"Go global" is the new motto in Asia. After two waves since the 1970's with the pioneers (Samsung or Sony) and the builders (Taiwanese, Singaporean), now come the newcomers from all the emergent countries - with China and India leading. The Lenovo/IBM affair or the Bangalore new multinationals are signals of a new world competitiveness environment. More and More Asian companies are embarking on a profound transformation propelling them from the national boundaries to global players. This shift is both a challenge and an opportunity for companies in Europe and around the world.

Gurusonline listened to Frank-Jurgen Richter, editor of "Global Future- The Next Challenge for Asian Business", a book you must read. Frank was the director of the World Economic Forum's Asia and founded Horasis, a consulting company based in Geneva, Switzerland.

Jorge Nascimento Rodrigues, editor of Gurusonline.tv, May 2005

Global Future The Next Challenge for Asian Business The team: Arnoud de Meyer, INSEAD; Pamela Mar, associate director, World Economic Forum; Frank-Jurgen Richter, President of Horasis; and Peter Williamson, INSEAD Other articles about the Asian Emergence: Transition Reports from Gurusonline: - http://www.gurusonline.tv/uk/conteudos/mashelkar.asp - http://www.gurusonline.tv/uk/conteudos/gu_report.asp Presentation of an article of Peter Williamson: - http://www.gurusonline.tv/uk/conteudos/williamson.asp

West executives and readers in general were astonished last year when heard that IBM finished a big deal with Chinese Lenovo/Legend and more recently the media revealed that Chinese companies are buying or trying to buy different assets like oil companies in Canada or automobile brands in England. Is it a remake of the Japanese strategy of the 1980's?

Globalization has become the key word for many Chinese companies with many aspiring to propel themselves from national champions to global winners. In a sense, this is a recap of Japan's ambitions during the 1980s. Be it computer maker Lenovo's acquisition of IBM's computer business, Shanghai Automotive's plan to buy Rover and TCL taking over certain assets of the French multinationals Thomson and Alcatel, Chinese firms are certainly showing their global ambition. And they are right to do so - with the opening of world markets and the continued globalization of services they might risk to fail if they do not have real global scale, continuing to build their strategies of home advantages. Powerful forces of change are reshaping the competitive environment for Chinese companies and for many globalization will be a key to success in the new competitive game.

«Becoming a truly global company means much more than establishing a portfolio of units in different countries; the whole must be worth more in terms of efficiency and the capacity to create value for customers than the sum of its parts.»

But how can a Chinese company best climb the globalization staircase, avoid its pitfalls and build a sustainable global organization?

Historically, most Chinese companies pursued a mix of two basic strategies in the face of globalization: wall off their home market to become a dominant player locally and penetrate overseas markets by exporting from their home base. Compared with their Western counterparts, relatively few invested in building extensive networks of subsidiaries, and even fewer have run their expanded presence as a single, integrated, global company rather than a portfolio of semi-autonomous business scattered around the world. But becoming a truly global company means much more than establishing a portfolio of units in different countries; the whole must be worth more in terms of efficiency and the capacity to create value for customers than the sum of its parts. The key challenges Chinese companies facing today are related to laying down the necessary infrastructure with partners, ranging from financial to supply-chain networks; building the necessary capabilities, like brand building and people developments, and creating a sustainable global organization. Chinese companies need to have a long-term approach enabling them to interact with global stakeholders like governments, the media and even Non-Government Organizations (NGOs).

Also we assist Chinese state companies being instrumental for Chinese geo-strategy regarding Latin America, Middle East or Africa in the field of energy commodities. It seems that this aspect is quite different from the Japanese and Korean strategies of the 1980's and 1990's. What's your comment?

