Council Perspective

Competing in an Age of Multi-LocalismDiverse pressures transforming the global environment require companies to become locally integrated enterprises.

September 2018

1Competing in an Age of Multi-LocalismView online: bit.ly/Multi-Local

Executive Summary• Diverse and growing pressures are upending the global business strategy that has dominated

the marketplace since the globalization wave of the early 1990s. The focus on achieving growth through economies of scale, efficiency enhancements, globally integrated value chains, and the sale of mass-market products is no longer a viable strategy for many companies.

• The age of multi-localism—characterized by the preference for local communities, industries, products, cultures, and customs—has arrived. It is 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 they are not showing any signs of abating.

• This transformed environment, then, is here to stay, creating a new normal for global businesses. In response, companies are pursuing localization—shifting, devolving, or decentralizing their management, operations, supply chain, production, products, or marketing to local markets.

• No company is immune to these diverse pressures, but the push to localize is particularly relevant to companies operating in certain consumer goods sectors, such as food and beverage, and in government-backed strategic sectors, such as advanced technologies.

• Going multi-local, however, brings profound challenges. Most notably, companies will need to make trade-offs between the efficiencies of scale and greater internal simplicity associated with global operations and the higher level of resilience associated with localization.

• The age of multi-localism, therefore, is not consistent with a one-size-fits-all business model. All companies must adjust to this new reality by developing new capabilities and strategies. Companies must become locally integrated enterprises to succeed, with a focus on two dimensions of strategy:

— First, companies must recalibrate their global footprint based on a reassessment of core markets and a realignment of their global value chain to adapt to these new localization pressures.

— Second, companies need to develop sensory perception in each market in which they have a presence. Executives must be continuously aware of local conditions and how they are shifting, recognize the company’s role in shaping and reacting to those conditions, and use that knowledge to develop business insights and strategies tailored to each local market.

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The Age of Multi-Localism Necessitates Strategy ShiftsGlobalization—the cross-border movement of goods, services, capital, people, and information—was the defining business strategy of the early 21st century. It advanced, more or less uninterrupted, from the fall of the Berlin Wall in 1989 until the onset of the global financial crisis in 2008. During this time, businesses acclimated to a globalized “flat” world by reorganizing themselves into the “globally integrated enterprises” described by former IBM CEO Samuel Palmisano. He argued that, in contrast to multinational corporations, which have centralized core tasks and devolve other operations to country-based units, the globally integrated enterprise “fashions its strategy, its management, and its operations in pursuit of a new goal: the integration of production and value delivery worldwide.”1

The age of multi-localism is characterized by preferences for local communities, industries, products, cultures, and customs.

In the past decade, however, globalization has faced increasing pressure. A variety of economic, political, social, and technological forces are halting globalization’s growth and giving rise to the age of multi-localism—a period characterized by preferences for local communities, industries, products, cultures, and customs. This new age has arrived, in part, because of the “islandization” of the global economy in which governments are pushed inward by nationalist and protectionist sentiments and every economy becomes its own island. Technological changes and pressures from stakeholders, including consumers, investors, and policymakers, are also fueling the shift to an age of multi-localism. In this transformed operating environment, business models based on the globally integrated enterprise are under threat. Even the multi-national corporation business model is now less viable because the pressures of islandization do not stop at the national level. In fact, they often push producers and consumers to identify with more localized, subnational communities.

Compounding this monumental shift in the global economic system is complexity in the broader external environment, which is at an all-time high. Geopolitical risk is back in a big way. Regional rivalries are escalating in the Middle East, Russia is at odds with European powers, and China, the United States, and others are vying for power in the Indo-Pacific. Domestic political risks are proliferating. Populist governments in Poland, Hungary, Italy, and other European countries make investors uneasy, given their tendency to favor anti-competitive and inter-ventionist policies. In addition, regulatory frameworks are diverging. More local governments, for instance, are taking the lead on environmental regulations in countries around the world. Despite strong near-term economic growth, medium-term economic uncertainty is high, thanks to a growing debt overhang, weak productivity growth, and other risks to the sustainability of the current expansion. Technological change is accelerating. From blockchain and artificial

1 Samuel Palmisano, “The Globally Integrated Enterprise,” Foreign Affairs, Volume 85, Number 3, May/June 2006

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intelligence to 3D printing and CRISPR-Cas9, new technologies are reshaping every aspect of business and daily life. And a generational shift in power is occurring around the world. The post-World War II generation is retiring and reducing personal consumption, and global Millennials are emerging as the dominant force both as employees and consumers.

Business executives recognize the challenge associated with these pressures on globalization and the shift to an age of multi-localism. More than one-third of global CXOs and board members told us in our 2017 Views from the C-Suite survey that strategies based on globalization are less viable in the current environment. Although a strong majority—62 percent—maintained that business strategies based on globalization are more viable now than before, executives acknowledged the necessity to shift direction. Ninety percent of respondents said strategy changes are needed to succeed in the current global business environment. Companies are adjusting by making or considering changes in their supply chains and international footprints.

A one-size-fits-all business strategy across markets appears to be more unworkable now than ever. Instead, more companies are pursuing localization—shifting, devolving, or decentralizing their management, operations, supply chain, production, products, or marketing to diverse local markets. Localization is most often understood as occurring at the country level, but in larger and more diverse markets, such as India, localization can also occur at the subnational level. The breadth of business activities that can be localized differentiates localization from internationalization or “glocalization” strategies, which rely on centralized development and distribution of products and then tailor certain aspects of product design for local markets. Localization also fundamentally differs from strategies based on unfettered globalization—such as the globally integrated enterprise—that rely on a frictionless global value chain serving all markets in which the company operates.

In fact, there is near unanimity among global investors on the merits of localization strategies today. In our 2018 Foreign Direct Investment Confidence Index survey, 89 percent of investors say their companies are pursuing or considering localization (see figure 1). About 40 percent are hiring local talent or setting up production or manufacturing facilities in local markets. And about one-third point to product design and R&D, market entry through M&As or joint ventures, branding and marketing, and internal management as ways in which their companies are localizing.

Is your company pursuing or considering pursuing localization practices?

Source: 2018 A.T. Kearney Foreign Direct Investment Confidence Index

Figure 1Almost 90 percent of investors are pursuing localization or considering doing so

Already implemented localization practices

Implementing localization practices

Exploring localization options

Considering exploring localization options

No plans to consider localization options

15%

32%

22%20%

11%

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This focus on localization makes sense given the relatively poor performance of global companies in recent years. The Economist estimates that among the largest 500 companies by market value, the profits of global companies have grown only 12 percent since 2015. Local firms, by contrast, have enjoyed 30 percent profit growth over the same period. They have also had slightly higher returns on equity than multinationals. And the United Nations Conference on Trade and Development finds that average returns on foreign direct investment (FDI) declined from 8.1 percent in 2012 to 6.7 percent in 2017. Retrenching to focus on home markets or localizing foreign operations, therefore, appears to be a primary strategy to improve business performance.

A localization strategy raises the level of internal complexity. A locally integrated enterprise must tailor its practices, processes, and products to each market in which it operates.

This localization of business operations requires a fundamental shift in organization and strategy as multinational corporations or globally integrated enterprises transition to what we call “locally integrated enterprises.” These companies are similar to multinational corporations in that they have some centralized core divisions and devolve other operations to subunits. But these subunits within locally integrated enterprises can be organized at the subnational level, creating more subunits than in a multinational corporation. More importantly, the subunits of locally integrated enterprises have more autonomy to engage in local stakeholder relations and integrate into the local community as they view themselves as citizens of each community in which they operate. Their focus on localization reflects the imperative for all businesses—large and small, global and domestic—to thrive locally in an age of multi-localism.

There are challenges associated with going local, however. While a localization strategy addresses external complexity, it also raises the level of internal complexity. In contrast to a globally integrated enterprise that operates under shared business practices and processes, a locally integrated enterprise must tailor its practices, processes, and products to each market in which it operates—in some cases even localizing down to the city level. Moreover, companies are not pushing just one localization strategy. Two-thirds of the investors that are localizing or considering doing so tell us their companies are implementing two or more methods, compounding their internal complexity.

Some businesses may be well-placed to manage such high levels of complexity, but many are not. And while thriving locally is necessary to succeed in today’s operating environment, it is not necessary to have operations across multiple markets. In other words, a global presence is not the right strategy for all companies in the age of multi-localism. Rather, in this new reality, executives must be even more careful about choosing the markets in which their companies operate. A fundamental reassessment of each company’s global strategy is needed both to recalibrate operations and develop what we call “sensory perception” in all markets in which the company operates.

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New Localization PressuresLocalization is not a new strategy. As globalization has increased over the past quarter century, localization has meant tailoring products and customizing marketing to reflect local preferences, regulations, advertising trends, pricing dynamics, competitors, and more. McDonald’s, for example, does not sell beef or pork in India, but it does sell octopus and squid in Japan. Japanese automakers long ago opened production facilities in the United States. And components for Lockheed Martin’s Joint Strike Fighter aircraft are produced by companies in the nine “partner” countries acquiring the jet. To succeed in diverse markets and manage complex global operations, some companies instituted limited localized product design amid a centralized global operation. Others devolved their operations by creating more nearly autonomous regional and national units, and still others experimented with different models and strategies. The commonality between these localization approaches was their focus on leveraging the power of globally integrated supply chains to succeed across diverse markets.

