[267x189]

Stonehouse G., Fraser W.

Introduction

If the rhetoric of politicians, the media and certain academics is to be believed soon, irrespective of which country we inhabit, we will all be consuming the same products bearing globally recognised brand names, manufactured by huge world-wide businesses. Implicit in this is the notion that our cultures, and therefore our tastes, are becoming more and more similar, with the inevitable consequence that our patterns of consumption will converge. There is also an implication that the pace of this convergence is increasing. It was on this basis that Levitt (1983) presented his seminal vision of a ‘global village’, characterised by standardised products and services, and global business strategies built upon economies of scale and scope. There are a small but growing number markets which display global characteristics. Designer clothing, sportswear, fragrances, fast food and soft drinks are the most frequently cited examples of markets which show a global tendency. This paper explores whether there is a pathology to globalisation or whether there are forces and factors which will inhibit its progress and prevent its culmination in world-wide homogeneity.

Globalisation – two interpretations

Globalisation is a much used and ill-defined word. The most common interpretation of globalisation is that put forward by Levitt (1983) which concerns the globalisation of markets. Changes in transport, communications, and production technology coupled to liberalisation of trade have driven the world towards a ‘global village’ or ‘converging commonality’ — a homogenised, unified global market in terms of consumer tastes and product preferences. The main beneficiaries of this convergence will be global firms producing globally standardised products in order to achieve world economies of scale. This view appears to be supported by the development of global brands and products like McDonald’s, Coca Cola, Sony, IKEA, Levis and so on. Globalisation of this type presupposes increasing relatedness of national and regional markets across the world. Again, there is significant evidence of such interrelatedness. For example, movements in stock exchange prices across the world increasingly occur in a global manner. Patterns of demand for sports wear and designer clothing also tend to occur in unison.

Porter (1986, 1990) adds another dimension to the concept of globalisation by examining the importance of globalisation of the productive process. Porter argues that transnationals have two important decisions to make with respect to their value adding activities: where to carry out their activities and how to integrate them across the world. For Porter its is configuration and co-ordination which determine global competitive advantage. Activities can be either concentrated in particular countries or dispersed throughout the world. In either case the effectiveness with which these activities are co-ordinated will be important in bringing about competitive advantage. In this context the global scope of value adding activities is of great importance. Companies like Nike owe their competitive success as much to the location of their outsourced manufacturing activities in Asia as to the global brand name which they have built. In this case globalisation stems from differences rather than similarities between climates, resources and cultures of different countries. Activities will be concentrated in locations which provide some sort of competitive advantage on the basis of availability of resources, costs, skills, technology and so on. Of course, some activities may have to be dispersed so as to be located near to markets.

Globalisation of both types is seen as having resulted from several interrelated factors. The major contributor has been technological change. Manufacturing technology has made possible mass production, transportation technology has provided the means of moving materials and finished products from country to country and continent to continent, while information technology has made possible the co-ordination of world-wide business activities. Technology has also played an important part in changing customers and their needs. Global communications, such as satellite-broadcasted television, have assisted in what appears to be а convergence of national cultures which has been accompanied by development of global brands and products. More affordable access to travel has familiarised people with products from all corners of the world. When increasing liberalisation of trade and rising standards of living are added most of the ingredients upon which the globalisation hypothesis is based are present.

As stated earlier there are many examples of global brands and global products and of global organisation of production. Equally, there are many examples of local brands and products and of locally or regionally organised production. Segal-Horn (1992) argues that there is actually little evidence of homogenisation of markets, rather “the differences both within and across countries are far greater than any similarities which may exist.”

Limitations on the globalisation of markets

There are a number of explanations of the factors which may inhibit and prevent globalisation.