China is an energy-hungry country. The country now accounts for one-third of the world's growth in oil demand. With annual economic growth rates over nine percent, China's economy is leading what many observers call the greatest economic revolution in 500 years. The government is right to focus on securing the energy needs of the coming decades. To fuel its continuing economic growth, China needs to ensure a stable and secure supply of affordable energy. China's demand for energy will reshape economic structures around the world. The China National Offshore Oil Corporation (CNOOC), Sinopec, and other energy firms are about to buy into companies in Africa, Asia, Latin America and the Middle East. CNOOC, for instance, is currently considering a takeover of the United States' ninth-largest oil company, Unocal. In Iran, Sinopec acquired a 50 percent share in the Yadavaran oil field. Indeed, this aspect is quite different from the Japanese and Korean strategies during their own globalization thrive. We currently witness history in the making.

«Today, India is a global power in IT, business process outsourcing and biotechnology. We can indeed speak of an 'Indian miracle'.»

Only recently West executives and readers in general "discover" the shift in India, from a passive offshoring location to a new road map for the emergence of an Indian IT and bio world leader - as Dr. Mashelkar, author of the road map, says: IT in the 21st Century must be an acronym for "India Technology". Can you explain this shift in India and why the Westerners get so much time to understand what is going on?

As India marks a decade of economic reforms it stands poised to enter a new era. With the reform process finally starting to pay off, the economy has been developing along the path of sustainable growth. If the current reforms are sustained, India will be the third largest economy in the world by 2050. The surprising growth of India's economy over the last few years might be signalling a new era provided that the political and economic landscape, now more business friendly, also succeeds in lifting the nation's social condition. Knowledge and sciences have remained highly admired throughout India's history. Today, India is a global power in IT, business process outsourcing and biotechnology. We can indeed speak of an 'Indian miracle'. Knowing the intelligence, talents, imagination and creativity of the Indian people, I am sure that India will surprise us once again. India has skilfully maintained important values throughout its history, including democracy, respect and admiration for "learned people", for their culture and religions, tolerance for the "other", close family ties as well as caring for the elderly and less fortunate. That's the root for India's future rise to global eminence. Indian entrepreneurship and Indian technology will reshape our global economies.

Do you think the main structural barrier to go abroad for Asian companies is the traditional conglomerate model, the business portfolio from A to Z?

Yes, the traditional Asian model of expansion related to a portfolio of businesses - the Japanese keiretsu, the Korean chaebol and Overseas Chinese conglomerates and Chinese state-owned enterprises constituted a structural barrier to go abroad. Look through any list of the world's truly global companies - organisations with an integrated network of subsidiaries that span the world -, Asian companies are under-represented compared with their American and European counterparts. This is despite the Asia's long trading history and high-profile multinational pioneers from Asia, such as Sony, Samsung Electronics and Kikkoman, whose international expansion we explore later in this book. Compared with their American and European counterparts, relatively few invested in building extensive networks of subsidiaries with full-fledged sales, manufacturing and service operations, and support functions around the world. Even among those who did, even fewer developed the processes and systems to run them as a single integrated, global company rather than a portfolio of semi-autonomous businesses scattered around the globe.

Why?

Many Asian companies have prospered based largely on what can be termed "resource-based" advantages: access to low-cost raw materials and labour, preferential access to capital, and government licences obtained through local relationships. The Salim Group and Asian Pulp and Paper originating in Indonesia or Renong and TRI in Malaysia would be good examples. These companies often came to dominate their home markets. These types of resource-based advantages, however, are largely immobile. A company that thrives because of low raw material costs or access to a government licence can potentially export its product competitively. But a company that relies on resource-based advantages will have little to bring to an overseas market when it establishes a subsidiary there.

«A company that thrives because of low raw material costs or access to a government licence can potentially export its product competitively. But a company that relies on resource-based advantages will have little to bring to an overseas market when it establishes a subsidiary there.»

Do you think the traditional paradigm of internationalisation based in the "planting the flag" is also a barrier for globalisation of Asian companies?