While this localization was previously at the margins of global business strategy, it is more in vogue today. Global companies are undertaking localization efforts because they are now necessary to compete effectively, particularly in fast-growing emerging markets. This shift in the competitive landscape is most clear in China. The country has served as a global production hub for decades, resulting in the development of a large, skilled, and agile local workforce with increasingly competitive capabilities. In fact, local Chinese companies are now directly challenging incumbent multinationals, leveraging their local status for competitive advantage. They are, for example, able to bring products to market more quickly than multinationals with headquarters or R&D centers in Europe or North America. Multinationals with a long history in China, however, have recognized this disadvantage and have adapted accordingly. For example, Switzerland-based industrial technology company ABB, which has had a presence in China since the beginning of the 20th century, began localizing its R&D as part of its overall “in China, for China and the world” strategy more than a decade ago. Similarly, Siemens implemented its SMART initiative to develop products specific to emerging markets, including the complete localization of its value chain in China. This trend in the competitive landscape within emerging markets will likely continue, pushing more global companies to localize their workforce, R&D, product design, and marketing to compete with the increasing scale and efficiency of local companies.

The localization strategies we see today, however, are distinct from those that existed during the previous era of globalization. Beyond the shift in the competitive landscape, five new drivers in the external environment are giving rise to the age of multi-localism and fueling this new localization business strategy. These drivers of change in the global business environment include both demand- and supply-side forces: rising political risks, shifting consumer preferences, strengthening industrial policies, sweeping technological change, and increasing community engagement and expectations. The cumulative impact of these trends is a change in the risk–reward calculus for global operations. While the localization focus today is on the goods economy, and most of our analysis centers on the effect of these localization pressures on goods, we see services coming under more pressure as well, particularly digital services. Services, it appears, may be the next localization battleground.

Political risk: Rising populism and the islandization of the global economyA popular backlash to globalization is roiling the post-Cold War status quo and giving rise to some of the greatest political shocks in recent times, including Brexit and the US election of

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Donald Trump. Anti-elite, anti-immigration, and anti-globalization sentiments have been increasing in tandem with economic inequality. This trend began when globalization—and its liberalized trade and open markets for both investment and workers—combined with technological progress led to greater competition, the offshoring of production, and downward wage pressure, particularly for low- and mid-skilled workers in developed markets. Inequality rose within countries as a result. The global financial crisis and the subsequent recovery only exacerbated this trend. According to Credit Suisse, the world’s richest 1 percent owned 50 percent of total global wealth in 2017—nearly 8 percent more than they did just before the crisis.

These forces inevitably began manifesting themselves in the political arena. Indeed, in January 2015, we warned of the risks of rising inequality, including a backlash against globalization and a rise in nationalist, populist, and anti-immigrant sentiment. We also explored such an islandization scenario in From Globalization to Islandization, suggesting that this possible future would be characterized by more protectionist measures, hindered global economic flows, persistent macroeconomic uncertainty, and the renewed impact of geopolitics on the business environment. Unfortunately, many of these projections have been borne out, perpetuating the popular angst about globalization. According to the 2017 Edelman Trust Barometer, which surveys public attitudes in 28 countries annually, 60 percent of respondents worry about losing their jobs to foreign competitors, 58 percent are worried about immigrants working for less money, and 55 percent believe their jobs are vulnerable to outsourcing.

Anti-elite, anti-immigration, and anti-globalization sentiments have been increasing in tandem with economic inequality, leading to the islandization of the global economy.

This growing ennui is expressing itself in several ways. The first and most obvious is the distress in the international trading system. The highly publicized US renunciation of the Trans-Pacific Partnership (TPP) and the deepening row between the United States and China over trade have been perhaps the most glaring policy actions against trade liberalization to date. Ongoing North American Free Trade Agreement (NAFTA) negotiations are another window into the wide national differences that now exist between erstwhile preferential trading partners. And even French President Emmanuel Macron, who has been portrayed as the champion of an open and globalized Europe, has complicated European Union (EU) efforts on free trade by advocating for protections of French products. Many governments that were previously working to eliminate barriers to trade of goods and services are now increasingly erecting them.

In fact, the world’s 60 largest economies have put into place more than 6,000 trade barriers since the end of the Great Recession. The United States and EU member states were each responsible for more than 1,000 of the new restrictions, and India, Argentina, Russia, and Japan were high on the list as well. These policies show no signs of abating. The World Trade Organization highlighted that G20 economies doubled their implementation of trade-restricting measures in the most recent reporting period, and Global Trade Alert says policies that promote localization have increased dramatically in recent years (see figure 2 on page 6).

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In addition to this distress in international trade, populism and nationalism are putting companies in the political crosshairs, with significant implications for their brand reputations. In particular, US-domiciled corporations have faced mounting pressures to keep operations in the country. During the 2016 presidential campaign, for example, then-candidate Donald Trump singled out air conditioner and furnace manufacturer Carrier for having outsourced jobs. Mondelez International also found itself in the headlines during the election after it announced that Nabisco would relocate a factory from Chicago to Mexico, which led to calls for a boycott. Foreign corporations have also been responding to this politicized business environment with their own preemptive strategies. Chinese firm Alibaba serves as a prominent example, having promised to create one million jobs in the United States. Similarly, in June 2017, Chinese manufacturer Foxconn announced plans to invest more than $10 billion in a US-based factory at a press conference at the White House. In the United Kingdom, companies are shortening their supply chains in anticipation of Brexit-related trade disruptions. And British firms are already finding themselves losing market access globally as EU firms shy away from their British partners and suppliers because of ongoing customs uncertainty.

Finally, populism and nationalism are having a less visible and less overtly political—but nevertheless highly significant—effect on cross-border digital trade. More industries from banking and insurance to consumer goods and retail are collecting, storing, and analyzing digital data about current and potential customers with great commercial impact. In recent years, however, many governments around the world have increased their data localization requirements. China’s new Cybersecurity Law, for example, is placing huge compliance costs on global firms as the government seeks greater physical and digital access to myriad types

Government localization policies Cumulative global count of measures still in force

Note: 2018 data is a forecast based on the measures taken during the first five months of the year.

Sources: Global Trade Alert; A.T. Kearney analysis

Figure 2 Companies must navigate an array of localization policies

2,000

6,000

4,000

8,000

12,000

10,000

14,000

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018f0

Local labor

Localization incentive

Local operations

Local sourcing

Public procurement

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of corporate and user data. Conversely, in Europe, General Data Protection Regulation is aimed at protecting user data and privacy, putting its own substantial compliance costs on firms. Australia and Russia are two other examples of countries passing new digital regulations in recent years. All of these varying requirements are forcing companies to update their legal, human resources, and privacy policies to avoid disruptions to business operations or large fees across major markets. The establishment of such digital walls obstructing cross-border data flows will likely dampen trade and economic growth prospects as the global economy becomes more digitized.

There are also, however, important recent counterpoints demonstrating that free trade and international cooperation are not entirely out of style. The passage of the EU-Japanese free trade agreement is one of the most notable of these instances, as was the signing of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) by the other 11 members of the TPP negotiations. But the loss of the United States and some of the hard-fought elements of the TPP that the US negotiators had included, such as addressing digital flows and intellectual property, makes the CPTPP less supportive of the 21st century economy, while also reducing its scope from 40 percent of the world’s economy to only 13 percent.

Consumer preferences: Growing demand for local and personalized productsManaging the diverse preferences of consumers in different markets is not a new challenge for global brands serving the business-to-consumer (B2C) market. Introduced in the early 1990s, the catch-word “glocalization” describes actions by businesses to develop and distribute products globally, while also fashioning them to accommodate consumers in local markets. As mentioned, one of the most common examples of this well-established strategy is the way in which McDonald’s has long tailored its menus to local tastes and customs. Similarly, Unilever and Procter & Gamble (P&G) are among the companies that reduced packaging sizes for products in Asia and sub-Saharan Africa to meet consumer needs at a lower price point. For many companies, unique regional or country-specific product specifications often occurred at the end of the supply chain. This strategy enabled them to continue to capture the efficiencies offered by globalization while not adding substantial complexity in their product lines.

Now, however, there is a shift occurring in patterns of consumption toward local and personalized products. The reasons underlying these preferences are diverse. First, the growing populist and nationalist sentiments highlighted above are an important driver of this trend in many markets. In the United States, for instance, a July 2017 Ipsos poll found that 70 percent of Americans thought that buying products made domestically was very or somewhat important.

Second, there is growing concern among some consumer segments about the environmental impact of their purchases. Products produced locally do not have to be shipped over long distances and therefore require fewer resources to bring to market and produce fewer carbon emissions in the process. According to a 2015 Nielsen study, 66 percent of global consumers said they would be willing to pay more for sustainable brands—a significant increase from the 50 percent who said they would do so in 2013. And almost half would pay more to environ-mentally friendly companies and those with a commitment to social values.

Third, the rise of e-commerce and now frictionless commerce—in which purchases happen seamlessly without the customer having to make a conscious decision—is also creating pressure for companies and brands to localize and personalize. In a world in which algorithms often decide which product choices a consumer sees, companies need to give consumers

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a reason to interrupt the increasingly automated purchasing process and actively choose their brand, rather than passively accepting substitutes. Our A.T. Kearney colleagues describe this process as “building brand friction in a frictionless world.” It involves using data to better understand and listen to customers to create brands that resonate with ever smaller consumer cohort segments. This customization is especially vital in light of the growing importance of social media as an advertising and marketing channel. Social media has reduced the barrier to entry for new brands, which are able to directly reach large swaths of potential consumers cheaper and faster than ever before. In this environment, local brands have a competitive advantage in tapping the local zeitgeist to engage consumers more effectively.

Finally, across many markets, some evidence suggests that consumers simply trust large brands less than they did in the past (see figure 3). Altogether, these consumer trends are forcing companies to introduce more complexity in their supply chains and product portfolios to retain and grow their customer bases globally. They challenge traditional mass market and “glocalized” approaches to doing business in a globalized world, and they are leading to the increasing use of multi-local approaches instead.

