As Mattel and others trying to expand in China and India have learned, the right blend of localization and globalization is tricky, write Gupta and Wang

By Anil Gupta and Haiyan Wang

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Mattel (MAT) opened its first free-standing Barbie store in China in March 2009—a giant, 36,000-square-foot edifice in a six story building on Shanghai’s Huaihai Road, one of the most expensive shopping streets in the country. It was the second such store on the planet, after the successful launch of a pioneering, 7,000-sq.-ft. outlet in Buenos Aires in 2008. Barbie’s Shanghai adventure didn’t work out so well, though. Mattel shut its doors on Mar. 7 this year.

It’s easy to dismiss this failure as a stark illustration of ignoring the well-worn dictum: “When in Rome, do as the Romans do.” In our view, such an explanation is far too simplistic. You can never outdo the Romans at the fine art of acting like a Roman. Creating the right blend of localization and globalization is a much harder task than achieving either complete localization or zero localization. To succeed in dynamic markets such as China and India, managers need to learn rapidly what and how to localize—while avoiding the risk of catastrophic failure from inevitable mistakes.

Consider the differences between Mattel’s experience in Argentina and China. The Argentine market was already Barbie-crazy; a Broadway-style Barbie musical had even been highly successful on the Buenos Aires stage. In contrast, Barbie was a relatively new concept to China. Mattel faced many more unknowns in China than it did in Argentina. Yet the company chose to start out with a store more than five times as large.

Despite the many unknowns, Mattel designed the Shanghai store to target both young girls as well as adult women, thereby significantly increasing the risk that a misconnect with either segment could doom the whole venture. The giant store size also meant that Mattel needed to have a very large mix of product and service lines in the store—900 display cases, a restaurant, a spa, a cocktail bar, and an adult clothing section, to name just a few. The large variety of products and services rendered it impossible for the company to figure out in advance which ones to localize, how much to localize, which of them would catch on with customers, and how much customers would be willing to pay.

How Wal-Mart Experimented

The company wasn’t totally blind. It did launch Ling, a Chinese Barbie. Dealing with hundreds of moving parts in a very different, unfamiliar, and dynamic market such as China, however, guaranteed that the speed with which the company would discover its multitude of mistakes would overwhelm its ability to learn and adapt.

Compare Barbie’s entry strategy into the retail sector in China with that of Wal-Mart (WMT). When Wal-Mart entered China in 1996, it took a far more experimental approach. It experimented with different store formats to figure out which would have the greatest customer appeal. Similar experiments regarding target customer segments and merchandise mix played a useful role in helping Wal-Mart reduce the risk of failure as it rolled out store expansion and ramped up investment. It is also critical to note that a large format store is a fundamentally lower-risk strategy for a multibrand retailer such as Wal-Mart than for a single-brand retailer such as Barbie.

Mattel itself has adopted a much smarter learning strategy for Barbie in India. Since its India launch in 1991, Barbie has developed an unrivaled brand presence in the country. The brand has been targeted exclusively at children and promoted via extensive advertising on television networks popular with kids. Further, instead of opening a free-standing large format store, Mattel opened a large number of stores-within-stores, including an exclusive space in a highly successful Hamleys toy store in Mumbai. Such an approach reduces needed investment and associated risks while creating greater brand exposure. More importantly, it enables Mattel to learn and adapt at a faster pace on the road to learning where and how much to localize.

Quite recently, like Ling in China, Mattel has also introduced an Indian Barbie modeled after Katrina Kaif, a popular Bollywood actress.

Five Tips to Success

As with Mattel and Wal-Mart, the challenge of learning how much and where to localize is universal to every multinational company. We offer five guidelines regarding how companies can meet this challenge faster and better than their competitors.

First, remember that you can never win in China and India (or any other foreign market) by either complete localization or zero localization. The trick lies in figuring out the right blend between localization and incorporating global concepts and standards. This will never be easy. Companies can significantly increase the odds of success, however, by starting with simpler products and services, engaging in lots of rapid and low-cost localization experiments, and adding complexity to their business models as they learn from these experiments.

Second, the localization-globalization question needs to be addressed at the level of dozens of variables pertaining to both strategy and operations. Coca-Cola (KO) is a grandmaster at this game. While the iconic cola is pretty much a globally standardized product, most of the company’s sales outside the U.S. comes from products and brands created locally for the unique needs and desires of local customers. Even for the Coca-Cola brand, the company pays careful attention to localization along a host of variables such as package type and size, amount of sweetener, distribution channels, advertising media, and pricing.

Third, traditional market research, while useful, will often be woefully inadequate in helping companies figure out what to localize and what not. Like Wal-Mart’s approach in China, active experimentation and trial-and-error learning will generally be the fastest approach to getting the most accurate answers.

Fourth, avoid the trap of superficial generalization. Like Mattel, many companies make the mistake of assuming that, because urban Chinese customers appear quite Westernized in their outward appearance, they will easily accept Western concepts, products, and services. Even in the case of premium luxury goods, companies are realizing they must understand and adapt to potentially important market differences. BMW (BMW.GR) owners in Europe or the U.S. love to drive the car themselves; their Chinese counterparts, however, sit in the back and rely on chauffeurs to do the driving. In Europe, the majority of Louis Vuitton (LVMHF) customers are women; in contrast, in China, it is men buying gifts for business partners, wives, mistresses, or girlfriends.

Fifth, keep your ears close to the ground. Emerging markets such as China and India are changing at three to four times the pace of developed markets. Thus today’s perfect blend of localization and globalization could easily become obsolete three years from now. The trend need not always be toward greater preference for global brands and concepts. As China and India become richer, there is a rapidly growing sense of national pride. Also, as local products improve in quality, it is inevitable that local styles and brands will start acquiring as much cachet as global ones.

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