Parker (1998) presents a discussion of such inhibiting factors. His argument is based upon physioeconomic theory, which dates back to the eighteenth century and the work the French philosopher and political theorist Montesquieu (1689—1755)1  and Scottish philosopher and political economist Adam Smith (1723—90). More recently authors such as Hofstede (1980, 1991) and Yip (1992)2  have reached conclusions which support some of those derived from the theory. The roots of physioeconomic theory are in natural history which recognises that there is a hierarchy of phenomena. For example, solar climate precedes and determines physical climate whilst the natural resources that a country possesses place a theoretical limit to its ultimate wealth. As Parker (1998) put it, “Each level in the hierarchy is a necessary condition for the next: culture depends upon the existence of terrestrial life, which depends upon the existence of marine life, which depends on a particular climate.” Physioeconomic theories use both physiological and physiographic (physical-geographic) factors to explain differences between cultures, tastes and needs. To put this another way, similarities and differences in human behaviour will depend upon similarities and differences in climatic conditions, terrain, and endowments of natural resources which will help to predetermine culture, political and economic conditions.

According to Parker (1995, 1998), “solar climate alone…has a stronger correlation than income per head with many economic behaviours that are usually thought of as ‘development driven’”. Milk, cereal, flour, coffee and cigarette consumption per head are better explained by solar climate than by income per head. People in colder climates consume more alcohol than those in warmer climates. Furthermore, “Physiological adaptations across populations affect dietary preferences…., housing preferences (heating, insulation, architecture) and clothing preferences…; overall they influence 30–50% of total household consumption in developed economies and up to 90% in less developed economies” (Parker, 1998). Climatic differences also explain differences in consumption of psychological products like entertainment products which are more strongly demanded in colder climates.

In essence, physioeconomic theory suggests that although countries with similar physioeconomic characteristics, like climate, terrain and natural resources will tend to converge in economic and social terms, those facing different physioeconomic conditions will preserve many of their differences. Thus, although cultures may converge in some respects, physioeconomic factors will ensure that differences between many national markets for many products will persist. There are therefore natural limitations to globalisation of markets.

Ironically, it is physioeconomic factors which make global concentration of value adding activities attractive to international businesses. Factors like climate and natural resources are important in providing local production advantages3 .

Challenging the assumptions

As well as forces beyond the control of humankind, there are other factors which challenge some of the assumptions upon which globalisation is based. For Levitt (1983) organisations must sell high volumes of standardised products on a global scale so as to enjoy the benefits of economies of scale. Yet, “Developments in factor automation allowing flexible, lower cost, lower volume, high variety operations are challenging the standard assumptions of scale economy benefits by yielding variety at lower costs” (Segal-Horn, 1992). When this is coupled to the fact that consumers in many markets are becoming increasingly fickle, some of the perceived benefits of globalisation to business seem to disappear. According to P. Martin (1997) the increasing volatility of markets means that there may be advantages in dispersion of manufacturing activities rather than concentration. Having a manufacturing facility located near to a market increases responsiveness and, while concentration of activities may bring the benefits of economies of scale, it may be at the cost of local adaptability.

Even some of the supposed benefits of globalisation are not so great as might be assumed. While the OECD argued in 1996 that globalisation “gives all countries the possibility of participating in world development and all consumers the assurance of benefiting from increasingly vigorous competition between producers”, the argument fails to take into account that consumers are also producers. From the viewpoint of producers, increased competition drives down prices, wages, and potentially, employment. Indeed, the World Trade Organisation has recently come under attack from protectionist pressure groups, including trade unions and environmental and human rights campaigners (as well as by anti-capitalism extremists), and by Consumers International (a federation of 247 consumer groups from over 100 countries) demanding that liberalisation of trade be halted or reversed because they perceive it to be associated with economic exploitation by multinational companies, the undermining of consumer rights and the marginalisation of poor countries. Interestingly, and somewhat ironically for the proponents of a borderless world, use of the internet by anti-free trade activists has enabled them to rapidly spread and co-ordinate their campaigns across borders world-wide (de Jonquiиres, 1999).