Very little or no confidence in large corporations and brands% of respondents

Source: A.T. Kearney 2017 Global Future Consumer Study

Figure 3More consumers distrust large brands and companies

2012

2017

ChinaIndiaGermanyUnitedStates

JapanFranceUnitedKingdom

35

57

29

56

44

55

36

55

33

52

18

25

5

12

A.T. Kearney’s Global Future Consumer Study suggests the mass market of the future will thrive on the core principles of trust, influence, and personalization. In fact, almost two-thirds of respondents in a 2017 survey of US executives said that offering more personalization is an urgent priority. In many ways, these forces give local companies, or those nimble enough to infuse authentic local elements into their products, an advantage.

The food and beverage industry is one of the sectors most affected by these changes in consumer preferences thus far. Nestlé, for instance, has been purchasing more local and healthier food labels to offset declines in some of its mass-market and globally recognized brands. Similarly, major beer producers have acquired a variety of small players in the craft beer industry in the United States, which has doubled its market share in the past four years

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while mass market beer sales have flatlined. And after Anheuser-Busch InBev purchased South African Breweries in 2016, they retained the local branding of their beer portfolio. This move positions them to compete better with the surging local beer industry as the number of South African microbreweries nearly doubled between 2014 and 2016. In India, Coca-Cola has been pushing hard into fruit-based drinks and away from carbonated beverages as part of a broader effort to appeal to local preferences. The introduction of various local flavors, including ingredients that are only grown in certain Indian regions, is also part of this effort, reflecting a hyper-local approach that acknowledges significant internal variations within the country. All of these examples indicate that business leaders believe these localized consumer preferences are a long-term trend rather than a passing fad.

Business leaders believe localized consumer preferences are a long-term trend, not a passing fad.

Beauty and personal care are also heavily influenced by growing preferences for localized goods around the world in general and by the rising purchasing power of the Asian consumer in particular. Fragrances in personal care products serve as one example of companies innovating in their supply chains to better meet local customer demands. Instead of centralized development and production of shampoo, for instance, companies are shifting toward producing only the essential concentrate centrally and then adding water and locally developed fragrances closer to the point of final sale. This process gives them the ability to bring new fragrances to a wider variety of local markets faster. Similarly, given differences in skin tone and aesthetics, the look and color palate of makeup must be tailored to local characteristics. To better serve Asian consumers, for example, the global beauty conglomerate LVMH launched a new line of cosmetics, Cha Ling, while Lancôme incorporated Asian beauty trends into its Énergie de Vie product line. In fact, this effort to cater to Asian customer preferences is a global shift. More beauty retailers in Singapore, the United Kingdom, and Canada, for instance, are stocking products tailored to Chinese consumers because of these countries’ large Chinese tourism markets.

Some consumers also prefer local technology. In China, which is considered a must-win market for most global companies, more consumers seem to prefer Chinese over Western technology. For example, iPhone sales are struggling while Huawei handset sales are growing. Xiaomi, another Chinese handset maker, is also seeing growing success over Apple, producing a similar quality phone at a lower price point. This example, then, relates not only to the rising consumer preferences for localized products, but also to the competitive landscape shift in which local companies are able to compete with Western companies on price and quality while also demonstrating a greater understanding of local consumer preferences. More broadly, technology purchasing preferences have also recently been tinged by national security concerns, particularly between the United States and China. The highly public rows over the failed Broadcom takeover of Qualcomm and warnings from US public officials against the usage of Huawei or ZTE devices because of espionage concerns are beginning to popularize the notion within the United States that Chinese-made electronics should be viewed with suspicion. Anecdotal evidence suggests that informed consumers are trying to avoid Chinese-made electronics as a result.

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Contradictory data points to this narrative of shifting consumer preferences do exist. For example, a 2017 Nielsen report found that global brands outperformed local brands in a number of categories, including baby products and sports drinks. And in India and China, A.T. Kearney has found that, overall, large corporations are more trusted than local companies. However, the balance of the evidence of this global shift in consumer preferences leads us to believe it will likely endure—particularly as Millennials become a more dominant force in consumer markets—and that brands that are more responsive to these shifts are likely to prevail. Local brands that are closer to the consumer have an advantage in identifying and responding quickly to shifts in local preferences, and therefore stand to become even more competitive against mass-market global products.

Industrial policy: Growing pressures to indigenize productionGovernments around the world are seeking to accelerate the modernization and diversification of their economies and to move up the value chain. The current method of choice to accomplish this goal is industrial policy—defined as government policies directed at affecting the economic structure of the economy. The United Nations Conference on Trade and Development recently noted that 84 countries, including both developed and emerging markets, have implemented industrial policies in recent years. The scope of these policies has expanded from more traditional, import substitution models and support for specific sectors to include other economic and social objectives (see figure 4). These include job creation, skills development, the promotion of entrepreneurship and innovation, digital access and deployment, and spreading economic activity to underdeveloped and disadvantaged areas.

Evolution of industrial policies

Notes: FDI is foreign direct investment. ICT is information and communication technology.

Sources: United Nations Conference on Trade and Development; A.T. Kearney analysis

Figure 4More policies focus on developing local industrial ecosystems

Key features

1970s and before 1980s–1990s 2000s Emerging

Stabilization, liberalization, laissez-faire economics

Knowledge economy, global value chains

Fourth Industrial Revolution, sustainable development

Industrialization, structural transformation

Policy goals Market-led modernization Specialization, increased productivity

Modern industrial ecosystem development

Creating markets, diversification

Key elements • Limited government involvement

• More horizontal policies

• FDI opening

• Exposure to competition

• Targeted strategies in open economies

• Enabling business environment

• Digital development and ICT di�usion

• Participation in global production networks

• FDI promotion combined with protection of strategic sectors

• Support for small and medium enterprises

• Skills development

• Technical capabilities development

• Innovation in production

• Learning economy

• Development of sectors related to sustainable development goals

• Public–private knowledge, technology development institutions

• Acquisition of foreign technology

• Entrepreneurship environment

• Import substitution

• Infant industry protection

• Sector development

• Gradual and selective opening to competition

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Despite their mixed historical record, modern industrial policies are also being used as a blueprint for improving national competitiveness in response to increased global competition for trade, investment, and technological leadership. These policies also encourage businesses to set up or expand local operations in these markets. As a result, there is a complex patchwork of regulations and dynamics across countries that businesses must monitor and manage. The reinvigorated use of industrial policy across the world—both distinct from, and in part the result of, rising populism and nationalism—is therefore another driver of localization business strategies in the age of multi-localism.

The implementation of these national industrial policies can take many forms, including the promotion of FDI and requirements for local sourcing, production, and hiring. Global investors tell us they are facing localizing pressures on both the incentive and disincentive sides of the policy spectrum. For example, governments are investing in public infrastructure and education, actively promoting public–private sector partnerships, and engaging in other activities to support a strong business environment to entice companies to invest. They are also requiring foreign companies to have a local partner, source locally, and adhere to local hiring quotas. The common thread is setting conditions on businesses’ operations by granting or hindering market access with the purpose of supporting local industry, employment, technology transfer, and economic diversification.

There are many current examples of government policies to “indigenize” production, each with a unique approach. As a part of “Make in India” and the associated National Manufacturing Policy, for instance, New Delhi has set a target of increasing manufacturing’s share of GDP to 25 percent and creating 100 million jobs in the sector. To accomplish this, manufacturers are incentivized to enter or expand their operations in India in the form of significantly relaxed foreign ownership rules. However, this liberalization has come with strings attached, including a phased manufacturing program, which uses import taxes to encourage domestic production. An important success story for “Make in India” is that Apple is now assembling iPhones in India for the rapidly growing local smartphone market—although the company has had difficulty expanding local value addition while meeting the phased manufacturing program’s sourcing requirements. And at least in part as a result of Indian industrial policy, GE is making a $200 million investment in Marhaura, India—a relatively poor city 600 miles southeast of Delhi—to produce locomotives. GE clearly sees the broader benefits to its business for making such an investment. For India, the benefit is clear. Bringing new investment to less productive regions within an economy can help close the internal gap between wealthier and economically disadvantaged areas.

The use of industrial policies in the Gulf Cooperation Council as a means of diversifying their economies away from oil exports is another notable example of a sustained, government-led commitment to localize. Mubadala Investment Company, the sovereign wealth fund of the emirate of Abu Dhabi, has established joint ventures and entered into other types of agreements with a variety of firms in the aerospace sector, including Sikorsky Aerospace Services (now Lockheed Martin), Boeing, Airbus, and Rolls-Royce. These agreements address various industrial policy goals. The Boeing agreement, for instance, is described as a collaboration to “enhance the skills of Emiratis” where the two companies are “working on projects in the areas of people development, engineering, research and development, and education and training.” Similar localization efforts are occurring in Saudi Arabia, accelerated by the government’s Vision 2030 campaign and its National Transformation Program 2020 to diversify the Saudi economy away from oil. Saudi Aramco, the world’s largest energy company, is playing a leading role in this effort as it seeks knowledge partners to broaden its capacity as a key economic player in the country. To that end, the company has reportedly been pursuing

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partnerships with the world’s leading technology companies, including Alphabet and Amazon, to establish a technology hub within the Kingdom.

Rwanda may be a less well-known example. Through the “Made in Rwanda” program and associated policies, the government seeks to increase Rwanda’s economic diversification and competitiveness. Some progress has been made, including Volkswagen’s recent announcement that it would assemble three new vehicle types locally in a new $20 million plant, all to be used for local ride-hailing services. This year, the government also erected trade barriers against the second-hand garment industry, particularly against imports of used clothes from the United States. These changes are part of an effort to bolster the struggling domestic clothing industry, which has been stifled by the flood of cheap, used clothing.

