Espacios. Vol. 34 (4) 2013. Pág. 16
Glocalization as the natural evolutionary path in the multinationals’ activities
La glocalización como la evolución natural en la actividades de multinacionales
Paul Valdivieso G. 1
Recibido: 25-04-2013 - Aprobado: 14-05-2013
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The modern multinational corporation (MNC) has been sometimes perceived by the general public as the ultimate representative of globalization processes in a world of increasingly homogenous products in line with diminishing localized preferences.
Global strategies in management and marketing has been seen as the future as it is grounded on global socio-economic trends which can be summarized in: 1) the on-going growth in output, thus population's income levels due to economic convergence, 2) shift towards trade and investment liberalization, and 3) rise in relevance of technology in essence representing the death of distance (Keegan, 2002). Nevertheless, the advent of global tendencies cannot be interpreted as an automatic evolution towards equal consumption patterns for every product around the world, but rather as the adaptation of global products to local markets; idea which is recognized in the concept of glocalization 2. The glocalization process has been seen as the natural path of evolution in the multinationals' activities, thus the global strategies in management and marketing have been defining the MNCs' practices as an evolutionary path from standardized products into a world of "thinking global while acting local".
This paper explores the evolution of the generic multinational corporation, later to analyze the globalized practices of a major multinational corporation as a brief case study. Ultimately, to conclude on whether the evolution of the modern economy will inexorably generate multinational concerns acting exclusively under continuously evolving glocalization approaches.
Organizations can be defined as an unified purpose and the mechanism for achieving it (Miles, Snow, Meyer and Coleman, 1978), thus highlighting its objective as well as the structure that aims to complete such objective. Nevertheless, such definition, needs to be complemented as organizations, do engage in an continuous process of evaluating their purpose and how they interact with their external environment (Miles et al, 1978); it is therefore more comprehensive to describe the organization as an entity having an strategic objective, which defines a structure under a process of constant adaptability to its environment.
It is widely accepted that the modern corporation is a key factor in contemporary economics, clearly resulting as the vehicle for economizing transaction costs (following the early works of Commons and Coase from the 1930s). The 20th Century corporation has evolved from multidivisional structures into conglomerates around the middle of the century; to later continue its transformation into multinational structures which at the early stages where based on knowledge transfer within manufacturing operations (Williamson, 1981), although progressing certainly into a wider scope of multinational organization and coordination.
Internalization theory and transaction-cost minimizing views regard the MNC as the sole internal market capable of organizing and coordinating such transactions under a centralized hierarchical structure more appropriate to organizations offering fewer products within static environments (Fouraker and Stopford, 1968). Evidently, the market's low volatility during the previous decades gave way to a more volatile business environment after the 1990s, thus warranting increased flexibility in terms of efficient resource-reallocation by the market participants (Buckley and Casson, 1998).
In the modern volatile economy, the traditional hierarchical view with respect to MNCs' strategies and subsequent structural design is complemented by the network-based analysis (Brock and Birkinshaw, 2004), as hierarchical structures give way to network-based organizations which can respond more rapidly to change (Cerrato, 2006). Inherently the increased volatility of the current economic environment could also support the application of glocalization approaches.
Globalization is traditionally defined as the general exchange of mostly homogeneous goods and services across the whole world (Rugman and Hodgetts, 2001); as such it is linked to the essence of the multinational corporation. Not surprisingly, the literature supporting glocalization approaches highlight that for most products and services, local adaptation is warranted as responsiveness to local conditions is a must in order for the multinational corporation to succeed. Rugman and Hodgetts (2001) even go to the extent of summarizing their argument in the following manner: "Successful multinational now design strategies on a regional basis; unsuccessful ones pursue global strategies".
Even though for some products, it could be argued that globalization of consumption is a reality (e.g. some consumer electronics); this is not the case for a broad base of products, in some cases due to "nationalistic protectionists sentiments", which in turn generate the need for the MNC to achieve a certain balance between localization or product adaptation on one hand, and a global perspective on the other (Buckley and Ghauri, 2004).
In fact, Rugman and Verbeke (2004) concluded that only 1.8% of the world's 500 largest companies are fully global, i.e. those with sales of 20% or more in each of the three parts of the so-called triads; while most of the remaining 80% can be defined as "home-region oriented" with more than 50% of their sales deriving from only one region. The authors concluded that globalization trends seemed to evolve in a manner of what can be referred to a "semi-globalization", whereas many successful MNC are global within their upstream functions (e.g. financial or human capital, research and development); while localization does occur within downstream functions (e.g. marketing and customer service).
Although a large proportion of MNCs incorporate glocalization practices at its strategic core, is it possible for some MNCs to limit to a large extent the tendency towards fully-fledged glocalization?, before developing such question, it is relevant first to further consider the advantages of localization.
As any other economic process, certain entities are in better position to take advantage of the globalization (Buckley and Ghauri, 2004). These traits of success can be summarized as: 1) understanding markets on a regional basis with the necessary national responsiveness, rather than as one integrated global market, and 2) taking into consideration the relevance of local networks rather than relying exclusively on intra-firm global resources (Rugman and Hodgetts, 2001).
Evidently, localization is not an automatic process; in fact, accomplishing actual localization for all the different processes encompassing business operations has different degrees of difficulty as each functional process faces unique opportunities and threats. For example, marketing operations are considered as easier and in in higher need of localization than other areas. Buckley and Ghauri (2004) indicate that a possible solution for the issue of differentiated localization of functional areas, would be the constitution of networks with external entities (i.e. those outside of the MNC's frontiers) whenever necessary; as such, managers can have the freedom to exclude weaker intra-company sections, in order to increase competitiveness in its market. The core of the matter is to allow for extra flexibility for the more sensitive areas of the traditionally internalized MNC, a notion supporting glocalization practices in the sense of adaptation to local conditions while keeping the global perspective.
