Serbian Serbian Journal of Management 1 (1) (2006) 21 - 28 Journal of Management www.sjm.tf.bor.ac.yu

REASSESSING THE “THINK GLOBAL, ACT LOCAL” MANDATE: EVALUATION AND SYNTHESIS

John Parnell*

School of Business Administration, University of North Carolina - Pembroke Pembroke, NC 28372, USA

(Received 09 January 2006; accepted 28 February 2006)

Abstract

There is no simple formula for developing and implementing successful business strategies across national borders. A popular approach to this challenge is to “think global, act local.” Some argue, however, that maximum consistency across global markets is critical, citing examples such as Coca- Cola, whose emphasis on quality, brand recognition, and a small world theme has been successful in a number of global markets. Although there is wisdom in both views, this paper argues that the two are not necessarily mutually exclusive, and that firms should adopt a perspective that adopts and bal- ances both perspectives simultaneously.

Keywords: Globalization, localization, emerging economies, think global, act local.

1. INTRODUCTION field, and there is evidence to suggest that it is well grounded in theory and practice. A popular approach to global strategy, or Although this oft-repeated advice appears any international endeavor for that matter, is to be intuitively appealing, its application is to “think global, act local.” Specifically, a bit more complex, now more than ever. business leaders are urged to incorporate a Specifically, while few scholars and execu- global perspective on their organizations, tives would question the idea that firms while tailoring their actions to the local envi- should “think globally,” the interpretation, ronments in which they operate. This view wisdom and action associated with the sec- has been widely accepted by most in the ond part of the advice—“act locally”—is not

