Localisation – Global giants look local

By Andrew Savitz and Melissa (Tritter) Paschall

Ethical Corporation - April 14, 2008

For big companies, the latest sustainability challenge is to retain the benefits of size while developing the advantages of small local enterprises, argue Andy Savitz and Melissa Tritter

In recent decades, “globalisation” has been the focus of much economic commentary. Love it or hate it, most observers agree that increasing integration of world markets is a practically unstoppable trend to which consumers, workers, companies and nations must adjust.

But today we are seeing signs of a counter-trend – an emerging set of pressures that may slow or even reverse, at least temporarily, the juggernaut of globalisation. We might call this new trend “localisation,” and it is one that businesses need to take seriously.

Consider some of the causes of the emergence of localisation. Since the 1970s it has become possible to ship goods around the world with increasing speed and efficiency, providing companies with lower labour costs and consumers with easy access to foreign products. Now, however, opposing forces are making themselves felt. Rising energy prices have dramatically increased the cost of long-haul shipping, while concern over climate change has turned a spotlight on its baleful environmental effects.

At the same time, political pressure is rising on governments and corporations to protect the interests of workers and citizens who feel threatened by the changes wrought by globalisation. The growing gulf between rich and poor has heightened demands for global corporations to make purchasing, employment, and investment decisions that benefit local communities.

Localisation is even emerging as an explicit consumer demand. For example, grocery shoppers in the US, the UK and elsewhere are beginning to think about the “food miles” travelled by the goods they buy. In the US, thousands of “community supported agriculture” programmes have sprung up to support small local farmers, whose produce offers consumers higher quality and lower carbon impact than produce shipped in from far away. The New Oxford American Dictionary even chose “locavore” – a person who only eats food produced locally – as its Word of the Year for 2007.

As a result of trends like these, corporations with international presence are in something of a bind. How can they continue to leverage the advantages of size while supporting the values that fuel localisation movements? Can large companies turn local responsibilities into financial opportunities? Can they win the loyalty of consumers who are eager for them to provide local benefits?

Bottle it

One way companies can respond to new pressures for localisation is simply by highlighting local advantages they already have. The bottled water industry offers a vivid example. Fiji Water comes from wells in that remote island-nation, leading to criticism that the company exploits natural resources in a developing country, wastes fuel and produces pollution by shipping bottles of water half-way around the world, and sells bottled water to wealthy westerners while, by some estimates, more than half of Fijians do not have access to safe and reliable drinking water.

By contrast, PepsiCo’s Aquafina comes from filtered tap water, bottled and shipped locally. This is not a characteristic the company sought to emphasise when it introduced the brand in the 1990s. At that time, consumers were focused on health, purity and convenience, not the environmental or economic impacts of bottling and shipping water. Tap water, even if highly filtered and purified, was felt to be inferior to what came directly from the ground.

Now public perceptions have flipped. Last year, PepsiCo decided to label Aquafina as originating from public water supplies before going through a seven-step purification process. Local sourcing, once seen as a mark of lower quality, is becoming a valued symbol of sustainability.

Supporting locals

Another area of tension between globalisation and localisation is the impact of giant retail outlets on local merchants. Many consumers worry about the economic vitality of their local communities when Wal-Mart or another “big box” retailer comes to town. Many communities have seen a backlash. Because of local protests, Wal-Mart has had problems establishing a foothold in New York, Boston and other cities. But a sweet spot of mutual benefit can be created if the large company acts with local interests in mind.

Whole Foods Market, the $6 billion organic supermarket chain, has found a way to be global and local at the same time. Each store is required to source produce from at least four local farmers, defined as those within a seven-hour truck drive from the store. The company also offers a form of microfinance to support local farmers through its Local Producer Loan Program, which annually makes $10 million available for farm expansion or to help farmers meet Whole Foods’ “animal compassion” standards. By prominently displaying produce from nearby farms alongside pictures of the farmers, Whole Foods highlights its support for the local economy.

The company also empowers local managers to make small contributions to community causes without jumping through bureaucratic hoops, giving back in ways that meet specific local needs. Despite all the hype around “strategic philanthropy” and high-visibility partnerships between businesses and NGOs, it is often the small contribution to the local cause that resonates most with consumers.

Ear to the ground

Local companies have an advantage in being able to stay attuned to ever-changing local preferences and concerns. This form of organisational sensitivity becomes increasingly difficult to maintain as companies grow. Although many companies have started to use the internet to stay in touch with their customers, few have explored opportunities for creating strong links with local communities.

In today’s world, corporate sustainability requires constant, sensitive interaction with many different stakeholders, especially with the communities in which a company’s plants and offices are located. Confectionery giant Hershey learned this the hard way when it lost a $12.5 billion bid to sell its sweets business to Wrigley by failing to consider the reactions of the residents of its home town, Hershey, Pennsylvania. Protests, lawsuits, and a series of public relations blunders torpedoed the all-but-finalised agreement, demonstrating the high price companies can pay when they lose touch with local concerns.

By contrast, a Maine-based division of giant electric utility PPL used local knowledge – including the community connections of a locally born manager – to save its hydroelectric business in a time of intense environmental controversy. While other companies were being forced to dismantle dams to protect threatened salmon, PPL worked with community activists, environmentalists and indigenous peoples to restore the salmon population and develop a win-win solution, offering to sell two of its dams to a conservation trust for $50 million, and winning permission to expand the capacity of other dams to meet local energy needs.

These contrasting stories illustrate a fundamental reality of today’s business world: there is no substitute for really listening to the needs, worries, dreams, and desires of the local people who supply and support your company – and taking those feelings seriously.

Lessons learned

To meet the challenges of localisation, large corporations need to “get small” by focusing on the needs of local communities. Doing so can not only minimise the perceived negative aspects of being large and from out of town, but can also produce positive, measurable business benefits.

Of course, there is a paradox here. While small, local businesses appeal to many consumers and sustainability advocates, only global corporations can create global change. When Wal-Mart requires its suppliers to reduce packaging or teams up with General Electric to sell 100 million low-impact fluorescent bulbs in one year, huge environmental benefits ensue. When Toyota puts its vast resources into developing the Prius hybrid, the entire car industry is transformed. When food companies such as PepsiCo and Heinz begin to address issues of obesity and childhood nutrition, the health benefits can be enormous. Small, local companies can never do so much, so fast, to help so many people.

In short, when global companies give environmental and social goals their due, and work to find the nexus between their business needs and the needs of local communities, globalisation can be as great boon to sustainability as localisation.

The key is to be both big and small at the same time – big in terms of resources, scale, and positive impact; small in terms of supporting local economies and the consumers who care about them. To the extent that a large company can do all this, the same forces that are currently fuelling the localisation movement will support them, making it easier to do business in a profitable, sustainable fashion.

 

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