Chapter 13 Localization Strategies: Managing Stakeholders and Supply Chains

1. Chapter 13Localization Strategies: Managing Stakeholders and Supply Chains John S. Hill

2. Chapter Outline • The Importance of Localization Strategies • Managing Local Stakeholder Relations • Supply Chain Management • Managing Local Supply Chains: Management and Human Resource Issues

3. Introduction • The Need for Insider/Localization Strategies: usually essential as ‘guests’, ambassadors and competitive advantages • Necessary because of slow diffusions of technologies; xenophobia, insider contacts, cultural dissimilarities and dislike of westernization • Less important for exporters; essential for in-market investors

4. Managing Local Stakeholder Relations • Building Government Relations • Job Creation and Technology Transfer Programs • Producing for the local market • Establishing relationships with local educational institutions • Appointing local boards of directors to oversee national operations • Corporate philanthropy programs • Establishing strong corporate identities • Consistency, longevity, and commitment to local markets

5. Managing Local Stakeholder Relations • Building Business Community Relations: for supply chains, local contracts • Environmental Groups: De-forestation, pollution and recycling issues • Consumerism: Organizations in developed markets; controversies over genetically-modified foods; inexperienced consumers • Public Relations and the Press: proactive PR to promote positives; avoid negative press

6. Supply Chain Management • The Benefits • Local raw material sources and component suppliers often cheaper and better • Corporate learning aids innovation • Marketing strategy localization to counter strong national cultures & anti-western biases; good for competitive advantages

7. Supply Chain Management • Supplier Management • Control issues and subcontracted foreign production: exploitation issues (child, low wages, health, safety concerns) • In-country supply chain management • Financing concerns: investments often necessary • Quality standards to maintain • Establishing supply chain disciplines, especially for JIT • Establishing global standards of manufacture • Geographic and physical infrastructure obstacles • Patience required

8. Supply Chain Management • Managing Local Manufacturing Operations • Elevated cost structure: government taxes; unexpected infrastructure costs • Education / labor availability: educational infrastructures—schools, technical • Labor laws: hours, pay, safety, benefits • Employee recruitment and selection: can be problematic especially in developing markets • Appropriate manufacturing technologies: not always the latest and best • Factory discipline: turnover, absenteeism • Maintaining production efficiency levels: suppliers, infrastructure, work ethic problems

9. Localizing Marketing Operations: Multinational Strategies • Target Markets • Income differences: lower purchasing power in developing markets • Educational levels: matching product complexity with consumer sophistication • Geographic differences: regional tastes variable DCs and LDCs • Religious differences: often crucial in Middle East and Asia • Customer purchasing differences: cars and refrigerators; one-stop versus daily shopping • Urban-rural differences: magnified in developing markets

10. Localizing Marketing Operations: Multinational Strategies • Product Strategy • Product mix decisions: product transfers much used; custom-build products; acquisitions inherit local lines • Product adaptation strategies: Either minimal to preserve brand images; or extensive to give local appeal

11. Product adaptation strategies Measurement units (metric) Package size: smaller or larger sizes Package appearance: colors Ingredients change: cheaper and/or better Usage instructions: customer sophistication Labeling: legal requirements Packaging protection: shelf life; recycling Product features: same or different emphasis Product warranties: legal requirements and service centers Brand name changes: local meaning/appeal Localizing Marketing Operations: Multinational Strategies

12. Localizing Marketing Operations: Multinational Strategies • Advertising Adaptations • Legal problems: consumer protection; false claims • Consumer education differences: literacy, cultural differences • Target market changes: product positioning • Non-meaningful message contexts: major cultural differences & consumer sophistication • Greater consumer impacts: message presentation • Cultural differences: personal products; sensitive cultures • Media availability and popularity: legal/cultural restrictions

13. Localizing Marketing Operations: Multinational Strategies • Sales Promotion Adaptations • Western Europe and Germany: restrictive • Major Latin American markets: permissive but effectiveness of SP methods variable • Worldwide: legal restrictions and requirements need special attention

