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VOL.VIII, NO. 4

Internet Address: tam@arm.edu.ph

A

THENSIAN

MANAGE,R AUGUST/SEPTEMBER 1995

COVNR STORII]S

Technical Analysis

Management Strategies for theASEAN-10

byProfessor George H . Tnn, AIM In a follow-upto lastFebruary-March's Technical Analysis coverstory,Prof.GeorqeTan"furthers the "truth" in Fi6onaccinumbersandrati"os with solidchartanalvsis.

by Mnrk B. Fuller,Monitor Company Youcanwork out to competitivefitnessin theASEAN-1O by makingthreechoices: whereyou locateyour homebase, whatadvantages you want to exploitfurther,andwho you ally with.

Managingin DevelopingCountries 23 by Dr. lnmesAustin, HaroardBusiness School Prof.JimAustinof theHarvardBusiness Schooluseshis Environmental AnalysisFramework(EAF)in theASEAN-10 settingto scanpossibleareasto leverageinto competitiveNESS.

MANAGEMDNT

BUSINDSS RDVIf,TY

J-I-Tin a Smallfob ShopCompany

41

AcrosstheCulturalGap

43

byProfessor MarianoS. Lagman , NM Prof.NingLagmanrelates a casestudyof using.lust-in-Time for bothp"urcliasing andproduction in anarchitectural productsfirm.

byProfessor MarioAntonioC. Lopez, NM Asiansvaluerelationships within theclanandcommunity; Westerners valuework. POI,ICY

IJ'PDATDS

Kaizen

JL

38

T'ONUM

Competitiveness,Competitionand46

byProlessor Rene T. Domingo , atu is no longer a battle cryi it is executivesurvival.One Quality survivalimperativeis to mergeTQM goalsinto employee performance appraisals to reduce"firefighting"work aswell ascut costs.

ConsumefS byProfessor Francisco L,Roman, AIM AIM's PolicyForumlooksfor solidindicatorsof competitiveness in Asia-not competitionin a destructive sense, but competitionthat lowerscostsandincreasesqualityfor customen.

Marketing

OPINION

34

byProfessor Francisco L. Rlman,AIM "friendly" Environmentally and "clean"productscouldbe anotherbenefitto pushontoconsumers of soap,cement,and gasoline. Whattargetsegments will buy thispitch?

Suu

AsrrrlNsftrrr[o[ ]ld\.{cIu[]rr TriEAsrANMA!AcER-A P!bli.ation olrheAsian Insriruteot Managemcntand the Federationot rh. Asian Institute oi Mana8emenrAlumni Associations. Copvii8ht,ql995 bvTheAsianManager AllriShtsr.s.rved R.pn udion i. nny nanner in whole or rn part in Englisho. othd l.rngunges prchibit€d TheAsian ManaScr,ispublish.d bi-nonthll, by the Asian Institute ot ManaSementEditorial rnd Adrertising Officer Asian lnsntut. of Managenenr. EuSennrL6pez Foundation,los.ph R. McMi.ting Campus, 123Paseode Roras,Makarr,Metro Manila, Philippines.Tel: (632)8921011'25,89204 35-43,Fax:(632)81792,t{J PhotoSraphssoui.ed lrlr the AIM Librarv Pr,ntedbl lihesPrinte6 Pte.Ltd., SrnSdporc The Asian ManaAerMITA (P)215/9/91 rSsN0r6-7790

ThinkAboutIt

50

byProfessor NM lesusG.Galkgos,lr., Proact,not react.Onedoesnot needto bea pioneerto be innovative.Lookalsofor employees who avoidproblems, ratherthansolvethem;theymaybeproactiveones.

Publisher FelipeB.Alfonso (iFPublisher & Udib.-in-(lhief RicardoA. Lim l.rocinre Pul'lishcr & {dre.tising Di.e.ror DeliaC.Cutienez Diretlor, Oper.(ions t (lift ulation MillieC.Fener t)c-isr t Pr.du(ri,trr I on-ultsnr lrdnLofdtru(.,

nose{n h & Produ(tion Am! G.EsDirihr ldrerlisi s.lssistsnt Vaness.lM. Iaballas (;i.. ulalion rsttislo l CraceA.Casibans Pu blishi ng ltoard ReneT. Domingo, C Callegos, Jesus A. Lim,VictorS.Limlinsan. EduardoA. Morai6, Jr.,Ricardo

INTf, trNATIONAI, MXIII,:I nDPntsDrYIAt tt D ol.ftcDs

336.P,kirl!n:S.l Salahuddin, Chi€fE\e.urirc, INSCotrmu nicatbns Lld. 6/F, PanoramaCenlre, Fnnma Jinnah Rd., Kara.hr, lalistan. F.x (92 2l ) 5ri82271hon{: Y.K. Chun, FirstMedia5€.vicesCorporation,Cftl Box7919,S.oul, Korca Tele! FMSCORPk 29137,Fax (02)738 7970ltrpnn: Hideo Nakatama,NakavamaM€dialnternationallnc., FonteAovam 705,2 22 l4 MinnmlAoyama, Mj.aklku, Tokyo 102 Japan. Fax (03)3,1796130 lh{ilnnd:Dr. AnlhonvShrrn., Managing Dtre.tor, Thai Rcpr€sentativeLt(l., 867158Pomtave Sulhumvit Soi l0l, PrakanongBanglok 10260, Thailand.F.x. (662)3319303.t nited Xingdonr: BnanTdpl'n Assocrts, 32 Fish€ryRoad,Sorm@i, Henel Hempstead,Herts HPI lND, U K Fa\ 10442) 24603,1Imncr: Slaphanede Rinusat, Mana8inSDtrector,REM lnternattunal,24bn ru€ callieni,95l60 Montnorency Flance.Fa\. (I r)398963{l

Il.mg Xotr:rPancla Cho!, PncilicAsiaMedia,13A,361363 LockhartRoad,Wanchar,Hong Kong Far (852)8345980. Singrpor.: Teddy Tan, Pam M.dia slrlies Pte Ltd.83A EastCoastR@d,Tay BoanCuan ShoppinsCenke,Sing.pore 1542.Fax (65) 1408760 ltrdoNiir: Rafra Slamet,Mana8er, Cncle Conmunications, Jl.BanSkaXI A/5, Jakarta12720, l r d . r " . i / . F i . r n 2 ) l € 1 0 0 0 .- o - 1 - F 1 l l a l $ . i r : ( , , n n , Ng, Advertising Represenlative,Mediaplus (M) Sdn Bld, 34A, jalan SS20/10Danansara Krn, ,17,l1x) I,etaling laya, s€lango.MalaysiaIndin strb-(inrtltrt: Media SouthAs'a (P) Ltd., Apartment lA, Abhi Anil Awas, Kantipnrh-J.mnl, Kathhindu, Ncpal Telex260{rMELTREIT NP, Far. (977l)227

THEASIAN MANAGER. AUCUST-SEPTEMBER 1995

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In thewoddof communicqtio syslems, we'rehereto help. T h r o u g h o u tt h e P h i l i p p i n e s ,we ore working in close porlnersh ip with our customers to provide oovonceo c o m m u n i c o f i o ns o l u t i o n sb o s e d o n t h e lotesl lechnologies. For exomple,togetherwith the PLDT,we ore instollin9 g 0 , 0 0 0 d i g i t o le x c h o n g el i n e s o n d s u p p l y i n gi n i fi o l l y 9 2 , 0 0 0 t e l e p h o n e setsfor theirZero BocklogProgrom. We ore supplyingthe Segment- 2 of the

Asio Pocific Coble Network to provide owhole communicotion systems speclrum, s u b m o r i n ef i b e r :o p t i c l i n k b e t w e e nT o i w o n i n c l u d i n t ugr n k e yp r o i e c th o n d l i n gc, o m p l e t e H o n g K o n g , S i n g o p o r e , M o l o y s i o o n d P C Nn e t w o r k os r r o d i oo c c e s s o l u t i o n s . the Philippines. T h e e n d - u s e ri s o u r f i r s t c o n s i d e r o t i o n . We ore olso instolling privoteEvery solutionmustbe user-friendly,flexible c o m m u n i c o t i o ns y s t e m s i n m o n y h o t e l s c nedv o l v ew i t h i n d i v i d u onl e e d s . ond businesses. And on InstrumentAs port of AlcotelAlsthom,we ore here Londing System in the Subic Free Trodeo help you. Pleose telephone 815.02.27, :ox 815.02.25, or write to us ot the Zone oirport. Alcotel's experfise, however, covers the:ollowingoddress.Alcotel.We help you grow.

Al.o-lDlloo'1p.,/rMo',"poroBrld,9 2 5'oo.o-g lono MoLor Me oMorlo Mo-,olre'.o.orol Ai po,t 3l20Pl,lppne,


ickLeeson:hisname t h e a s s o c i a t e dr e w a r d s . mote 19-yearolds to com- o f h i s s u c c e s st o d a y f r o m s e n d s sh u d de rs Jimmy Lai of Ciordanoand mandtankbrigades. thoseearlydays. Kotteradds: throughoutAsianfi- Bill Catesof Microsoft,both But can youthful leader- "Develop the managers that nancialsystems. Asyouknow thirty-somethings, madetheir shipalsobebuilt fromwithin have proven track recordsof by now, Mr. Leesonled his marksearly. organizations that do not fit leadershipin their [earlier] own dedvativestradingdesk Youthfulleadership is also the aboveconditions?John vouth: leadership of school at Barings,and througha se- a functionof "fast-tracking" Kottersaysyes. In his Man- organizations,athletics,comries of blunderscausedthe and "goldenboy" corporate agersand Leaders'research, munity work," in hiring povenerable Bdtishinstitutionto programs,wherecompanies P r o f . K o t t e r s a y s : " G i v e tential young leaders. collapse.Moreover, thehead- accelerate the careerpathsof stretchjobs to your vounS Practitioners and profes"28-year linesblared, old Nick sors have other advice for Leeson..." young ones wanting to take Thisstatement subtly impliesthatamajorsource the lead, fast. Frank W. K. of Nick Leeson's failureswas Tsao,the Chairmanof the IMC hisyouth. Croup in Hong Kong, pushes Theconventional wisdom for taking an honest measure is that youth meansimpaofone's own abilitiesand limtience,inexperience, lack of its ofone's knowledge,among respect,and bad judgment. many qualities: "When I am Theseare unfair generalizawalking in a company of tions,mademoreprominent three, one of them will cerby spectacular fiascoes suchas tainly havesomethingto teach Mr Leeson's. Youthmustcerme." Mr Tsaoadvisesto never tainlyfirst paytheirduesand lose touch with the the real undergoapprenticeships, to people--employees,customreducethe chancesof specers, and the public. Prof. tacularfailure,Conventional Derek Newton of the Darden wisdomalsosaysthat an agSchoolin Virginia advised his ing workforcemeansmoreingraduating MBA students, "Takeon manufacturingjob, io yo .i'Giaestretchjobs ertia,lowerproductivity,and a succession problems. These thena salesjob. Only thenwill Allow tham tlo ry$nagers. you be on the fast-trackto the arealsounfairgeneralizations, anddar{fshoot'un if theyt'ail." butlet'sdiscussthefirstpoint: CEO position." Nick Leeson " how do we promoteyouth to ,, Johi P.Kotter could have used Sageadvice

