Localisation can be a magic wand
Friday, 3 April 2009
Mohammad Abdur Rob Dewan
IT seems that the period of McDonaldization, which is portrayed as standardization, has come to an end. Communities have grown more diverse in ethnicity, wealth, lifestyle and values. With the economic globalization and prodigious growth of regional economic integration, once under-developed countries are now entering the developed world. As a result, consumers have become pickier and demand more choices. The successful practice of many enterprises tells us that only by implementing localization strategy, which is based on the differences of markets and aimed at segments of the local market, companies can acquire more competitive advantages in the marketplace.
Recent localization trends: The concept of localization is not only limited to the language industry, where performance measurement was based solely on how much the industry players can localize foreign texts. The Harvard Business School (HBS) has recently published an article in its prestigious Harvard Business Review (HBR), April 2006, titled "Localization: The Revolution in Consumer Markets" by Darrell K. Rigby and Vijay Vishwanath. This article mentioned why big players of globalization like Wal-Mart and McDonald's changed their globalization strategy for localization. Not only that, it also describes how retailers are starting to customize their offering to local markets by providing different types of stores, products, pricing, marketing and even customer service strategies. Moreover, these companies are using vast information technologies to dig data of consumers' buying patterns, their tastes and other variables, what some scholars called clusterization of data. For example, American Outfitters - a national retailer of casual wear - uses information technology to find similarities among consumers buying patterns in different locations of the USA. On the other hand, Wal-Mart used this kind of information to design stores in different locations. Another leading clothes retailer, VF, uses third-party data to identify customization and new opportunity. Regarding McDonald's, the stores in Beijing serve spicy chicken wings and its New Delhi customers enjoys vegetable McNuggets. Tokyo stores serve teriyaki burgers and beer is sold in most of Europe.
This is not the end story. The golden arches have disappeared in some of the branches around Paris, the company's traditional red-and-yellow colours have been replaced by more muted tones, and espresso and brioche are now offered where culturally appropriate .
Egyptian Starbucks went one step further to localize the business by eliminating its logo from almost all stores because the logo has a picture of a woman which is not acceptable in a Muslim society.
Tesco, the European giant super retailer, has been practicing the localization idea by offering different product bundles in different places. For example, Tesco's Metro stores often provide sandwiches at lunchtime, and create prepared dinner meals for customers to pick up on their way home. But the smaller Tesco Express store concept aims to appeal to convenience shoppers with a mix of groceries and household items. Not only Tesco, but also other retailers like H-E-B in the USA follow the same path to customize offers in different locations .
Coca-Cola has been known for its aggressive implementation of localization strategy by not only providing customized advertisements and promotional activities but also localizing the entire business model. For example, Cola-Cola follows the 'Insideration' policy in the Japanese market. Insideration means creating a full-fledged local infrastructure and local replication of the entire business system in every important market over a long period of time . But Coca-Cola follows a different approach in the Chinese market by signing joint venture contracts with bottlers who are mainly state-owned enterprises. Not only that, Coke encourages local managers to develop strategies that are best suited for their areas, and regional offices have the freedom to approve local initiatives. Since 1990 it has been making profits in China and, according to AC Nielsen, it had a market share of over 50 per cent of the Chinese beverages market in 2002 . How did Coke achieve this success in China? Coke's top managers and industry observers believe that it is the company's winning approach of "Think local, act local" policy.
In an interview, Unilever Greater China Chief Finance Officer (CFO) James Bruce said that he strongly supports avoiding a one-size-fits-all strategy . Unilever in China responded to the complex needs of the country's consumers by developing a portfolio of brands: local and global, and incorporating traditional Chinese sciences with modern technological enhancements. Along with global brands of Dove, Lux, Ponds and Lipton, Unilever offered local brands such as Hazeline and Lao Cai after considering local tastes and culture.
Let us see some examples from the technology market. In China, Motorola built huge R & D facilities where more than 3000 employees are working and this has become one of the biggest product development centers of mobile technology around the world. The purpose is to target the Chinese market along with Asian consumers. Because of its localization strategy, Motorola never suffered a strategic loss in the Chinese market. Also, Dell changed its payment system to facilitate Chinese consumers to buy Dell computers by allowing customers to pay-on-delivery .
Why this change? Now the questions arise to justify these changes. This change is inevitable because the world is comprised of thousands of intensely local markets that are becoming more fragmented with each passing year. With the passage of time, the dynamics of these markets have radically changed. With the help of information technology, consumers are now more conscious not only about the product but also of the entire history of the company. Moreover, by liberalizing trade and commerce through the World Trade Organisation (WTO), international competition has dramatically accelerated. So it has now become apparent that traditional business strategy of standardization failed to grasp the change of the new millennium.
