Localization

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 multilocal 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, [Page 1024]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.

This Wal-Mart store in Mexico City was selling a variety of locally adapted and nonadapted products in 2007.

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.

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