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Asian cultures,and to a lesserdegreeWesterncultures,prizerespectfor elders. brilliant youngmen and woThestandardcareerpathfora men,suchasAnwar Ibrahim youngAsianis to spendtime of Malaysia, thedeputyto and working under mentors, touted successor of Dr. Macross-trainin differentdisci- hatir (negativecase; Nick plines,and slowly move up Leesonagain); a functionof the responsibilityladder. succession, as in many ChiTherearemanytermsfor this: nesetai-pancompaniesthat theJapanese use"salaryman" passthereinsoverto # 1 sonsi and the Malaysuse "kaki- a functionof stronginternal tangan." Not many under- corporatecultures,suchas fifty yearolds leadtheir own IBM'sor Disney's,whichproorganizations in Asia. motetheirleadersusingmeriT h e r e a r e e x c e p t i o n s . tocracymorethansenio ty; a Moreandmoreyoungpeople functionof thenahrreof work, nowadayschooseentrepre- suchasadvertisingand merneurship.Manychoose to run chandising,smallserviceortheir own businessbecause ganizations, wheremanagers theyareunableto work in or- flourishat a youngerage; or ganizations,or with bosses. a functionof sheerneed,such Manylike therisk-takingand aswartimearmies,whichpro6

like these. In the end someoneelse hasto give way. All the aforementioned processeshave a common thread: the willingness of an older mentor or managerto risk, to trust, to delegate,to teach,a younger subordinate. Even Bill Gates and Jimmy Lai could not have succeededin their ventures were it not for understanding of farsighted suppliers and customers, who were probably much older than thev were. A big challenge for Asian managerswill be how to passon the reins of leadership to the younger folk, even at a risk of their own job security.

managers.Allow them to (notfatalones, makemistakes, hopefully)anddon'tshoot'em if they fail. Supportthem." MannyPangilinan,the fortvsomethingheadof First Pacific,a hugeHongKongtrading andcommunications company,remembers his first job in theseventies, whenhehad to overseehis company'scacaoplantationin thestrife-infestedsouthernPhilippines. "l received a telex:'Plantation i n S i a s iu n d e r a t t a c kb y rebels!'I thought,my MBA did not prepareme for this." Manny was literallyplaced into a full-fledgedfirefight, Ptof.Ricku A. L.lntench$ llTantiMan with gunsandbullets,andhe agerJtntCotnn olicltlirntfor theEDPnnd learnedfast.He creditsmuch MtsM pragrams.

AUGUST-SEPTEMBER 1995. THEASIANMANAGER


DECT. The new wave in oersonal communications. ln our fast-moving, mobileworld, we needa more advanced standardfor cordlesscommunications. We needDECT the new wirelessradio interfacethat providesaccess

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Management Strategies fortheASEAI-10 he countriesthat makcup the agement.tr,iteSicr oI ASEAN manager: are being testedto the utmost in terms of A S E A N - 10 are ten different - whether thev be public sectormanag- their ability to formulate competitive places.Theyaredifferentin terms er\ or pri|ate 5ectormdn.lger..Two im- strategiesand generatereal and lasting of their politics, their cultures and their per capitaincomes.Indeed,they are diff e r e n ti n t e r m . o f t h c i r a d h t s i o ni n ASEAN at all. In additionto verv different countdes,we have different managers: public sectorsmanagers;private sector managers;managersof international, multinational corporations;managersof f o r m e rc o l o n i a le n t e r p r i \ e \ : e n t r e p r e neurs; managersof former state owned companies;managersof recentlv pnvatized companies. With all of this diversity it is a perfectly legitimate question to ask: "ls there any commonality which binds management strategy across ten setsof national boundaries?" ASEAN is multifacetedstructure,but it is a multifaceted structure where two elementshave traditionally and still remain important elements:secu t)' and economics.ln relative terms the secudtv e l e m e n th a : b e e nd e c l i n i n go r e r t i m ( comparedto the economicelement.Economics hasbeen moving ASEAN closer and closerto a freetradezone,n ith a significant degreeof internal free trade,and a significantdegreeof commonalitvin its economic relations rvith the outside world. That economicelementofASEAN is pregnantwith significancefor the man8

p l i c , r t i o nJsr cp a r t i c u l J r l rvm p o r t a n t One implication of an emerging free tradezoneis;r, .r'/,1r. CUncra Ily .peakin8, as barriers to competition trade fall and asmarket.openup. lhe paceof economic growth picks up. ASEAN has been,and continuesto be,an engineofgrowth. One comnonalitv acrossmanagementin any of the ASEAN-10countriesl'illbe formulating and implementing wise strategies for grorvth. Hot'ever, ASEAN and other emerging free zones are more than enginesof grou.th. They areenginesofcorn prfltion, the secondimplication. Competiiion canbe painful, particularlyfor manager. n ho are u'ed to dorngbu.inr::s in protectedmarket places. Comp{.lilion is War Let's focus on five common challenges for managementstrategy across the ASEAN-I0. To introduce these,I would like to usean analogy:war Managersin theASEAN-10areenteringan era of total competition. Thev are entering an era rvherewinning is going to be more and more difficult. There are ferv places rvhereIhe paceof.hange i. not piclinS up. and thehali-lifeoI compclittvenus. i. not diminishing. Managers evervwhere

c r ) m p e t i t i \ce. r p n b i l i t i e lsn. i n d u s t r ya l ter indu.trv thi: i- happening elen in industriesrvhichareallegedlyconsolidati n g o r a l l e g c d l 1. e e i n ga r e d u c t i o ni n compehtion. A familiar example is the computer industry. The industry is describedas consolidating,but in fact the number and variety of competitorshasbeengoing up consistentlyfor 30 years. While the computer industrv is onlv one industry representedfrom the data in fig.l, the doubling, tripling, or increasingby even greaterorders of magnitude in the nurnber ofcompetitors causesthe dimrnishing of the dominant position of any given firm. This trend is replicatedover and over Many of vou seethis in your own businesses.As ASEAN becomes moreof free{radezone,more of this chalIengewill be visible to you. The Five llrivers Thcre ;rc [ite, among manv, ba'ic ,.lriversof competitron.One o[ the ba.ic drivers of the increasein competition ls the changingrole of,qoi,c,"rnsrl.In country after country fhe role of government is being transformed. It is being transformed through the development of

Aucusr-SEpTEMBER 1995. THEASIANMANACER


ASEAN, and alsothrough privatization and deregulation. Covernment is changing in a wav which leadsto an increasein the level of competition. However, the transformation of government is not the onlv driver(see li'g.2) Another important driver is the explosion in knowledge. The Xerox Corporation occasionally estimatesthe amount of knowledgegeneratedin any particular time;it is phenomenalandfright-

ening. OneXeroxestimatehas it thatbetweenthebeginningof timeand1970,"x" amountof humanknowledge wascreated. Between1970and 1978,another wascreated.Between1978and 1984,anotherwas created,and we are now creating that once every tu'o to three years. That increase in human knowledge meansthat therearemanv manv more opportunities to replicate advantagesand to substituteadvantages. Things that used to stay proprietary for 50 or 100

Number of Computer Manutacturers

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about at 130or 150needs with respect toa prod- equation.Thereisnothingabstract uctthdtdoe5, moreor less, the:amething. thechoicesyou needto maketo get that Accompanyingthis changein knowlLast and not least,andperhapsmost equationright or wrong. Theyare basic - positioningchoices. edge itself is the well-known revolution Tocontinue controversially for many ASEANcoun- choices in informationtechnology,which allows triesand companies, is that the poruer of with themilitarymetaphor:Whatbattlerapid processingand communication of theindixidualrs growing. As peoplebe- field areyou goingto fight on? Against knowledge. My Hong Kong restaurant comewealthierand havemorechoice, what enemyandwhen? It is alsoabout g u i d e h a da l l t h et r a d i t i o n a l d i m e n s i o n stheyalsobecome moredemanding.That choiceof weaponsas well as choiceof of measurement: how expensiveis the demanding qualityhasgreat implications battlefield.Somebattlefieldsare inherrestaurant,do they have a good wine list, ascustomers. All ofthesedriversarecre- ently conduciveto certainweapons. what kind of food do they:erve. Thedi- atingtheeraof totalcompetition.It is an Tanksmaybe goodin thedesertbut not mensionI had never seenbeforewas the erawheretherewill be few safehavens; in the mountains.Havingsaidthat,the useof cellular phonesin restaurants- af themselves arebasic,operational wheretherewill be fevnscenicwarers choices Iowed or not allowed. The cellular revo- with lotsof profitability;wheretherewill and evensimple-and makingthose lution again males Inowledge acce<si- be few gentlemen's is hard. Manymanagerswould clubsin whichcom- choices ble around the world quickly and inchoices petitionisa whitegloveaffair.lt is going ratherdiethanmaleunquivocal creasesas a result the ability of people to beincreasingly difficultto do business on animportantcompetitiveissue.They around the world to competequickerand without doing battlein the competitive seekescape in differentways.Twoofthe "let'schoose litbetter than they could before. sense.Thatmeansmanagement a strate- mostpopularwaysare In addition to thosethreefactors,rTnr- gieswill increasingly focuson the issue tle bit of everything." [n onecase,you k.,fsarentomizing,micro-segments are ap- ofgenerating realandlastingcompetitrve do greathonorto your fatheror former pearing, intangible buyer needs are be- advantage. boss,but perhapsnot greatcreditto the coming more important, and needs,for Competitiveadvantageis aboutdo- company.On the other,you endup bethat matter, are proliferating. 15 to 20 ing somethingsmarterthanthe compe- ing the globallyand locallyresponsive, vears ago/ it was not unusual to track rapid retition,andthatisrelevantto thecustomer, low cost,highly differentiated, eight or ten key needs for a consumer Ceneratingcompetitive advantage is re- sponse,high tech,everythingcompany, product and be satisfiedwith that level ally aboutconvertinginformedchoice andreallynot very goodat any of those of understanding . Today,it is normal into timely actionin ways supedorto things. for a consumerproduct businessto look Suchchoices arehardandarealsoesthe competitors'solutionto a similar THEAsrAN MANAGER. AUGUST-SEPTEMBER 1995


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the choiceoflocation on three levels. First, where to sell? What marketsdo vou want to be in? Second,where to invest? Are we willing to dedicatepart ofourcapital? Third, and most important,rvheredo you want our home base to be? Where do you we want the central node in the network to be located? All of theselevelshave potential for competitiveadvantageand all of them are becoming more complicated.