I have found a couple of strong reasons why international companies are following a localization strategy.
Cultural differences: How different are the cultures in our world?
They are very different. If McDonald's started supplying wine in Muslim countries, what could happen to its business? Just guess. Why did McDonald's fail in France? It's because McDonaldization and France dining culture are totally opposite. French food is, after all, as much a source of pride as French film or French cinema. It's good, it takes time to make, and it takes time to eat and enjoy. McDonald's offered the French market just the opposite .
By contrast in China, teenagers and the elderly alike spend hours in McDonald's which is a part of their culture and that would likely annoy a U.S. customer. So, knowing culture is an essential part of a successful global marketer. Ignorance of the local business practices, social cultural values and etiquette can ruin the relationship between a company and its potential customers.
Income level: Many once-developing countries are now entering into the developed world or at least fighting for that status. For example, in the past 30 years of reform and opening up, China's gross domestic product (GDP) has realized a fast and steady growth of 9.6% annually. As a result, China's ranking in terms of GDP has jumped to the fourth-largest in the world and has more than quadrupled its per capita GDP since the early 1990s. Furthermore, India's standard of living, for example, has more than doubled during the past 15 years. Economic performance of both of these countries has created a huge block of middle class consumers. Just think: if 10 per cent of people in India and China have income levels equivalent to that of Europeans, they will exceed half of the entire European population. Their new influx of wealth has given them choices, which pushes the global companies to customize the offers.
Local responsiveness: The Responsiveness Framework can be traced back at least as far as the work of Paul Lawrence and Jay Lorsch (1969) . They define a central management problem in achieving requisite internal differentiation. According to Local Responsiveness theory, which is customizing the business practices according to local need, conflict always arises when meeting local and global responses. The idea was broadened by Bartlett and Ghoshal in 1989 where they prescribed putting substantial attention on adaptation to local markets. They argued that consumer products, advertising campaigns, or distribution policies are more likely to function effectively when they are modified to reflect local market dynamics. Not only this, market and regulatory forces in its many locations requires that firms follow local norms rather than its own standardization. So, to cater to the pressure of local responsiveness, multinationals are replacing global strategies with local adaptations.
Anti-Globalization campaign: In 1999, Bove and a group of farmers vandalized a construction site for a new McDonald's restaurant in France. They are typical of the hundreds of protests and awareness programmes being staged around the world, using every available media, every day. The famous sociologist and George Ritter's McDonaldization Society has put new thought into this issue. Recently in India, Coca-Cola was asked to disclose the name of ingredients used in its soft drinks . Campaign against global companies is getting more and more support day by day. Big global companies are under fire for various issues. To justify their operation, they are adopting localization by customizing products, prices, marketing campaign, corporate social responsibilities and bringing a localization flavor in their overall corporate culture.
Institutional Boundary: Another type of problem faced by multinational corporations is how to bridge institutional distance. In most cases, the parent corporation is faraway from its subsidiaries. In international business, institutional distance has been used to conceptualize the challenges faced by multinational companies (MNCs) seeking to establish operations in different countries, and has been defined as the extent to which the institutions in the home and host countries differ from one another (Kostova, 1999). Localization of the business is best suited to avoid uncertainty related to business operations.
Recommendations: Scholarly articles regarding globalization from renowned international business strategy gurus are coming without intermission. To support precise replication instead of differentiation, Lippmann and his colleague Rumelt invented the idea and named it "causal ambiguity". Szulanaski, Winter and their colleagues favoured precise replication by arguing about "template as referent" "Not only does it make economic sense for a firm to leverage superior routines by reusing, or copying, them rather than recreating them in each new setting, but it makes sense to do so before competitors do". Moreover, Axelrod and Cohen (1999) pointed out that following the practices of those with success is often a good strategy in an uncertain world.
On the other hand, thousands of scholarly dissertations published daily are favoring the localization strategy. Overall, the trends of corporate practices provide sufficient evidence that a silent change of strategy of global business has occurred.
BAIN & COMPANY analysts Darrell Rigby and Paul Rogers argue that standardization is being replaced by localization and it is evident that most of the retail business companies are heavily investing in information technology to know more about consumer's preferences. One thing is for sure: the concept of standardization will be under observation for improvement or abandonment. The future business strategy trend will favor localization. So, last but not the least, I want to conclude by quoting Michael Shuman's deep understanding of current international business strategy. He said that businesses embracing localization will thrive. Those that ignore it won't."
