The Case for Localization

Over the past five months I have dedicated considerable attention to “localization.” According to Wikipedia, “Localization may describe production of goods nearer to end users to reduce environmental and other external costs of globalization.”

The Relocalization Network, which is affiliated with Julian Darley’s Post Carbon Institute defines “relocalization” as “- a strategy to build societies based on the local production of food, energy and goods, and the local development of currency, governance and culture. The main goals of Relocalization are to increase community energy security, to strengthen local economies, and to dramatically improve environmental conditions and social equity.”

Another way to consider localization is to see it as the shrinkage of distance between the point of production and the point of utilization or consumption. It is the conversion of bits and bytes into material form as close as possible to where that form will be used. In contrast, globalization is the virtualization of experience, knowledge, and innovation so that intellectual property created can travel from anywhere to anywhere quickly, easily, at minimal cost.

Of course, one can look at the world today and effortlessly conclude that neither of these is current reality. We take advantage of low-cost skilled labor to manufacture in different countries only to move parts, components, modules, and whole goods vast distances to reach the place of final assembly or sale. Quite obviously, we produce far from the point of use in many instances.

So what will change this? It is a matter of impetus. Concern about continuation of the fossil fuel economy is one such prompt. There are those who support the contention that the fossil fuel economy is unsustainable due to depletion of reserves, especially oil. Still others claim that regardless of how much fossil fuel there is our consumption of it adversely impacts the environment resulting in severe consequences over time. And there are those who maintain that the political ramifications of buying fossil fuel from countries whose governments adhere to a different moral framework are not advantageous. These are certainly powerful factors directed toward changing current business models and social dynamics.

However, another deciding factor is technology and how people appropriate it. As technology continues to get smaller, faster, stronger, more embedded, and more intelligent it facilitates localization. At one time high capital investment costs and the resultant economies of scale prompted centralization and regionalization to amortize these investments. Now, rapid technological advances are placing increased integration, capability, and capacity in more compact and powerful packages. This scales the costs and complexities downward at a propitious rate. And it leads to very innovative applications that change how we live, what we do, and how we do it: iPhone , Cheetah Prostheses, and CEREC by Sirona.

Societies also change when their members are introduced to these technologies and latitude is given for people to experiment with them in their local context. Working with various technologies and their local applications increases the number of people who are “domain experts” in the solutions that arise. Such domain expertise accelerates the rate of application successes with local markets which sets up the possibility of exporting those solutions to markets elsewhere through a phenomenon called “innovation blowback“. But do those global enterprises want that? Sounds highly disruptive!

Here is where the interplay between globalization and localization can be discerned. The initial aim of globalization is to move technology to areas of the world that have a decided labor cost advantage and ship the goods produced or services provided back to the originating point of the technology. This offers a payback for the investment in the technology and provides an advantage until competition finds a location of similar or lower labor cost. As the competence, capability, and capacity increase in those countries that have been enrolled in globalization, their domain expertise about the products and services they are producing or providing increases stage by stage: parts, components, modules, systems, and whole goods. Ultimately, the originator seeks to establish markets and ramp up SALES of those products and services in low-cost countries. Their driving interest is to see that domain expertise continues to forge markets for native flagship products and services into non-native, new markets close to low-cost production and support operations. This means changing the practices and behaviors of people in low-cost markets. But do those governments want that? Sounds highly disruptive!

India and China represent two examples. Both have significant populations engaged in subsistence agriculture. Many of the world’s largest agricultural equipment manufacturers have production operations or are in the midst of setting them up in those countries. Of course, one of the main reason they went there at the outset was to tap sources of low-cost, skilled labor. Now, the next step in leveraging their investments is to establish local markets for the same or similarly scaled products as those that are successful in North American and European markets. That means introducing to India or China the kind of mechanized agricultural practices practical in two continents that have a combined population equal to India OR China is going to be exceedingly disruptive. The net result of mechanization on that scale is the elimination of the work people are doing with technology. Such unemployment forces people to move out of rural areas and into the urban centers for employment. Can the infrastructures of those urban centers and the surrounding environment sustain such an increase in population?

What kind of solutions would an India or China develop? Perhaps ones which are smaller, faster, stronger, more embedded, and more intelligent? In other words, the development IMPERATIVE of technology plays evenly across all countries, societies, and markets. HOW that imperative is exercised, though, is specific to the conditions within the local markets.

What if the domain expertise about those technologies feeding products and services going to North American and European markets was diverted to solutions for local markets? Would the solutions for an India and a China be different than what works so well in North America or Europe? Would those solutions not only have value locally, but also well-serve markets further from home? And of equal or even greater interest, what happens in the long run if countries like India or China perceive they are not being supported by corporate interests based in North America or Europe to develop locally-appropriate solutions which would clearly be in the best interests of those countries?

And these questions constitute a prompt to consider localization further in future posts…

Originally posted to New Media Explorer by Steve Bosserman on Friday, July 6, 2007 and updated on Sunday, July 8, 2007

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