Let's startwith the market dimension,i.e.,wheredo wewantto sell?WhentheUS m i l i t a r v a c a d e m ya t W e s t P o i n tw a s f o u n d e di n t h e 1800s, thevrequiredcoursein CompetitiveAdvantage mapreading.Now,nearly200 yearslater,the only required Figure 2 coursestillin thecatalogfrom that era is the coursein map you in. Now the number options are Why? Thepersonwith the best of reading. sential, particularly if you are going proliferating, and thev are going to create map wins. This is true when usually thrcugh changesASEAN managersare painful tensions, and reexaminations of there is little data about themarket,and going to facein the next five to ten years. where want why companies to be and when the market itselfis emerging or rapWe can make a long list of choicesthat they want to be there. While managers idly Where better to place that changing. ASEAN managersare going to conftont, make these day, they make in where (1)choiceoflochoices every description than theASEAN-I0, but let's focuson three: them poorly. They do not live up to the emergingsegments andunmetneedsare cation, (2) choice of advantage-what standardo[ making an informed choice the stuff of daily conversations? Tooofkind of advantageare we going to purtenmapsdo not exist,andwhentheydo sue given any location we have chosen? about locations. One can male an infor;ned choice. exist,they becomeobsolete quickly. and (3) pg1h1p5hardest,choiceof linkgetcaughtbecause theyaresuage when, having chosena particular S o m eg u i d e l i n eh: e l p :w e m u : t e r a m i n e Managers

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l o c a t i o nd o w e l i n k t h a t w i t h o t h e r placesl When,havingchosena parlicularadvantage,do we link that with othet perhaps, related advantages? ASEAN for companies createsgreatopportunihes and managersto make lots of monev if theyget thesechoice:right, and alsoimposesgreat penaltieson getting these choiceswrong. Cholee ol Loeallon Managerschooselocation every day -thechoice ofwhere to sell,where to buy, where to invest. It's not only a choicefor businessmanagers.For thoseof you who reprcsent the public sector,it is also a choicefor governmentmanagers:Whom to let in. whom not to let in, whom to give incentivesin order to comein. In thedays before free trade, the choice of location was simple. Yougenerallylocatedwhere you were born, or where somebody let

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1995. THEASIANMANACER Aucusr-SEpTEMBER


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Remedial Costs Figure 4

perficialin theirmapping,Forexample, s o m em a n a g e rbse l i e v el h a t C h i n ai s China.Takea quicklook at fig.3. China is not China.Beijingis not Guangzhou. MultinationalmanaBers who treatthe two as the samewill haveproblems. Othermanagers area bit moresophistiThey pick cated. out the notion that in manyASEAN countries, themarketislike a Hershey'sKiss,or a pyramid, where thereis a smallbut affluentsegmentat thetop anda large,not affluentsegment at the bottom. Evenif they understand that,the implicitchoices whichemerge areoftendefective.It oftenleadsto excessiverelianceon thatvery smalltip of thepyramid,anda failureto understand any other part of the pyramidlike the needto undemtandtheirneedsand theneedtobuilddishibutionsystem thatwill reachthem.ManyASEAN do not seethisaswell as companies theyshould.Theytaketoo mucha pictureof thehomemarketandtoo little a pictureof parallelmarkets they might enjoy. They take too muchofahistocalviewandtoolittle of a view of new media,new channels, andnewneeds.Ifyou take onethingawayfromthisbasiclevel of locationalchoice,thatof themarket, I would haveone suggestion: Goodmanagement strategies in the ASEAN- 10in the next five to ten yearswill be onesthatrely on good ncps.A substantial increasein the map-makingskills of managersis going to be requiredbecausethe mapsarenot goingto be available fromthird parties.Youwill haveto makeyour own maps. You are in thepositionofexplorers, whichis alwaysan excitingpositionto be in. 12

A secondlevelcouldvield significant competitive advantage, and thatis the decision location of of investment. Again, it'sa decision madeevervday,andagain. a decisiontoo oftenmade poorly. The averagemanagermakingan investment decision in a nervcountrvusesoneor trvo c r i t e r i a .O n ec r i t e r i o ni s i n p u tc o , t s . What'sthecostof labor?What'sthecost of electricity? Anyonewho has lived througha Manilabrownoutor a Bangkoktrafficjamunderstands thattheavailabilityandcostof infrastructure, electdcitv or manpoweris important,but rather narrow Anotherfactor frequentlyused by managers in assessing investmentlocationdecisionsis OPICcosts- OverseasPri\ ate InvestmentCorporations

costs,afteranagencvin theUS,whichinsuresagainst$'at revolution,andexpropriation. Horr'ri:kv is the countryin n'hichI might invest?If I haveassessed the cosisbv usingthe input costscdterion,canI assess riskusingsomeform of war,revolutionandexpropriation? War, revolution,andexpropriationareasrelevant asinputcosts,butnoneof those factorsdeservesthe weight they are given,at leastin the traditionalinvestmentdecisions.In fact,the profitability of investments is muchmorecorrelated with two otherfactors:the totalcostof doing businessand the overalllevelof uncenalntv The total costof doing businessrn a countryis whatreallvdetermines thecost of your investment.Theoveralllevelof uncertaintvis reallywhat ddvesthedsk of beinginvestedin a particularcountry. Thegoodnewsis thatbothof thesefactorsarehighly measurable by corporate managers andsignificantly influenceable by government managers. Thereis somethingfor governmentto do in thisequation becausein a world wheregovernment'sroleis diminishingin so many ways throughderegulation, tradeliberalization,pdvatization, etc.,thereis often the feelingthat thereis nothingleft for thegovernment manager: to do. Thatis just not so. The costof doing business

Diagramof HistoricalPeruvianNationalObjectives FUJIMOBI (1991.1994t

a

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Focus oJ National Economic Ob,ectives

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Figure 5

Aucusr-SEpTEMBER 1995. THEAsrANMANAGER


and the management of uncertaintyare justthefirst coupleof elements thatgovernmentmanagers canmanage, in positive andnegativeways. I n s u l i nI n d u s t r M v a r k eS t h a r e1. 9 9 0 Whatarethetotalcosts of doingbusiness? While input costsare real and important,thereis moreitransaction costs. How much time doesa governmentinsistthatyouspendwith its representatives, meetingtheir needsin order to do businessin a particularcountry? That is an importantfactorbecause the moretransactions thegovernment insists that you performto satisfytheir needs, the moretime you will put in, the more overheadcostsyou will incur,the more distractedyou will becomefrom issues Novo-Nordisk Hoechst 0ther such as customerneeds,and the Iower yourcompetitive advantage. Youcancorrelatethecompetitive positionof certain USfirms over timewith the degreethat their seniormanagement spendtime dealingwith governmentversusother thecostsmustbe calculated. changingas rapidly as the ASEAN-10. Considersomethingelsewhich you Thatbeingsaid,thecostsof doingbusiconstihlencies. How higharetransaction costs?Covernmentmanagers should rarelyseeon the investmentsidewhen nessare still too high in many ASEAN lower them; businessmanagers should looking at governmentdriven costs, countdes, andit will requireajoint effort calculatethem beforegoing in to any which is relatedto benefits.In conrrasr of businessand governmentto bring to thecommercial world, onerarelysees themdown andto therebyunderpinmore givencountry.(seefig. 4) the calculation ofcostswithouta calcula- sustainably The third elementis remedialcosts. thecompetitive advantage of How oftendoesgovernment askcompa- tion of sales.Forany givenlevelof cost, companies locatedin thoseeconomies. niesor managers level of sales;no to sla\d in locoparenLis, thereis an acceptable Let'snot stopat the levelof costof or in the government's a doingbusiness; role by provid- Ievelof costis too high if it generates let's talkaboutthisising, for example,healthcareor educa- significantlygreaterIevelof sales.Simi- sueat the levelof uncertainty.The real tion or child care?All of theserolesmay larly,the costsof doing businesscanbe risk in businessis not the risk of OPIC if the factorslike war, revolution,and exprobeplayedby govemment, orgovemment quitehigh and still be acceptable may askbusinessto play the role. It is benefitsdeliveredareevenhigher Some priation. In fact,OPIChasalmostnever tobenefits aswellascosts is im- paid off any insurancebecauserarely not necessarily bad if governmentasks attention business to taketherole,but in eachcase portant,particularlyin economies thatare are functioningfactoriesdestroyedin wa6, or expropriatedor demolished by revolutionaryoutbursts.Therealrisk thatmanagersfacein makinginvestmentsis uncertainty. Managers hateuncertainty.In fact,they prefer "bad" certainty to "good" uncertainty.An example of "bad"certaintyis "predictablecorruption."Yes,there is corruptionin countryX, but it is predictable. Thereis aprice listandthepricesdo notchange thatoften.It is completelyoutside our control, like the weather Wemightcallthisthe "BahalaNa" factor, Philipa pines specificterm. Thereis nothingwe candoaboutcertain kinds of uncertainty.Other