The writer is doing MBA at Lahore University of Management Services
IT seems that the period of McDonaldization, which is portrayed as standardization, has come to an end. Communities have grown more diverse in ethnicity, wealth, lifestyle and values. With the economic globalization and prodigious growth of regional economic integration, once under-developed countries are now entering the developed world. As a result, consumers have become pickier and demand more choices. The successful practice of many enterprises tells us that only by implementing localization strategy, which is based on the differences of markets and aimed at segments of the local market, companies can acquire more competitive advantages in the marketplace.
Recent localization trends: The concept of localization is not only limited to the language industry, where performance measurement was based solely on how much the industry players can localize foreign texts. The Harvard Business School (HBS) has recently published an article in its prestigious Harvard Business Review (HBR), April 2006, titled "Localization: The Revolution in Consumer Markets" by Darrell K. Rigby and Vijay Vishwanath. This article mentioned why big players of globalization like Wal-Mart and McDonald's changed their globalization strategy for localization. Not only that, it also describes how retailers are starting to customize their offering to local markets by providing different types of stores, products, pricing, marketing and even customer service strategies. Moreover, these companies are using vast information technologies to dig data of consumers' buying patterns, their tastes and other variables, what some scholars called clusterization of data. For example, American Outfitters - a national retailer of casual wear - uses information technology to find similarities among consumers buying patterns in different locations of the USA. On the other hand, Wal-Mart used this kind of information to design stores in different locations. Another leading clothes retailer, VF, uses third-party data to identify customization and new opportunity. Regarding McDonald's, the stores in Beijing serve spicy chicken wings and its New Delhi customers enjoys vegetable McNuggets. Tokyo stores serve teriyaki burgers and beer is sold in most of Europe.
This is not the end story. The golden arches have disappeared in some of the branches around Paris, the company's traditional red-and-yellow colours have been replaced by more muted tones, and espresso and brioche are now offered where culturally appropriate .
Egyptian Starbucks went one step further to localize the business by eliminating its logo from almost all stores because the logo has a picture of a woman which is not acceptable in a Muslim society.
Tesco, the European giant super retailer, has been practicing the localization idea by offering different product bundles in different places. For example, Tesco's Metro stores often provide sandwiches at lunchtime, and create prepared dinner meals for customers to pick up on their way home. But the smaller Tesco Express store concept aims to appeal to convenience shoppers with a mix of groceries and household items. Not only Tesco, but also other retailers like H-E-B in the USA follow the same path to customize offers in different locations .
Coca-Cola has been known for its aggressive implementation of localization strategy by not only providing customized advertisements and promotional activities but also localizing the entire business model. For example, Cola-Cola follows the 'Insideration' policy in the Japanese market. Insideration means creating a full-fledged local infrastructure and local replication of the entire business system in every important market over a long period of time . But Coca-Cola follows a different approach in the Chinese market by signing joint venture contracts with bottlers who are mainly state-owned enterprises. Not only that, Coke encourages local managers to develop strategies that are best suited for their areas, and regional offices have the freedom to approve local initiatives. Since 1990 it has been making profits in China and, according to AC Nielsen, it had a market share of over 50 per cent of the Chinese beverages market in 2002 . How did Coke achieve this success in China? Coke's top managers and industry observers believe that it is the company's winning approach of "Think local, act local" policy.
In an interview, Unilever Greater China Chief Finance Officer (CFO) James Bruce said that he strongly supports avoiding a one-size-fits-all strategy . Unilever in China responded to the complex needs of the country's consumers by developing a portfolio of brands: local and global, and incorporating traditional Chinese sciences with modern technological enhancements. Along with global brands of Dove, Lux, Ponds and Lipton, Unilever offered local brands such as Hazeline and Lao Cai after considering local tastes and culture.
Let us see some examples from the technology market. In China, Motorola built huge R & D facilities where more than 3000 employees are working and this has become one of the biggest product development centers of mobile technology around the world. The purpose is to target the Chinese market along with Asian consumers. Because of its localization strategy, Motorola never suffered a strategic loss in the Chinese market. Also, Dell changed its payment system to facilitate Chinese consumers to buy Dell computers by allowing customers to pay-on-delivery .
Why this change? Now the questions arise to justify these changes. This change is inevitable because the world is comprised of thousands of intensely local markets that are becoming more fragmented with each passing year. With the passage of time, the dynamics of these markets have radically changed. With the help of information technology, consumers are now more conscious not only about the product but also of the entire history of the company. Moreover, by liberalizing trade and commerce through the World Trade Organisation (WTO), international competition has dramatically accelerated. So it has now become apparent that traditional business strategy of standardization failed to grasp the change of the new millennium.