Many modern industrial policies also seek to develop and enhance a technology-enabled economy and take a leading role in global technological innovation. This strategy includes, on one hand, supporting education and skills development and trying to establish innovation hubs and, on the other hand, requiring that technology and intellectual property be shared with governments or local industry. China serves as the best and most consequential example. Beijing’s conditions on market access in exchange for technology transfer to local companies are designed to foster growth and innovation. The government’s innovation policy dating back to 2006 explicitly states that a key method for China to create its own intellectual property and proprietary product lines is tweaking foreign technology. The policy defines indigenous innovation as “enhancing original innovation through co-innovation and re-innovation based on the assimilation of imported technologies.” While effective at promoting Chinese technology development, countries such as the United States have characterized such policies as unfair trade practices and theft of intellectual property.

Another example of forced technology transfer is Brazil’s Productive Development Partnership. The arrangement is designed to foster technology transfer in the pharmaceutical space from private-sector partners—including international pharmaceutical companies Roche, Novartis, and Sanofi—to the public health sector in exchange for five-year supply deals negotiated with the Brazilian Ministry of Health. Brazil’s public health sector is therefore bolstered by knowledge and technology transfer as well as cost savings and other benefits. Localization along these lines also provides both opportunities and risks for multinational corporations, with the protection of intellectual property a stand-out concern.

Developed market governments are also using industrial policies. A key example is the US effort to change NAFTA’s rules of origin to require the auto manufacturing industry to produce more in high-wage countries (preferably the United States). This endeavor underscores the high-stakes approach that the United States is taking to foster growth in the manufacturing sector. And the Trump administration’s recent imposition of tariffs on steel imports and mandates to increase domestic steel utilization similarly have industrial policy goals. They are part of an attempt to revive US steel production and boost the number of jobs in that industry. These pressures—if not outright policies—have been growing for years. In part because of pressure to create US jobs, for instance, Apple decided in 2012 that it would invest $100 million in US manufacturing, including some production of their Mac computers.

Other developed markets have industrial policies to promote the growth of strategic sectors. Germany’s INDUSTRIE 4.0 is focused on leading in today’s emerging technologies by fostering the transition toward digital and advanced manufacturing. It supports research initiatives and promotes their rapid deployment among domestic manufacturers to improve Germany’s overall manufacturing competitiveness.

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Japan, through its Industrial Cluster Policy, is similarly looking to increase its manufacturing sector competitiveness, in large part because of the competitive challenge from Chinese manufacturing. Started in 2001, the policy is designed to foster networks and partnerships between industry, universities, and governments that will result in regional industrial clusters through which innovation and new businesses will develop. The Japanese government looked to other industry clusters such as Silicon Valley in the United States, the Martinsried area outside of Munich, Germany, and Daedeok Innopolis, a research park in South Korea, as models for the types of ecosystems it seeks to foster. Japan is also using a number of other policies to support its domestic industry, including the 2013 Industrial Competitiveness Enhancement Act, which includes tax incentives, the facilitation of business restructuring and consolidation, regulatory reform, and other measures.

Technological change: Shifting economics of production locations Technological advances are also contributing to the rise of the age of multi-localism. A.T. Kearney’s extensive work with the World Economic Forum (WEF) 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 technologies is transformational and disruptive. Put together, they will increasingly upend traditional business models, modes of communication, and the structure of the global economy. This transformation is referred to as the Fourth Industrial Revolution (4IR), and it will transform what, where, and how products are designed, manufactured, assembled, distributed, consumed, serviced after purchase, discarded, and even reused (see figure 5).2 In short, it will significantly disrupt global value chains. And it is arriving more swiftly than most business and government leaders realize.

Manufacturing supply chain models

Large centralized factories Globally distributed centers of manufacturing

Sources: Hewlett-Packard; A.T. Kearney analysis

Figure 5The Fourth Industrial Revolution is enabling a shift toward localized production

Content owner

Digital file transfer

Local transportation

Distributedlocal manufacturing

Customer

Content owner

Physicalprototype transfer

Global transportation

Local transportation

Centralized manufacturer

Distribution or warehouse

Customer

2 As World Economic Forum Founder and Executive Chairman Klaus Schwab outlines in his book, The Fourth Industrial Revolution, this revolution “is characterized by a range of new technologies that are fusing the physical, digital and biological worlds, impacting all disciplines, economies and industries, and even challenging ideas about what it means to be human.”

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Valued at $35 billion globally, advanced robotics is the 4IR technology that is already having the biggest impact on manufacturing. It is also the one that companies can use to produce cost-effectively in local markets around the world, including in developed markets where labor costs are higher. Increasingly sophisticated automation, particularly when coupled with rising transportation costs, is thinning out the level of labor arbitrage that exists when producing in low-cost countries.

Although additive manufacturing, of which 3DP is a major component, is still in the earlier stages of development and adoption, it is likely to have one of the most significant impacts on localization of the various 4IR technologies in the medium to long term. According to A.T. Kearney estimates, 3DP is poised to disrupt and redistribute $4 trillion to $6 trillion in the global economy in the next five to 10 years. In the United States alone, almost half of production in industrials, automotive, consumer products, healthcare and medical devices, and aerospace will be affected by 3DP over the next decade. This technology is so transformative because it has the potential to break apart centralized manufacturing into distributed manufacturing centers that can be located nearly anywhere consumers demand. The entire supply chain would then shrink, allowing local manufacturing centers to ship directly to customers and removing much of the need for distribution and warehousing.

The growing global market for personalized and customized consumer goods is an important example of 3DP-enabled localization.

Use cases for additive manufacturing are growing as the technology matures, resulting in the technology-enabled reshoring of production. In an interview with A.T. Kearney, CEO of 3D Hubs Bram de Zwart described how he sees localization of production occurring in real time. The company, which began as a peer-to-peer network of 3D printers, is now expanding its network and operations into on-demand manufacturing processes such as computer numerical control machining and injection molding. Demand for these types of services is growing as more companies bring smaller batches of products both to their home markets and closer to their customers, wherever they may be. For example, one smartphone manufacturer relied on 3D Hubs to 3D print and distribute all of their accessories in Europe. “If one of their customers ordered a smartphone case in Bulgaria, we would immediately start production of that case in Bulgaria,” said de Zwart. “And when factoring in the cost of production, shipping, and inventory for a similar case that was made in China, the cost to the consumer was comparable.” In fact, he believes one of the greatest barriers to broader adoption of 3DP is the failure to factor in the full costs of development, production, shipment, inventory, and delivery of goods produced on global supply chains when their costs are compared with the costs of 3D printing the same goods locally.

The growing global market for personalized and customized consumer goods is an important example of 3DP-enabled localization. For instance, Adidas is now using 3DP to produce the soles of sneakers at new factories in the United States and Germany, rather than in one of their traditional factories in Asia. Their long-term vision includes locally printing a pair of shoes for

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customers after an in-store scan of their feet, allowing for a fully personalized and locally produced product. Other consumer applications include customized hearing aids and dental braces. And, in May 2018, it was reported that all members of the Swiss Guard charged with protecting the Vatican would begin to be outfitted with 3D printed helmets. These helmets retain the unique and historic design, but they cost half the price, and their production time is just 14 hours, compared with 100 hours for the steel helmets.

In heavy industry, aerospace is becoming a breakout sector for experimenting with and deploying additive manufacturing technologies. Several aerospace companies, including GE and Boeing, are using these methods to produce titanium products for airplanes. Industrial companies are also looking to 3D printing as a localization solution. In partnership with GE, the United Arab Emirates announced in March 2017 that it would become the first country outside the United States to host a 3DP “microfactory” to serve the country’s industrial clients.

For industries in which some degree of customization is required or desired, then, 3DP offers an efficient means of meeting customer demand. But while companies across industries are using 3DP for rapid prototyping and product development, 3DP still does not make economic sense for mass-produced components and final products in many industries—at least not yet. One important consideration in the production location decision for many companies is the need for an ecosystem of suppliers and talent. In the electronics industry, for example, most suppliers are in Asia. As a result, the economic rationale continues to be strong for major electronics manufacturers to locate production there. More broadly, as pointed out in the A.T. Kearney Reshoring Index, significant offshore investments that companies have already made have a long operating life cycle and are not easily abandoned.

Production enabled by 4IR technologies also faces potential political and social challenges. The high level of automation means that 4IR production is not likely to be a significant employment generator. This driver of localization is, therefore, in some ways at odds with governments’ industrial policies to promote localization, which often prioritize job creation. Just as advanced robotics and artificial intelligence reduce the labor intensity of manufacturing, allowing production to leave low-cost countries, they are also likely to displace some low- and medium-skilled workers in developed markets. In fact, a 2016 Korn Ferry study found that two-thirds of executives of global firms valued technological assets over their workforce, with 44 percent believing automation, artificial intelligence, and robotics would lead to workers becoming “largely irrelevant.” In fact, global media is already sounding the alarm about anticipated job loss, with headlines such as “Ten million British jobs could be gone in 15 years.” Production enabled by 4IR technologies may therefore exacerbate rather than assuage the trend of rising populism fueled by wage destruction and job loss. This trend may slow 4IR adoption in markets where policymakers and the public react poorly to companies that use 4IR technologies because they equate such technologies with job losses. In the medium to long term, however, 4IR development and adoption will continue to shift the economic calculus for production locations, facilitating greater localization.

