and few foreign restricted companies (Yong Li 2005). However, the trend has rapidly changed with most foreign companies acquiring the right to export goods into the region. The country’s move to abolish all discriminatory measures towards foreign companies as well as import tariff reductions and removal of quota restrictions plays a major role in promoting export trade into the country (Yong Li 2005).

L’Oreal may therefore export their cosmetics into the country more efficiently due to the relaxed trade restrictions. In acquisition, L’Oreal will utilize a lot of time and resources in the process of verification of the potential company’s corporate ownership and financial compatibility and this may not necessarily generate accurate results. Acquisitions are complicated and if they are not conducted in utmost accuracy, they may result in business failure.

On the other hand, by directly exporting their goods into the China’s highly populated market, L’Oreal would not only benefit from an increased consumer base, but would also benefit from reduced international trade restrictions in the Chinese market. Consequently, a choice by L’Oreal company venture into the Chinese market by exporting is cost effective relative to business acquisition, which requires extensive investment in terms of time and financial resources.

Product Standardization

Product standardization refers to corporate attempt to gain competitive advantage in the global market through provision of high quality goods and services at a competitive price (Clarke 2005). Product standardization measures increase consumer confidence consequently promoting profitability. Quality standards trace their origins from Europe and this tradition continues to be upheld in the region up to date.

Their standard bodies are globally renowned for their effective promotion of the region’s technological practices to other regions through its national representation (Clarke 2005). The interests of the automotive industry at the national standard level are represented by the committee for the automotive industry and based on the link between industry experts and standard setting institutions; the manufacturers still retain substantial ability to contribute to the standardization process of automotive industry.

The Korean automotive industry is among the largest in the world market with reference to production and export volume (Clarke 2005). It hosts established brand names such as Hyundai Motors, KIA motors as well as Daewoo Motor Corporation. Introduction of the new manufacturing company in Europe would increase consumer confidence not only because of the renown quality standards enforced by the European region but also as a result of the back up by the company’s national industry, consequently increasing sales.

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Communication

Global communication strategy creates increased closeness to the customers and promotes faster responsiveness to the market (Quirke 2008). For an organization like GAP, which engages in global operations, it has to strike a balance between local and global communication. This is for the reason that at the global level, the company has to manage an increasing volume of communication that reflects structural and cultural differences (Quirke 2008).

One of the most common danger inherent in international communications is that the corporate centre may take on all the traits of the original country such that although the company has its operations distributed all over the world, its corporate values continues to portray the culture of the country of origin only (Quirke 2008). GAP should therefore ensure that the different nationalities within the organization apply diverse interpretations to the company’s corporate values depending on the culture of that nationality. National differences shape the internal operations of an organization and GAP should seek to minimize incidences of conflicting cultures, which may disrupt the activities of the organization.

Pricing Standardization and Differentiation

Standardization of prices seeks to achieve uniform world-wide prices in order for a company to achieve uniform margin profits. Different nationalities differ in terms of level and income distribution, intensity of competition as well as the nature of demand and this serves to further complicate the process of establishing a standard price for all locations (Hassan 1994). Transportation, labour, and raw materials also differ according to regions which amount to varying costs of operations in the different regions.

This makes it difficult for a company to establish a standardized price for the product in all regions as this cost may fail to translate to the cost incurred during production. Standardization of prices have to take into account such factors as discounts, terms of payment, nature of warranties, and availability of credit that also greatly varies across markets (Hassan 1994). Price standardization in multinational firms is virtually impossible and the closest international firms have come to standardizing their products is possibly setting prices to maintain a consistent image in order to counter competition. We can therefore conclude that pricing in the global context is the most difficult for the firm to control.

Reference List

Clarke, C., 2005. Automotive production systems and standardization: from ford to the case of Mercedes Benz. New York, Verlag Heidelberg.

Hamilton, S., 2008. Globalization. Minnesota, ABDO publishing.

Hassan, S., 1994. Globalization of Consumer Markets: Structures and Strategies. London, Routledge.

Quirke, B., 2008. Making the Connections: Using Internal Communication to Turn Strategy into Action. Burlington, Gower Publishing Ltd.

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Vyas, R., 1992. Nature of Indian Culture. New Delhi, Concept Publishing Company.

Yong Li, J. R., 2005. Doing Business in China. London, GMB publishing Ltd.

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