Sajid Saab and Tejinder Saab has already provided almost accurate (it would have been 100% accurate if the word were spelled as ਸਥਾਨੀਕਰਨ instead of ਸਥਾਨੀਕਰਣ), still I find that explanation is lacking. Also we translate the word 'local' as ਸਥਾਨਕ and ਸਥਾਨੀ is no where to be seen in current usage. I have not come across any newspaper articles/books recently where ਸਥਾਨੀ is used in stead of ਸਥਾਨਕ, so in my opinion ਸਥਾਨਕੀਕਰਨ is a better word.

Now let me provide the much needed explanation:

Localization can be defined as the process of adapting a product or service to a particular language, culture, and desired local look-and-feel.

For example, when you localize a software, you remove the words and terms which might seem offensive in another language and replace with suitable local words.

localization is ਸਥਾਨੀਕਰਣ.

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Note added at 7 hrs (2011-09-06 13:05:06 GMT)
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Though one of the dictionaries I have shows the above spelling, but ਸਥਾਨੀਕਰਨ is more preferred spelling.