'Planting the flag' is a strategy doomed for failure. Traditional models of internationalization have tended to be based on taking products or services companies perfected at home and replicating these offerings in new national markets. Following this strategy often leads to widely dispersed networks of subsidiaries linked backed to the headquarters, but relatively independent from each other. According this model, internationalization becomes a matter of planting the flag in promising new markets. I strongly believe that building a global company requires a determined campaign; one can climb the staircase at the pace one chooses, but trying to skip steps is dangerous and risks creating an unstable global edifice. There is an over-arching sequence to building a global company - foundations come first, followed by the necessary capabilities to push on higher and further, crowned with the ability to become a good corporate citizen who proactively interacts with the various global stakeholders. Climbing each step is an active process that involves organizational learning; the learning loop involved in taking each step will help companies to consolidate their position and to prepare them for the next ascent. Each step represents a Great Leap Forward that must be consolidated before moving on. Significant globalization is seldom achieved from incremental linear change. The big challenge for Asian companies is to avoid a halfway into globalization. For those firms with the right visions of globalization and the related implementation skills the future will be great.

«It does not make sense in today's globalized world to manufacture TV-sets in Western Europe - the costs are just too high.»

World-class products at third-world prices is the business model for going abroad of Asian latecomer companies?

That's the business model of the future. Take the Lenovo-IBM deal - this deal makes lots of sense. It is a great leap forward. Even though margins in the PC business are very thin I think that the combined company may be able to challenge Dell - the market leader. The formula Western technology + Chinese costs, market and speed will be the winning formula of the future. It is good that the combined company has a clear structure right from the beginning. I welcome that Lenovo decided to keep IBM's senior people in place - as they are experienced veterans in the PC industry. The combined company represents a 'yin and a yang' - the best of two worlds. Likewise the TCL-Thomson deal - the French company Thompson divested its consumer electronics division which wasn't profitable any longer - as it does not make sense in today's globalized world to manufacture TV-sets in Western Europe - the costs are just too high. TCL, on the other hand, got hold of a respected brand and notable inroads into the European market. Though not grabbing the headlines, Chinese small and medium-sized businesses have also been making purchases around the world, and this trend will speed up.

Truly global companies - with a balanced breakdown in revenues and R&D locations through continents - are rare. Can you give examples of Asian companies that fits this metanational strategy?

Truly global companies of Asian origin often did not follow Asia's traditional mode of corporate globalization - the conglomerate approach. They preferred to build up systems-based advantages such as a superior supply-chain management, high-class branding and a global approach towards human resources. It is hardly coincidental that one common trait in their growth experience is the perceived need to globalize operations and markets. This may seem to recall the heady days of the 'expansion-at-all-costs' mentality, which prevailed before the Asian crisis but, in fact, is of a very different nature. The three companies which we portray as 'Metanationals' in our book-Sony, Samsung Electronics and Kikkoman-evolved along the lines of a very careful but purposeful globalization. One thing is clear: Sony, Samsung Electronics and Kikkoman have to constantly reinvent itself. Sony is a good example - they just announced a radical shift towards the future appointing a foreigner at the helm of this global pioneer. Business prospects are only as good as the next product or initiative. The ability to learn-and unlearn-is a prerequisite even for such successful Metanationals.

«Those who have stayed overseas form a potential network of allies; the ones that have returned bring home potentially a vast wealth of know-how about foreign markets and culture. But a pre-requisite to leveraging this potential advantage is an appreciation that today it is knowledge and values, not just resources that will be decisive in future global competitive battles.»

Do you think it could be a trend for Asian globalized companies to have CEOs from other countries and continents, including from Europe and the US? A few examples come to my mind - the Italian at Acer, the Brazilian from Renault at Nissan (and now head of the French multinational), the English Sir at Sony.

I see a clear trend - Asian companies are increasingly run by professional managers from abroad. I do not want to discredit the concept of "family" business - traditionally, the founder's relatives and friends have been in charge to run the different units - but rather to assert that companies which are to globalize successfully must be astute in ascertaining which aspects of the practice to preserve and which to shed in their globalization process. Nissan's Carlos Ghosn is a good example of how a foreigner can realign traditional Asian businesses. He used his 'outsider advantage' to break with old habits - he is a case study in the power of transformative leadership. Carlos Ghosn, Sir Howard Stringer of Sony, and Gianfranco Lanci of Acer are also leading a trend in Asian business towards younger executives. Nearly every week brings fresh news of a venerable Asian firm naming a 40-something executive to a senior spot, and I expect this movement to continue.

