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Localization of International Brands
2003-06-17
Business Weekly
The world economy has been following a trend towards globalization since the end of the last century.
The process of which is driven by fast-evolving information technology and the heady growth of cross-border trade and finance.
Globalization has influenced inevitably both the economic and cultural aspects of nations.
The economic globalization has favored multinational firms that are well positioned to exploit comparative advantages of different regions around the world.
China, with its annual GDP more than tripled over the last 25 years, has seen its industries -- including the soaring IT sector -- closely interwoven into the very fabric of the global economy.
Globalization and localization
International trade and cooperation has developed rapidly since the trade barriers between economies has gradually eroded.
The spreading information technology has facilitated multinational firms in allocating their assets to their global investment portfolios.
Cross-border business and investment activities, driven by the demand for profits, have extended to every corner of the world.
These activities have inevitably speeded up the process of globalization.
For IT companies, their corporate strategy in favor of globalization has never been clearer.
The international firms, which take into account varying economic development, culture and politics among nations, will necessarily undergo a process of localization while pursuing their strategy of globalization.
The ultimate goal of such localization for these international firms is to profit from local markets to serve their need for globalization.
The goal of such localization lies in three aspects:
First, localization can reduce firms operating and production costs. International companies will achieve this goal by using low-cost local labor and raw materials. They may also enjoy lower costs in local telecommunication and transportation facilities.
Second, the process of localization may shorten and therefore optimize the supply chains of local firms, which will in turn enhance their efficiency.
Third, local enterprise, without cultural barriers to research local markets, will be readily accepted by local customers.
The above three aspects are key to forging the competitiveness of enterprise, hoping to enlarge their local market shares.
Great business prospects in domestic IT market
Since the beginning of this millennium, the world economy has been listless. By contrast, China has seen its economy growing healthily and steadily.
For foreign investors, the country will open more areas in its IT sector as promised under the WTO entry agreements, while related government policies will also become more transparent and complete.
Meanwhile, China's mainland will attract more and more foreign investors with its vast domestic market, large pool of talented employees, and low production costs for enterprise.
Currently, China's mainland has overtaken Taiwan as the world's third largest IT hardware manufacturer.
Industry insiders say the country will soon surpass Japan to become the world's second largest IT hardware manufacturer, with the US topping the list.
The demand from traditional sectors and government bodies to restructure with information technology will bode well for foreign high-tech firms.
Government bodies need to use the Internet to publicize their rules and policies and assist foreign enterprise in understanding the country's legal and political systems.
Large, nationwide companies have also pinned their hopes on re-allocating their resources and streamlining their corporate structure to achieve a better performance.
These have created massive demand for IT products, most of which are now provided by large multinationals with reliable quality and after-sale services.
International enterprise will only profit from such unprecedented business opportunities if they stick to localization.
Localization in IT sector
As competition in China's IT market grows fiercer and domestic IT enterprises grow bigger, the question as to what strategies to choose to profit from the country's market eventually fall into the laps of managers.
Below is my view on localization which has become increasingly important to IT companies.
Since international, labor-intensive enterprise first entered China's market and built their factories, they have more or less garnered profits in field of production.
But as the country's labor costs pick-up and domestic IT firms increasingly enjoy their large scale advantages, these international companies have seen their profit margins gradually eroded.
To address this international firms need to localize their research and development activities as well as their mass production. They should use local research resources, together with local supply chain systems to design and develop products according to the needs of customers.
By doing so, these international firms will significantly reduce costs and increase their adaptability in today's fast changing market environment.
However, these firms should avoid potential conflicts between their local market strategy and their overall corporate strategy aimed at the global market.
Localization is a process in which enterprise gradually get themselves involved in local markets and adjust their marketing strategies to fit specific market conditions.
This requires enterprise to view the market from a different angle, understand local customers behavior and adopt appropriate marketing models.
The whole process of localization is another innovation for enterprise, which combine resource advantages with successful experiences in a bid to enhance their marketing capabilities.
All the above should be based on thorough research by enterprise into local markets.
For example, the Hewlett-Packard Co, one of the world's leading IT hardware makers, has built its distinctively featured distribution system in China, which is different from any of its overseas models.
Nowadays, enterprise competitiveness increasingly relies on their "power of culture." We can say, corporate culture is key for survival in today's competition. Every successful enterprise has its distinctive corporate culture.
However, successful overseas enterprises usually do not merge local culture into their own. Instead, they approach local culture step by step and melt its best into their own culture.
Good corporate culture in a large firm should also be a balance between the firm's historical legacy and the local society's culture and values.
Any distortion of the above will inevitably result in business disruptions.
All in all, just as Jack Welch -- former CEO of General Electronics -- pointed out, the key for a multinational's success lies in its business strategies involving both globalization and localization. An enterprise should be prepared for an all-scale competition globally, while using its comparative advantages and business experience to win in the local markets.
This article only represents the author's views and not necessarily the views of this paper.
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