The Localization Index
International technology companies are localizing their products better and faster than ever before - how can startups in emerging markets compete with tech Goliaths?
When most people in tech hear the word "localization," they likely think of adapting products to local languages. For others, customizing product marketing based on geographical region or including local payment options may come to mind. Regrettably, however, product managers in countries like the United States, renowned for their ability to build great technology products, have a long way to go in demonstrating a better understanding of their customers in international markets.
Having lived and worked in a city as diverse as Dubai, composed of expats from all corners of the globe, I'll be the first to admit I've taken the concept of localization for granted. Across the Arabian Gulf, consumer products are built by default to serve many users from different cultural backgrounds: Indian, Pakistani, European, Arab, and Southeast Asian populations, to name just a few. Cities like Dubai are unique; expats make up approximately 85% of the population, so building cross-market is a must.
And I'll own up to it: I've been drinking the regional Kool-Aid for the past six years. Which sugary red beverage, you ask? I've held that most foreign tech products can't compete with homegrown startups in hyper-local markets. As a former emerging market venture capitalist, I, along with many of my peers, preached that only locally-built technology solutions could truly achieve product-market fit and scale. But, just like in the 90's commercials featuring the joyful anthropomorphic juice pitcher bursting through a wall to the delight of children eagerly awaiting a sugary libation, international tech players seemingly appear from nowhere to join the party in emerging markets.
How much localization is enough?
"I've seen this in many companies; people spend too much time debating that, 'oh, the users in market X are different.' Well, yes, they are different, but they use the product the same way."
Manik Gupta, Fmr. Chief Product Officer at Uber and Google Maps Director in India
I recently listened to an episode of Lenny's Podcast where he interviews Manik Gupta, the former Chief Product Officer at Uber and Google Maps Director in India. In the episode, Gupta reflects on his experience building products in the United States and India. A quick comparison of the two markets shows that India's population is larger, younger, and less wealthy.
Despite these sizable demographic differences, Gupta points out that he was able to take a product built for the developed (and automobile-reliant) US market and launch it in a market with weaker infrastructure and markedly different customer behavior. Localizations included language, regulation, and, more recently, maps for two-wheeled vehicles more common in emerging markets. To give one example from its initial release, Google's directions wouldn't announce street names when providing driving; instead, it would offer instructions such as "take a right after the supermarket."
After Google, Gupta joined Uber as interim Head of Product before being promoted to CPO shortly thereafter. Although he joined in San Francisco after the product launched in India, he was ultimately responsible for ensuring that the product fit the needs of riders globally. In India, ride-hailing was a new product, the consumer app was disrupting offline behavior, and despite operating in a heavily regulated sector, it experienced unprecedented growth. Teams in San Francisco and Amsterdam managed the product.
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If we consider regional presence as the metric of successful localization, then Uber may not be the finest example. The company seceded from China, Russia, and SEA after being bested by Didi, Yandex, and Grab (although I would argue the company fell victim to politics in the first two markets). Uber also lost the localization battle in major Middle East markets to local ride-hailing and technology platform Careem. For example, Careem offered cash payments early on to the credit card-shy Middle East when Uber's intuition honed in the streets of developed markets told them that managing cash would be too costly and operationally complex. I would say, however, that Uber's international challenges were more a symptom of its culture and operating playbooks that sought to steamroll local policymakers (we'll come back to this). However, Uber was able to fiercely compete with every ride-hailing service in the world using the same product and that is no easy feat.
Let's take three other examples that fall into Gupta's paradigm of localization: Slack, Netflix, and WhatsApp, and examine how global tech products can serve international markets without over-indexing on localization.
Slack, born as an internal messaging tool at Tiny Speck in 2013, was originally part of the gaming industry. You're probably familiar with Slack's fun anecdotes and witty regional copy from your workplace; you'd be hard-pressed to find someone who isn't triggered by the sound of a Slack notification. As a testament to its global success, the company has over 10 million daily users in 150+ countries and its name has become a verb (also known as anthimeria).
“Localization builds trust with our customers in a language that they understand, with cultural references that are familiar to them.”
Anca Greve, Slack Director of Localization
Before Slack, there was an abundance of clunky solutions available for business communication globally: Skype, Hangouts, Lync (remember that one, fellow millennials?), email, etc. Instead, Slack built an intuitive UI, starting with text-based messaging and later incorporating VOIP functionality. In 2017, the company expanded language support from one (English) to five (English, French, German, Japanese, and Spanish) for its help center, the main website, and the Slack app.
