As supply chains shift away from globalisation, businesses need to embrace the age of multi-localism if they are to remain competitive amid the pressures of political risk and shifting consumer preferences, a new report has found.
As globalisation comes under increasing pressure from multiple fronts, the prevailing business strategy focused on economies of scale and globally integrated value chains is becoming increasingly unviable, according to a study by A.T. Kearney’s Global Business Policy Council, ‘Competing in an Age of Multi-Localism’.
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Instead, the authors argue, companies must focus on thriving locally in each market in which they have a presence, whether just one or more than 200, by becoming locally integrated enterprises.
The age of multi-localism is being prompted by rising political risks, shifting consumer preferences, the introduction of modern industrial policies, advancements in technology, and transitions in corporate governance structures and attitudes. These pressures have gained strength in recent years, and as the report points out, they are not showing any signs of abating.
This transformed environment is creating a new normal for global businesses. In response, companies are pursuing localisation—shifting, devolving, or decentralising their management, operations, supply chain, production, products, or marketing to local markets.
No company appears to be immune to these diverse pressures, but the push to localise is particularly relevant to companies operating in certain consumer goods sectors, and in government-backed strategic sectors, such as advanced technologies.
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By GlobalDataReport authors say companies must go beyond simply decentralising production and become locally integrated enterprises in each market in which they operate, requiring a deep-rooted change in both mindset and operations.
Rather than pursuing the globalisation of operations and sales, companies now need to embrace localisation. In doing so, they will shift and devolve such functions as management, operations, supply chain, production, and marketing to local markets around the world.
“Multi-localism is not a passing fad,” says Paul Laudicina, founder and chairman of A.T. Kearney’s Global Business Policy Council and co-author of the report. “All companies must determine how to become locally integrated enterprises in a fundamentally transformed operating environment. Executives that ignore the imperative to transform will find their companies increasingly uncompetitive in the marketplace.”
The report calls for two primary shifts in strategy. The first is to recalibrate global operations based on a company’s core markets and its supply chain.
“Technology changes, particularly in robotics and additive manufacturing techniques such as 3D printing, pose particularly profound questions for executives as they make decisions regarding global supply chain and procurement,” says Erik Peterson, managing director of the Global Business Policy Council and co-author of the study. “Executives must carefully consider how these technologies interact with other drivers of localization, including industrial policies and trade barriers that seek to buttress local employment and protect intellectual property rights.”
A.T. Kearney’s work with the World Economic Forum on the five technologies at the core of the future of production—artificial intelligence, the Internet of Things, robotics, 3D printing (3DP), and augmented and virtual reality—demonstrates that each one of these is transformational and disruptive. Put together, they are expected to increasingly upend traditional business models, modes of communication, and the structure of the global economy.
The second shift in strategy is to develop a heightened awareness of local conditions, which the authors dub “sensory perception”. By means of refining this capability, companies will develop and shape business insights tailored to each local market.
“Executives need to hone five specific senses to identify and implement successful strategies for each market more quickly and effectively,” observes Courtney Rickert McCaffrey, manager of thought leadership for the Global Business Policy Council and co-author of the study. “This will enable companies to become locally integrated citizens of each community in which they operate, which is necessary to sustain profitability and growth in an age of multi-localism.”
Adidas is one of a number of companies pursuing localisation, and is 3D printing parts of its shoes closer to the end consumer in the US and Germany with its Speedfactory concept.
While initiatives such as Under Armour’s UA Lighthouse and Nike’s partnership with Flex are underway to create faster and more agile supply chains by incorporating sophisticated digital tools and automation into the production process.