* Corresponding author: [email protected] 22 J. Parnell/ SJM 1 (1) (2006) 21-28 always clear [16,28]. The following discus- cycle of products whose domestic markets sion revisits the concepts of globalization may be declining, as U.S. cigarette manufac- and localization and offers an integrated per- turers did in the 1990s. Establishing facilities spective for synthesizing the two. abroad can also help a firm benefit from comparative advantage, the difference in 2. THINKING GLOBAL resources among nations that provide cost advantages for the production of some but What does it mean to “think global?” not all goods in a given country. For exam- Even today, scholars continue to debate the ple, athletic shoes tend to be produced most meaning of the term. Globalization can be efficiently in parts of Asia where rubber is viewed an intensification of world con- plentiful and labor is less costly. A global ori- sciousness where mass communication has entation can also lessen risk because demand the potential to break down national borders and competitive factors tend to vary among to better satisfy the needs of consumers, mar- nations. There are a number of factors to kets, and organizations [16,27]. It is the consider, including the similarity of cus- process that pertains to changes in economic tomer needs abroad to those in the firm’s and political spheres that bring the world domestic market, differences in production together [12]. The key is that it does not and distribution costs, and regulatory and occur in a vacuum; As Kefalas [16] put it, tariff concerns. technology makes globalization feasible, A global orientation brings about three while political and economic liberalization key advantages for firms adopting a global make it happen. While few contest the legit- perspective, the first of which centers around imacy of the globalization phenomenon, the economic concerns. The multinational cor- extent to which it has occured is widely poration (MNC)—contrasted with a firm debated [14,17]. operating only in domestic markets—can For clarification, it is appropriate to dis- increase production levels, thereby fostering tinguish between thought and action. A firm standardization and economies of scale whose managers “think” at the global level [9,36]. When a firm produces more, it may may “act” at either the global level or at the also enjoy greater efficiencies in marketing local level. “Thinking global”—a global ori- and distribution, a phenomenon known as entation, mindset, or philosophy—suggests economies of (global) scope. The importance that a firm actively considers opportunities of scope economies relative to scale for engagement beyond the borders of its economies has increased in recent years [13]. host country. “Acting” refers to how a firm The second advantage of globalization is approaches the implementation of activities related to cultural change. Global media and beyond its borders. The notion of “thinking” the pervasiveness of the Internet have creat- is addressed in this section, whereas “action” ed a global consumer culture, one where dis- is deferred to the following section. tinct localized preferences for particular Firms shift from a domestic mindset to a goods and services have been replaced by global mindset for numerous reasons. higher quality and cheaper offerings bearing Pursuing global markets can reduce per-unit global brands [24]. This shift has enabled production costs by increasing volume. A firms to address the needs of customers in global strategy can extend the product life different markets with common products, J. Parnell/ SJM 1 (1) (2006) 21-28 23 services, and marketing approaches. Because at an unprecedented rate. Many American consumers are more familiar with the prod- franchises can be seen throughout the most ucts and services available in other countries, developed parts of the nation [29]. they are likely to be more open to uniform At present, China remains a mix of the offerings, as opposed to those tailored to the traditional lifestyle based on tenets of social- specific needs of a given locale. ism and its own form of a neo-Western eco- Third, a globalization perspective can also nomic development. Nowhere is this friction foster growth outside of a firm’s host coun- seen best than on the roads of the capital, try. Given the intense competition in most Beijing, where crowds of attempt to markets in the developed world, organiza- negotiate traffic with buses and a rapidly tions seeking to grow must remain abreast of increasing number of personal automobiles. opportunities that may exist, especially in Western-style traffic reports have even emerging economies. “Thinking global” become pervasive in a country where the enables a firm to seek out and recognize and world’s largest automakers are fighting for a pursue such opportunities with greater effec- stake in what many experts believe will be a tiveness [9,20]. consumer automobile growth phase of mam- Consider the cases of two emerging moth proportions [7,18]. Now more than economies, India and China. India has ever, large Chinese cities are resembling enjoyed considerable growth in recent years. their counterparts in other parts of the world. A number of firms in the and Western manufacturers such as Eastman Europe have outsourced jobs in technical Kodak, Proctor & Gamble, Group Danone of areas to India where trained workers are , and Siemens AG of Germany have available at considerably lower wages. already established a strong presence in Economic liberalization in the country has China. A number of Western restaurants and invited additional foreign investment as well. retailers have also begun to expand aggres- India’s Tata Motors has helped overcome the sively into China, including U.S.-based country’s reputation for poor production McDonald’s, Popeye’s Chicken, and Wal- quality by exporting an estimated 20,000 Mart [6]. It would be an overstatement to CityRovers to the annually suggest that emerging economies offer only since 2004 [15,33,35]. India’s development advantages for entering firms, especially in has created an environment conducive to the long run. For example, after sales of cars entry by global firms from other parts of Asia in China skyrocketed in the late 1990s and and the rest of the world. early 2000s, the automobile industry there India, however, has received only a small began to experience many of the problems fraction of the level of foreign investment common to producers in other parts of the made in China, which boasts the world’s world: excess capacity, intense price compe- largest population and has been tabbed as a tition, and declining profits. Nonetheless, the world economic power within the next few attractiveness of involvement in such mar- decades. China’s entrance into the World kets remains high, as Daimler-Chrysler and Trade Organization, declining import tariffs, Honda plan to build inexpensive cars in and increasing consumer incomes suggest a China and