I encourage you to read this blog post penned in 2018 by a localization manager at Slack. According to this post, four core values guided the Slack team's path as they localized for different markets: courtesy, craftsmanship, empathy, and playfulness. For example, the Slack product team wanted users to feel as if they were speaking to a helpful colleague when using Slack products. To accomplish this in Japan, the team included copy in Japanese, saying, "Good job! Looking at the scenery is good for your fatigued eyes," which reflects being courteous but not overly polite.
I showed the above image to a Japanese friend to verify its meaning, and she was surprised to see this copy at that level of detail localized because, as she put it, the above saying is "very Japanese." By her standards, this demonstrates a deep understanding of the Japanese language and culture on the part of Slack. Slack designers also reduced font sizes by 10-15% in marketing emails to ensure web and mobile accommodation of languages like German and Russian, which have extended character counts.
Aside from language and cultural adaptations, Slack also needed to adapt to local legal and data privacy laws. Still, the company grew to over 150 countries with the same core product and a team of just six people working on localization.
Netflix is a product-led business intertwined with a myriad of licensing complexities. Yet, I love this example for localization because it requires sophisticated streaming technology and advanced matching algorithms while developing a comprehensive understanding of each market's consumer profile and legal requirements for media creation and distribution. Netflix team, if you're reading this, I described your algorithms "advanced," but really, you need to stop recommending that I watch Elf again.
Exported content requires considerable localization. Requirements for censorship, translation, dubbing, and subtitles range widely. To maintain consistency, Netflix maintains a Key Names and Phrases tool (KNP), which is an extensive database used by freelancers and vendors to submit translations. Following the theme of consistency, Netflix seeks out voice actors who, beyond simply sounding similar to the original actors, "embody the spirit of the character and tone." (Denny Sheehan, the director of Netflix's content localization and quality control efforts).
Netflix built its core product for developed markets with robust internet infrastructure and affordable mobile data. 15% of global downstream Internet traffic is consumed by Netflix. However, in emerging markets, consumer apps need to be built accounting for more expensive data, intermittent disconnection from the internet, or, in most cases, both.
"What we're doing is trying to do things like, when people are watching over a cellular network, how to get better quality for fewer bits of data, how to avoid rebuffering in more challenging internet scenarios, like you often hit in India or Malaysia or the Philippines and so forth. Those markets are very important for the expansion of Netflix."
Todd Yellin, Netflix Head of Product
As a 'Money Heist' fan, I wouldn't want to disappoint El Profesor by omitting a crucial component of Netflix's localization strategy: original content. A 2018 Harvard Business Review article states that Netflix produces original content in 17 countries. If any business model were to challenge Gupta's theory on technology being able to grow globally sans heavy localization, this would be it. However, there's a crucial distinction between the technology product that distributes the content and the production business. Netflix isn't developing independent apps by market– it's creating media for use in-market and abroad. Mega-hit series like Squid Game, Money Heist, Sex Education, Lupin, and Peaky Blinders were consumed in their home market and overseas. Tokyo, Moscow, Berlin, Nairobi, Rio, Denver, Helsinki, and Oslo are the names of characters in Money Heist and, unassumingly, the names of cities where the series was made available. Imagine telling someone ten years ago that your tv binges consisted of American, South Korean, and Spanish series.
Again, we see Gupta's theory at play: the technology's use is uniform globally. While the content requires deep localization, Netflix remains competitive with local streaming services and produces world-class local media in major markets like Spain, the United Kingdom, Korea, the Middle East, and India.
Finally, we arrive at WhatsApp – the premier example of rapid product adoption with virtually no localization. WhatsApp launched as an iOS-only app in August 2009, followed by its Android release in August 2010. By February 2013, the company claimed 200 million active users. By 2015, mothers and aunties from the Middle East and Indian Subcontinent had adopted it as their channel of choice to deliver flowery images that read "Good Morning!" and "Eid Mubarak!" to overcrowded family chats.
Aside from adding VOIP modifying limits to groups and a few UI/UX changes, the consumer app has changed very little from its original form. WhatsApp's ubiquity globally, however, has led to the launch of a Business App and countless use cases for emerging markets. It's also important to recognize that the product would have never succeeded on iOS alone, given Android holds approximately 70% of the global smartphone market share.