As a matter of fact, MNCs strategies have been seen as in need of constantly balancing the global and local strategies (Hymer, 1970). In other words, managing the trade-offs for advantages in global operations such as maximizing economies of scale and reducing duplication, versus the localization advantages, such as increased differentiation and responsiveness (Buckley and Ghauri, 2004); all within the context of holding a coherent and aligned corporate strategy (Williamson, 1981), clearly not an easy task.
It could be concluded up to this point that localization tendencies are a core need for succeeding in the global marketplace. Furthermore, glocalization practices are widely grounded in late theory and such tendency can be widely observed in different business cases. For example, large multinationals such as Procter & Gamble and Unilever do display a high degree of national responsiveness or localization (Rugman and Hodgetts, 2001). Even global MNCs apply to some extent to glocalization practices, such as MacDonald's offering of tailored (i.e. adapted) menus in more than 50 countries around the world to accommodate local tastes and customs. Now, the question is to which extent the glocalization tendencies are totally unavoidable or in other words, to what extent they constitute a natural evolutionary path for all multinationals.
In order to explore such question, it is relevant to firstly ground the analysis in the MNCs’ international marketing strategy; for this, it is useful to employ the international management strategy matrix, which integrates the level of concentration or diversification in terms of the degree of country specific localization or responsiveness and the extent to which the companies expand to several markets or multi-nationality, as presented in Figure 1 (Bradley, 2004).
Figure 1. International management strategy management
Despite the substantial literature on the advent of localization pressures, there is evidence of globally diversified multinational corporations which engage in limited or no localization efforts, relying to a large extent on global strategies as source of their competitive advantages. One of such companies is the Swedish multinational Ikea. Ikea is the largest home furniture retailer in the world, with more than half a century of history and presence across Scandinavia, Western and Eastern Europe, North America, Middle-East and the Far East, with over 150 stores worldwide. For this matter, Ikea represents a good example on how low levels of national responsiveness or limited localization can be and intrinsic part of the success formula for the corporation.
Ikea’s internationalization approach is based around the use of replication strategies, whereas the replicator (i.e. Ikea) follows a two-stage approach that starts with the exploration of the business formula to be replicated and secondly, the exploitation of the selected business model in the targeted market. Interestingly, Ikea's scope of replication incorporates the application of what can be refereed to as a flexible replication (Jonsson and Nicolai, 2011), whereas the replication model continuously incorporates feedback from its entities into an evolving model for replication which even though offering the possibility of some flexibility (e.g. limited localization efforts for the internal food courts in some shops), producing a surprisingly standardized business model and customer experience across all its selling surfaces around the world.
Ikea's core source of competitive advantage is precisely the high degree of standardization it presents in its operations, in other words, it follows an approach of country diversification rather than global diversification as its central business concept relies on limited country-localization efforts which are leveraged in a cost leadership strategy, yet with a world-renowned brand name. The company’s success is constructed over consistent business practices around a well defined target customer that despite the cross-country cultural or social differences is surprisingly similar (i.e. a global customer).
From the customers' perspective, companies that are able to identify what can be referred to a global customer (i.e. one that regardless of origin shares certain desires and expectations) can limit the national responsiveness. In Ikea's case, its global customer looks for simplified design, functionality and low costs which evidently is in line with Ikea's original intent ever since the first showroom in the 1950s. Interestingly, from the customers' point of view, the successful assembly of the furniture generates to a certain extent a feeling of fulfillment (Norton, Mochon and Ariely, 2011) in addition to the perceived value.
From the product perspective, companies that have the value of standardization as a source of competitive advantages can benefit from a limited-localization approach as this can ultimately result in advantages derived from economies of scale in areas such as production, distribution and marketing efforts as well as increasing world integration (Czinkota and Ronkainen, 2003).
From the branding and advertisement perspective, companies that are able to exploit the nature of a global customer can formulate advertisement strategies that are not heavily influenced by socio-cultural behavior thus enjoying cost advantages. Evidently, it has its fundaments in the actual value of the standardized international brand image (Czinkota et al. 2003), which communicates Ikea's values relating to quality, price and cost, or as his creator, Ingvar Kamprad, described it, the democratization of design by offering to the majority of the people products with innovative design and functionality at low prices (Edvardsson, Enquist and Hay, 2006). All of this, under the umbrella of a brand applicable in many culturally heterogeneous markets, thus incompatible with niche strategies (Bradley, 2004).
The article explored the evolution of the multinational corporation under the scope of the advent of glocalization tendencies among multinational corporations. The objective has been to evaluate the pressures that the modern economy exerts on MNCs and the subsequent localization practices in its global operations.
The central advantages of localizing revolve around increased flexibility and subsequent responsiveness to each market’s conditions, potentially resulting in increased market presence; nevertheless, an approach of limited localization can enable the MNC to exploit more efficiently economies of scale.
Through the review of a brief business analysis, an interesting example of a multinational company deriving its core competitive advantage precisely on undertaking rather limited localization efforts is used to explore the issue. The MNC Ikea represents in fact, a good example on how low levels of national responsiveness (i.e. limited localization) can be an intrinsic factor for the creation of core competitive advantages for the corporation.
Such limited localization allows the MNC to develop a deeply integrated supply chain, optimizing economies of scale across functional areas such as production, distribution and marketing; all occurring under the umbrella of a renowned value-for-money brand which caters to a consistent target customer worldwide. Therefore, it can be observed that despite the substantial academic literature and present public views on the advent of localization processes undertaken by the MNCs, there is evidence on how some corporations are in fact able to growth by expressly disregarding glocalization trends.
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