Other than the Western guys, do you think the sons of the brain drain, the Asian knowledge Diaspora can be of help?

Yes. Asian companies coming late to the globalisation game can benefit from an important advantage: talented and successful Asians have preceded their companies overseas. The best universities of the U.S., Australia, and U.K. and to some extent continental Europe are populated with many Asians. Some of these best and brightest have stayed, others have returned home. If cleverly exploited this group can be an enormous advantage to a budding global corporation. Those who have stayed overseas form a potential network of allies; the ones that have returned bring home potentially a vast wealth of know-how about foreign markets and culture. But a pre-requisite to leveraging this potential advantage is an appreciation that today it is knowledge and values, not just resources that will be decisive in future global competitive battles.

Can you give examples of well-succeeded global strategies of Asian companies, incumbent and latecomers?

Many Chinese companies do have what it takes to succeed globally. They are able to quickly climb up the globalizations staircase. Cisco's main competitor, for example, the Chinese high-tech giant Huawei, clearly showed what it takes to challenge a global behemoth. Chief Executive Ren Zhengfei is executing a clear vision - he is putting emphasis on soft factors as leadership, brand building and sustainability. His endeavours are clearly paying off. Other players like Haier and UTStarCom are catching up as well. Chinese companies are just starting to think about going global. The winning strategy is therefore far from clear and those who, with the right assets and resources, are able to win small victories on their journey may in the end reap the greater rewards. I admire the pragmatism of Chinese entrepreneurs - they are clearly oriented towards enacting visions for a sustainable future.

One of the book conclusions that probably applied for latecomers in Asia and everywhere, is the "temptation" to internationalise too quickly and think it is a "natural" (logical) step for everybody. Can you comment on that?

In many cases, the internationalization of Asian companies happened to quickly - many of those rapidly acquiring companies do have 'digestive disorders'. The top management was just focused on making the acquisition happen - and did not really envision how the post-merger integration could look like. TCL for example is currently learning how to deal with European worker unions, as they want to close some of the factories they inherited from Thompson. CNOOC is struggling with unproductive structures and processes in Indonesia. After all, I still believe that those acquisitions made sense. It is now all about implementation, streamlining, and creating a new global culture. As those companies develop a presence in multiple markets their survival as a whole will depend in large parts on their ability to enhance and transfer their knowledge throughout the entire organization. This means identifying insights gleaned from one business line or market and being able to disseminate these insights internally in a way that is useful for other businesses.

«M&A is the buzzword of the day. Many European companies still think that they should use Asian companies to expand their market positions in Asia. Much too often, they are not entirely aware that it can be the other way round - Asian companies are fighting back! They want to use their European competitors as a bridge towards Europe.»

European SME and the majority of West business groups usually regard Asia as a
place for outsourcing low cost manufacturing or offshoring a few pieces of the value chain. A few companies think of Asia as location for R&D operations or other high-value chain parts. What would you recommend?

Today Asia is a hotbed for R&D. Just think of Singapore new thrive to become the world's leader for biotechnology, or China's competitive edge in IT. Asia can provide both - low cost manufacturing as well as high-end services - that's a great combination. Just imagine the following set-up - implementing R&D and management services in Shanghai, and manufacturing your products a bit further to the West - in Jiangsu or Zhejiang province. You get the best of two worlds. To better differentiate their products and services, Asian already started to conduct R&D in global hotspots of new technology and locations with a deep pool of qualified scientists and engineers, to complement innovation activities at home. They recognized that they require the globalisation of a new, broader range of activities than in the past.

Europeans think of Asia usually only for buying there a position through joint-ventures or direct location. Only a few think of Asia as emergent companies that need well established "bridges" to come to Europe and the US or Latin America. What would you recommend?