Further, Elliot (1996) made the point that “Liberalisation and globalisation in industrial countries have not resulted in increased growth, nor are they likely to do so”. In fact, it is often the case that those countries which have prospered most in recent years have been those with high levels of government intervention (such as Germany, Japan and Korea). Professor Alit Singh of Cambridge University made the point in Elliot’s (1996) article that records for growth, employment, living standards and investment were much poorer in the period from the mid 1970s to mid 1990s than they were between 1945 and 1973 when interventionism based upon the Keynesian economic model was common practice.

Ron Martin (1999) criticises the predictions of long-run regional growth and convergence made by economists associated with the recently emerged “geographical economics” using a reformulation of the neo-classical growth model. The standard neo-classical (Swan-Solow) growth model assumes diminishing returns to capital and labour, and holds that a relatively poor country with a lower stock of capital per worker has a higher marginal productivity of capital and a higher rate of return to capital. On that basis, it predicts that poorer countries will grow faster than, and eventually catch up with, richer countries. However, while application of a new variant of the model at cross-regional level (where absolute convergence is more likely to occur because of relative homogeneity in structural, technological, institutional and social characteristics) has revealed that the rate of regional convergence is similar across the United States, the European Union, Canada, Japan, China and Australia, the rate (1—2 % per annum) is much lower than that which the neo-classical growth model predicts. The implications are, as Martin deduces, “either that returns to labour and capital are non-diminishing, or diminish very slowly, or that interregional spillovers of capital, labour and technology are much less than expected, and hence that there are endogenous effects in regional growth” (Martin, 1999).

In contrast to the long-run convergence predictions of geographical economics, Martin draws attention to episodic theories of regional economic evolution favoured by geographers. These theories recognise that patterns of regional relative growth and decline historically undergo periodic reconfiguration, so that regional convergence might be observed in one period and divergence in another. Again, it is perhaps ironic that the examples he gives are of convergence in the post-war ‘golden age’, 1945—73 and divergence after about 1975 — the periods identified above as being distinguished by interventionism based upon the Keynesian economic model prevalent in the former and the absent in the latter.

From a socio-political perspective, Scott (1997) draws upon the work of Polanyi (1957 [1944]) to argue that globalisation is “a contested and ultimately unrealisable project”. Polanyi’s analysis, which was developed through detailed historical and anthropological argument, is, in essence, based on three hypotheses: markets destroy social relations4; they do not arise spontaneously but are the result of conscious planning, political action and decision, and are regulated in that their parameters are determined by state institutions; in order to protect itself from the socially disruptive nature of markets, society will place limits on the extent to which markets are freed. The implications are, first, that globalisation must be regarded not purely as the outcome of social and economic processes but, to some extent, as the outcome of an idea — the (utopian) concept of a free market; and, second, that it will never be achieved.

As Scott points out, “Polanyi’s analysis assumes both interdependence of and permanent contest between markets and states”. The ability of nation states to protect themselves and their citizens from the social destructiveness of markets is undermined by deregulation, yet the state plays a major part in the deregulation process both at national level — for example, by privatising industries and reducing social costs — and at international level, by its involvement with international institutions, such as the WTO, and their free trade agreements. The balance in this contest, Scott argues, has been tipped in favour of markets by neo-liberalism, which has persuaded politicians, who may not yet appreciate fully the political and social consequences, to deregulate. However, as these deregulated markets begin to produce “catastrophes”, there will inevitably be social and political reactions which seek to redress the balance so that, eventually, limits will be imposed. The examples of potential social “catastrophes” that Scott cites include growing inequality, urban decline and environmental degradation5. Moreover, some potential catastrophes are economic, as evidenced by the collapse of Barings Bank and the Bank of Credit and Commerce International.

