Glocal strategies for global businesses using local knowledge

(The author is a Professor of Management and Economics, formerly at IIBM (RBI) Guwahati. He can be contacted at m.bibhas@gmail.com)

Dr. Boidurjo Rick Mukhopadhyay

(The author, international award-winning development and management economist, formerly a Gold Medalist in Economics at Gauhati University)

Global Businesses for a Local Market

''Today, whether we work in Düsseldorf or Dubai, Brasília or Beijing, New York or New Delhi, we are all part of a global network (real or virtual, physical or electronic) where success requires navigating through wildly different cultural realities...decoding other cultures and avoiding easy-to-fall-into cultural traps, we are easy prey to misunderstanding, needless conflict, and ultimate failure..", Erin Meyer says in his book The Culture Map: Breaking Through the Invisible Boundaries of Global Business. It would be perceived as something basic for an international business to do homework on local customs, norms, and micro-macro landscape before entering a new host country. However, several examples, including some big corporate names from Silicon Valley and also the food and beverage market amongst others have not succeeded in selected host countries.

Contextual intelligence, and why does it matter?

Context and Contextual intelligence could differentiate success and failure. Culture, for one, holds a strong influence over how leaders-followers and followers-followers interact and act together. For example, the Japanese follow the workplace mantra of Ho-Ren-So which translates to report-contact-consult. In the Japanese, it is extremely rare to find employees taking control of matters without getting prior approval from the management. In a culture where social hierarchies are of high significance and formality in communication and role-based differentiation is very much visible. Compared to a country like the US where organizations are typically flatter and have a horizontal structure where employees are encouraged to learn to be independent decision-makers in their roles. So, imagining a situation where a Japanese company is starting operations in the US or the other way around would require substantial local knowledge of customs and cultural norms before business expansion is considered in a host market.

Reading local customs and norms right while in a host country

It takes a lot more than a proper landscape analysis, identifying the right market gaps and structural organization, and coming up with unique or efficient solutions to a problem to succeed in a host market. A successful global venture also requires a higher understanding of underlying cultural norms, in addition to recognising values sourcing from politics, culture, history, the skill to read between the lines when communicating cross-culturally, and hiring host country nationals in local branches to help businesses grow. E.g., HSBC in their advert says that they have 'local branches staffed by local people' and they 'never underestimate the power of local knowledge' which goes quite well with their slogan 'The World's local Bank'. Such factors are important considerations and require significant time to research and embed in practice to fundamentally engage with a local community, while being international.

While there are several ways to enter and remain in a foreign market, one of the most advisable moves includes finding and working with an experienced local partner. This could be a local representative, agent, distributor, or negotiator. Not only the local partner is useful for market analysis but also provides critical knowledge of the local regulatory framework, accessing local business contacts and relevant government officials/chamber of commerce bodies along with the fundamental support in the local language. In a study carried out in Australia, that investigated several MNCs to learn how information barriers in a foreign market could be best overcome or mitigated, the top three suggestions were working with local customers and suppliers (58%), coordinating with other local companies (25%), and working with the Australian Government agencies (24%).

Success in markets, local or international regardless, comes from learning to know people–how they act, what they like, and how they live. Local knowledge is in context, the concept is defined by Lord and Ranft as "knowledge that is specific to a host country". The cost of not having adequate local knowledge in a foreign (i.e., host) market is a clear liability even if the international business is well-established and esteemed in its home market. Overcoming the lack of local knowledge and insight could start with foreign firms creating ownership advantage – home-based technology, production know-how, and management practices that can be transferred to host markets at low cost which could subsequently reduce their liability of foreignness. The liability of foreignness is a very important consideration for firms that are global, this basically means the additional costs that firms operating outside their home countries experience above those incurred by local firms.

Global-local and local-global knowledge transfer management

The ability to manage knowledge transfer, global-local and local-global, is an absolutely critical factor for an MNC's success story in a host market. Home country expertise being shared and practiced in a host country, and also vice versa via working with key stakeholders along with local business or joint venture partners are important contributing factors to success and building confidence in a host land. An interesting research by Yang, Mudambi, and Meyer shows that most successful MNCs tend to manage knowledge flows in multiple directions, the implication of which is that it is inevitable for global and local knowledge to come into close contact and act upon each other within these cross-border organizations. This is rather complex and very often a two-way process in order to make the system (i.e. home-host co-dependent relationship) work, e.g., local knowledge may be internally generated by the MNCs or resides in the periphery of the MNC's host country's social networks. Successful sharing of knowledge resources of the parent company from their home country and their interaction with host country operations would, therefore, ultimately determine levels of performance.

Suggestions for international businesses to get their basics right in a host country

Firstly, getting the 'cultural and cognitive' connection right is a critical factor in marketing communication and choosing the right channel in a host country. Culture affects and shapes how messages are interpreted and perceived, this could range from symbols, colours, to numbers. The marketing strategy should be sensitive to local norms in order to be effective. Being prepared ensures a certain level of success.

Secondly, product and service adaptation to local market needs and practices goes a long way. Big names like PretA Manger and Tesco did not make it work in Japan and the USA respectively. On the contrary, customizing products and making services more bespoke to suit local needs and habits could help some businesses thrive in a foreign market. E.g., McDonald's menu in China and the Middle-east that caters to extensive choices from local dietary and food preferences could help them thrive in those markets for several decades now. Similar examples from automobile, banking, and fashion industries could be found.

Thirdly, exploring and understanding the needs of new demographics to help new product lines succeed within a short period of time. This is often picked up during market research but more attention to where newer needs is sourcing from and thereby providing solutions unique to specific markets could lead to success stories. Partnerships and coordination with local businesses for innovative solutions create new opportunities for the future in host countries. Walmart, for example, claims that as they internationalize into a new host country, they increase their purchases from local suppliers and also help the latter to achieve high standards of efficiency, thereby boosting the productivity of local businesses. There can consequently be spill-over effects also known as "demonstration effect," in which local firms in host countries imitate foreign technologies and best practices either through observation or by hiring workers trained by the firm. Employees who have received training from MNCs could also take their knowledge and expertise to existing local firms, or can develop start-ups.

The suggestions are certainly not exhaustive. Planning and executing smart strategies to the circumstances of specific markets can determine levels of success. From smart market entry moves and subsequent expansion, local talent acquisition, marketing communication that aligns the 'cultural and cognitive' connection, effectively managing local-global and global-local knowledge transfer, and bespoke product and service adaptation all contribute to an international business' successful navigation in a local market.