Happy Birthday, Globalisation

Marketing guru Theodore Levitt, a professor at Harvard Business School, was never a man given to understatement. But even by his standards, the prophecy he made on May 1 1983 was bold.

"The globalisation of markets is at hand," he declared in a Harvard Business Review article, written at a time when the word "globalisation" was virtually unknown.

Prof Levitt's message was simple. As new technology extended the reach of global media and brought down the cost of communications, the world was shrinking. As a result, consumer tastes everywhere were converging, creating global markets for standardised products on a previously unimagined scale.

His theory was colourfully illustrated. "In Brazil, thousands swarm daily from pre-industrial Bahian darkness into exploding coastal cities, there quickly to install television sets in crowded corrugated huts and, next to battered Volkswagens, make sacrificial offerings of fruit or fresh-killed chickens to Macumban spirits," he wrote.

"During Biafra's fratricidal war against the Ibos, daily televised reports showed soldiers carrying bloodstained swords and listening to transistor radios while drinking Coca-Cola."

Globalisation meant that old-fashioned "multinational" companies that made different products to suit local tastes were doomed. They would be undercut by "global corporations" that offered the same products in the same way everywhere, benefiting from "enormous economies of scale" in production, distribution, marketing and management.

"The world's needs and desires have been irrevocably homogenised," Prof Levitt proclaimed. "This makes the multinational corporation obsolete and the global corporation absolute."

Was he right?

He was certainly influential. Sir Martin Sorrell, chief executive of WPP, well remembers the day the article appeared. At the time - May 1983 - he was finance director of Saatchi & Saatchi, then a relatively small outfit that was briefly to become the world's biggest advertising and marketing conglomerate.

"I read the piece and I remember giving it to Maurice [Saatchi] saying 'this is a key article'. We distributed it to all our key clients and said 'this is the way the world's going and this is the way the Saatchi agency will be positioning itself'."

Maurice Saatchi became a passionate believer in Prof Levitt's theory and set about establishing Saatchi as a global operation that would market the new global brands with global advertising campaigns.

Soon after the article appeared, the agency put theory into practice with its "Manhattan" advertisement for British Airways, a science fiction-style spectacular that appeared to show the whole of New York's Manhattan island coming in to land at London's Heathrow airport.

Describing British Airways as "The world's favourite airline", the same advertisement was dubbed into 20 languages and shown in every country in the world with a developed television network - 35 in all.

Partly as a result of Maurice Saatchi's advocacy, Prof Levitt's prophecy reverberated in boardrooms around the world. Even so, in 1983 it looked a bit of a futuristic fantasy. Many of the world's markets were still closed and nearly a third of its population lived under communism.

By the end of the 1980s, however, as the barriers to world trade came down, Prof Levitt was beginning to look more right than he could ever have imagined. People in former communist countries celebrated their freedom by cracking open cans of Coca-Cola, MTV embraced the globe's youth and, in 1990, McDonald's opened in Moscow.

In the 1990s, the share prices of global brand-owners such as Coca-Cola, McDonald's and Walt Disney soared as investors savoured the companies' growth prospects. Another sign of the times was the trend for companies to brand or rebrand themselves with global-sounding names seemingly plucked from Esperanto, such as Diageo, Novartis and Invensys.

Then, something un-expected happened: a reaction set in. People around the world started demanding more local sovereignty and more protection for their cultural identities.

Most worryingly for global brand-owners, consumers in newly opened markets started expressing a desire for local products - which, as local manufacturers adopted western business methods, were simultaneously showing a big improvement in quality.

By the end of the 1990s, most global brand-owners were switching chief executives as their share prices plummeted in response to slowing growth rates. In March 2000, in a signed article in the Financial Times, Douglas Daft, Coca-Cola's new chief executive, offered a startling analysis of what had gone wrong.

Coca-Cola, Mr Daft wrote, had traditionally been a "multi-local" company but as globalisation had gathered pace, it had centralised its decision-making and standardised its practices.

"We were operating as a big, slow, insulated, sometimes even insensitive 'global' company and we were doing it in a new era when nimbleness, speed, transparency and local sensitivity had become absolutely essential to success," he wrote.

But Coca-Cola had learnt its lesson, Mr Daft said. It was that "the next big evolutionary step of 'going global' now has to be 'going local'. In other words, we have to rediscover our own multi-local heritage."

Astonishingly, it was almost the opposite of what Prof Levitt had advocated. Yet now it is the almost universally accepted wisdom. The one-size-fits-all approach is out; "think local, act local" is in. Coca-Cola owns not one brand but more than 200, mostly local; McDonald's varies its menu to suit local tastes; MTV has different programming to suit different countries and regions.

While homogenisation has affected some product categories - mainly in the technology sector, where there are no cultural barriers to overcome - the paradox of globalisation is that it has led not to a convergence of tastes but to a vast increase in the number of choices available to consumers. People can now buy products from all over the world: global, regional and local.

Another paradox is that technology is aiding the fragmentation. "Prof Levitt was assuming that the only way to get scale was through standardisation. It was essentially the Henry Ford argument," says Lowell Bryan, a McKinsey director and a former student of Prof Levitt. "But technology has changed the economics of production. Now, you can have both economies of scale and also deliver very discrete, specialised products."

Prof Levitt has retired and does not give interviews. But through an intermediary, he indicates that he stands by his story. "Global consumer products like Coke, Pepsi, McDonald's and Fuji and Kodak film are not fashioned to meet the needs of certain markets. They are simply sold in those markets about the same way they're successfully sold at home," he says.

Few would agree that Prof Levitt's prophecy has been borne out. But 20 years after its publication, his article is still widely quoted and read. And you do not have to be right to be interesting.

"Sometimes, even if they are wrong, ideas can set off a chain of debate that results in greater knowledge," says Richard Tedlow, professor of business administration at Harvard Business School. "So a brilliant idea that may not be right but that gets people thinking can be of greater value than a standard idea that doesn't stimulate thought at all."