Corporate governance: Expanding emphasis on the social license to operate The relationship between the private sector and society is changing as consumers, communities, and investors have higher expectations for the value that businesses should provide in the age of multi-localism. Executives overwhelming told us in our 2017 Foreign Direct Investment Confidence Index survey that there is a strong and positive role for business leaders and

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businesses in maintaining the social compact—the relationship between government, businesses, and society that promotes the mutual benefit of all. More than 80 percent of executives, for instance, report that businesses should foster economic growth through capital investments, R&D spending, and other investments and that businesses have a role to play in reducing inequality by paying employees adequate wages and providing career advancement opportunities. A similarly large share also believes they should work with government leaders to develop policies that improve overall economic and social outcomes.

There are two main drivers of this push. The first is consumers, more of whom are voting with their wallets for values-based, sustainable, and socially conscious brands, as discussed. Brands that are most closely associated with these values and seek out these types of consumers are, therefore, likely to carve out a competitive advantage.

In fact, a variety of companies are building brands around these ideas. Brilliant Earth and Hume Atelier, for instance, have embraced ethical and sustainable diamond sourcing. And the shoe company TOMS widely publicizes its One for One program, which gives a pair of new shoes to a needy child for every purchased pair. The company has since expanded this model to include eyewear, coffee, and apparel. Starbucks has not only committed to 100 percent ethical sourcing of its coffee, but also led on workforce issues, providing hourly workers with insurance and sick leave, among other benefits. And the rapidly growing fast casual restaurant Shake Shack and the Washington, D.C.-based pizza chain &pizza are just two among a growing number of companies paying more than minimum wage, resulting in stronger brand loyalty and employee retention.

The second important driver of the heightened emphasis on businesses’ social license to operate is the growing number of investors who are making vocal calls for companies to forego the dominant market impulse to pursue short-term performance gains over long-term value generation. To be sure, accounting for environmental, social, and governance (ESG) issues is a well-established set of criteria for socially conscious investors. These investors have traditionally excluded “sin stocks” such as alcohol, gambling, and extractive industries from their portfolios. Today, however, investors are not only avoiding putting their money into industries that do not align with their values, but are also using their investment positions to push for what they see as positive corporate change with broader societal impact. The share of ESG assets under management is growing dramatically as a result (see figure 6).

Note: Excludes assets under management that are based solely on “exclusionary screening” such as excluding tobacco and alcohol stocks. Data reflects only the more ambitious investment strategies.

Sources: Pictet Asset Management, Financial Times; A.T. Kearney analysis

Figure 6Investors are focusing on the societal implications of a company’s actions

Environmental, social, and governance assets% of global fund assets under management

2012

19

2014

20

2016

24

2018f

27

2020f

31

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Activist investors, for example, have pressured several S&P 500 energy companies, including ExxonMobil, Chevron, Royal Dutch Shell, and Occidental Petroleum, to recognize and incorporate the long-term risks of climate change into their business planning. This effort, of course, is not entirely altruistic, as long-term investors worry about the impact of climate change on their investment portfolios. But it is driving change in corporate governance. In May 2017, ExxonMobil announced that it would improve the way it communicates the risks of climate change, new technology, and shifting energy demand to its portfolio after a non-binding proposal urging this action passed with 62 percent of votes, over management opposition. Gender inequality within companies is now on the radars of activist investors as well, particularly in Western countries. Starbucks, Apple, Amazon, eBay, and Citibank are among the companies that have published their gender pay data after facing investor pressure. And Blue Harbour has made advancing the role of women in the company a key objective of its investment in WebMD, alongside enhancing data privacy and security. This focus responds not only to increasing popular attention to this societal issue within key markets, but also to a growing body of evidence that suggests that more board diversity contributes to better business outcomes.

These and other longer-term and more socially conscious investor actions stem from a growing recognition that rising inequality, resurgent populism and nationalism, and growing anti-corporate sentiment globally create significant risks for companies, both now and in the future. But these actions are also invigorating a debate over how far corporate responsibility extends. Does this responsibility reach their shareholders? Their employees? The communities in which companies operate? Or society at large? In January, BlackRock CEO Larry Fink made a significant mark on this debate. In a letter to other CEOs entitled “A Sense of Purpose,” he wrote:

“Since the financial crisis, those with capital have reaped enormous benefits. At the same time, many individuals across the world are facing a combination of low rates, low wage growth, and inadequate retirement systems. … I believe these trends are a major source of the anxiety and polarization that we see across the world today. … We also see many governments failing to prepare for the future. ... As a result, society is increasingly turning to the private sector and asking that companies respond to broader societal challenges. Indeed, the public expectations of your company have never been greater. Society is demanding that companies, both public and private, serve a social purpose. To prosper over time, every company must not only deliver financial performance, but also show how it makes a positive contribution to society.”

The importance of having a social license to operate has long been well-understood in the extractive industries, where mining, oil and gas production, hydroelectric dams, and other industrial projects significantly impact the surrounding environment and community. Examples of conflicts between companies and communities over water and land access, pollution, and other issues can be found throughout the world. Furthermore, one study documented the seriousness with which extractive industry companies treat their social license to operate, finding that between 2007 and 2012, nearly every member of the International Council on Mining and Metals, the Minerals Council of Australia, the Mining Association of Canada, and the Prospectors & Developers Association of Canada publicly used the term “social license to operate.” There are global standards for good governance in these industries as well, including the International Organization for Standardization’s guidance on social responsibility and the Extractive Industries Transparency Initiative. These examples demonstrate that the industry, in collaboration with governments, nongovernmental organizations, and others, is trying to promote strong community relations and engagement while reducing the risk of corruption across the value chain.

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In recent years, A.T. Kearney has observed that a broader set of companies are talking about their social license to operate, their value to society, and related concepts. These companies are looking not only to avoid negative externalities and risks to their business operations, but also to have a positive impact on the communities from which they source, in which they produce, and in which they sell. And while many of these efforts support the values espoused at the global corporate level, they are necessarily carried out and monitored at the local level, contributing to the localization of business decisions and operations. These efforts, in fact, require greater localization of decision-making authority within a company because only actors at the local level are able to truly understand the effect of business operations on the community.

Companies are looking not only to avoid negative externalities or risks to their business operations, but also to have a positive impact on the communities from which they source, in which they produce, and in which they sell.

Global chemicals company BASF, for example, has launched an effort called “Value to Society,” in which the company conducts publicly available assessments of its social impact in monetary terms in a number of areas, including wages, human capital, health and safety, air pollution, water pollution, land use, and water consumption. Coca-Cola has similarly organized a number of initiatives around the United Nations sustainable development goals, most notably including efforts to reduce packaging and increase recycling, improve water stewardship, and promote the economic empowerment of women. The company has also made more effort in recent years to better understand and improve outcomes within its supply chain. For example, as the world’s largest purchaser of sugar, Coca-Cola has been working to address issues related to child labor, forced labor, and land rights in the sugar industry.

The flip side is that there are risks associated with failing to secure and maintain the social license to operate within communities. One example is the conflict that erupted between Seattle and Amazon earlier this year over the city’s plan to raise taxes on its biggest companies to fund affordable housing and homelessness programs. The city repealed the tax after Amazon threatened to leave Seattle, but the conflict resulted in numerous protests and considerable ill will against Amazon within the Seattle community. Similarly, environmental activism is increasing in localities around the world, raising the costs to companies that do not adopt more sustainable business practices that are mindful of the community’s long-term health. This trend is intensifying in emerging markets, where communities are pushing back against pollution and demanding higher air quality. Communities across Asia, for example, are increasingly critical of investments that do not take into account local environmental and social costs. This resistance is even taking place in response to China’s Belt and Road Initiative infrastructure investment. Communities are protesting Chinese investment on national sovereignty concerns and punishing domestic politicians seen as supporting such investment over the wishes of the local population. For instance, the role of China was a key issue in the recent election of Malaysia’s prime minister.

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This new attention to long-term societal issues may presage a broader shift in measuring corporate success, from short-term maximization of shareholder value to long-term maximization of stakeholder value. This change would mean that companies make decisions to benefit not only their shareholders, but also their employees, customers, suppliers, and the community writ large—and simultaneously maximize shareholder value in the long term as a result. These forces are causing more companies to consider the broader impact of their businesses in the communities in which they operate—and over a longer time horizon than they had considered in the past. In so doing, they are adding momentum to localization trends.

Becoming a Locally Integrated EnterpriseThe degree to which localization pressures are prevalent varies across markets, but all markets display at least some of these pressures on businesses today. In this emerging age of multi-localism, in which companies are under pressure to localize across many fronts, all companies must determine how to develop and maintain a local presence and identity in all markets in which they operate—that is, they must become locally integrated enterprises. This new strategy represents a substantial departure from the heyday of globalization, when rapid expansion into new markets was itself viewed as an indicator of success. Therefore, while operating globally may not be the right strategy for all businesses today, thriving locally in the markets in which they operate is an imperative for all businesses in an age of multi-localism.

There is no one-size-fits-all strategy for becoming a locally integrated enterprise. Each company must unbundle its value chain to determine which aspects need to be customizable or close to the customer. In some cases, a globally integrated value chain will still be viable. In many others, a shift to regionalization, country-level localization, or even subnational localization of the value chain and product development will be necessary to compete. Many businesses that are already globalized and doing well are likely to persist in that strategy. But those that are venturing beyond their home and core markets today may find that a domestic or regional strategy is most profitable. A.T. Kearney is seeing such strategic retrenchment among clients throughout the world. We have noticed, for instance, that Colombian companies that have pursued a “multi-Latin” strategy throughout South America are now divesting their foreign operations after disappointing returns on investment.

Executives must be careful, however, not to overcorrect in the face of these rising localization pressures. As Pankaj Ghemawat—professor at the New York University Stern School of Business and a prolific writer—argues in his latest book, “Instead of simply succumbing to shifts in sentiment and yo-yoing between extremes … companies should take a long, hard look at globalization before deciding how they are going to deal with it.”3 Companies must strike a delicate balance between fostering resilience to localization pressures and managing complexity in their global operations.

