A Study On Localization Strategy

Under the background of the financial crisis, the national strategy of China has upgraded from traditional globalization to internet of things, which put more emphasis on the resource integration and the competition of circulation efficiency on a global scale. Obviously, whether a country has the competitive advantage in the strategy of internet of things decides whether a country can win in the fierce world competition. As to China, the biggest developing country and the second biggest emerging economy in the world, only to speed up the construction of the internet of things and the resource integration could he sustain the right to fairly participate in the international competition and get a greater say. As a consequence, it is an inevitable outcome that Chinese corporations develop their business overseas to set up MNC of our own country to take part in the international competition. There is no doubt that MNC has already become a key power to drive China to develop rapidly and to main sustainable development.In the beginning of this century, when most of the big economies are facing slowing or even stagnant development, China created a miracle in economy. The economy of China develops not only rapidly but steadily, realizing a great change in GDP on both total amount and quality. As the economic body of developed countries, MNC start to focus on R&D and branding marketing which have relatively high additional value in the two ends of the value chain, after experiencing years of economic transition and industry upgrade. They want to control the core technology and operation techniques, and to remove the segment of manufacture processing which is in the middle of the value chain with low additional value, presenting the typical production pattern called "dumbbell".And with the advantage of low production cost, China take over the middle segment in the value chain, and choose the way of common development with MNC. The incredible capacity of Chinese market and the rapid growth of its economy make MNC have to completely review their strategy. MNC have already deployed China as a key market, constantly improving the position of China strategy in their globalization strategy. For developed countries, the purpose of continuous improvement of China is to extend the value chain comprehensively to China.After MNC entered China more than twenty years, there is a common view that only implementing localization strategy can they sustain a long-term development in China. As a result, for Chinese corporations that desire to operate overseas, it is indispensable that they grasp the general principle of the establishment and development of MNC, explore the development history of excellent MNC and study the advanced management philosophy.On the basis of the previous researches of many scholars, take data and facts as the breakthrough point, this paper studies localization strategy of MNC in China systematically and comprehensively, adopting the method of the combination of theoretical argument and practice analysis, of macro-analysis and micro-analysis, of induction and deduction, and the combination of qualitative analysis and case study. And the innovative point of this study is that it studies localization strategy from the point of the case of Nestle, a world famous MNC, and discusses many specific measures Nestle take to carry out localization strategy. Further, it points out the limitation and shortage of the localization strategy of Nestle, either. In the end, it makes some appropriate suggestions to Chinese MNC to better operate business overseas.Nestle corporation is one of the earliest MNCs entering China, and also one of the successful MNCs implementing localization strategy. As a consequence, the localization strategy of Nestle is more mature than other MNC. Hence, it is of significance to choose Nestle as a typical case to deep study its management strategy in China. The Nestle Company established in the1860s now has already become a business in the global multinational giants with its business spreading all around the world. Nestle company has branches in nearly80countries spreading over five continents around the world with495factories. Its research and develop network consisted of29research institutions has225,000employees, and the sales volume a year has already reached more than$50billion. Due to98%of the sales volume come from abroad, Nestle company is called "the most international of the multinational group "In1987, when the KFC Company wanted to open the first fast-food restaurant in the most prosperous district in Beijing, Nestle Company decided to set up the first diary product joint venture company in Shuang Cheng city in the remote northeast of China. It is the best choice for Nestle Company to firstly establish a base site in rural area of China, and then expand its business to the city step by step, for in this way the company could approach the local customer by understanding the Chi culture gradually. This shows one aspect of Nestle’s localization strategy.As KFC launched its Chinese style breakfast, L’Oreal developed a lot of cosmetic products that are suited for Chinese people, and Coca-Cola began to produce tea beverage, Nestle also developed a series of Chinese style products through a long time of market research and investigation according to Chinese people’s taste. For example, banana sir, blue bear doodle, pudding ice cream and litchi ice are four sorts of products of Nestle Company that are designed for young people, which are developed through numerous researches on Chinese teenager’s taste. In2001, Nestle Company’s first R&D center was set up in Shanghai, exclusively aiming at Chinese consumers. This shows another aspect of localization strategy of Nestle.Since the birth of Nestle Coffee, its advertising has changed several times. At the very start, the Nestle Company changed its emphasis on convenience to flavor, and then added the emotional factors of life and people to ads. At first, it has a new breakthrough in traditional process that making coffee from coffee bean, so that its convenience of instance coffee in their advertising was emphasized. Since the time-and-effort-saving ground coffee beans machine was gradually popularized, the original advantage of convenience was no more a difference. As a consequence, the focus turns to the purity, good taste and rich aroma, emphasizing that Nestle coffee is the "real coffee". When people gradually recognized that "coffee is the nestle coffee", the Nestle coffee turns its focus of the advertising into a life oriented mode, especially putting importance on adapting to the local young people’s lifestyle. Transnational M&A is another part of localization strategy of Nestle Company. Through the hundreds of years of investment expansion and mergers and acquisitions, Nestle laid himself the leading position in the global food industry.As a responsible transnational corporation, Nestle Company take active part in performing its social responsibilities. Just take the Wenchuan earthquake as an instance, Nestle company has, in succession, not only donated to the disaster area a lot of Nestle food, but a number of money amounting to nearly RMB9millions, showing its deep sorrow and empathy to the great loss of the people in this area.Though Nestle has made great success in localization strategy, there are also some disadvantages or shortages. For instance, the phenomenon of "crazy eat while not fat" in M&A. Although Nestle has improved the rank of ice-cream market by M&A, its market share did not increased a lot and not in a good situation. In2010, the market share of ice-cream in China was just3.2%, lagging far behind brand like YiLi ranking first in China, even lagging behind Unilever, with a market share of7.4%. Another example is the war of instance coffee between Starbuck and Nestle. Because there is no agreement between Nestle and government, the kind of loose cooperation shows its disadvantage in the corresponding economic crisis and the drought in April. At the meantime, Starbuck breaks in by providing ideal purchase agreement with local government.Although the localization strategy of Nestle is not completely successful, there are still some advantages that Chinese companies can learn. At present, China’s multinational enterprises are in the early stages in development; while almost all of them have sustained high growth and good performance. China’s multinational enterprises, taking Haier and Lenovo as examples, are good at capture business opportunities and take risks, they take good use of the following strategy in the industry and come to the fore, and taking their own strategy as the guidance, they take the initiative to attack, and even merger and purchase powerful multinational companies. Chinese enterprises have begun to stepping to the globalization stage, and already have a certain degree of globalization. However, the problems of Chinese companies can not be neglected that many efforts are needed to be made by both government and enterprises. And the localization strategy is a good choice to solve some of its problems. As far as I am concerned, it is advisable for Chinese enterprises to learn and imitate the experiences of well-known multinational company. Chinese enterprises should actively expand to overseas markets, make adjustment to localization management to better suit them, and take good advantage of local resources to promote development of the enterprises. That means Chinese MNCs should absorb the essence of famous foreign MNCs and try to combine its own situation and local resource and characteristics to better develop business overseas.The localization strategy is not only a social subject rich in content, but also a theory that improved continuously. Due to that it is a relatively short time after MNCs enter Chinese market, and the practice exploration is still in the beginning stage, the research on localization strategy is neither comprehensive enough, nor deep enough. In future, with further development of the corporations, there will appear more problems on localization of MNCs in China that need us to make further research.