Localization Essay

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Localization  is an  international strategy  that  some companies pursue in their international business operations.  Companies  pursuing  localization  try to modify their products  and services so that products have  local  features  demanded   by local  consumers and are suitable to laws and standards. The modifications needed to localize products  can be as simple as translating  the labels to the local language or can be as complex as changing and adding many features to the product.  In short,  a localized product  has local features  and  looks. Localization  is sometimes  used interchangeably   with  adaptation,   local  adaptation, and local responsiveness. The opposite of localization is internationalization or global integration that refers to the efforts of companies to standardize their operations to capitalize on similarities across foreign markets. Therefore, localization  is important for global business as it is one major strategy used in international operations.

Localization is a part of the integration–local responsiveness debate. The integration or global integration strategy is based on achieving efficiency and synergy by coordinating, integrating, and standardizing operations  and products  across foreign markets. Therefore, companies pursuing the global integration strategy  expect to increase  their  performance  capitalizing  on  coordination and  integration.  However, the local responsiveness or localization strategy (also called multidomestic  or  multilocal  strategy)  argues that markets differ and products  should be localized rather  than  standardized  to better  serve local consumers and meet the local demand.

Localization or multifocal strategy has various advantages. Localized products may better serve local consumers. The headquarters will not be busy thinking about  what needs to be done  in individual foreign markets. In case of lack of experience in foreign markets,  local managers  can make better  decisions. As well, localization is an opportunity to analyze the foreign market  through  different ways of producing and marketing  products.  Successful products  developed  and  produced   for  foreign  markets  can  also have potential  in the domestic market  as new products. Despite these advantages, localization has various disadvantages as well. Conflicts may arise when local divisions formulate  their  own  vision, culture, and way of doing business that  may not be suitable to headquarters. The localization approach also lacks coordination and synergy among individual markets as affiliates are not much  encouraged  to share their knowledge and experience. This situation  may cause duplication   of  activities  and  reductions   in  economies  of scale. For  example,  affiliates can  have  the same production system for the same tasks, causing increases in production costs. Lack of coordination may also prevent  knowledge transfer  and may even cause competition  among affiliates. In sum, although localization provides opportunities to better meet the local demand, it can cause inefficient manufacturing, duplication of resources, and thus cost increases.

Why do companies  localize their offerings? Environmental,  structural,  and organizational factors can affect localization  decisions.  When  the  local business environment and culture is complex and different, localization  is needed.  For example, there  may be differences in terms of payments, price sensitivity, marketing practices, and distribution.  Therefore, foreign companies need to modify their practices to suit these local practices. In addition,  structural  factors, for example,  competition  and  demand  characteristics, may also necessitate  localization. Last, companies have different  goals, policies, and  orientations toward  doing  business.  Some  companies  can  have a long-term  orientation toward  the foreign markets whereas others have short term. Long-term  orientation requires  a better  understanding of and offering to the local market; localization is a good strategy to achieve this.

Some products  are more  suitable  to  localization than to standardization. However, even standardized products  such as medicine  are somewhat  localized. For example, the  same medicine  to cure  heartburn is sold for US$185 in the United States, whereas it is around  US$40 in Mexico and Turkey. However, the medicine is sold as capsules in the United States but as tablets in Mexico and Turkey. This is an example of localization with respect to price and form of the product.  Some other  examples of localization are as follows: Wal-Mart  in Mexico localized their  operations  by adjusting  working  hours,  human  resource management   policy, product  breadth,  and  marketing programs to better serve Mexican consumers. Products  like food and clothing are very suitable for localization,  as modifications  are  highly needed  in such products. Electronics and other high-tech products tend  to be standardized.  Nevertheless,  we also see localizations in such products.  Refrigerators, for example, are highly localized to meet different market needs. In Spain, meat capacity is important, whereas in France vegetable and fruit capacity is important; in the United States, refrigerators are generally larger since consumers  generally shop weekly for groceries rather than daily as done, for example, in Turkey.

In conclusion, localization is an international business  strategy  whose  argument   is  that   companies should  localize or modify their  offerings according to local tastes, preferences, and needs because markets are different in terms of consumer  behavior characteristics,  laws and regulations, socioeconomic conditions,  economic, institutional,  and competitive environments.

Bibliography: 

  1. T. Cavusgil, G. Knight, and J. R. Riesenberger, International  Business, Strategy, Management, and the New Realities (Prentice Hall, 2008);
  2. Esselink, A Practical Guide to Localization (John Benjamins, 2000);
  3. Hines, Localization: A Global Manifesto (Stylus, 2000);
  4. Luo, “Determinants of Local Responsiveness: Perspectives From Foreign Subsidiaries in an Emerging Market,” Journal of Management  (v.27/4, 2001);
  5. K. Prahalad and Y. Doz, The Multinational Mission: Balancing Local Demands and Global Vision (Free Press, 1987);
  6. Darrell K. Rigby and Vijay Vishwanath, “Localization: The Revolution  in Consumer Markets,” Harvard Business Review (v.84/4, 2006);
  7. Roth and A. J. Morrison, “An Empirical Analysis of the Integration-Responsiveness Framework in Global Industries,” Journal of International Business Studies (v.21/4, 2002).

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