I

. Aucusr-SFprE\4BrR THEASrA\M qNACER l99i

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moreinterestedin cuttingup the pre ln differentways?Thegrowthrateandthe profitabilityratewhichcorporations enjoyed in Peru is the lowest in Latin Americain an erawhen LatinAmerica FIRI\4 STRATEGY grew rapidly.Thisvividly contrasts with STRUCTURE AND RIVALBY countries thathavehad consistency in economicpolicies,manyof whom arern ASEAN. In an emergingfree tradezonelike ASEANthenumberof choiceson issues l i k e i n v e s t m e n tl o c a t i o n g o e s u p exponentially. Moresophisticated thinking is required.Thingslike the costof doingbusiness in its totalityor themanagementof uncertaintycan be assessed RELATEDAND SUPPORTING by business managers, andcanbe influINDUSTRIES encedby governmentmanagers.Good managementstrategyshould do both. Thereis a third,finallevelof competitive advantagethat you could get from a kinds of uncertainty, however,arecon- How kansparentis thelegalcode?How locationaldecision.It is theultimatedetrollable.Forexample, a companycango consistent is theimplementation be? of regu- cision.Whereshouldyourhomebase out, map the marketand changesome- latoryinteryention?How continuousrs Mostof us inheritedour homebase.We thingthatis fairlycertainandbehaves in the policy? Whengovernmentis either did not decideto found the company/ accordance with somethingthat thev inconsistentor incompetentin dealing someone elsedid; or if we decidedto themselves havecreated.Thisis crucial. withuncertainty, business suffers,Fig.5 found the company,we naturally A lot of the uncertaintyis controlledby charts thevariousgovernments of Peru foundedit wherewe werelocated.As macroeconomics poljcy.se- overthelast thirty yearsagainsttwo kev o p e n i n g so c c u r ,t h a t c h o i c ec a n b e Bo\emment: curitv,crime,corruptionissues, andregu- issues.How consistent weretheirna- reeramined andif thereis significant adl a t o r yi m p l e m e n t a t i o n wsh,i c ha r ei n - tionaleconomic objectives? Arewe more vantageto remakingthe decision,then creasinglyimportantin the ASEAN-10. interestedin growingthe pie or are we thecompanies thatremakethedecision

Whitevs. BlueCollarWorkers as a Percentage ol Total E m p l o y eCd i v i l i a ni n s t h eU . S .

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Aucusr-SEpTEMBER 1995. THEAsrANMANACER


ent on naturalresources. will win relativeto those The reasonwhy Denwho do not, mark is a good homebase Agoodhomebasehas has do with thebasicbusi to PRODUCT CONSUMER threecharacteristics. Itis a nesses that grewup in Denplace where you can set Traditional Retailers mark over a long periodof your strategy.Theperspecparticularly, time, agricultiveof themarketplace and tural businesses. The key thefreedomof thatmarketbusiness in Denmark turns placeis onewhereyou can out to be pig farming.Pig Other Channels/Media makethehighestqualityof pancreases are the closest informed decisions.Secthing to human pancreases ondly,it is a placewhere we can find. Taking things youcanaray yourcoreasfrom the pig's panoeas is essets.Youcreatethem.You sential for the traditional honetheirquality.Youdeway that insulinwasmade. velopihem in their fullest Pigfarminghasalwaysbeen possiblemanifestations, Figure 1O a big industryin Denmark, whether thoseassetsare and it providespart of the humanassets,knowledge insulin industrywas ableto amarketshareleader, reasonthe financialassets, orphysicalassets. of thosecompanies, assets, Last, a goodhomebaseis a goodplat- is thecompanycalledNovo.957cof their grew and sustainitselt but it is not the form for goingelsewhere,a goodplat- salesareoutsidetheirhomecountry.They only reason.If you aredealingwith pig formfor linkingwith otherplaces, a good have significantmarket shareagainst parts,you needprocesstechnologythat platform for globalization.Not every major competitors,including German is goodat purifyingthings.It turnsout induscountryis going to be an equallygood andAmericanfirms.(seein fig.6)Novo thatDenmarkhadanotherparallel homebasefor every industry.Some is not US or German;it is Danish.It is try thatwasgoodat purifying-the dairy toindustries. not hard to imaginewhy a UScompany industry.Purificationtechnology, counhies aremadeforcertain pig gether with an abundant supply of might be highly in insucompetitive the Why aretheSwissgoodatbanking?What wasgoodfor insulininits old TheUS,generallyspeaking. pancreases, is it aboutJapanthatmakestheautomo- lin business. form. After a while, biotechnologygot is the most medical marsophisticated tive industryso competitivein the US? into the act. Denmarkbenefitedin this ket for a world-class insulin manufacTherearebetterhomebasesand worse way because biotechnology dependssigturer Why world manuthen are class homebases, dependingon whatsectorof nificantly on enzyme management, and fachrrers in the US bested by a company theeconomyyou compeiein. Why? produced through ferenzymes are often from Denmark? Denmark does not seem One exampleis theinsulinbusiness. mentation. Fermentation techniques are to be logica) home yet it is a base, and a Insulinis a medicalproductusedby diawith the brewing inusually associated good one . The reasons should give hope beticsand is highlycompeted for around dustry. Once again, there wasa local base to people who think they from come the world: A numberof companiesare whichareexcessivelv depend- uponwhichto grow theindustry.Thisis successful in theinsulinbusiness,andone economies an exampleof how from basicagriculpharmaturalbusinesses, a sophisticated ceuticalbusinesswas ableto grow and sustainitself.(seefig.7) Someof you may be familiarwith a PRODUCT CONSUIVIER simplifiedmodel of thosefactorswhich MichaelPorterat Harvardhaspopularized basedon four fundamentalcondiB c D tions.Youneedgoodfactorconditions insuchasraw materialsandspecialized E F GH frastructure to supporttheinputs;sophisticateddemand-preferablydemandthat precedes world demandsin theindustry; L J K relatedand supportingindustries,such as equipment manufacturers; and last, compehtion butnotleast,shongdomestic in the industry.(seefig. 8) If you think M N 0 P about thesefour factorsand combtne themwith the total costsof doingbusinessandthe overalllevelof uncertainty,

____> ---_-_____-> --->

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. Aucusr-SEpTEMBER THEAsrANMANAGER 1995


or semiconductors, thenumberof domesticcompetitors in thosebusinesses is qurte high. It has beenhard for government m a n a g e r sp,a r t i c u l a r liyn d e v e l o p i n g countries, to takethis point seriously. Makinga choiceof homebase is hard. In mostASEAN-based companies it will You demanda portfoliorationalization. essentially havet$.ochoices:locateyour in a goodhomebasefor those businesses businesses, which couldmeanchanging for which countdesjor pick businesses your countryis a goodhomebase.Either wav,changeis in order

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youcanstartto testwhetheryourcurrent headquarters country is in fact a good homebase.Do it rigorouslyand do not leaveoutanyunpleasant elementof those sixjustdescribed. Theonemanagers like to leaveout the mostis thehigh levelof easierto deal comDetition. ComDetitionis

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with if it's hurting somebodyelse. If you look at industryafterindustrt the most competitivecompaniesusually comefrom countdeswith a competltlve domesticmarket.Thatis true of the US and Japan.In fact,if you lookat famous industries likeaudioequipment Japanese

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other areasthatmight provide innovation in advantage.In the world at large, the d \ \ e t b a s e .f o r a d r a n t a g ei : c h a n g i n g . What do I meanbv that?AJIadr antagei: basedon some kind of asset.Firms have to createassets,then thev have to deploy them. The four major types of assets-financial,phvsical,human, and knorvl3000edge-are all important, but if vou go back to the drivers of competition,the asDefectsPer setbases changein relative importance. t n o u s a n oL a r s rr hile imFinancialand physicalasset<. portant, will decline in relative impor'1000tance compared to human assetsand Inowledge assets.What ha' drilen hictorical performancefrom an dsiet per0spectivein the ASEAN region?Phvsical A verage Honda NUMMI assets-raw materials and resources u.s lMarvsville)(Fremont) availablein theregion;orbybasichuman assets-flexible, well-educatedand reasonablv inexpensivelabor; or in some insutriesrepresented inASEAN.But one threecriticalissues:Oneis to taketheir case5capital-pa rticularlvChinesecapithingwill becommonto everybody:You advantages beyondoperafional etcellence. tal. Less of it has been driven by highll, aregoingto be muchlessableto rely on Formanyyears,a lot of theperformance sophisticatedhuman assetsor knor,ledge historical advanlages. No advantage, no of ASEAN-based companieswas based assets.ASEAN must go in this direction. matterhow good,lastsforever. If it is on the abiliiy to take setsof activities If you look at the US experience,vou good.it n ill becopied.Thefactthatad- thatwereonceperformedin otherareas, see knowledge increasingenormously vantages do not last longputsa realpre- perhapshighercostareas, andto pertorm and you seethat increasein kno$'ledge mium on the ability to irnorrte advan- them betteror at lowercostsinASEAN. havingmajorrmplicationifor companies: tages.It is a big challengeboth for Thatis commendable, but not enough. the kind ofworkers thev employ,the kind ASEAN-based companies andcompanies It is not enoughwhenyou haveCambo- of investmentsthey make and the kind thatarebuildingtheir investment net- dia,Vietnam,Laos,Myanmar,Sri Lanka, of problems thev have. The number of work in theregion. and Bangladesh all lookingto attainti- knowledge.or rnhitecollarr'orlers. tfig. A S E A N - b a s e dc o m p a n i e sh a v e ger stahrs.In additionto goingbeyond 9) far outstrips the number of blue collar slightlybiggerchallenges, in particular, operationalexcellence, we must Iook at workers; the amount of money invested

