Glocalisation and what it means to your business

Change is in the air for global businesses, but how you implement that change is of critical importance.

 

The subject of globalisation is such an omnipresent part of today’s world that even the Pope made reference to its impacts in a speech earlier this year, condemning its “throwaway culture” and calling for new solutions to, among other challenges, the “dizzying rise in unemployment.” A shift is afoot that can address some of these challenges. It’s called glocalisation, and it is reshaping the business world.

Part of this shift involves the reality that many businesses now realise fewer benefits from the relocation of a business process from one country to another - outsourcing - than they once did. Outsourcing has often been good for GDPs in both countries, but has also represented lost jobs in countries of origin.

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After China became a member of the World Trade Organization in 2001, the pace of outsourcing increased, with the eventual consequence of increased wages in offshoring destination countries and regions. This drove up the costs of offshoring, and lessened the appeal of the strategy. As the upside of offshoring lessened, businesses began to look closer to home again - reshoring - to create an improved customer experience, and, in some cases, reduced supply chain costs and risks. The reality for modern businesses is that there are benefits to both offshoring and operating closer to home, and that’s what glocalisation is all about: integrating the global and local aspects of business operations.

 

What’s driving glocalisation?

In a recent survey by PricewaterhouseCoopers of nearly 400 non-financial businesses in Europe, nearly 60 percent had reshored some operations in the past year, but more than half of the businesses had also done some new offshoring.

“Businesses aren’t reshoring just for the sake of reshoring,” says Tibor Bodor, head of Clients Europe region, ING. “What you’re really seeing is diversification. The cost of labour has risen dramatically in many of the regions that were once appealing as sources for manufacturing, for example. And in some cases businesses recognise that they can better control the quality of the product and the supply chain if they are closer to the end market. What it really comes down to is: what are the real needs of the business?”

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It’s not always easy to identify those needs. Car manufacturers, for example, rushed into Russia over the past decade as they saw the potential for it to eclipse every European automobile market. Plants were built in Russia and workers were hired, and part of the logic was being closer to the market. As Russia’s economy came upon hard times during the past year, however, some production ceased. Whether that abatement is permanent remains to be seen. That doesn’t mean the car manufacturers made a bad choice - it just means no one has a crystal ball when risks go from being possibilities to realities.

 

First comes harmony

To Bodor, glocalisation is a matter of “finding a nice equilibrium” and “harmonising business activities” rather than looking at the changes as end to themselves. He points to his own company as an example of one in the process of finding that balance. ING is a global financial institution, and as such has a global processing center in Manila to deal with services where geographic location is irrelevant. There is nuance involved here, however, and to account offer better service for clients in the EU - because of location or language, for example - ING also has an operations center in Bratislava, Slovakia.

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“That’s a case where outsourcing and reshoring create the needed diversification,” says Bodor. “It’s also an example of diminishing labour costs that will help drive customisation on a large scale, fostering regional specialisation. And that, in turn, leads to better customer service.”

Bodor is careful to point out, however, that globalisation isn’t going to come to a sudden halt. Cost efficiencies always matter, and not all of the efficiencies of outsourcing will suddenly evaporate. He further believes that there is a very specific process to follow to be successfully glocal. “You want harmonisation within the business and between businesses first,” he says. “Then standardisation. And then, if it makes sense, you can move toward a regional hub. Without these steps happening in that order, the frustration levels will be extremely high.”

 

Why the process matters

Significant changes don’t happen overnight. The process outlined by Bodor requires patience to achieve a worthwhile goal - and some turbulence can be expected during take-off.

“Diversification and integration is likely to be painful in the short term,” says Bodor. “It can be especially difficult at the places where change is taking place, and employees may feel as if they are losing control. But in the long term, having glocalisation as a goal is necessary.”

Midsize businesses, in particular, will face a challenge, because the necessary risk management skills might not exist in-house to deal with a likely increase in systemic risks, such as a bad day for the Internet or catastrophic natural events that can cause havoc with supply chains. And ever-changing regulations regarding trade and manufacturing can drive up costs.

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“It could take a while for some companies to achieve the goal of having a fully integrated glocal network,” says Bodor. The biggest risk to the whole movement, however, is completely turning away from globalisation in the name of nationalism. “That’s why harmony is such a key in the whole process, and why emerging city-states can play a really big role in all of this,” says Bodor. “They can help these business networks to function fluidly across the lines on a map.”

Read why you shouldn¹t underestimate the capacity of free markets to respond to changing conditions.

 

This article is produced in cooperation with Bloomberg Custom Content.