Recalibrate global operationsTo compete in an age of multi-localism, executives must reassess their core markets and then recalibrate their global commercial efforts accordingly. This recalibration includes carefully aligning the company’s value proposition in those markets selected for investment and developing a detailed understanding of consumer trends beyond traditional indicators such as demographic data and income levels. Executives must also examine their global operations and supply chains

3 Pankaj Ghemawat, The New Global Road Map: Enduring Strategies for Turbulent Times, Harvard Business Review Press, 2018

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with the goal of identifying and minimizing the impacts of any vulnerabilities posed by the localization pressures discussed above. For some companies, this effort may mean adding more diversity of suppliers and partners to protect against disruptions and single points of failure in an otherwise highly efficient and streamlined global supply chain. For others, it may mean organizing R&D on a regional rather than centralized basis or investing in production capabilities closer to customers to more rapidly respond to changing consumer preferences and growing local competition.

We have identified five strategic questions for executives to consider as they look to recalibrate their company’s global operations in a localizing world. Each question will be answered differently based on industry, geography, and other variables, resulting in divergent business models (see figure 7). For example, multinationals in the extractive industries have been facing localization pressures and stakeholder concerns globally for a long time, while those in the consumer goods industry may only more recently be encountering some of these challenges at scale. Similarly, businesses accustomed to working in markets that have long had nationalist influences, such as in China or the Middle East, may be further along the localization path than companies that are just starting to grapple with rapidly emerging localization pressures in some developed markets, such as the United States. But even if a fresh assessment based on our five strategic questions leaves a company in the same quadrant of the recalibration matrix, it is likely that the various localization pressures will shift companies’ positions within that quadrant and thus will require some adjustment to compete in the age of multi-localism.

Source: A.T. Kearney analysis

Figure 7The unique impact of localization on each company will determine the appropriate business model

Recalibration matrixMany and diverse

Few and similar

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lized

Glo

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ed

Localize or regionalize supplychains to support similarcommercial activities in

a variety of markets

Maintain globally integratedsupply chains to support mass

market production fora variety of markets

Localize or regionalize supplychains to support uniquecommercial activities in

a limited number of markets

Maintain globally integratedsupply chains to support unique

commercial activities ina limited number of markets

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e m

arke

tsC

ore

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Supply chains Supply chains

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Identify core markets for the commercial footprint

The first two of these strategic questions relate to identifying the company’s core markets for its commercial footprint.

1. In which markets is the company’s value proposition most relevant?

A comprehensive assessment of the value proposition—the fundamental value the company provides to its customers—is necessary for all businesses. While this step seems elementary, understanding how a company’s value proposition aligns with conditions on the ground in any given market—both today and into the future—is no small task, particularly given the shifts in the global operating environment amid the strengthening drivers of localization. Executives must take an unbiased and hard-nosed look at how the company’s value proposition applies within each of the markets in which it has commercial operations. This evaluation should be completed in conjunction with a more traditional market assessment, which evaluates a market’s demographics, income levels, and competitive dynamics, among other factors. A company should then consider divesting from markets in which its value proposition is not well-aligned and instead explore entering new markets in which it is more relevant. In short, companies should only have a commercial footprint where they have a right to win.

Companies that successfully venture beyond their home markets maintain a single, clear strategy centered around the company’s unique value proposition. This distinction is true both for Western companies that have entered emerging markets as well as for emerging-market companies that have expanded internationally. Certain South African companies, including insurer Sanlam, serve as compelling examples of the latter. Those that have been successful have developed a regionalization strategy before implementing a globalization strategy, selected their markets in a systematic manner, and positioned themselves very well within each market they entered.

2. To what degree do consumers in core markets prefer local brands and products?

The rapid speed with which consumer preferences are changing, spurred by the growth of social media and e-commerce, means businesses must be more in tune with the local consumer than ever in the markets in which they have a right to win. The localizing pressure of consumer preferences is stronger in some markets than others, and it is certainly stronger for some types of products than for others. While consumers may prefer local beer, for instance, they may be perfectly content buying global mass market dental floss. A careful assessment of local consumer preferences—paying special attention to Millennials and other rising generations—is therefore needed for every product a company sells or plans to sell in each market. The degree to which consumers prefer local brands and products in a company’s core markets will inform strategies regarding local partnerships, acquisitions, packaging, and marketing.

The growing threat from local competition adds to this dynamic consumer landscape. The increasing capabilities of local companies, combined with government support for start-ups to stimulate local innovation in a growing number of markets, means the competition is taking on new forms as well. An assessment of the local competitive landscape will also help shape the entry strategy for new markets. Acquisitions of or joint ventures with local brands may be the most viable entry strategy in markets with strong consumer preferences for localized products and where a strong local competitor already exists. For instance, when Walmart entered South Africa, it acquired a majority share in local retailer and distributor Massmart and was careful to maintain that name to appeal to South African preferences for a local brand. The challenge for companies is to strike the right balance between the efficiency of scale of global brands and the appeal in local markets derived from investing in smaller brands.

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Determine how globalized the supply chain should be

The remaining three strategic questions for executives help them assess the appropriate globalization level for their companies’ supply chains.

3. How will 4IR technologies affect the company’s supply chain and production costs and locations?

The 4IR technologies, particularly robotics and additive manufacturing techniques such as 3D printing, will enable the cost-effective production of a wide variety of goods, both mass produced and highly customized, in more locations around the world. This innovation will provide businesses with the opportunity to create shortened supply chains by redesigning some of their fundamental aspects, including sourcing and product supply locations, manufacturing footprint, and R&D locations. In some cases, these changes will involve a relocation of existing production. In others, they will be introducing new kinds of localized production to offer a more personalized or customized product in a local market. A European eyewear company, for instance, continues to produce mass-market frames in low-cost production centers, but it has supplemented this traditional product line with a higher-end customizable eyewear line produced using 3DP in Europe. Such shifts may be currently limited to certain industries, but this trend will continue to play out over the medium to long term.

Companies should not, however, shift supply chain and production networks too quickly and dramatically to utilize these emerging technologies. Rather, an ongoing assessment of the options for operations locations is required, and the initiation of pilot projects and other incremental investments is prudent. The extent to which a company needs an industrywide ecosystem to remain competitive should be taken into consideration. And the ability for companies to use 4IR technologies in each market will depend on a variety of factors, including the available talent pool and the degree to which enabling technologies such as 5G wireless networks are in place. This type of country readiness assessment will become a more significant input to global business strategy as 4IR technologies continue to mature and their use becomes more widespread. At the same time, companies that successfully deploy 4IR in a big way first will likely gain a competitive advantage.

4. To what degree are industrial policies used in markets where the company operates?

Industrial policies and other business regulations can result in both opportunities that can be realized and challenges that must be mitigated in any given market. Because of the proliferation of industrial policies in recent years across developed, emerging, and frontier markets, it is becoming more important that businesses monitor this shifting landscape in both the markets where they have operations and those that are considered possible targets for entry.

When assessing the industrial policy landscape within a market, companies should take into account local content requirements and local employment quotas that could raise the cost and complexity of operations. Companies should also be mindful of tax incentives and other sweeteners that may exist. Furthermore, they must work to understand national and local governments’ policy objectives and then collaborate with them to achieve these goals, which may enable a broader and more positive relationship that offers potential bottom-line and intangible benefits over time. The United States is one market in which industrial policies and the politics of business are rapidly shifting, changing the calculus for producers across multiple industries. A.T. Kearney has been working closely with a wide variety of companies to help them determine exposure, pain points, and potential opportunities in this new political and policy environment.

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Importantly, adhering to local industrial policies and other government regulations does not always entail an efficiency trade-off. For instance, a large pharmaceutical company we worked with had centralized packaging of its pharmaceuticals on a global scale. This process required producing and shipping a large instruction packet in all languages and oftentimes cutting apart and repackaging the product to meet local packaging regulations and preferences. The company has recently shifted to a strategy in which instructions are printed locally in a single language and pharmaceuticals are shipped in bulk and packaged locally according to local market preferences. The result is a more efficient global value chain that also allows for more localized packaging as well as less waste.

5. Which of the company’s inputs or final products are at risk of trade protectionism?

Businesses must be aware of their vulnerabilities to trade protectionism or other hindrances to cross-border flows. Trade policies affect the cost of imported inputs—or in an extreme case, even the viability of importing certain goods into the market. When the EU introduced 31 percent tariffs on American motorcycles in June, for example, American motorcycle manufacturer Harley-Davidson announced that it planned to shift some production to Europe to remain competitive in that market. Trade policies also affect the cost and viability of exporting raw materials or certain components from a market. Such policies are often enacted in support of industrial policy goals. For instance, Indonesia banned the export of mineral ores in 2014 to encourage investment in smelters and export of higher value-added products, driving costs higher for global companies such as Freeport-McMoRan.

A sensitivity analysis for the protectionism risk of the inputs and products across a company’s supply chain is therefore needed. This review provides opportunities to consider hedging strategies for the supply of raw materials and other inputs that may be sourced from a single location. And it could potentially change the cost–benefit analysis around having multiple product supply locations and establishing production capabilities at a local or regional level. Several European companies today, for example, are seeking to replace their British suppliers given the United Kingdom’s pending departure from the EU.

