The Global-Local Balance
At the heart of every global business lies a tension that is never fully resolved: Achieving economies of scale and scope demands some uniformity and integration of activities across markets. However, serving regional and national markets requires the adaptation of products, services, and business models to local conditions.
The examples below illustrate how multicultural companies resolve successfully achieve this global-local balance for their business.
McDonald's adaptation around the world
Communication Part 4 explores how McDonald's successfully adapts to different cultures around the world.
The company achieves this by embedding the Freedom within a Framework approach right at the core of its business model.
McDonald's organisational structure is highly decentralised. The company deliberately gives its national and regional offices the power to adapt to the tastes and preferences of their local customers.
At the same time, regional offices and their suppliers must comply with strict, standardised processes around food safety and quality assurance set globally at the company’s headquarters.
In short, while the outcomes of these local innovations are highly flexible, the process to arrive there is highly structured.
This article in BusinessToday explains how this controlled flexiblity led to the creation of the McSpicy Paneer burger at McDonald’s India. Some of the ways the firm structures decentralised innovation to maintain its global standards are:
Once a year, menu changes are brainstormed at a dedicated team offsite.
New menu ideas must be tested extensively by focus groups.
New local suppliers are carefully selected on the basis of their large, year-round capacity.
The quality of local supplies is checked monthly through site visits from senior managers.
Cultural Adaptation starts at the Top
To sum up, McDonald's "freedom within a framework" approach is set right at the top of the organisation and implemented in its global business model. That way, McDonald's is able to take advantage of economies of scale through standardisation while also meeting local needs through customisation.
Luckily, as a leader, you don't need to rethink your organisation's entire business model to lead your organisation effectively across cultures.
The next example shows how an organisation leverages cultural diversity without disrupting its existing structure. The content summarises research by Dr Hae-Jung Hong and Prof Yves Doz published in L’Oréal Masters Multiculturalism (HBR).
L’Oréal - A Global Leader in Cosmetics
L’Oréal originally founded in 1909 in France is now one of the world’s biggest cosmetics company. It has successfully built a portfolio of brands from many cultures and its sales from Asia-Pacific, Latin America, Eastern Europe, Africa and the Middle-East constituted nearly 40% of the company’s total sales in 2018.
As the company's international activities grew, so did its challenges associated with the global-local conundrum: L’Oréal’s main consumer-products categories are all highly sensitive to global economies of scale and scope, yet to win customers they must also be responsive to local preferences.
Traditional approaches to internationalization probably would not have resolved L’Oréal’s global-local tensions. Structural solutions, such as setting up largely autonomous subsidiaries and regional entities would have compromised economies of scale. Global business units would have ignored the richness of cultural differences across markets.
The only alternative to internationalising the structure was to internationalise the management team.
Internationalising the management team - with a twist
Historically, the group has been led by a management team strongly rooted in its home culture. L’Oréal has had only five CEOs (including the founder), all but one with long tenures and all promoted from within.
The few foreigners who became senior executives took pains to explain that they had worked for L’Oréal for a long time and prided themselves on their perfect French. Lindsay Owen-Jones, who was CEO from 1988 to 2006, was one of them. Although an Englishman, he was described by members of L’Oréal’s founding family as Français dans l’âme (“French in his soul”).
To gain a fresh perspective on its international strategy, L’Oréal could have chosen to hire foreign senior executives from the outside. However, a rapid infusion of international executives would have disrupted the tightly knit community of senior managers grown internally with an intimate knowledge of L’Oréal's operations - a feature so prized by the company so far.
Instead, L’Oréal has dealt with these shortcomings by recruiting and building teams around individual managers, who by virtue of their upbringing and experience have gained familiarity with the norms and behaviours of multiple cultures and can switch easily among them.
Nurturing multicultural executives inside the organisation
Since the late 1990s, L’Oréal Paris —the unit where the Dr Hong and Prof Doz conducted their research on multiculturalism — has placed executives from mixed cultural backgrounds in its most critical activity: new-product development.