I have found a couple of strong reasons why international companies are following a localization strategy.
Cultural differences: How different are the cultures in our world?
They are very different. If McDonald's started supplying wine in Muslim countries, what could happen to its business? Just guess. Why did McDonald's fail in France? It's because McDonaldization and France dining culture are totally opposite. French food is, after all, as much a source of pride as French film or French cinema. It's good, it takes time to make, and it takes time to eat and enjoy. McDonald's offered the French market just the opposite .
By contrast in China, teenagers and the elderly alike spend hours in McDonald's which is a part of their culture and that would likely annoy a U.S. customer. So, knowing culture is an essential part of a successful global marketer. Ignorance of the local business practices, social cultural values and etiquette can ruin the relationship between a company and its potential customers.
Income level: Many once-developing countries are now entering into the developed world or at least fighting for that status. For example, in the past 30 years of reform and opening up, China's gross domestic product (GDP) has realized a fast and steady growth of 9.6% annually. As a result, China's ranking in terms of GDP has jumped to the fourth-largest in the world and has more than quadrupled its per capita GDP since the early 1990s. Furthermore, India's standard of living, for example, has more than doubled during the past 15 years. Economic performance of both of these countries has created a huge block of middle class consumers. Just think: if 10 per cent of people in India and China have income levels equivalent to that of Europeans, they will exceed half of the entire European population. Their new influx of wealth has given them choices, which pushes the global companies to customize the offers.
Local responsiveness: The Responsiveness Framework can be traced back at least as far as the work of Paul Lawrence and Jay Lorsch (1969) . They define a central management problem in achieving requisite internal differentiation. According to Local Responsiveness theory, which is customizing the business practices according to local need, conflict always arises when meeting local and global responses. The idea was broadened by Bartlett and Ghoshal in 1989 where they prescribed putting substantial attention on adaptation to local markets. They argued that consumer products, advertising campaigns, or distribution policies are more likely to function effectively when they are modified to reflect local market dynamics. Not only this, market and regulatory forces in its many locations requires that firms follow local norms rather than its own standardization. So, to cater to the pressure of local responsiveness, multinationals are replacing global strategies with local adaptations.
Anti-Globalization campaign: In 1999, Bove and a group of farmers vandalized a construction site for a new McDonald's restaurant in France. They are typical of the hundreds of protests and awareness programmes being staged around the world, using every available media, every day. The famous sociologist and George Ritter's McDonaldization Society has put new thought into this issue. Recently in India, Coca-Cola was asked to disclose the name of ingredients used in its soft drinks . Campaign against global companies is getting more and more support day by day. Big global companies are under fire for various issues. To justify their operation, they are adopting localization by customizing products, prices, marketing campaign, corporate social responsibilities and bringing a localization flavor in their overall corporate culture.
Institutional Boundary: Another type of problem faced by multinational corporations is how to bridge institutional distance. In most cases, the parent corporation is faraway from its subsidiaries. In international business, institutional distance has been used to conceptualize the challenges faced by multinational companies (MNCs) seeking to establish operations in different countries, and has been defined as the extent to which the institutions in the home and host countries differ from one another (Kostova, 1999). Localization of the business is best suited to avoid uncertainty related to business operations.
Recommendations: Scholarly articles regarding globalization from renowned international business strategy gurus are coming without intermission. To support precise replication instead of differentiation, Lippmann and his colleague Rumelt invented the idea and named it "causal ambiguity". Szulanaski, Winter and their colleagues favoured precise replication by arguing about "template as referent" "Not only does it make economic sense for a firm to leverage superior routines by reusing, or copying, them rather than recreating them in each new setting, but it makes sense to do so before competitors do". Moreover, Axelrod and Cohen (1999) pointed out that following the practices of those with success is often a good strategy in an uncertain world.
On the other hand, thousands of scholarly dissertations published daily are favoring the localization strategy. Overall, the trends of corporate practices provide sufficient evidence that a silent change of strategy of global business has occurred.
BAIN & COMPANY analysts Darrell Rigby and Paul Rogers argue that standardization is being replaced by localization and it is evident that most of the retail business companies are heavily investing in information technology to know more about consumer's preferences. One thing is for sure: the concept of standardization will be under observation for improvement or abandonment. The future business strategy trend will favor localization. So, last but not the least, I want to conclude by quoting Michael Shuman's deep understanding of current international business strategy. He said that businesses embracing localization will thrive. Those that ignore it won't."
The writer is doing MBA at Lahore University of Management Services