export them to the U.S. and other bright economic future for the nation, and Western countries in the late 2000s [3]. Western companies are expanding into China Consider the case of GM. In 2005, the 24 J. Parnell/ SJM 1 (1) (2006) 21-28 carmaker produced a record number of vehi- are too costly for the firm. Even differences cles in China—about 665,000—accounting in the availability of ingredients or prefer- for 25 percent of the firm’s global profit. ences for styles or flavors associated with the During the same year, however, GM’s mar- firm can create roadblocks [2]. Hence, “act- ket share in the United States declined by 10 ing local” is all that is required for organiza- percent as Asian rivals led by Toyota tions whose strategies suggest that managers increased their collective share from 34.5 to “think local.” For a firm operating across 36.5 percent [4]. Hence, the growth borders, localization suggests that strategies prospects available abroad can be critical to reflect a strong effort to tailor firm activities a firm struggling to maintain competitive- to the specific needs of each location. ness in its host country. In contrast, a firm can “act global” by For many firms, the most attractive adopting a global perspective on strategy. A prospects for expansion lie in emerging number of scholars and practitioners have economies like India, China, Malaysia, argued for such an approach. Levitt [19], Brazil, and Mexico [6,30]. Such markets rep- Ohmae [23], and others have long contended resent the potential for growth that simply that international firms can only survive if does not always exist is highly competitive they develop global strategies that reflect the domestic markets. In this regard, a global growing similarities across disparate mar- perspective can enable a firm to pursue one kets. Such firms typically have direct invest- of its great mandates. ments and interdependent subdivisions In sum, the arguments for a global mind- abroad. For example, some of Caterpillar’s set are convincing and clear for most firms. subsidiaries produce components in different How such an orientation should be put into countries, while other subsidiaries assemble action, however, is subject to debate and is these components, and still other units sell addressed in the following section. the finished products. As a result, Caterpillar has achieved a low-cost position by produc- ing its own heavy components for its large 3. ACTING LOCAL global market. If its various subsidiaries operated independently and produced only Localization implies that a firm gives its for their individual regional markets, primary attention to issues at the local level. Caterpillar would be unable to realize these For a domestic firm, this simply means that vast economies of scale and enjoy the bene- its managers are concerned only with domes- fits of a global strategy. tic issues and do not actively entertain activ- What does it mean to “act local” within ities outside of the host country. Indeed, the context of globalization? To address this globalization may not be appropriate for question, three key arguments for a local per- every firm. Demand for the firm’s products spective are presented. First, strict localiza- or services may not be sufficient to justify tion can be all that is necessary for a firm to global expansion. Rivals in other countries enjoy the benefits of activity outside of its may already be serving the relevant markets host country. Moving outside the domestic effectively in those locales. Channel com- market, some companies choose to limit plexities abroad may necessitate packaging, their involvement to importing, exporting, manufacturing, or distribution changes that licensing, or strategic alliances. International J. Parnell/ SJM 1 (1) (2006) 21-28 25 joint ventures—a form of strategic alliance assumes that doing so is feasible. Some of involving cooperative arrangements between the complexities associated with adopting a businesses across borders—may be desirable global perspective are illustrated by even when resources for a direct investment Kellogg’s production dilemma in Europe. are available. Firms limiting the involvement Some countries appreciate the vitamin forti- outside their borders to such activities are fication in Corn Flakes common in Kellogg’s localizing their strategic orientation. host country, the United States. , International strategic alliances provide a however, does not want vitamins added to number of advantages to a firm. They can cereal for fear that some might exceed rec- provide entry into a global market, access to ommended daily doses. Officials in the the partner’s knowledge about the foreign do not believe Vitamin D or market, and risk sharing with the partner folic acid is beneficial, but the Finns like firm. They can work effectively when part- more Vitamin D to make up for sun depriva- ners can learn from each other, when neither tion. As a result, Kellogg plants in England partner is large enough to function alone, and and Germany have produced four different when both partners share common strategic varieties of Corn Flakes since 1997 to meet goals but are not in direct competition. Of the differences in demand throughout the course, a number of problems can arise from European Union [32]. international joint ventures, including dis- In fairness, however, it should be putes and lack of trust over proprietary acknowledged that a localization strategy knowledge, cultural differences between also has its challenges. Tailoring a business firms, and disputes over ways to share the strategy to meet the unique demands of a dif- costs and revenues associated with the part- ferent market requires that top managers nership. Nonetheless, international joint ven- understand the similarities and differences tures enable the firm to localize its activities between the markets from both industry and by leveraging the local experience and capa- cultural perspectives [1,8,20,31]. This can be bilities of its partner. difficult, as a revisit to China as an example Second, because most business activity by illustrates. When a Western firm seeks to large firms takes place in regional blocks, conduct business with one of its Chinese global markets may not be as homogenized counterparts, managers from both firms must as some might contend [28]. Such regional recognize the cultural differences between blocs are found in the European Union, part the two nations. Recently, a number of con- of Asia, and the Americas. Outside of a few sulting and management development organ- select industries such as consumer electron- izations in both China and the West have ics, most manufacturing and service indus- been busy training managers to become tries are not globally integrated. Automobiles aware of such differences and take action to are regionalized, for example, with firms minimize misunderstandings that can arise producing different vehicles for various from them. For example, Chinese