In Europe and the United States, cultural nuances and data privacy laws limit WhatsApp's consumer use cases beyond messaging and family chats. However, in emerging markets such as Egypt and India, WhatsApp is widely used for social commerce in its original form. For example, even before the launch of WhatsApp Business, women selling clothes and textiles from home used WhatsApp as their sales channel. Acknowledging the product's success outside of its original use cases, in August of 2022, Meta announced a partnership with online grocery player Jiomart in India as the first end-to-end shopping experience in the WhatsApp app. The Realistic Optimist dives deeper into the topic of social commerce WhatsApp in this post.
WhatsApp lends itself well to Gupta's assertion that while users will differ from market to market, their usage behavior remains the same. WhatsApp's user growth is credited to the product itself; only later did Meta seek to innovate around new use cases. Naturally, while use cases may vary between markets or demographics, this presents opportunities for founders and product managers to extend the solution and solve new problems.
Where does localizing global products fall short?
We've covered how global products can succeed in emerging markets without creating separate, standalone products. However, there are some cases in these markets where it's challenging for even an outstanding global tech product to compete with startups leveraging a home field advantage.
The biggest hindrance for global tech companies in new markets is regulation. Regulation in many emerging markets will favor homegrown players who can collaborate with local policymakers. One such example is Lean Technologies, the Open Banking platform of the Middle East. The founders have worked with regulators in Saudi Arabia for years to help them understand the technology behind open banking and its impact on the local financial system. As a counterexample, Wise, the global remittance platform, was famous locally for entering the UAE through a partnership with a local, licensed remittance house but later withdrew from the market, which some have said was due to regulatory challenges. There's little chance we'll see any global FinTechs competing in core financial services in the Region anytime soon.
The second example of global products running to keep up is where local players hold deep private-sector relationships. Such a relationship could take the form of an ecommerce player with exclusive distribution rights to specific brands, a PropTech partnered with one or more large property developers in a market, or a local food delivery app leveraging exclusivity agreements with popular merchants. Some private sector leaders look to work with the 'local' technology brand, and some prefer to work with companies with executives based in the same region.
And finally, there will always be cases where an international product does not align with a country's users. Globally, neobanks like N26, Revolut, Monzo, and several long-forgotten US players launched to improve the customer experience for day-to-day banking and current accounts. NuBank launched in Brazil in 2013 to offer more affordable credit products to consumers, a problem that global neobanks don't solve for. Even a stellar mobile customer experience on, say, the Revolut platform wouldn't have solved for expensive credit faced by customers at their existing financial institutions. Revisiting the example of Uber's challenges in markets like Russia and SEA, the product was well-designed and a fit for many geographies and user personas. However, exporting their US/EU-centric operating model to markets with weaker social and physical infrastructure ignored the cultural and legal sensitivities, i.e. local regulatory requirements, driver earnings, payment preferences, fraud, etc. The question will always be whether companies solving for local problems are venture-hackable.
If you haven't picked up on it already, the secret ingredient for every startup in an emerging or frontier market is the team. These founders and early employees have the advantage of constructing teams with the best-in-market knowledge base of customers, legal frameworks, and go-to-market strategies while leveraging existing relationships. There's also something to be said about early teams and their drive to build a homegrown success story versus establishing another line on a foreign company's P&L.
The competition is getting stronger
The above examples highlight how US-built products are successfully launched in global markets without over-indexing on product localization. There are certainly more: Facebook, TikTok, Spotify, Binance, AirBnb, Calendly, and Zoom all fit the bill. In some cases, such as Netflix, we'll see a 'reverse localization' where technology will serve as conduits to deliver localized content back to its home market.
The world is shrinking, talent is more mobile, and technology is more accessible. With increasing internet and smartphone penetration, emerging markets are more connected now than ever, and digital transactions are the norm in a post-COVID-19 world. As a result, even traditional businesses in these markets, from corner shops to professional services firms, are turning to software products to improve efficiency, reduce errors, and ultimately remain competitive.
You shouldn't walk away with the sense that there's an impending wave of techno-colonialism on the way from the United States and Europe but rather that international companies are becoming smarter with localization, starting with hiring the right teams. International companies are hungry and coming for the collective lunches of copycat entrepreneurs in emerging markets. At the same time, customers will increasingly demand better experiences and pricing.
Bottom line: Startups local to emerging and frontier markets don’t hold the same home-field advantage they once enjoyed. Founders of these companies need to capitalize on their access to local talent and unique relationships to remain relevant. Either way, expect an increased presence and stronger competition from localized international products in emerging and frontier markets in the years ahead.