As the global superbrands retrench, a new force is gathering in the East

The icons of multinational marketing won't die but they will change, writes John Quelch

The 1990s were the golden age of glo- bal marketing – a time when the concept of marketing a standard product in the same way worldwide came into its own. Since 2000, however, an economic downturn, terrorism, the bursting of the internet bubble and now Sars have conspired to force global corporations to think local and act local as never before.

The debate started almost 20 years ago when Harvard professor Theodore Levitt her- alded the globalisation of mar- kets. He saw technology and improved cross-border com- munications driving better- informed consumers towards a "convergence of tastes". He saw multinational corporations exploiting the "economics of simplicity and standardisation" to price their global products way below those of the local competition.

Professor Levitt's thesis was widely lambasted as culturally insensitive and a recipe for a boringly homogenous global village. Yet his observations stemmed not from the worldwide march of American cultural icons like Disney and McDonald's, but from his appreciation of the worldwide success of Toyota and Panasonic. Using exceptional production quality controls and scale efficiencies, these Japanese companies marketed standard products at prices that tempted even the most patriotic consumer.

American and European multinationals fought to catch up during the 1980s. They battled for market share and tried to take costs out of their decentralised organisations, and in 1987 the transnational company was conceived.

Under this model, worldwide strategic business units (SBUs) took over responsibility from individual country managers. SBU leaders at head- quarters pushed standardised new products and marketing programmes around the world. They pruned the vast array of locally adapted products that country managers had insisted on because of supposed local differences. But many global corporations that made this transition lost touch with the local consumer along the way.

American multinationals got a big boost in 1989 when the Berlin Wall fell, along with the "evil empire" of Soviet communism. American values had triumphed. New markets suddenly opened up. Third World countries that had previously been able to play off the two superpowers were now under pressure to cut tariffs, privatise, deregulate and open their econo- mies. US companies had the resources and access to unlimited capital to finance rapid global expansion. They quickly picked off the best local business partners and acquired any viable local companies to lock in "first mover advantage" in these emerging economies.

There they found receptive consumers, eager, after years of deprivation, to try the forbidden fruit of American brands. A Marlboro cigarette, a Big Mac, a pair of Levi's jeans, these were the new luxuries that enabled consumers in emerging economies to taste the American values and lifestyle.

Scrambling to establish beachheads in perhaps 30 or 40 new markets, multinationals, whatever their country of origin, had no time or apparently any need to worry about local adaptation.

Two other factors further promoted the globalisation of markets during the 1990s. The first was the proliferation of regional trading blocs. The 1992 market integration programme in the European Community sought to remove both tariff and non-tariff barriers (such as varying product standards) and enable, for example, an Italian company to sell the same product from London to Athens. Consumer choice and competition increased, and specialist national marketers found it easier to go international. The North American Free Trade Agreement and the Mercosur agreement, incorporating Argentina and Brazil, followed with similar agendas. The value of global trade almost trebled between 1980 and 2000.

And then came the internet, a new technology that reinforced Professor Levitt's thesis. Supplementing satellite television and the fax machine, the internet enabled everyone in the world who could afford to access it to be aware of everything. Companies selling the same product under different names at different prices in different countries were pressured by the transparency of the internet to standardise their brand names and prices worldwide. At the same time, small companies from emerging economies with specialised products and services could now market to the world and be "born global".

In this way, the world wide web promised a more level playing field. But there was one big problem: the internet was spawned in America. As a result, a disproportionate percentage of what was on offer was American. The US economy had also done disproportionately well. It increasingly seemed that global- isation was actually Americanisation, called globalisation to make it slightly more palatable. In 2000, 62 of the most valuable 100 brands in the world (according to consultants Interbrand) were American, even though the US accounted for only 23 per cent of world GDP.

Many developing countries saw their economies improve in the 1990s, but most were outpaced by the developed world, and any gains were enjoyed largely by their ruling elites. According to anti-globalisation protesters, multi- national marketers like Nike were enjoying huge margins on products made by cheap Third World labour.