Develop sensory perception After executives have identified their company’s core commercial markets and determined how globalized their supply chain should be, they must develop strategies that address the various pressures on companies to localize. These pressures raise the strategic importance of developing and maintaining positive relationships in all communities in which companies operate. Whether businesses are international or domestic, and whether their operations are globally integrated or more decentralized, all companies share a need to become locally integrated enterprises in the markets in which they operate to succeed in the age of multi-localism. Companies need to have a local identity, achieved through some combination of their value proposition, workforce demographics, suppliers, production processes, product mix, and marketing. Only by developing such a local identity can companies effectively mitigate the risks associated with potential reputational damage and disruption of business operations in local markets.

To become integrated in the local community, businesses should develop “sensory perception” in all markets in which they operate. We define sensory perception as the practice of being continuously aware of local conditions and how they are shifting, recognizing a company’s role in shaping and reacting to those conditions, and using that knowledge to develop business insights and strategies. The mix of strategies needed to thrive locally will naturally vary based on the characteristics of each market. Developing sensory perception

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across the five senses—sight, smell, sound, taste, and touch—will enable executives to identify and implement winning strategies for each market more quickly and effectively (see figure 8). And in the age of multi-localism, companies that embrace the sensory perception approach to managing local operations will be best positioned to navigate the increasingly complex global operating environment.

Sensory perception

Source: A.T. Kearney analysis

Figure 8Thriving locally requires an awareness of local conditions

Sight Keep your eyes on the horizon

Smell Follow your nose (trust your instincts)

Sound Listen to and engage with all stakeholders

Taste Monitor shifting consumer tastes and preferences

Touch Keep a finger on the pulse of technological changes

Keep your eyes on the horizon

To thrive locally, executives need to continuously scan the external environment to reduce the occurrence and minimize the impact of surprises and shocks across the markets in which they operate. Given the dizzying pace of change today, the case for engaging in such forward-looking analysis has never been more compelling. But predicting the future is challenging. As we explored in No One Saw It Coming, countless failed predictions related to politics, economics, technology, and other exogenous forces have demonstrated the difficulty of forecasting the future. Planning for the future, therefore, requires acknowledging that inherent uncertainty. Strategic planners must methodically qualify and account for this uncertainty in ways that improve the quality of business decisions. This requires the use of strategic foresight—the systematic management of future uncertainty to inform strategy using a variety of tools that bound the wide range of possible outcomes in ways that help enhance peripheral vision and spur better strategic decision-making.

Global executives see the value in keeping their eyes on the horizon. More than 90 percent of respondents in our 2017 Views from the C-Suite survey said they use at least one strategic foresight methodology in their planning processes. There is a wide range of techniques from which to choose, but two of the most popular are scenario planning and horizon scanning. Scenario planning is most famously associated with Royal Dutch Shell, which has used the technique for

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more than 40 years to anticipate and plan for long-term changes in the company, the energy sector, and the global economy. The commercial results of such planning are well-documented. Apple similarly employed scenario planning to identify future market opportunities and drivers, which helped propel the company’s meteoric rise and dominance in the smartphone market. At A.T. Kearney, we embrace scenario planning as a key tool for developing strategies with our clients. In fact, a recent comprehensive scenario planning with a large process industry company enabled it to reach its market share growth goals well ahead of schedule.

Horizon scanning can lead to similarly positive business results. Telecommunications firm Ericsson uses the technique to better understand the ways in which its industry is transforming, specifically regarding new technologies and financial services. And international law firm Eversheds uses horizon scanning to better understand trends in retail finance. Firms in the fashion industry also use this technique to spot emerging trends in consumer clothing preferences—developments that are particularly important in a localizing world.

Follow your nose

To thrive locally, a company should follow its nose—meaning that executives should trust their instincts and maintain their strategic direction—when presented with a choice between maintaining their long-term values and boosting short-term profits. Consumers, employees, communities, and investors now have greater access to information about company actions thanks to the Internet and social media. They are also more motivated to reward or punish companies based on how aligned companies are with their values. Consumers are voting with their wallets now more than ever before. Edelman’s Earned Brand study found that 57 percent of consumers globally are buying or boycotting brands based on social or political issues and that 30 percent of consumers are taking these actions more frequently today than just three years ago. And although the world is localizing, the implications for companies that do not develop a strong sense of smell can be global. In today’s turbo-charged information environment—when a tweet or video can go viral to millions of viewers around the world in a matter of hours—a company’s actions in one market can have global implications.

Many executives understand this imperative, as more companies are following their noses when dealing with values-based issues involving their companies or brands. Starbucks serves as the most notable recent example. After an employee demonstrated racial bias toward two customers in a Philadelphia store, Starbucks embraced its long-standing value to be a “third place” between home and work where all people feel welcome. It closed all US stores for an afternoon so more than 175,000 employees could have racial bias education training, losing an estimated $12 million in revenue. While Starbucks’ stock price dropped 1.2 percent on the day of the closure, that was much less than the 2.5 percent one-day drop during the height of the media coverage of the incident, and much of the publicity surrounding the effort was positive.

IKEA provides another example of a company that maintained its values when faced with a crisis. The company had long put sustainability at the heart of its business with the slogan “We Love Wood.” But IKEA came under fire in early 2012 because its subsidiary Swedwood was cutting down old-growth forests in the Karelia region of Russia. IKEA doubled down on its sustainability values by launching the People & Planet Positive initiative later that year, which included the goal to have a net positive effect on the world’s forests by 2020. The following year, IKEA’s global retail sales grew by 4 percent.

27Competing in an Age of Multi-LocalismView online: bit.ly/Multi-Local

Listen to and engage with all stakeholders

Companies also need to listen to and engage with all stakeholders to thrive locally. Many businesses continue to focus exclusively or primarily on shareholder value, but they would benefit from a shift to a broader emphasis on stakeholder value. This new paradigm includes factoring in the interests of not only the company’s shareholders but also its employees, customers, suppliers, and the local communities in which it operates. It does not, however, mean making commercially disadvantageous decisions. Rather, companies should pursue their business objectives in ways that simultaneously strengthen stakeholder relations and promote positive second- and third-order impacts. Developing this broader listening ability will help to generate goodwill toward the company and mitigate any potential blowback if and when concerns within one of these interest groups arise.

Companies should pursue their business objectives in ways that simultaneously strengthen stakeholder relations.

As we argued in When Rising Tides Only Lift Yachts, one of the most important means to achieve this shift is to invest in workers, through both compensation and training. Such actions help reduce income inequality, improve worker productivity and retention, and foster a better reputation with customers and the broader community. As described earlier, global executives agreed with this assessment in our 2017 Foreign Direct Investment Confidence Index survey, with 83 percent of respondents saying businesses have a role to play in reducing inequality by paying employees adequate wages and providing career advancement opportunities. Germany’s apprenticeship system is increasingly looked to as a model in this regard, with new German-style apprenticeship programs being established in the United States. And in the United Kingdom, technology companies are leading the pack in terms of taking on apprentices, in part because they see it as the best way to obtain workers with the skills they need and ensure greater employee loyalty (subscription required). A growing number of businesses are investing in other forms of worker education and training as well. Walmart, for example, has formed a partnership with three universities with online programs that employees can attend for $1 per day.

Companies are also using hiring practices to engage with local communities. Giant Manufacturing, the Taiwanese company that is the world’s largest bicycle manufacturer, only hires local people across all 80 countries in which it operates. Some firms go further by prioritizing disadvantaged groups in local hiring efforts to promote greater economic inclusion. For example, Philips and GE have both made visible efforts to hire and train women in Saudi Arabia.

Another strategy along these lines is supporting broader private-sector development within the domestic economy. In Malaysia, for instance, Chinese e-commerce company Alibaba recently partnered with the government to develop a “digital free trade zone” platform. It supports the growth of micro, small, and medium enterprises by facilitating their access to foreign buyers and suppliers and providing them with a variety of trade and logistics services. And Walmart president and CEO Doug McMillon has highlighted the benefits to the local economy of his

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company’s investment in Indian e-commerce company Flipkart: “Our investment will benefit India, providing quality, affordable goods for customers, while creating new skilled jobs and fresh opportunities for small suppliers, farmers and women entrepreneurs.” Given that a key policy focus in India is inclusive growth, McMillon’s comment demonstrates that the company is tuned in to the national political climate and is aligning itself with local stakeholders. It also signals that Walmart sees itself as part of the local economy rather than as a foreign entity seeking to profit from its business there.

Monitor shifting consumer tastes and preferences

The fourth sensory perception that executives must develop is taste, or the monitoring of shifting consumer tastes and preferences. This strategy has long been seen as a business imperative in developed markets, but it is now increasingly important across emerging and frontier markets as well. Thanks to the localizing consumer demand pressures described above, global mass market—or even “glocal”—products based on the tastes and preferences of consumers in a company’s home market may no longer be viable. But even these local preferences, once identified, are not static or homogenous. In America’s Next Commercial Revolution: Influence vs. Affluence, A.T. Kearney finds that younger consumers require more personalized marketing efforts, meaning that B2C brands and retailers need to understand how to detect and react to smaller signals from micro-pockets of consumers.

To thrive locally, executives must monitor these shifts in real time across all markets in which they have a commercial footprint and then react quickly, on a per market basis, with new product development, marketing efforts, and strategy shifts. Implementing this strategy effectively requires an on-the-ground presence in key markets, supported by local employees. This advantage is particularly important as digital marketing and e-commerce grows. If a company does not have a robust local presence, it cannot understand and leverage the digital environment as well as local competitors because of the challenges associated with language and cultural norms. In China, for instance, many Western-based companies lose market share to Chinese firms because they have greater command of the local language and a deeper understanding of social media influencers and trends signaling shifting consumer preferences in real time. Setting up local product development and marketing teams is thus necessary to compete.