A complementary argument, which Scott raises, that the aforementioned catastrophes are part of a societal learning process. In fact, Polanyi’s work implies a catastrophe® learning® regulation model, to which Scott suggests we might add a forgetting® deregulation® relearning® reregulation cycle. Such a model, as Scott points out, is re-emerging in the arguments of those worried by the effects of deregulation, including some authors associated with views more to the right than to the left of the political spectrum6. Whether the model is valid is another matter, but there is supportive evidence for some of its claims in the growing social unrest, arising from what US trade representative, Charlene Bartelsky sees as a world-wide distrust of trade, stemming from anxiety that it is destroying jobs, lowering living standards and causing a “race to the bottom”. The demands of the large, cross-border coalition of anti-free trade pressure groups it has generated cannot be completely ignored. As Barshelsky admits, “The single greatest threat to the multilateral trade system is the absence of public support” (de Jonquires, 1999).

Finally, despite the fact that we can observe standardised products such as Coca Cola and Big Macs becoming an established part of life in many parts of the world, we must question the assumption that this implies cultural convergence. As Howes (1996) points out, there is no guarantee “that such goods, on entering a culture, will inevitably retain and communicate the values they are accorded by their culture of origin”. The context within which they are received in the country and consumed can be very different, and result in different customer benefits7. For example, McDonald’s might be regarded simply as a reliable source of fast food to the average American citizen but to the average Muscovite, with lower disposable income, it might seen as something quite different – for example, a status symbol or an embodiment of American imperialism. Moreover, even such global brands are often forced to adapt elements of their marketing mix in order to gain acceptance in different countries. Commonly cited examples include Coca Cola marketing Georgian Coffee in Japan but not in Georgia itself, and PepsiCo changing the name of its “7-up” soft drink for the Chinese market because, in local dialect, it meant “death through drinking” (Micklethwaite & Woolacot, 1997). In Israel, McDonald’s must adhere to the kashrut laws for preparing food which forbid a mix of meat and milk products in kosher meals. Specially trained Jewish supervisors are authorised by the Chief Rabbinate to inspect kitchens holding a kashrut licence (for which an annual fee is charged) and ensure that the laws are upheld (Dempsey, 1999). In India, mutton replaces beef in McDonald’s burgers, while optional teriyaki sauce accompanies the food in its Tokyo outlets, which are small snack bars, set up in the city centre by a local entrepreneur in recognition that the large suburban sites favoured by the parent company were not the optimal choice. With so many examples of necessary adaptation to local preferences among those goods perceived as the most global, we get some indication as to how far away from standardisation other goods might be.

A global approach to strategy and management?

There have been various attempts to make the case that the management philosophy and techniques of one country or region are superior to those of others. For example, American and Japanese techniques are often held up as examples of good practice. If this were the case then it might be reasonable to assume that some form of global approach to management might develop. There are certainly global trends in management theory like total quality management, knowledge management and others, but there remain fundamental differences in approach between managers.

Doyle (1996) argued that the focus of international management varies from country to country. American and British managers emphasise seeking to maximise “shareholder value” which is achieved when an attractive rate of return on capital expenditure is achieved. This differs from Japanese, German and Korean companies who tend to place greater emphasis on achieving market leadership by seeking to build customer satisfaction with their products. There are therefore important differences in the way that strategy is determined in businesses in these two groups. In the Anglo-American group, the approach adopted focuses on arriving at the financial budget necessary to achieve the target return on capital employed. This has been criticised as representing a short term approach to business strategy. In the other group, businesses emphasise the importance of R&D, innovation, brand building and supply chain management so as to increase customer satisfaction. In other words, it is patently obvious that there is not a single global approach to management and strategy in businesses around the world.

Martin (1997) pointed out that, “Going global is not the only possible approach to the 21st century business challenge. It is also feasible to build a company strategy around defending a home market”. For the transnational business, the strategic challenge of the 21st century is to combine global scope with the responsiveness and flexibility necessary to compete with local domestic producers. Further, it is necessary to balance the pressures for globalisation resulting from the benefits of economies of large-scale production against the need to respond flexibly to increasingly erratic customer preferences. On the other hand, companies which choose to defend their domestic positions rather than going global will only do so successfully if they remain alert to the changes taking place at a global level.