During the 1980s and 1990s, the Muslim world was a particular economic laggard. Popu- lation growth in these largely closed societies repeatedly exceeded GDP. The result: millions of undereducated, underemployed Muslim youth who, encouraged by political leaders needing an excuse for domestic policy failures, found an outlet for their frustrations in anti-Americanism. Aware of, and attracted to, the American dream but unable to tap into it, they have looked at the US's Middle East policy and the invasion of Iraq and become further embittered.

In western Europe, these anti-American opinions have found considerable sympathy. The European elites have long despised America, jealous that a 200-year-old upstart now dominates the global stage as the sole superpower. The long-standing spectre of US cultural imperialism has easily been resuscitated.

More important, the 1990s proved that despite the 1992 market integration programme, European competitiveness, entrepreneurship and productivity simply could not keep up with the US. By 2000, the US was choking on the irrational exuberance of the internet bubble. Many Europeans were emboldened to revisit fortress Europe, max- imise intra-European trade and undercut US-led globalisation whenever the chance arose. The European Commission's rejection of the General Electric merger with Honeywell was just one example.

In emerging markets from China to eastern Europe, enthusiasm for global brands proved short-lived as consumers developed a nostalgia for their old local brands. Boasting improved quality, under new ownership, and made with local labour and raw materials, these local brands re-emerged as "hi-touch" (personal touch) alternatives to recapture market share from the hi-tech global brands.

What are multinational companies doing in response? First, many, like Philip Morris and Coca-Cola, are building a portfolio of local brands alongside their global ones. Two-thirds of Coca-Cola sales in Japan are from local brands. The drinks giant understands that, in any country, there's a limit to the percentage of consumers willing to pay price premiums for their international products.

In some cases, the global brand owners are financing totally separate companies. Unilever India, for example, has set up the freestanding Wheel organisation as a low- cost enterprise marketing quality low-price local brands to the mass market.

Second, many global brands are rediscovering their long histories in overseas markets. American razor giant Gillette established a distributorship in London and a factory in Paris in the early 1900s. And Henry J Heinz, founder of the US food company, sold his first bottle of pickles in clear jars to Fortnum & Mason in the 1860s.

Many mature global brands have longer local histories than their national brand competitors in the same market. They emphasise their long-standing contributions to local economies and, in the spirit of good citizenship, allocate their corporate giving according to where sales and profits are generated around the world.

Third, global brand owners are listening more closely to their local business partners when it comes to adapting product attributes and advertising messages to local tastes. They are delegating more authority over product development and marketing spend to local managers. They are developing and promoting local executives to take over from expatriates.

What, then, is the future of the globalisation of markets? The clock cannot be turned back. Amid today's economic gloom, latent protectionism, as always, rises to the surface, but progress towards greater free trade and free movement of capital is inevitable and will continue to boost global prosperity.

Local marketing can easily be overdone, and the pendulum will no doubt swing back towards global marketing as the economy picks up. Back in 1983, Professor Levitt criticised multinationals for accommodating what they "believe are fixed local preferences". A country manager couldn't justify his salary if he couldn't spot any, and so either invented or magnified differences to defend his fiefdom. In fact, there is ample evidence that consumers around the world are very similar in their aspirations, emotions and ways of thinking.

It seems inevitable that China will emerge as the new counterweight to the US. That will take the sting out of American economic dominance and allow globalisation to proceed. "Old Europe" has had its chance and failed. China will do better, for this country is the 21st century's factory to the world. Any company anywhere on the planet will be able to outsource the production of anything in China.

"Made in China" is today what "Made in Japan" was 40 years ago. Yet, already, we see Chinese brands like Legend in computers, Haier in appliances, TCL in mobile phones and Tsingtao in beer extending themselves internationally. The size of the Chinese domestic market, the rich culture and history of the country, and the pace of economic growth mean that 20 years from now we will be able to substitute China for Japan and relive Professor Levitt's thesis for the globalisation of markets.

John Quelch is Lincoln Filene Professor at Harvard Business School and author of 'Global Marketing Management'.