Asian firms increasingly find that their home base is no longer competitive as the base for the majority of their manufacturing or back-office service operations. To maintain their existing supply-chain advantages they will need to globalise - relocating some operations closer to their target markets to provide more rapid response and customisation. M&A is the buzzword of the day. Many European companies still think that they should use Asian companies to expand their market positions in Asia. Much too often, they are not entirely aware that it can be the other way round - Asian companies are fighting back! They want to use their European competitors as a bridge towards Europe. This century is finally an Asian one.

Contacts:
Dr. Frank-Jurgen Richter
HORASIS. The Global Visions Community
http://www.horasis.org
E-mail: richter@horasis.org

THE BOOK - THE PROJECT

How came this idea of a book about and for the Asian incumbent and emergent companies?

My current organization HORASIS: The Global Visions Community is a strategic advisory helping Asian companies to globalize. With this book I intend to present to a broader audience some of my own practical experiences of working with Asian companies. The book originated at one of the Asia summits of the World Economic Forum - I have been the World Economic Forum's Asia Director until 2004. The two INSEAD-professors Arnoud de Meyer and Peter Williamson, my former World Economic Forum-colleague Pamela C.M. Mar, and myself led a workshop on the globalization of Asian firms. The workshop was extremely successful and we felt that we should further explore the subject. We subsequently developed a framework of globalization particularly tailored to the needs of Asian companies, and we invited some of the CEOs attending and speaking at the workshop to summarize and contribute their very personal experiences of globalization. We have been inspired by the fact that Asian companies are truly under-represented on any list of the world's truly global companies - organizations with an integrated network of subsidiaries that span the world - compared with their American and European counterparts. This is despite Asia's long trading history and high-profile multinational pioneers from Asia, such as Sony, Samsung and Kikkoman, whose international expansion we explore in this book. Our vision is to provide a blueprint for the globalization of Asian firms, enabling them to catch up with their Western competitors.

Is this book also a kind of follow up of the INSEAD research in the 90's about the metanational strategies and the most recent work on the emergent Asian multinationals? Prof Williamson was evolved in both lines of INSEAD research.

The book stems from a long-term partnership between INSEAD and the World Economic Forum to provide latest thinking on corporate strategy and global competitiveness. Professor Williamson and the other members of the research team recognized from the very beginning that the internationalization of Asian firms is part of a more general phenomenon that goes beyond the particular circumstances in Asia - the globalization of capital, free trade, and mobility of people. INSEAD conceptualized this phenomenon by calling for 'metanational' strategies - Multinationals that try to force existing operations into foreign markets are in deep trouble. Instead, businesses must leverage knowledge from around the world to become 'metanational'. Professor Williamson called those companies 'Metanationals' which are able to perceive the world not as a series of nation states, but as a global canvas dotted with knowledge, capabilities, and potential customers and alliance partners. This revolutionary view clearly inspired our new book 'Global Future'. Asian companies will fail if they do not have real global scale, continuing to build their strategies of home advantages. Yesterday's environment may have given little incentive for Asian companies to globalise. But the reverse is true today: globalisation is now becoming an imperative for more and more Asian firms.

Have you a roadshow of the book already planned?

Yes, indeed. 'Global Future' reveals how Asia's giants have grown into multinational companies and provides insight into how today's globalizers can achieve the same success. As this book is a very practical tool on how to globalize Asian companies we worked out a roadshow, together with our contributors - the CEOs of some of Asia's best know companies like Samsung Electronics, Sony, Kikkoman, Li&Fung, SingTel and others, to spread and apply the knowledge we gathered under one cover. We have set up a series of speeches, workshops, and consultancy projects - in Singapore, Malaysia, Hong Kong, China, Korea and Japan.

Are you expecting to organize a roadshow in Europe?

Yes, we are currently on the road to introduce the ideas we propose in our book. Peter Williamson and Arnoud de Meyer are promoting the book throughout their INSEAD-network. There is quite an interest in European academic and business circles to learn about the globalization of Asian firms. I frequently engage with European Multinationals at their strategic management events to address the issues we raise in this book. European CEOs want to be well prepared for the next wave of Asian business.

© Gurusonline.tv, 2005