16 Jun 2003  Research & Ideas

Historical Perspective: Levitt Shaped the Debate

Theodore Levitt’s work was outrageous—and outrageously smart. HBS professors Richard S. Tedlow and Rawi Abdelal put "The Globalization of Markets" in perspective.

 

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.