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Aucusr-SEpTEMBER 1995. THEASHN MANAGER


in informationor knowledgeassetsfar exceeds thatinvestedin physicalor industrial assets;finally,while blue collarproductivity increases in a predictable way,whitecollarproductivityis muchmoreerratic.Nowadays,if you havea costproblem,it weals awhite collar Thatpresentschallengesascompaniesentertheera when they needto build knowledgeassets. In an emergingmarket,the valueofa productis largelystill in thephysicalinputsandin the physicaltransformationof those inputs.Theinformationcontent of the product,represented by technologyor advertising,is generallylower(fig.10) Addedto the fact that the productis not particularly knowledgeintensivâ&#x201A;Ź, the processitselfis not particuIarly knowledge-intensive. There arefew segments in themarketplace,and the numberof channelsis ratherlimited.It is not a complexsystem.Let'scompare thatto a moresophisticatedmarket place,the kind that moreand more of theASEAN-1O arebecoming.Theinformationvalueof the productis going way up. Theresultis a hugepremiumon the ability to manageknowledgeand build assets thatwill manageknowledge for you.(see fig.11) ASEA,Ncompanies must go to an entirelyhigher order of human assets. ASEANcompaniesand countrieshave done well with their humanassetsfor manyyears.However,thekind of human assetsthey broughtto the marketplace weregeneralhumanassets, flexibleand not specialized, goodat thingslike low costoperationsand operationalexcellence,and often tightly conholled.The kind of humanassetswe are going to needmoreof in the future is quite different.It is something with a highdegreeof stayingpower.It is muchspeedierin response,which meansmuch higherdegreesof initiative, for which a lot of ASEANmiddlemanagers andcompanies arenot prepared. A muchhigherdegree of productivityin the white collarwork force,which is goingto grow biggerbecauseall companies-non-ASEAN companiesaswell-are decisionfactorsin to-

day's world. A much morecompetitive mindsetholdsthe notion thatcompetition is thediter.The drsasterscenarioin companiesis one that saysno change,parochialism,follow my neighbor,andforhess ASEAN.Thefactis: fortressine ' : , ASEAN ., will not work because competitionwill comeafter you and will nibble away the comersof the castle,and the castlewill fall down. To generatethat higherlevelhuman assets, thathigherlevelof organizational capability,you haveto rnake a radicalredesignof the company.That is going to behard.It will requiremajorchanges in coreelements,and threecoreelements will changea lot in the next five to ten years,atleasttothosecompanies thatare goingto do well. Oneof thecoreelementsis "the definitionof victory" or whatyou mightcall the missionof the organization.Every companywith a lot of competent human assets hasa clearmissionwhichmustbe consistent with theneedsof thecoreconstituencies thatsupportit. Coreconstituenciesincludeownersor stockholders, localgovemment,employeesor customers. Constituencyneedsareconstantlychang-

. Aucusr-SEpTEMBER THEAsrANMANACER 1995

ing. In the emergingreality of the ASEAN-10market,they are changing rapidly and dramatically. Takethe case of the stockholders.In how manycompanieshavethe first generations passed thebaton?Perhaps thefirst IPOhashappened.Perhapsthefirst investorhasbeen broughtin. Perhapsthefirst alliancepartnerhasbeenjoinedtogetherPerhaps the first mergeracquisitionhasoccurred.The ownersandtheirneedsmightbechanging.Anotherconstihrency is "invisible"the ASEANcustomerAs customers becomemorewell educatedandwealthier, they will demandhigherdegrees of serviceand quality.Thesearechanges in the (seef ig.12) relationships. Changesin the secondfactor,what Karl VonClausewitzcalled"moral factors"andwhat LeeKuanYewcalled"intangibles,"are thingslike leadershipor moralpurposethat motivatean organization. The challengehere is big for ASEAN-basedcompaniesbecausethe intangibles areeroding.Theyareeroding throughemulation.They are alsoeroding because of theirown success. Takeemployees: theyarebettereducated;theyarewealthier;theyhavemore 19


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choice;theyhavemoreleisuretime.And they are,becoming more demanding. Everysurveyshowsthemto belessloyal, lesspatdotic, lessself-sacrificing, and more self-interested than they were twentyyearsago.New kindsofmanagement interyentionare going to be requiredto buck-upmoralfactorsandmake themihe kind of competitiveadvantage in the nearfuturethattheyhavebeenin thepast. Lastbut not least,wâ&#x201A;Ź mustquestion the kind of assumptions thatwe usein formulatingour strategies. Everycompanyand everysetof managers hasassumptionsaboutitself,aboutits industry, aboutits competitors, and aboutits country.Theseassumptions shapechoice andmanagement shategy. Thecompetitive markeiplace isgoing todemandnewchoices. Thosechoices are goingto be difficult.Theywill requrrea redefinitionof historicalrelationships, a 20

Figure 17

questioningof historicalassumptions, a redesign of theintemalworld of management-whetherthatis thelanguagespoken, the incentivesused,or the styles cultivated.A premiumis going to be placedon innovation,not onlyfor corporate managersbut alsofor government managers. Theexampleof Denmarkand insulinis deliberate. Thereis a corporate andgovemmentequivalency here.There is a govemmentequivalency of innovating competitiveadvantage; i.e.,innovating in thecontextfor advantage. Govemments havea role.Somecountriesdo movebeyond factorendowments or naturalresource-based economies. We haveanercellent example in ASEAN;i.e., Singapore. Theyhad a harbor Theyare centrallylocated.Theyhavedonesomethingwith that.Weseesomeothercountries,fine countries,who havenot been successful in upgrading.New Zealandis an example,a lovelycountrywhich has

seenitsrelativestandingin theworld per capitaincomedrop from 5th to 18thin twentyfiveyears.Thereis lesssuccess in upgradingin thateconomy. Cholce of l,lnkages Let'sassumewe havea good locationfromwhichwe expecttobecompetitive. Let's assumefurther that we've workedtheissueof innovatingadvantage andwereallyhavein ourhomebasesignificantly upgradedknowledgeassets and significantlyupgradedorganizationalcapability.Is thatenough?Probably, if you do thosetwo things well. But if you want to go the wholeroute,there's onestepmore,a hard step;in fact,the hardest.It yields the most sustainable form of advantage, thehardestto bereplicatedby competitors: Iinkage, linking acrossnationalboundaries or acrosscorporateboundaries, specialized assets, or specializedactivities.A new study has

Aucusr-SEpTEMBER 1995. THEAsrANMANACER


I\/Iona,l nagsment

P d r y l e ury forB

" AIl the timeyou spendmakbrilliant your adaisersor fail-safe ing moneywiII bewastedif you your inaestments, you still must don't takethe timeto manageit. beresponsible for yourfinancialafManagingyour moneyis oneacfairs. It's your money,and the moreyou entrustit to someone tiuity that you canleastaffordto neglect. else,thelessyou mayhnaeleft. " " Makingandmanagingmoney Quickinaestingmaynot bring on a tight schedule is not without youquickriches,But,with thehelp ll'l,rRlL. SPRous[ itsprice,Hiring professional help of thisguide,you canensurea seis costly,andlikegas-guzzling sportscars, curefuturefor youandyourfamily. With inaestments designed securitycomesfinancialindepende for speeddon't alzDays producethehighestyield,Moreoaer, andall thetimein theTDorId." -Manv L. Spnouss. NATToNALLyRECoGNTzED FrNANyou can't euenenjoythe leisureof being CIAL EXPERT AND BESTSELLINGAUTHOR. completelyuninaolaed.No matterhow IIow to build your wealth the practical way -without spending a seerrnd or a eent Mary Sprousewrote this guide with you in mind - professionalmanagers,executivesand peoplewho hardly have any time to balancetheir checkbooksor make wise investment decisionswith their extra cash. This guide is also written for people who have problems saving money or problemswith debt.

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I


comeout thatshowsthat707aof thecost The]apaneseautomotiveindustry over fair degreeof success. Otherthingslike of certaintypesof productsis determined thelast15yearshasexperienced management a lot of humanresources structural by the interactionof four or five key ac- problemsbut also rewardsin taking policy rarely get transplantedwith tivities-marketing, research,manufac- themselvesout of Iapan.The US is one success.(see Iig.16) turing. If you want to getthe costout of placewherethefapanesehaverelocated It's notjustmarketmappinganddothe product,managethe linkage.The automotivemanufacturing andassembly ing goodmarketentrystrategies that we greatthing aboutthe ASEAN-10is that and in so doing they'vegotten real ad- havetalkedabout.It's notjusthavingan managersherehavethe opportunityto vantages. Fig.14indicatesthatfor Japa- innovativecorporatearchitecture. It's design their own competitivesystems neserelocatedassembly facilities,thede- things like having improved skills in acrossnationalboundaries.It's not only fect rateis low. But evenas it works at mergersand acquisitionsand alliance limited to the corporations; government thislevel,thereareproblemsin otherlev- building.It's thingslike tappinginto ascanplava roleaswell.Thewarsandcom- els.In Fig.15lookat thecolumnthatsays setsand networkingassetsthat we alpetitionthatyou all will beenready have. WashingtonSyCip gagedin will be increasingly mentioned that the Chinese wars of coalitionacrossnabusinesscommunity was in and tionalboundaries in thefuture. of itself a potential sourceof netYou must look at ways of worked advantage, and we makingthe agglomerationmust confirm if in fact it's used the coming togetherof the consciously and that the ASEANworld-into anadvanarchitectures exist to exploit tage, linking specialized it.(seefig.17) centerswithin ASEAN effecThe ASEAN-10areat an intively. An exampleis the US, flection point. ASEAN is exstill the world's mostproducpanding and the companies tive economy.It's worth reand managbrswhich make it up memberingthat when the US are entering a new era. Dealing cametogether,its entitiesconwith a new reality will require sideredthemselves independa lot of shifts: shifts in perspecSubordinatethe Allianceto OverallCompetitive ent countries.The economy tive, shifts in choicesthat you Strategy thatresultedfromthat coming 2 l Specifythe Purposeof the Alliance make with respect to location, J I Assurethe Mutuality of Partners'Goals togetheris veryheterogenous, or type of assets,or in the link4) BalanceAdvantagesContributedby the Partners one that has an enormous agethat you seekin the world. 5 ) ExchangeAdvantage;ShareAdvantage numberof differentindustries And theseshifts are going to be 6 ) A n t i c i p a t eC h a n g e S ; e e kE q u i l i b r i u m in it, andan enormousamount 7 l InstalI SupportiveArchitecture hard to do well, but they are 8 ) MinimizeTransactionCosts of benefitin termsof increased unavoidable.(seefig. 18) ql MaintainStrategicControl productivitybecausecompaThe late Charles de Gaulle 1 0 ) Learn niesdo notreplicateeverything had four excellentmaxims of Figure 18 in eachregionbut sourcefrom political strategies.They are all regionsthat havespecialized relevantfor businesspeople.He (seefig. 13) engineersand look at the column that usedto say,"Alwaysexploittheinevitaskills,and specialized assets. Specializationandlinkage.You'vegot saysEnglishspeakers. This is a repre- ble."It's a goodmaximfor formulating to consciously and constantlyredesign sentativegraphfromtheNissansupplier good managementstrategiesin the the system.Startwith your homebase family;theToyotasupplierfamilywouldASEAN-10overthenextyears.Thosethat andidentifyotherspecialties andperhaps notbesignificantlydifferent.They'vegot confrontthechallenges with that maxim otherASEANcountrieswhereyoubuild theengineers thereto makesurethat the in mind,with thedetermination to exploit linkages.You must changeinformation network works and to make sure that what is inevitable,will createtheir own systems,humanresourcepolicies,Iead- thosedefectsarelow in the US.But do luck.And thosethat fight againstthe inershippractices-a whole new architec- they havethe Englishspeakersto make evitablewill paythepricebecause theinture.Changeis hard; but if it wereeasy, surethat thenetworkworksandthatthe evitableis the inevitable. theneveryonewould do it. factoriesin theUScontinuesto havelow Theotherthreemaxims,are:"Always Whenyou do havethatnetwork,real defects? In fact,if you useJapanese com- keeptheinitiative,"" Alwaysstayin with advantagecan result.And the bounda- paniesasyour model,what you'll find is theouts(because you'll neverknowwhen ries of competitiondon't stop in the a highlyasymmetric abilityto run net- they'regoingtogetbackinagain),"and boundariesof ASEAN.Buildingbeyond works for advantage.In fig. 16 some "Neverget caughtbetweena dog and ASEAN is going to be an issue.Many thingslike manufacturingdo get trans- lamp post." ferred well,but thingslike R&D don't tn^-t.D companiesarealreadyengagedinit,and t.,11^-;^.t^^;-*-.-^trt-^^r^.-:r^_.