managers regions of the world. are more likely than Americans to smoke Third, a global strategy can be difficult to during meetings and less likely to answer e- implement, especially in some industries. mail from international partners. In the The idea that firms should attempt to imple- United States, it is more common to empha- ment a consistent strategy across borders size subordinate contributions to solving 26 J. Parnell/ SJM 1 (1) (2006) 21-28 problems, whereas Chinese managers are Because “diet” has feminine connotations in more likely to respect the judgment of their Europe and parts of Asia, “Diet Coke” goes superiors without subordinate involvement by “Coca-Cola Light” [2]. Beyond these [10]. minor culture- and language-based distinc- Consider also that French-based tions, one must consider when more substan- Carrefour has been one of the most success- tive differences are appropriate. ful retailers in China with approximately 60 A brief consideration of business history stores there. Product mixes in the Chinese is also germane. When most Western compa- stores tend to be similar to those in the nies first left their host countries to explore domestic market, but with key adjustments opportunities abroad last century, their made at individual stores for local prefer- strategies emphasized differences among ences. Even within a nation, strategies are markets. Hence, a firm achieved success by often localized to address the diverse needs thinking globally, but acting at local levels. of various groups, as Proctor & Gamble does Given recent political, economic, and cultur- in China [11]. al changes, however, it can be argued today In sum, arguments for both global and that in a global marketplace every aspect of a local strategic approaches have merit. successful strategy must be global. Resolving this conundrum is addressed in the McDonald’s and Coca-Cola, for example, following section. have successfully produced and marketed their products in a relatively uniform fashion across borders with some minor accommo- 5. ACHIEVING A SYNTHESIS dations [37]. Carlsberg beer is brewed and marketed uniformly in 31 countries26]. Following the “think globally, act locally” Hollywood movies dominate the entertain- logic, a business organization would empha- ment landscape worldwide, yet they are not size the synergy created by serving multiple changed for local audiences, except for lan- markets globally, but formulate a distinct guage considerations [24]. competitive strategy for each specific market From an advertising perspective, the that is tailored to its unique situation. Indeed, debate over whether global advertising to some extent, actions that reflects both efforts should be standardized or localized globalization and localization may be preva- has gone on for more than four decades lent with most multinationals. The core ques- [21,25]. Although anecdotal evidence can be tion at the strategy or action level is not one assembled to fortify both positions, the of either globalization or localization—or empirical evidence required to resolve the even the ostensible compromise position of debate is insufficient. Some have suggested regionalization—but one of how to balance that the two perspectives are not mutually or synthesize the two alleged extremes. exclusive, and that advertising campaigns From a theoretical standpoint, absolute can be both global and local at the same time. consistency across markets would be most A so-called “glocal” approach is character- desirable. At a minimum, some practical ized by universal appeals and an internation- compromises are often required, however. al backdrop, blended with local rele- Danone Yogurt in France goes by the angli- vance[25,34]. This logic can be extended to cized “Dannon” name in the United States. the entire global-local debate. J. Parnell/ SJM 1 (1) (2006) 21-28 27 What is needed is not a compromise uniformity across borders. Aside from some between global and local action perspectives, minor differences in product lines, the but an understanding that both must be cher- restaurants look and feel the same from one ished simultaneously. Such a perspective is location to another. not new, however. Indeed, at a lower level of KFC, on the other hand, has also enjoyed abstraction, firms have synthesized different success, but through greater localization, levels of geographical variance for years. In modifying its recipe for chicken and even the United States, most firms in the twentieth selling fish sandwiches in China, Malaysia, century balanced the need for common and other locales. As KFC Holdings branding with that of local preferences. Soft (Malaysia) chief operating officer Toh Chun drink manufacturers, for example, market Wah put it, “As much as our customers love and distribute beverages based on local our chicken products, they also want a tastes, with Mountain Dew heavily promoted greater variety of meat products at KFC. Our in southern states and Dr. Pepper a favorite in market surveys show that our customers parts of the Southwest. The movement to want more than just tasty, high quality and standardize and create family brands has affordable chicken but are also constantly on occurred, but not all firms have seen the need the lookout for new and interesting things to for uniformity in all respects. Even today, eat” [22]. Hence, the process for synthesiz- Hellman’s mayonnaise is still known as Best ing the realities of globalization and localiza- Foods west of the Rocky Mountains. tion into a successful strategy can differ, Putting such a synthesis into action is the even for similar organizations. difficult part of the equation. How a manag- In conclusion, perhaps scholars should er integrates the two perspectives ultimately reconsider the questions they are asking depends on the unique characteristics of the when assessing the “think global, act local” firm and industry. Creating a successful vehi- phenomenon. Instead of attempting to deter- cle depends heavily on local factors, such as mine whether global, regional, or local style preferences, width of roads, level of action is appropriate, greater emphasis could disposable income, price of fuel, and the like. be placed on identifying which and how Creating a successful ballpoint pen is less organizational, industrial, and environmental dependent on regional differences, and a factors should be evaluated when seeking to one-size-fits-all approach that maximizes balance the global-local perspectives at the standardization and economies of scale is firm level. Such efforts can assist organiza- more appropriate. tions in developing their own perspectives on Perhaps the main problem is that most a challenge central to their strategic success. firms do not produce ballpoint pens. Rather, their arrays of products and services are not References conducive to a simple approach for synthe- sizing the perspectives. Consider that two 1. 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