There are many examples of global players facing successful local competitors. In the global fast-food market McDonald’s face strong local competition in France and Belgium from Quick and in Greece from Goody’s who hold a significant share of the market but who are by no means a global competitor. Similarly, Coca Cola and Pepsi Cola face competition in Scotland from Barr’s Irn Bru soft drink which holds a 25% market share but which is virtually unknown outside of the United Kingdom. It may therefore be necessary to make local variations to strategy to cope with local competitors.

Implications for Transnational Business

Technology and liberalisation of trade have undoubtedly increased the interdependence of the world’s economies. Telecommunications (particularly satellite television and the Web) and increased travel have also exposed cultures to each other with increasing frequency and this is producing cultural change and, in some respects, convergence. There is, however, little evidence that this interdependence and interaction will produce cultural conformity or uniform patterns of consumption between nations. This is not to say that global brands and products cannot succeed. There is ample evidence that the tendency towards global brands and products will continue in markets with suitable characteristics. Even within such markets there is strong evidence that local competition will persist. In such cases global companies must become locally adaptive and adopt transnational strategies which combine global and local features. Equally local businesses must become globally responsive, developing an awareness of global market and industry trends and developing strategies which permit their survival. Perhaps the most interesting observation is that whereas globalisation of markets is based upon the premises of cultural, economic and technological convergence, globalisation of production (based upon concentration of activities in certain locations) is dependent upon divergence of the availability of resources between different locations.

References

1. Anon (1997) ‘Non-global markets’, Financial Times, 27 September.
2. de Jonquiиres, Guy (1999), “Free trade under fire”, Financial Times, October 11.
3. Dempsey, Judy (1999), “A kosher recipe for resentment” Financial Times, October 8.
4. Doyle, P. (1996) ‘The Loss from Profits’, Financial Times, October 25.
5. Elliot, L (1996) ‘Putting Trade in its Place’ The Guardian, May 27.
6. Graham, G. (1997) ‘The Difficulty of Banking on the World – Is there a Life for the Non-Global’, Financial Times, 29 October.
7. Hofstede, G. (1980), “Culture’s Consequences”, Sage, London.
8. Hofstede, G. (1991), “Cultures and Organisations: Software of the Mind”, McGraw-Hill, London.
9. Howes, D. (ed.) (1996), “Cross-Cultural Consumption: Global Markets, Local Realities”, Routledge.
10. Jackson, T. (1997) ‘Facing up to Challenging Opposition’, Financial Times, October 31.
11. Levitt, T. (1983) ‘The Globalisation of Markets’, Harvard Business Review, May/June.
12. Martin, P. (1997) ‘A Future Depending on Choice – The Global Company in the 21st Century’ Financial Times, 7 November.
13. Martin, R. (1999), “The new ‘geographical’ turn in economics”, Cambridge Journal of Economics, 23, 65—91.
14. Micklethwaite & Woolacot (1997), “The Witch Doctors”, Random House, New York.
15. Parker, P. (1998) ‘Why markets will not converge’, Mastering Marketing, Financial Times.
16. Polanyi, K. (1944) The Great Transformation, Beacon Press (1957 edition).
17. Porter, M.E. (1986) Competition in Global Industries, Free Press, New York.
18. Porter, M.E. (1990) Competitive Advantage of Nations, Macmillan, London.
19. Segal-Horn, S. (1992) ‘Global Markets, Regional Trading Blocs and International Consumers’, Journal of Global Marketing, Vol. 5 No. 3.
20. Thompson, David (ed.) (1966) “Political Ideas”, Ch 6, Morris, G.C., Montesquieu and the Varieties of Political Experience, Penguin Books.
21. Working Group II to the Second Assessment Report of the Intergovernmental Panel on Climatic Change, “Climatic Change 1995”, Cambridge University Press, 1996.
22. Yip, George S. (1992), “Total Global Strategy — managing for world wide competitive advantage”, Prentice Hall.
23.