it'sworthdoing. Butlikelriilding anet- workatall.Some tnt"grrit. .o'porut. Y:k?#nn;#:#i::!L:,#';:I'f;T:#,1 work within ASEAN, it will be difficult.

22

philosophies are transplanted with some

akoa"Gouernor oltheArM.

Aucusr-STpTEMBER 1995. THEASIANMaNecrn


fl

Bv Dn.TanrsAusrrN

inDeveloping Managing Countries: forthe21st Centu Challenges ry Editor'sNote:Prof. JamesAustin spent ing in developing countries is a true acid morethan two monthsat AIM on re- test of managerialcapability. HisEAF My observation of scoresof busisearch andfacultydeaelopment. is one the nesses in developingcountriesleadsme framework foundationt'or MBM program,and his analysisof this to concludethat the more successfulhave " an Emerg- beenthosewho arebetter ableto analyze, year's TheAsean-l}: Toward ing CommonMarket" AIM Conference understand,and adapt to the threatsand in Manila shouldbegoodreadingfor aII opportunitiesin their businessenviron" ment. I shall briefly presentan analytical thqthaueusedthe Austin model."

only a small pieceand therebymiss critical forcesimpinging on their business. To function effectivelymanagersmust be ableto scan,analyze,understand,and reactto the environmentalforcesthat surround the firm. My EnvironmentalAnalysisFramework( EAF)providesa conceptual map that canhelp scansystematically and comprehensivelythe criticalcontextual variablesto examineand the analyti-

framework for scanningand examining developingcountry environments. Next I shall use the framework to identify some' J s managementin developingcounmanagement triesany differentthan critical trends shaping our I My business 30 years environment.Lastly, I in developedcountries? I shall suggesta set of comof researching,teaching,and managing ECONOMTC . Natural p e t i t i v e s u c c e s sd e t e r m i throughout Latin America, Africa, and Reso urces nants. Asia lead me to an unequivocalYES.It is . LaD0r different becausethe different levels and . Capital . lnfrastructure of developmentcreatedistinct Dnvironmental processes . Technology businessenvironments.Although certain analysis framework Developingcountrybusrtechniques,concepts,and approachesare usefulto managerseverywhere,their de- nessenvrronmentsare complex, continually in flux, and gree of utility and nature of application highly diverse. I have seen must be modulated by the characterof managersfall into two traps. their businessenvironments. CULTURAL . SocialStructure Not only is managementin develop- The first is Ad Hoc Plnnning; a n dD y n a m i c s ing countriesdifferent, it is more difficult. they deal with issues and . H u m aN n ature Po rc nonfirro The developing country manager has to pressuresasthey arise,rather . T i m ea n dS p a c e copewith the country environmentsthat than identifying and study0 rientation have more resourceconstraints,weaker ing them in proactive, sys. Religion . G e n d eRr o l e s institutions, fewer givens, and greater tematic manner.The second . Language trap is L4yopicPlnnning;they uncertainty.Beinga managerin NewYork is simple compared to the difficulties de- focustheir examinationof the Figure 1 veloping country managersface.Succeed- business environment on

. Aucusr-SEpTEMBER 1995 TsEAsrax MeruecER

POLITICAL . Stability .ldiology . lnstitutions . Geopolitical Links

DEMO. GRAPHIC

. Population Growth . AgeStructure . Urbanization . Migration . Health status

z-J


cal pathwaysto follow in probingthe managerialimplicationsof environmental forces.It doesnotprovideanswers, but enablesa more orderly and thorough search process. TheEAF'sapproachis oneof divide and conquer.It breaksthe complexityof the environmentdown into more manageable analyticalblocks.It doesthis in the form of four setsof environmental factorsand four levelsof analysis. FOUR FACTORS. In theEAFexternal forcesare categorizedinto four factors:economic, political,cultural,anddemographic.Eachof thesecanbe examined in termsof key componentsthat serveas cellsof analysis,suchas those shownin figure 1. A manageris asking what arethe implicationsare for his or herbusiness of thestateandtrendof each of thosecomponents. Not only doesone scanand a\alyzeeachof thefour factor

ECONOMTC FACTORS

areasbut alsotheir interrelationships. Bv first disaggregatingthe factors,we mak! the analysismore manageable; by subsequently reintegrating them, we capture the relevant interdependencies. FOUR LEVELS.To traceenvironmental effects more systematically,the EAF usesfour interrelatedlevels of analysis: international,national,industry,and company/ portrayed conceptuallyin figure 2. It is important to emphasizethat managers are always scanningthe environment from the fourth level, that of the firm. The EAF provides a referencefor comprehensive analysis,so that critical dimensions arenot forgotten,but the manner can scan and analyzeselectivelyor focusin on particular or levels depending on the company's situationand needs. As with the factors,at each of these levelsone examinesspecificdimensions. For example,at the internationallevel one

is focusing on cross-border resource flows, bilateral and multilateral agreements/and globalindustry linkages(figure 3).At the nationallevel one examines in particular the impact of government actions.This path of analysisis illustrated by the Public Policy Impact Chain shown in figure 4, where one can trace through how the four factorsshapenationalgoals and strategies,which in turn are expressedin policies(monetary,fiscal,trade, investment,social,and sectoral),which are implemented through different kinds of legal and administrativeinstruments and carry distinct effectson one'sindushy and particular company.Applying this analyticaltool one can project,for example, the likely affect that a possible government actionwill have on relative competitive situation in one's industry, and even the particular impact area and effectswithin one'sindividual companv.At the industry levelof the EAF one examines the competitivedynamics.The Five Forcesmodel of my HBS colleagueProf. Michael Porter is relevant,but with one major adjustment: In developingcounPOLITICAL tries,governmentsrepresenta megaforce FACTORS and consequentlyshould be incorporated as a sixth force modulating the other five forces,as illustratedin figure 5.

INTEFNATIONAL ENVIRONMENT Market Bilateral Multilateral Global T r a n s a c t i o nLs i n g k a g e^sM e c h a n i s m sI n d u s t r i e s l

I

i

NATlOilAt ENVIRONMEIiIT Government Strategy andPolicies l

t

TFends shaping the developing country business environment With the EAF as an analytical referencepoint, let us now examinesome of the significant economic,political, cultural, and demographics forces and trends that are shaping the businessenvironment in developingcountriesas we enterthe 21stcentury. ECONOMIC. In the economic area the most significantand irreversibletrend is international integration in terms of trade,investment,and capitalmarkets. The key engine of global growth over the past 40 years has been trade. The North recognizesthis, which explains why developednations were willing to sacrifice domestic political pressure groups to ensurethe passageof the Uruguay round of GATT.TheASEAN nations know that the trade route hasbeen their DEMOGRAPHIC p a t h w a y t o e x t r a o r d i n a r y e c o n o m i c FACTORS progress.The Latin American countries have reawakenedand abandonedtheir protectivecocoonsof import substitution and adopted export promotion strategies,

d '-,I'IHI$I#'h n t % "* Dynamics..

COMPANY Strategy an0 0perations

CULTURAL FACTORS Figure 2 aA

AuCusT-STpTEMBER 1995. THEASIANMANAGER


ECONOMTC FACTORS

POLITICAL FACTORS

.:d

r;") \

A ) \=--\\

Market Transactions

Bilateral Resource Multilateral Linkages Flows Mechanisms

Global Industries

\r,\ I Country \ \'/

w CULTURAL FACTORS

wr DEMOGRAPHIC FACTORS

Figure 3

too. The world community's collective vested interest lies in furthering global integration.It is a proven win-win paradigm. Trade integration will continue and accelerate.The fear that the world will be fragmentedinto regionaltrading blocs that will becomeisolationist is unfounded.The emergenceof regionalblocs should be seenas a transitoryprocessof rationalizing the global economicsystem. The regional blocs permit small groups of nations to achieveintegrated economieswith the concomitantbenefitsof factor mobility, specialization, complementarity,and economiesof scale.Industries and investments become reconfigured for greater efficiency.Such structural adjustments are neither easy nor painless.Politically,that adjustment processcan be managed more easily on a regional basis with fewer nations.Blocs also enable cooperating countries and their companies to move along the export learning curve and increasetheir internationalcompetitiveness.