These strategy changes, however, often only come about in response to weaker sales performance. For instance, after South Korea-based Hyundai Motor Company suffered a 31 percent drop in sales in China last year, the company determined that its car models were out of touch with local preferences—particularly among younger consumers. In response, Hyundai is doubling the size of its Chinese design group, and it recently debuted a sports utility vehicle that enables the driver to connect with local e-services, such as Alipay, WeChat, and Baidu navigation. Consumer goods giant Unilever has similarly devolved product development and launch decisions to local executives. This shift from its previous strategy of grouping consumers by income segment globally reflected a recognition that Unilever’s brands were losing out to smaller, local competitors in markets all over the world. As a result of more localized product development and decision-making, the number of Unilever’s local product launches grew by 50 percent last year even as the number of global product launches decreased.

Developing more sensitive taste perception is increasingly important, even within a company’s home market. After US-based consumer goods giant P&G suffered multiyear declines in net sales, it came under fire from activist investor Nelson Peltz last year. Peltz’s firm Trian Partners

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argued that P&G was doubling down on its investment in global brands just as consumers were becoming more attracted to smaller brands and local products. Instead, Peltz argued that P&G should create or buy brands that have a story behind them and appeal to Millennials’ preferences. Peltz narrowly lost the proxy vote on this issue, but he was appointed to the board of directors to help move the company in this direction. And P&G is by no means the only consumer goods firm shifting toward a niche brand strategy in the US market, as PepsiCo, Campbell Soup Company, Hershey Company, Mars Incorporated, and others are also buying up newer, smaller competitors.

Keep a finger on the pulse of technological changes

The final sensory perception that executives must develop to thrive locally is touch, by which we mean keeping a finger on the pulse of technological changes to determine how emerging technologies could affect a company’s business model or disrupt its sector. Adoption of new technologies has consistently been among both the top-ranked business operations challenges and opportunities in our annual Views from the C-Suite survey. Technology is thus clearly front of mind for C-suite executives—but whether it turns out to be a positive or negative for their business depends on their ability to develop the touch perception.

In some cases, emerging technologies offer new market entry strategies for companies. The rise of platform companies—or marketplaces that match vendors and customers—serves as one such example. Launched just 10 years ago, Tmall is China’s largest B2C e-commerce site. In fact, with more than 500 million monthly users, it is one of the top 10 most-visited websites in the world. More Western brands are recognizing the opportunity to use Tmall to enter the Chinese consumer market. In April, Yves Saint Laurent (YSL) Beauté entered the Chinese e-commerce market by offering its products on Tmall. The brand sold about $6 million of merchandise in the first day, setting a new record. This e-commerce strategy enables YSL Beauté not only to reach millions of Chinese consumers efficiently, but also to tap into Tmall’s consumer analytics to better tailor marketing campaigns and product launches to local consumer preferences.

Technologies can also offer a way for companies to localize their internal operations. New workflow platforms can make category knowledge available globally on demand throughout a company, enabling better information sharing. Procurement is one such area in which A.T. Kearney sees enormous opportunity. The Next Procurement tool, for instance, creates a global procurement database that enables each local procurement team to tap into global efficiencies of scale, but also to deviate when it makes sense for the local market. More broadly, this tool demonstrates the possibilities technology presents for simplifying the complexity associated with pursuing localization strategies.

Executives should also keep a finger on the pulse of trends in technological adoption by consumers, as such trends can inspire new marketing strategies. Hindustan Unilever (the India-based subsidiary of Unilever) offers an innovative example of such touch perception. The company noticed that with mobile phone adoption in India, it became a common practice to place a call and immediately hang up to send a missed-call notice—alerting the recipient that the dialer wanted to get in touch without using any costly mobile minutes. In response, Hindustan Unilever launched a marketing campaign encouraging people to call a number and hang up. This call automatically generated a free callback with a pre-recorded entertainment clip from a Bollywood star accompanied by a Hindustan Unilever product advertisement. In the first four months of this campaign, sales of the product tripled in the target area.

Simple awareness of technological innovations, however, is not enough. Touch perception also means executives should exercise hands-on demonstrations of emerging technologies. All too

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often, business leaders become excited about a new technology but do not have a specific use case in mind. Alternatively, some executives can be unsure how a new technology might be used to make their business more efficient or responsive to changes in the market. The former pitfall may lead to costly technology investments with little to show for them, while the latter may cause a company to fall behind its competitors.

One emerging technology with which many companies are experimenting in a productive and measured manner is blockchain, a distributed ledger system that enables a diverse, globalized user base to engage in trusted, secure transactions instantly and at low cost. Because transactions are verified and placed within this distributed ledger, records become virtually impossible to hack, alter, or forge. A variety of consumer goods companies have identified blockchain as a technological solution to assist with meeting emerging consumer preferences for ethical and sustainable sourcing of the products they buy. The Global Sourcing Council, for example, highlights that 10 major consumer goods companies and retailers are participating in an IBM project to explore blockchain’s use in food supply chains. Separately, the Coca-Cola Company is already using blockchain to reduce the prospect of the surreptitious use of forced labor in its supply chain.

New Business Strategies to Compete in an Age of Multi-Localism The age of multi-localism is the new normal for global businesses. The five localization pressures we discuss in this report have gained considerable strength in recent years, with no signs of abating. In fact, we are now only on the early part of the maturation and adoption curve of 4IR technologies, so this localization pressure will play a particularly strong role in the decades to come. And while political movements and consumer preferences may be more ephemeral, islandization and the desire for local products are reinforced by the other localization pressures and thus are also likely to persist for the foreseeable future.

Of course, business decisions have a wide range of drivers, and these other factors may interact with localization pressures as well. Japanese cosmetics company Shiseido, for example, recently opened new production centers in Japan and shifted much of its production back home. This move was inspired, in part, by localization pressures, including the growing appeal of the “made in Japan” label for local consumers and the automation technologies that enable the company to operate efficiently even in a high-cost labor market. But this shift was also the result of the appeal of the “made in Japan” label to consumers throughout Asia who associate it with high-quality products. This additional driver of the business decision—distinct from the localization pressures—has generated strong export growth for Shiseido as well as a thriving travel retail channel within Japan.

Our surveys of global executives and the many examples of companies pursuing localization highlighted above demonstrate that companies already see the need to adjust their business models and strategies to the age of multi-localism. These adjustments, however, will be different for each company as it develops its own, unique locally integrated enterprise strategy. While some companies may need to move to pure localization, others may be successful with a regionalization strategy, and certain companies may find that their global mass market products will continue to be viable. But a singular focus on efficiency in the pursuit of a global presence is no longer the right strategy for long-term business growth. Instead, all companies need to focus on thriving locally in each market in which they have a presence—whether it is just one market or more than 200.

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Ultimately, executives need to answer one overarching strategic question: What is the best way to structure the company to take advantage of global scale and efficiency while simultaneously adapting to the growing pressures of localization? Each company must determine its own solution through a process of careful consideration of each of the localization pressures, their applicability to the company’s industry and the markets in which it has a presence, and the company’s risk tolerance. Executives must unbundle the value chain and evaluate the impact of the various localization pressures on each piece of the business. And they must consider other important factors as well, including the vulnerability of operations and supply chains to climate change disruptions and cybersecurity risks. This process will enable them to anticipate potential localization-driven challenges to their company more effectively, properly diagnose issues as they arise, and adroitly respond with a winning strategy. It will help them avoid being caught flat-footed by any of the challenges that the age of multi-localism brings, from the nationalization of a single-sourced input for a company’s product to the competitive threat of a rapidly expanding local start-up.

To thrive in each market, executives will need to be continuously aware of local conditions and how they are shifting, recognize the company’s role in shaping and reacting to those conditions, and use that knowledge to develop tailored business insights and strategies. In other words, companies must become locally integrated citizens of each community in which they operate, engaging with employees, customers, suppliers, investors, governments, and others to promote long-term value creation. The development of this sensory perception in all markets in which a company operates will be crucial for sustainable profitability and growth in an age of multi-localism.

Authors

Paul Laudicina, chairman emeritus of A.T. Kearney and chairman of the Global Business Policy Council, Washington, D.C. paul.laudicina@atkearney.com

Courtney Rickert McCaffrey, manager of thought leadership for the Global Business Policy Council, Washington, D.C. courtney.mccaffrey@atkearney.com

Erik Peterson, partner and managing director of the Global Business Policy Council, Washington, D.C. erik.peterson@atkearney.com

The authors are indebted to Elena McGovern for her assistance in producing this report.

The authors also wish to thank their many A.T. Kearney colleagues for their contributions to this report, including John Blascovich, Sumit Chandra, Mike Hales, Rudolph Lohmeyer, Kaushik Madhavan, Lynne McDonnell, Xavier Mesnard, Sean Monahan, Brent Ross, Eulalia Sanin, Theo Sibiya, Dan Starta, Yves Thill, Patrick Van den Bossche, Mark Van Weegen, Neal Walters, and Jessica Wolfe.

A.T. Kearney Korea LLC is a separate and independent legal entity operating under the A.T. Kearney name in Korea.

A.T. Kearney operates in India as A.T. Kearney Limited (Branch Office), a branch office of A.T. Kearney Limited, a company organized under the laws of England and Wales.

© 2018, A.T. Kearney, Inc. All rights reserved.

For more information, permission to reprint or translate this work, and all other correspondence, please email: insight@atkearney.com.

The signature of our namesake and founder, Andrew Thomas Kearney, on the cover of this document represents our pledge to live the values he instilled in our firm and uphold his commitment to ensuring “essential rightness” in all that we do.

A.T. Kearney is a leading global management consulting firm with offices in more than 40 countries. Since 1926, we have been trusted advisors to the world’s foremost organizations. A.T. Kearney is a partner-owned firm, committed to helping clients achieve immediate impact and growing advantage on their most mission-critical issues. For more information, visit www.atkearney.com.

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