These multicultural managers account for a small proportion of L’Oréal Paris employees but for more than a third of the unit’s product development team managers—a balance the unit has maintained for more than 10 years.
Before they reach this position within the product development team, they typically spend many years at L’Oréal working in various divisions. There, they achieve a high level of technical and product expertise and gain important knowledge about the company.
Their tenure typically covers several years at headquarters and regional subsidiaries. This gives them an intimate knowledge of L’Oréal's core (French-influenced) culture and the diverse cultural needs of consumers and employees at an international level. Their promotion prospects, like those of all employees, depend on performance.
Although people rooted in one culture also benefit from international work experience at L’Oréal, the company finds that multiculturals - who have navigated multicultural complexities since childhood - are better placed than others to draw analogies and understand the differences among the diverse cultural groups they encounter at headquarters and abroad.
According to a director who worked with multiculturals for five years, “Their background is a kind of master class in holding more than one idea at the same time. They think as if they were French, American, or Chinese, and all of these together at once.”
Advantages of Multicultural Managers
This very flexible perspective can lead to unexpected opportunities for product innovation and mediating relations between headquarters and its international subsidiaries.
For instance, a French-Irish-Cambodian manager working on skin care noticed that in Europe, creams tended to be either tinted (and considered as makeup) or lifting (and considered as skin care). In short, L’Oréal's skin care solutions tended to be divided into distinct, separate categories - an example of specific thinking discussed in Communications Part 2.
However, many tinted face creams in Asia had a lifting effect, which minimizes wrinkles - an example of holistic thinking discussed in Communications Part 2.
Drawing on his knowledge of Asian beauty trends and their increasing popularity in Europe, he and his team developed a holistic tinted cream with lifting effects for the French market, which proved to be a success.
Multicultural managers have also frequently defused acrimonious communications between a subsidiary and L’Oréal Paris headquarters.
For example, on a project to develop an organic shampoo for the European market, the product development team in Paris asked the Indian unit to find a rare local plant that would provide a key ingredient.
The Indians told the team that they would “do their best” but sat on the request. As the team’s Indian-American-French leader told us, “Eventually the Indian manager said, ‘We need confirmation that this ingredient can really please consumers.’ ”
At this point, the team leader understood that the initial “We’ll do our best” (which the French interpreted as a clear yes) was actually a polite way of saying that they wouldn’t do anything. The “We need confirmation” follow-up signaled that the request was too difficult—but the Indians did not want to come out and say that and thus fail to honour a commitment.
The leader realised that this message would not have been understood by the Paris team. This particular misunderstanding risked triggering open conflict between the two parties, and might undermine trust as well as make later collaboration tasks harder.
Rather than telling headquarters that India wouldn’t come up with the goods, he worked with both teams to explore other ingredients that would not be so challenging to source. Ultimately he found a substitute ingredient and the matter was dropped.
This manager could play a bridging role because he had deep knowledge about both Indian and French ways of expressing commitment, strong communication skills, intense cultural sensitivity, and high flexibility—a bundle of qualities seldom found among managers rooted in just one culture.
Empower your Multicultural Ambassadors
In sum, L’Oréal has transformed itself from a very French beauty products business to a global leader in the past few decades. The company's top management credits their international success to the deployment of multicultural executives who infuse the organisation with the necessary flexible perspective without disrupting the existing structure.
The careful and slow integration of these executives into the company is not enough to explain L’Oréal's success. The key lies in the strategic use of multicultural managers in new-product development, the firm's most critical source of competitive advantage.
This position is crucial in giving multicultural managers the power to influence changes and close cultural gaps where it matters the most for the company. Leaders hoping to bridge cultural gaps successfully must ensure that their multicultural ambassadors get a seat of influence at "the decision-making table".
As a leader, you can choose different routes to bridge the cultural gaps of your organisation. McDonald's empowers its national and regional subsidiaries. L’Oréal places multicultural managers in influential positions.
The next article explores yet another way in which an organisation fosters a multicultural outlook to better serve its internal and external stakeholders.