Insteadof viewing the trading blocs with their somewhat protected markets as the end point, it is more reasonableto see them as staging grounds from which nations and their blocswill becomemore integratedglobally rather than isolated. Tradeintegrationis further fosteredby the flows of foreign direct investment (FDI).FDI has grown continually and has becomethe major sourceof capital to developing countries.The trend toward companiescreatingglobal production and marketing systems will accelerateand give rise to growing intra-company trade.

TUTAsIeN MeNecTR o AUGUST-SEPTEMBER 1995

Aheady20Vo of theJapan-U.S. tradeflow is intra-company. In a fundamentalsense, themorerelevantunit of analysisis not the formal trading blocscreatedby political treatiesbut ratherthemultination economic subsystems created by companies' investmentsand sourcingand distribution arrangements. Similarly,the overallgeographical scopeof a trading bloc is lessrelevantthan particularsubsets,for example,Hong Kong and Guandong,Taiwanand Fujian,BruneiMindanao-and northeastern provincesof Indonesiaand Malaysia,Thailandand Vietnam,Singapore-Johor-Riau. Analogous subregionpairingsexistwithin NAFTA,MERCOSUR, and the Andean Bloc.It is alsousefulto thinkin termsof economic hubs:singlecitiesor locations thatperforma criticalfunctionin theglobalsystem.Theeconomic originsof Hong Kong and Singapore restedinitially on their strengthasinternationaltransshipment points.In the Philippineswe are witnessingthe emergence of the convertedmilitarybaseat SubicBayasa key hub in theAsiaregion,with globalfirms like FederalExpressmakingSubictheir Asiahub.I suspectthatthenewbusiness occupantsof Subic will turn out to be evenbetterpeacekeepersfor the region thantheirmilitarypredecessors; always chosebutteroverguns. In short,aswe moveintothe21stcentury we must recognizethat economicallyviableintegrationdependsmoreon the investmentdecisionsmadeby businessesthan on politicalborderscreated by historicalaccident. Furthermore,it is increasinglycommonfor a companyto sourceits technol-

POLICY INSTRUMENTS & INSTITUTIONS

l

r

l 25


ogy from one country,its raw materials from a second,manufacturein a third, obtainits capitalfrom a fourth,get its managersfrom severalcountries,sell its finishedproductsin yet others,andhave ownersfrom variousnations.What nationalityip that company?Towhom is it Theglobalfirm hasa vested accountable? interestin creatinga borderless world; it will be a continuingforcefor integration andagainstisolation. In additionto tradeandFDI thethird integratingforceis capitalmarkets.The new trend is portfolioinvestmentsfrom developedcountryinstitutionalinvestors and managedfunds into developing countrystockmarkets and companyand governmentdebt instruments.Portfolio investmentswerealmostnonexistentin 1983but ten yearslater wereproviding 23Va of allthecapitalflowsto developing countries.Between7987and 1993 they expandedeight timesto $56B, excluding $12B that flowedto Hong Kongand Singapore whichhavegraduatedinto the ranksof developedcountries(seefigure 6). Yet the U.S.institutionalinvestors holdingsin the emergingmarketsis less 26

than a half percentof their assets,so there is a lot more money to be tapped (seefigure 7). From 1,982to 1992period developing country stockmarketsgrew elevenfold. Thesemarkets are tightly linked becausethey sharecommon instltutional investors.Disruptions in one instantly ripple to others.Wtness the international reverberations of Mexico's recent difficulties. Domestic mutual funds and unit trusts are emerging as significant capital mobilizers; Chile's private socialsecurity system generatesmonthly $300 M of investible capital. The challenge to the local stock markets in developing countries is to ensuremarket integrity through transparency,full information disclosure, and regulation againstinsider trading. As this advances,so too will capital inflows. Markets that fail to make theserequisite reformswill be bypassed. Trade, investment, and capital markets integration will be further enabled and acceleratedby the continuing advancement in telecommunicationsand information technologies.We will be instantaneouslylinked, whether you like it or not. There will be no hiding.

POLITICAL. The end of theCold War has, ironically, increasedthe complexity of the political environments rather than clarified them. Black and white choices have evaporatedand we are left groping in a world of grey filled with greater ambiguities, confusing alliances,and different kinds of competingpolitical demands and forces. One trend is clear: increaseddemocratization is inevitable. The forms will vary but three elements will be present: increasedparticipation, representativeness/and responsivenessby, of, and for the people. The underlying forcesgiving rise to democraticexpressionare, first, growing personal incomes that lead to a more self-reliantcivil societyand greater demands for individual rights. Second, higher levels of education that generate political awarenessand insistence on greateraccountabilityof politicians to the people.Third, international communication that exposespeople to political options and processesoccuring in other Parts of the world. How pervasiveis global television?A few months ago I was travelling in rural Kenyaand stoppedat a small roadsideto get a softdrink. I struck up a conversation with a young Kenyan man who had barely more than a primary education. Instead of simple niceties about the weathet he asked me what I thought about PresidentClinton's decisionto send troops into Haiti to restoredemocracyto that country. He had seen this event on CNN World News on a TV set in the village. We engagedin a surprisingly sophisticated discussion of the pros and consof using external forcesin the cause of freedom and democracy and the relevancy to Kenya's current political situation. The politically ignorant peasantis a disappearing breed. A companionphenomenonto democratization is privatization, usually accompanied with growing market liberalization. Privatization constitutesthe biggest assettransfer in the history of the world. In 1968 developing countries completed privatizationsworth $2.4B; in1992, $23.2 B. Privatizations in Asia and elsewhere will continue to produce marvelousbusinessopportunities, give rise to more foreign investment,joint ventures,and new deal configurations,asexemplified in the Philippinesby the recentlyapproved$183

Aucusr-SEpTEMBER 1995. THEAsrANMeNecER


joint ventureto M Philippine-Malaysian build watertreatmentfacilitieshere,using for thefirsttimeabuild-operate-transfer scheme. Privatizationswill grow and thendeclineoverthenexttenyears.Eventually you will run out of stateassetsto privatize.Moreprofoundly,however,this processrepresents a fundamentaltransfer of powerandresponsibilityto theprivate sector.Managingbusiness-government relationswill remain,however,a criticaltaskfor managersin developing countries,because evenastheroleof the statechanges, its fiduciaryresponsibility for nationaldevelopmentwillcontinueto involveit in economicmatters. Loomingominouslybehindthebusiness-government interfaceis the dark cloudof corruption.No countryis totally freeof corruption.Recentgovernments in Braziland Italy havefallenbecauseof Source:Estimatesof BaringSecurities corruptionscandals. Corruptionis a cancerthat eatsawayat government'scredibility, erodessocietaltrust, wasteresources,and divertsenergiesinto counterproductive activities. Governance competencyis becomingincreasingly andbusiness impor- are surroundedby forcesthat lead to Communications actionsare tantasa sourceof internationalcompet! socio-culturalchangeand differentsub- two powerfulvehiclesfor penetrating the tiveadvantage. Professionalism, of cultural transpar- groupswithin a societyact in different socialfabricthrougha process Thus,we mustexpectthefuture ency,and honestymustbe thenormsfor ways and changeat differentrates.Be- osmosis. 'to producemuch greatercross-cultural governments, if nationswish to be win- causecultureis dynamicand varied,we nersin the21stcentury.Wearenot look- must scrutinizeit carefullyand continu- blendingandmorerapid changes in culing for bigger governments,just better ally. tural patterns.Wecanno longertakeculInternationalcommunicationmedia ture asa given;it will becomea moving ones. CULTURAI. Let us now turn to the via television,movies,print, computers, target.Traditionalassumptionsabout third factor,culture.Countries'cultures and travel are geometricallyincreasing consumeror employeebehaviorwill beareneithgrconstantnor monolithic.They societies'exposureto differentprefer- comelessvalid. ences/attitudes, The HarvardBusiness Reviewconcustoms.Individu- ducteda globalsurveyof 13,000 managals'culturalframes ersfromdeveloped anddevelopingcounof referenceand tries.Themanagers wereaskedtwo quesbehavioraloptions tions:Has the averagequality of your are expanding.In- employeesincreasedover the past five ternational eco- years?Hastheloyaltyof your employees nomic integration to the firm increasedor decreased? Your exPosesbusiness counterparts aroundtheworld haveconmanagers, emPloy- firmedthat educationhad increased and ees/andconsumers loyaltyhasdecreased. As employees beto differentcultural comernoreeducated,gain greaterecoapProaches to or- nomicindependence throughhighersalaganizational strucries, and face more externalemployment SouthAsia tures, relation- optionsaseconomies grow andcompetiships,andcommu- tion for talentincreases, their mobility is Europe/Central Asia nication and atti- greater.kaditional cultural normssuch 6.7 tudestowardcom- as loyaltybeinggivento a companyin Source:World DebtTables1993-94 petition.Counhies' exchangefor paternalisticsecuritybecultural borders comemore tenuous.Growing competiFigure 6 are Permeable. tive pressureson firms also have deTHr AsnN MaNecER. Aucusr-SEpTEMBER 1995

