Digitization and globalization are converging to transform innovation in multinationals across industries. Companies such as Bayer Crop Science, John Deere, Johnson Controls, Philips, and Unilever are pursuing the promise of what we call digital globalization. They are finding that digitally infused innovation assets, such as data, content, product components, tools, and processes, are not only readily portable across national borders but also amenable to mixing and matching. This digitally enabled innovation generates new offerings, business models, and operations to suit specific country markets — at a faster pace and lower cost than previously.
Fashion brand Tommy Hilfiger has deployed a fully digital design workflow across all of its global apparel design teams. Designers catering to the demands of different markets around the world can create, store, share, and reuse digital design assets.1 Transforming traditional design and sample production steps into such digital-infused processes enables the label to not only accelerate its innovation but also diversify its offerings.
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As promising as digital globalization sounds, however, it is facing headwinds that are driving deglobalization (or localization), including trade restrictions and uncertainties fueled by geopolitical tensions and nationalism. China, for instance, recently passed a host of protectionist laws and regulations aimed at controlling the internet and cross-border data flows. As companies such as Apple, Morgan Stanley, and Oracle have discovered, there is ambiguity around what constitutes personal data and what should be localized in China. This is significantly limiting the portability of multinational companies’ digital innovation assets and raising the level of innovation uncertainty and risk.2 Geopolitical tensions can also result in more closed and less trusting stances when companies pursue collaborative innovation ventures.
Thus, for multinationals, the coexistence of globalization and localization creates a challenging context for innovation. How, then, can they pursue innovation to take advantage of the forces driving digital globalization while also adapting to the forces driving localization?
Our research suggests that multinationals can achieve this by calibrating the degree of connectivity among their innovation sources and among their innovation assets based on the forces of globalization and localization within specific geographies. (See “Evaluating the Intensity of Globalization and Localization Forces.”) This calibration results in a tight or loose coupling of innovation sources and assets, with tight coupling creating higher levels of innovation source and asset dependencies, and loose coupling minimizing such dependencies.
1. “Tommy Hilfiger Commits to 3D Design to Realize Ambitious Digitalization Journey,” Business Wire, Nov. 7, 2019, www.businesswire.com.
2. “Inside China’s Cyber, Financial Regulatory Changes and Challenges,” Pymnts.com, Feb. 24, 2020, www.pymnts.com; and J. Kynge and M. Ruehl, “Foreign Companies in China Face Cyber Security Crackdown,” Financial Times, May 15, 2019, www.ft.com.
3. This notion is derived from loose coupling theory. See J.D. Orton and K.E. Weick, “Loosely Coupled Systems: A Reconceptualization,” Academy of Management Review 15, no. 2 (April 1990): 203-223; and K.E. Weick, “Making Sense of the Organization” (Malden, Massachusetts: Blackwell Publishing, 2001).
4. V. Grewal-Carr and C. Bates, “The Three Billion: Enterprise Crowdsourcing and the Growing Fragmentation of Work,” PDF file (London: Deloitte, 2016), www2.deloitte.com.
5. M.M. Mariani and S. Nambisan, “Innovation Analytics and Digital Innovation Experimentation: The Rise of Research-Driven Online Review Platforms,” Technological Forecasting and Social Change 172 (November 2021): article 121009; and C. Kakatkar, V. Bilgram, and J. Füller, “Innovation Analytics: Leveraging Artificial Intelligence in the Innovation Process,” Business Horizons 63, no. 2 (March-April 2020): 171-181.
6. C. Sturman, “Philips and Samsung Partner to Develop Integrated Healthcare Services,” Healthcare Global Magazine, May 17, 2020, www.healthcareglobal.com.
7. “Beyond Borders: Digitizing Entrepreneurship for Impact,” PDF file (Geneva: World Economic Forum, September 2019), www3.weforum.org.
8. Digital Asset Management Market: Global Industry Trends, Share, Size, Growth, Opportunity and Forecast 2021-2026 (Sheridan, Wyoming: IMARC Group, April 2021).
9. A. Baig, B. Hall, P. Jenkins, et al., “The COVID-19 Recovery Will Be Digital: A Plan for the First 90 Days,” McKinsey Digital, May 14, 2020, www.mckinsey.com.