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Mix globalization and localization: experts

by Takashi Kitazume

Companies in advanced economies need to work out new management strategies on globalization, especially as emerging markets account for an increasing portion of worldwide demand, Japanese and German scholars and business executives told a recent symposium in Tokyo.

They were speaking at a symposium jointly organized Feb. 22 by the Keizai Koho Center and the Konrad Adenauer Foundation under the theme, “Corporate strategy in times of globalization.”

In a “semi-globalized” business environment, where the world’s economic conditions are still not entirely “flat” but have only been partially globalized, companies will need to combine standardization — pursuing a globally-unified process and economies of scale — with localization — responding flexibly to the needs of each local market and decentralizing decision-making, said Shigeru Asaba, a professor at Gakushuin University.

A typical theory of management strategy in Japan in recent years, Asaba said, is that given the shrinking domestic market due to a graying population, Japanese firms with advanced technology, products and business models should aggressively target the expanding markets in the emerging economies.

In a globalization approach, this theory dictates that Japanese firms with the technological edge should target, for example, social infrastructure demand in those economies, while the localization approach tells the Japanese manufacturers to develop consumer goods tailored to local market needs, the professor said.

However, Japanese companies have faced severe challenges on both fronts, he said. Since last year, Japanese firms have lost out to overseas competitors in the bidding for many of the infrastructure building projects in Asian and Mideast countries, Asaba pointed out.

While some have blamed the lack of governmental support for the failures, the truth is that the Japanese companies are up against U.S. and European multinational giants, as well as increasingly competitive rivals from the emerging economies, Asaba said.

Many of the Japanese manufacturers targeting consumers in the emerging markets are also finding it tough to develop products that suit the local needs, the professor noted. Here again, they are exposed to competition with Western multinational giants as well as the local manufacturers that better understand the demands of local consumers, he said.

What is needed, Asaba said, is an evolution of the management model in ways that combine the globalization and localization approaches, so that the marketing knowhow as well as low-cost technologies and products developed in certain local markets can be transferred to the company’s headquarters and then shared in its global operations.

Herbert Hemming, executive vice president of Bosch Corporation Japan, noted how emerging economies account for a growing portion of the German group’s worldwide business.

China replaced Japan as the world’s second-largest economy in 2010, and developing countries combined accounted for 47 percent of the world’s total GDP based on purchasing power parity, Hemming said.

These markets require different approaches because the price level in the mid-price segment is substantially lower than in the advanced economies, Hemming said. “Affordable level is the key, unless you are seeking niche markets,” he said.

Gunnar Geyer, CEO of the Hamburg Institute of International Economics, discussed some examples of successes and failures of German industries and companies in emerging markets.

He noted how in 2010 the German auto industry produced more cars abroad than at home for the first time ever — in ways that increased both overseas and domestic output. Meanwhile, the withdrawal of plush toy maker Margarete Steiff GmbH from its engagement in China — where it was difficult to find local firms that match the German maker’s high-quality standards — was a “bad experience of globalization,” he said.

Takashi Shimakawa, a senior official of Kawasaki Heavy Industries Ltd’s plant and infrastructure company, and Martin Pohl, associate professor at University of Tsukuba, also took part in the symposium.