As Mattel and others trying to expand in China and India have learned, the right blend of localization and globalization is tricky, write Gupta and Wang
HOW WAL-MART EXPERIMENTED
FIVE TIPS TO SUCCESS
As with Mattel and Wal-Mart, the challenge of learning how much and where to localize is universal to every multinational company. We offer five guidelines regarding how companies can meet this challenge faster and better than their competitors.
First, remember that you can never win in China and India (or any other foreign market) by either complete localization or zero localization. The trick lies in figuring out the right blend between localization and incorporating global concepts and standards. This will never be easy. Companies can significantly increase the odds of success, however, by starting with simpler products and services, engaging in lots of rapid and low-cost localization experiments, and adding complexity to their business models as they learn from these experiments.
Second, the localization-globalization question needs to be addressed at the level of dozens of variables pertaining to both strategy and operations. Coca-Cola (KO) is a grandmaster at this game. While the iconic cola is pretty much a globally standardized product, most of the company's sales outside the U.S. comes from products and brands created locally for the unique needs and desires of local customers. Even for the Coca-Cola brand, the company pays careful attention to localization along a host of variables such as package type and size, amount of sweetener, distribution channels, advertising media, and pricing.
Third, traditional market research, while useful, will often be woefully inadequate in helping companies figure out what to localize and what not. Like Wal-Mart's approach in China, active experimentation and trial-and-error learning will generally be the fastest approach to getting the most accurate answers.
Fourth, avoid the trap of superficial generalization. Like Mattel, many companies make the mistake of assuming that, because urban Chinese customers appear quite Westernized in their outward appearance, they will easily accept Western concepts, products, and services. Even in the case of premium luxury goods, companies are realizing they must understand and adapt to potentially important market differences. BMW (BMW.GR) owners in Europe or the U.S. love to drive the car themselves; their Chinese counterparts, however, sit in the back and rely on chauffeurs to do the driving. In Europe, the majority of Louis Vuitton (LVMHF) customers are women; in contrast, in China, it is men buying gifts for business partners, wives, mistresses, or girlfriends.
Fifth, keep your ears close to the ground. Emerging markets such as China and India are changing at three to four times the pace of developed markets. Thus today's perfect blend of localization and globalization could easily become obsolete three years from now. The trend need not always be toward greater preference for global brands and concepts. As China and India become richer, there is a rapidly growing sense of national pride. Also, as local products improve in quality, it is inevitable that local styles and brands will start acquiring as much cachet as global ones.
I would add a 6th point - be aware of current, past, and future government policies. Local policies regarding everything from building restrictions and incentives to transportation restrictions as part of urban planning initiatives can make or break a business. Ducati ($DMH.SG) opened a Shanghai flagship store in 2010, and quickly discovered that the customers faced major hurdles if they wanted to actually ride the motorcycles they purchased. Because it is Illegal to drive two wheel motored vehicles in Shanghai (read more here and here)I was told by the store general manager that in fact a rider would have to truck their bike 200km outside the city limit, and even then the speed restrictions are tightly controlled by the police. Another hurdle is that trucks are limited to late night and early morning hours (read more here) of operation within the city of Shanghai, so the escape time is also restricted.
Similarly, last year (2010) the government was providing massive incentives to consumers to purchase everything from refrigerators to new cars. Then, come 2011, the Chinese government put in place strict laws restricting the number of cars allowed in all Tier 1 and 2 cities (read more here). The result is that would be auto consumers have a slim chance of winning the car allotment lottery, and auto sales plummet.
Bloomberg Article Authors
Anil K. Gupta (firstname.lastname@example.org ) is the Insead Chaired Professor of Strategy at Insead. Haiyan Wang (email@example.com) is managing partner of the China India Institute and an Adjunct Professor of Strategy at Instead. They are the coauthors of Getting China and India Right (Wiley, 2009) and The Quest for Global Dominance (Wiley, 2008).