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How do you balance global and local?

Some strategists have pointed out that very few companies truly have a global strategy in the sense that they are present equally in all markets around the world. The facts show that many companies, including many leading multinationals, have a distinctive presence in certain parts of the world and are under-represented in other places. [For the evidence, see the work of Ghemawat, Rugman and Verbaeke.]

Cadbury, AgraFor example, the confectionery company Cadbury may be regarded as a global brand, but in practice it is particularly strong in British Commonwealth Countries: for example, Cadbury’s wall advertising in Agra, India.

By contrast, the confectionery world market leader – Mars Wrigley – has a strong presence in North America, but is weaker in Scandinavia and parts of Asia and South America.

If many companies have particular areas of geographical strength, then it follows that they need to consider different strategies for different parts of the world: strategies for where they are strong and different approaches where they are weak or non-existent.

Even in countries where companies are strong, it may be essential to adapt the product for local variations. Any such adaptation will add to the costs of producing the product (or service) and will detract from the economies of scale and scope that would otherwise be present.

But some adaptation may be essential: for example, to conform with national laws or to adapt to local tastes. This issue in global strategy is called balancing global and local strategies.

There are some basic principles that will clarify the balance, essentially centering on the degree to which standardisation of the product or service is possible. The underpinning assumption is that standardisation brings the basic benefits of globalization outlined earlier.

For standardisation:

  • Economies of scope and scale in production and R&D
  • Savings in marketing, production sourcing and other cost areas
  • Lower inventory and more rapid response to spare parts servicing
  • Common training standards and operating procedures
  • High technical specifications more easily satisfied

For customisation:

  • Varying customer needs and sophistication
  • Differing conditions of usage, e.g. climate
  • High skills levels in local country to make changes
  • Government requirements

In part, the resulting balance will depend on the product category – the issues in confectionery are different from those in civil aircraft manufacture – and also the company’s resources to cope with any such variation. Essentially, some product categories lend themselves to total global standardisation, while others need significant local variation – perhaps even no standardisation whatsoever.

Arguably, the word ‘balance’ is misleading because some companies will wish to develop strategies that both obtain the benefits of global activity while at the same time needing to adapt to local markets. Such companies will want to be both global and local. This approach can be seen in the matrix of the well-known strategists Gary Hamel and Yves Doz shown below:

Matrix-global-local

And here are some examples of each of the four categories:

Examples-categories

The above matrix shows that the balance between global and local will depend on the strategic context of the specific company, its competitors, history and resources.

Once this balance has been identified, then companies will need to examine the consequences for their particular products and services.

To provide a practical illustration of what this means, the following film explores how McDonalds Restaurants has tackled global and local matters. It’s worth recalling the guidance above that the McDonalds global and local strategy decision is strongly related to its product category – fast food. In addition, McDonalds has been building its global operations for many years: these strategies take time to develop fully.

Finally, I am fully aware that McDonalds has not always had the best publicity over the last few years: complaints about wasteful packaging, highly calorific and fatty meals, etc. But the company still remains the world’s leading restaurant chain for good reasons: it delivers exceptional value-for-money, branded fast food to a world-wide customer base. People like McDonalds.

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