14. Localizing Marketing Operations: Multinational Strategies • Adapting Sales Management Practices • Effects of geography and market potential on sales force structure: sales force specialization • Ethnic divisions: language skills & local contacts • National education systems: elite graduates and business educations • National legislation on compensation packages: government payroll requirements; perks • Social status influences: respect for managers • Cultural contexts: Respectful presentations and relationship building with clients

15. Localizing Marketing Operations: Multinational Strategies • Distribution, Logistics, and Transportation • Latin American distribution: dominated by size, climate and topography; improvements through infrastructure privatization; foreign logistics firms; international retailers and global firms • Eastern European distribution: geography/size dominant; modern distribution in west and more traditional and fragmented in the east -Tough to build corporate distribution in the east; reliance on local partners to solve bureaucracy, corruption problems and provide local contacts and support

16. Localizing Marketing Operations: Multinational Strategies • Asian distribution: Pacific Ocean imposes geographic/coordination challenges; many carriers often necessary -Urban-rural differences problematic in major developing markets; urban efficiencies versus rural fragmentation; but distribution the key to rural markets: (India 700 m.; China 900 m.) • African distribution: Urban-rural differences dominant; modern urban shopping versus rural bazaars, markets

17. Localizing Marketing Operations: Multinational Strategies • Pricing • Export pricing: additional packaging, transportation, import charges add 10-50% onto landed prices; little control over final prices • In-market pricing strategies: developed markets price-competitive; Euro sharpens price competition in the EU • Less competitive in developing markets where stability/employment issues take precedence; and distribution is more traditional; rural markets haggling is customary

18. Management and Human Resource Issues • Management Styles • Traditional management styles: output-oriented, autocratic; lifetime employment; loyalty, seniority • Modern management styles: profit-oriented, participative, but people regarded as costs, not assets • North American management styles: modern—self-reliance, individuality, shapers of future, competitive and merit-oriented • Western European management styles: stakeholder capitalism • French: elitest, intellectual, company-oriented training • German: numerate, lifelong employment, collegial but hierarchical/formal

19. Management and Human Resource Issues Management Styles • UK, Dutch and Scandinavian: more shareholder-oriented; autocratic/participative mix; pragmatic • Latin American: autocratic (patron); loyalty; respect; changing as educational opportunities increase • Asian: employment-oriented, consensus decision-making; seniority, generalists, lifetime employment-oriented

20. Management and Human Resource Issues • Management Styles • Indian: hierarchical (caste history); family-oriented, some fatalism • Eastern European: autocratic, output-oriented, management-labor distrust; management education problems; changing as western influences spread • African management styles: “Ubuntu”: collectivist-oriented; less profit orientation; consensus decision-making

21. Management and Human Resource Issues • Management—Worker Relations • Economic and political system differences: Capitalist systems; labor as an expense—downsizings Western Europe: welfare and employment protection systems cushion labor Developing nations: provision of welfare systems to replace extended families and lifetime employment (‘iron rice bowl’ in Asia) • Social and cultural differences Social class distinctions (blue-white collar jobs) present in many nations Collectivist orientations/paternalistic management protects labor (Asia)

22. Management and Human Resource Issues • Education and labor market differences: Developing nation educational infrastructures must keep pace with industrialization to attract high tech industries Loss of unskilled (and some skilled) jobs in developed markets to developing countries problematic—protectionism and labor skill upgrades the answer? • Legal factors: National labor laws cover wages levels, discrimination, benefits, terminations, trade union status, health/safety issues Constant battles between labor groups to enhance laws and business groups to cut them back

23. Key Points • Managing local market stakeholders: government, press • Supply chain localization benefits • Supplier management: control, financing, disciplines • Local manufacturing systems: costs, labor supply and laws • Multinational marketing strategies: target markets, products, promotions, distribution & pricing • Management styles: regional variations • Management-worker relations: political, economic, cultural, educational, legal factors