Think local, act global: a new challenge for SMEs

Posted on Feb 12, 2014 in tips and tricks, Uncategorized

“The original phrase “Think global, act local” has been attributed to Scots town planner and social activist Patrick Geddes. Although the exact phrase does not appear in Geddes’ 1915 book “Cities in Evolution,” the idea (as applied to city planning) is clearly evident:
‘Local character’ is thus no mere accidental old-world quaintness, as its mimics think and say. It is attained only in course of adequate grasp and treatment of the whole environment, and in active sympathy with the essential and characteristic life of the place concerned.” Patrick Geddes, was a Scottish biologist, sociologist, philanthropist and pioneering town planner. He was also responsible for introducing the concept of “region” to architecture and planning. He has made significant contributions to the consideration of the environment. Geddes believed in working with the environment, versus working against it. (Wikipedia)

But the sentence became popular in the Business Community in the early nineties when it characterised the leadership of ABB CEO, Percy Barnevik and progressively shaped the governance of most of the multinational companies all over the world.

In a famous interview published on the Harvard Business Review in March 1991 he declared: “ABB is a company with no geographic center, no national ax to grind. We are a federation of national companies with a global coordination center. Are we a Swiss company? Our head- quarters is in Zurich, but only 100 professionals work at headquarters and we will not increase that number. Are we a Swedish company? I’m the CEO, and I was born and educated in Sweden. But our headquarters is not in Sweden, and only two of the eight members of our board of directors are Swedes. Perhaps we are an American company. We report our financial results in U.S. dollars, and English is ABB’s official language. We conduct all high-level meetings in English.”
Most of the multinational companies have developed according the same principles moving even further in the direction of “Think local and act global”, meaning that not only sales and production have become local but also marketing and R&D in order to really capture customers needs.

“Even companies with big brands need to tailor for specific markets. Coca-Cola in Mexico has a different formulation from that sold in the USA. McDonald’s signature dish in India is the Chicken Maharaja Mac rather than the beef based Big Mac popular in most other markets. Car companies gain economies of scale by standardising on car platforms. But the same model can differ between markets. To gain market share in the US, Honda had one of its product champions spend weeks driving around the US in order to find out what real customers wanted, not what the design office thought they should. (A real example of ‘Gemba’ in lean parlance.) Softer suspensions, twin cup holders and other features were some of the consequences, as well as significant increases in market share.
Product presentations need to differ between markets. In Europe, most pharmaceutical tablets are sold in blister packs that can be dispensed quickly and securely to patients. In the US, tablets still tend to be sold in large count bottles that pharmacies have to dispense to customers. US pharmacies tend to be located at the back of drugstores or supermarkets: during the time the tablets are being counted and dispensed, the patient will have longer time to spend in the rest of the store shopping. In some less developed economies, blister packs may still be used, but counted in smaller quantities. If not, the pharmacist may simply cut up the blister strip to a size that the patient can afford to purchase.

The growth of big corporations, global supply chains and global brands may be seen by some as a backward step. Life is seen to be more bland, the products more standardised. A counter argument is that standards become higher and quality more consistent and reliable when dealing with global brands. But ultimately customer needs and requirements will determine what wins in the market place. The resurgence of micro-breweries is a good example of how local customer demand has pushed back against the dominance of the global beverage companies and their brands.
A successful value chain will pass learning along the chain to its customers, whilst receiving feedback and insights back up the chain.

In all cases it is vital to understand customer needs. This information needs to be shared along the supply chain, passing local intelligence back into the global chain so that supply needs can be tailored to meet customer demand. The knowledge input can go into product design or into the real time supply chain according to fashion or seasonal demand. The supply chain has to respond quickly and effectively if it is going to succeed and compete against other supply chains. In the information enabled world this knowledge can be shared rapidly, but human insight remains vital. Direct feedback from people on the ground remains the most valuable source.
Supply chains run on information, but more importantly they run on people. People are genuinely the greatest asset because they are the greatest repository of knowledge and insight. The different agents in the supply chain have to collaborate and work together as a joined up network. Rather than fibre optic links and servers, people are the Network that needs to be nurtured in the value chain. People hold the key to the network’s future success.” (Julian Amey, Principal Fellow, WMG, Warwick University, UK, August 2013)

No doubt that “acting globally” has become a precondition for surviving also for Small and Medium Enterprises. The most successful SMEs exports the majority of their products  and have developed a global organisation. The German and the Japanese ones pioneered the expansion abroad in the fifties and the sixties opening Sales Offices (and subsequently  companies) all over the world. But design, production and coordination was clearly centralised. When referring to foreign branches the HQ people used to say “treat them as customers and cheat them as customers”. Then in the nineties they started to delocalise manufacturing (Eastern Europe and China), motivated essentially by lower labour cost, but product development and marketing were and in most cases are still a HQ prerogative.
Very quickly China evolved from being the most important worldwide “factory” to be the most attractive market and suddenly also SMEs management understood that in fifteen years from now the first 5 economies will be: China, USA, India, Japan, Brazil.

In order to be able to cope with this impressively new landscape it is mandatory also for SMEs to be able to “think local” and consequently to develop a new generation of local managers. This represent a real cultural revolution and a new challenge for Top Managers (and owners) of SMEs.
They have to learn to lead leaders and to make sure that the circulation of knowledge and the global essence of the corporation (core values, mission, brand)  are perceived as the most important competitive advantages at all levels in the organisation.

Therefore we encourage SMEs to invest intellectual and emotional resources to clearly define their set of core values and governance principles, to implement the technological infrastructures that enable knowledge sharing and to recruit young local managers all over the world to guarantee the cultural proximity to their customers.