27


creasedtheir financial ability to sustain traditional promisesof job security. Thesetrends mean that companles will have to reexaminctheir internai corporateculturesand make adjustmentsto accomodatethe changing attitudes of their ernploveesand the growing crossculturality of the businessworld. A companv's internal culture is not simplv a mirror image of countries'culture.It is significantlv influcnced bv the external culture, but it is not a prisoner of it. The company's organizationrepresentsa social spacc in lr,hich distinct norms and behaviorcanbe developed. Before we leaye our exanination of the socio-culturaltrends, we must spotlight education,which generallvhas cultural roots.Skill scarcityis the most c tical bottleneckto development.Although it is proven that you can surge forward economicallvon the backsof low cost labor,this is an evaporatingadvantage becausedevelopmentgeneratesrising wages.Skill enhancementis the key vehicle for creatingsustainableadr.antage. Thus, the real competitive race into the 21stcentury is the raceto educate. We must rethink fundamentally the issuesof who should be the educators, where should educationtakeplace,what should be taught, and how should it be taught. To simplv invest more resources in the same old ways lvould be a Iousy i n v e s t m e n t .W e m u s t r e d e f i n e a n d broadensociety'seducatorsto include institutionsother than the formal schools, such as,businesses,civil societv organizations such as NCOs, families, and individuals. Wc must have borderless classroomswhere on+he-jobtraining and intemship arcincorporatedinto theleaming process.Information and multi-media technologieswill be mobilized to ena b J el o n g - d i s t a n cl e a r n i n ga n d . e l f i n structionin the home.The conceptofonetime formal education must be replaced with that of continuousleaming.Inshtutions and processesaimed at retooling and retaining existing workers must receivemuch greaterattentionto enablethe workforceto adaptto the rapidlychanging environment that will make obsolete existing skills more quicklv What we train people in will be more closelyhed to actualand forecastedcapability needs. Educationalproducerswill becomemore coordinated and integratedrvith educa28

growlh markelrr'ill be. A. countrierdevelop cconomically,birth rates fall and changethe age structure. Thus, the four AsianTiger.facea gre\ ing populationin the next century,which meansthey will h a r et o d e a l\ v i t ht h eg r o t l r n ge c o n o m i c burdcno[.upporting the elderlv.Traditional familv support systemstend to rveakenand a greater fiscal burden is placed on the state. Covernments n'ill havc tu wr*tle |\ ith the politic5of aging. The elderlv becomea verv powerful politicalgroup that resiststamperingwith , s i5 e\'itheirentitlemenp t r o g r a m 5a denced by U.S. politicians' fear of cutting SocialSecuritybenefits. The other striking demographicphenomenonin developingcountriesis rapid urbanizationand the creationof enormous cities.Although theseconcentrated mass markets stimulate businessdevelopment, they also createseriousroadblocks in the countries'rapid development path, such as large groups of poor peopleliving in desperatesocio-economlc situations,stresseson traditional cultural values,family structures,and socialproblems of drugs,crime, and AIDS. Furtherpollution, environmental more degration, and congestionhave choked many cities. From Mexico City to Bangtrastbetweendeveloping and developed kok we arewitnessingMegacityCridlock. e n v i r o n m e n t s . D e v e l o p i n g c o u n t r y If $.e were to utilize a Quality of Life Inpopulation growth rates are four times dex, we might discoverthat for many higher, u'hich means that almost all the developing country cities, as developdemographic market expansionin the ment $'ent up, the quality of life went n e \ t c e n t u r vw i l l b e i n t h e d e v e l o p i n g down. We are earningmore,but enjoyn , t t i o n ' I. h i 5 m e a n st h a t a l l t h o s eb u r i - ing it less. nessesbasedon population-drivendeThe economiccost: are large. Bangmand will increasingly migrate to de- kok's gridlock costs the country $1 B a veloping countries.The highestpercapita year in petrol and time losses.Pollution softdrink consumeris Mexico;China was caused 51 million days of lost work acCoca-Colas faste\tgrowing marketlasl tivity and 1,400deaths annually due to v c a r e, \ p a n d i n g6 4 a ,a n d t h a t ' s o n l v aat re5piratorydi.tress or illness. l-oreign Ievelof threebottlesper person.Get them exchangeearningsfrom tou sm arejeopto drink one more bottle each meansyou a r d i z e d . l h a r l a n d ' sP a t t a v dr e s o r tg o t sell a billion more bottles.It is clear whv crossedoff many travel agencies'listdue the massconsumergoodsmultinationals to se$'age disposal pollution of the have "Creat Wall Fever." beaches.MexicoCity'spollution is sobad Thedifferentialgrowth rdtc. give ri\e thatyou canno longer.eethemountains. t o d r a m a t i c a l ldvi f f e r e npt o p u l a t i o na g e Not only toudsts but also foreign invesstructures.Developed countries are rec- tors are having second thoughts about tanglesr.r'ithagingpopulation:,and de- going to such locations. veloping countriesare pyramids with The Harvard BusinessReviewGlobal most of the population being under 20 Survey revealedthat developedcountry year<.[f you area producerof babvdia- businessleadersput ecologicalproblems pers or food, or a manufachrrerof chilalmost at the top of social problems reldren's shoes,it is obvious where the evant to business;developingcountry tional users. Our educational processes n ill increasinglv shi[t lrom pd\.irc traditional methods of informational transfer such as lecturing to more interactive learningmethodsaimed at developing analvticaland creativethinkingcapabilities rather tl.ranjust memorizing and mechanisticprocessingskills. We need thinkers more than harmonizers. DEMOGRAPHIC. Demographicdiffercncesconstitute the most striking con-

Get the Chinese to eaeh clrink one more

bottle of

Coea-Cola: You will sell one billion more bottles.

AUGUST-SEI'TEMBER 1995. THEASIANMANAGER


managers placed environmental problem( at the bottomof their list. This historicalrelegationof environmentalissues will be correctedaswe move into the 21st century. Covernments and NCOs will insist on environmentalsensitivity. This businessproblem translatesinto a significant market opportunitv. The demand for environmentalgoods and servicesrn Asia is estimatedat about $31 B with an annual growth rate of over 16?. The final demographicphenomenon is international migration. Cross-border flows of workers will increaseas part of the processof global economicintegration. Labor mobility will join capital, trade, and technologv flows in creating optimum economicconfigurations. Resource complimentaritieswill drive the flows. In thi: region Singapore,Valarsia, Brunei, Taiwan, Hong Kong, and South Korea are labor short and capital l o n g . w h i l e t h e P h i l i p p i n e sI .n d o n e s i a . China, Vietnam, and North Korea are laborlong,indc,rpilalshort.Thecomplimentary and flows are clear. Of course, people flows are more complex and culturallv disruptive than capitaland goods. Theseinternational human resourse flows donotsimply involve unskilledand technicalworkers. The managerialmarketplaceis also increasinglyglobal. Just ask one of Harvard's bright MBAs: Would prefer to take a job in Pittsburgh or Hong Kong) Theywould likelyreply: "That's no-brainer. a I'll go where the actionis, and that'sAsia."

nessin the next ten vears as you have in the last ten is to assumevour way into mediocrity, if not extinction. Having a Change Mindset means that vou proactivelv seek out change. If you do not change your environment, it will changeyou. Which would you prefer to be: the hammer or the nail? The Change Mindset also meansthat you seechange asalong-term processratherthan a shortterm event. [t is not the ]00 meter dash; it is a marathon. INTIMACY. Consumersareincreas-

Low eost labor is an euaporating aclaantage

beeause deuelopment generates rrc.ng urages.

ingly more educated,more sophisticated, and more demanding. We will see the ratesof new product proliferation accelerate.Consumerchoicewill multiply and brand lovalty will be more fragile. The more intimatelv you know and under:tand vour client,the greaterthe possiDeterminanls of successful eombility ofanticipating theirneedsand findpetiliveness ing superior wavs to meet them. You Keeping the foregoing economic,pomust love your customers,and this must litical, cultural, and demographicfactors be a long,-termrelationship,not ju5t a and trendsin mind, allow me to suggest fleeting romance. Qualitv management a set of managerialactionsthat will con- mustbe rootedin achievingcustomersdttdbute to successaswejournev forth into isfaction. Rather than TQM we should the complexbusinessenvironmentof the label our efforts CFQM, Customer Fo21stcentury. I call them the " Ten I's of cusedQuality Management.And CFQM Competitiveness." should not be just a program, but a phiINERTIA. The environment is filled losophy,and notjustaphilosophy, butan with unparalleled rapid, complex,struc- obsession,which is an essentialingreditural, and irreversiblechanges.The wont ent to all intimate love relationships. and most insidious enemy of a company INNOVATION. Creating new ways in this contextis inertia. The antidore ro to satisfycustome$,manufacture,distribinertiais to adopta ChangeMindset. This ute, finance,organize,and motivate $'ill meansbeingre(eptiveto Lhepo.sibilitv. be Lev to 5uccess.We are not talking necessity, and desirability ofchange. The about tinkering with the latest fad, but curseof succe.sis thdl it breedscompla- rather pervasive and profound renewal. cency, Presumingthat vou can do busr- Inno\ ation produce:productivitygain5, . Aucusr-SEpTEMBER THEAsrANMANACER 1995

which are essentialto cost competitiveness,thatin turn isvital to producingconsumer value. The broadening of consumer preferencesmeans that filling niches will increasingly be the name of the game. Differentiationwill be the competitive driver and creativitv will be at a premium. This will place new demands on the way companiesare organized. I N T ER F U N C T I O N A L I T Y . T h e growing complexitv of the businessenvironmentmeansthat realbusinessprobIemsseldomwill cometo us asneatpackagescorrespondingto traditional managerial functions such as finance,production, marketing,or organization. We must viet{ and structureour organizations as businesssvstemsthat approach problemsthrough functionallvintegrated actions. We need to createorganizations u'ithout functional ftontiers. Traditional functionalstrucfurestend to clogcommunication channels,createbureaucratrc barriers, and foster turf battles. These forcesisolate rather than integrate company personnel.Speedand flexibility are Iost,yet thesearevitally important to confront the demands of a volatile envrronment. Competitivenessrequires crossfunctional collaboration. The era of the "Rambo," machomanagerwho doesitall alone is gone. INCLUSION. lradition,tlorganizational structuresand relationshipshave tended to be hierarchical. Such vertical strucfuresprovide orderlinessbutthev do not necessarilyfoster creativity or rapid responsivenessto a changing environment. Managersare distancedfrom the action by organizational layers, and information loss inevitably occurs as it winds its way up and down the bureaucratic stairway. There is growing recognition that thoseclosestto an activity are the most knowledgeableabout it and thereforeoughtto be activedecision-makersratherthan passivereceiversoforders. Flatterorganizationsand more meaningful participationindecisionprocesses will foster greatercreativity,innovation, and agility. The new psychologicalneedsof managersfor intrinsic job satisfaction may also be better met in these ways. More enlightenedcompaniesarealsorecognizing that one of the kev underused managementresourcesale women who have been overlooked due to culturallybasesgender biases. Including women


fully into the top managementranks will likely raisethe averagemanagerialIQ. Many of the group oriented processes in someAsian companieshave captured theseinclusion benefitsas well as those from interfunctional integration. On the other hand, some traditional corporate cultures that have been authoritarian or paternalistic may encounter difficulties. Authoritarian cultures may have created greaterdiscipline and efficiencythat were important to early stagesof industrial! zation. Analogously, paternalisticcultures may have organizationsand operations in unstable environments. However, in the dynamic environment of the 21stcenturyloyalty and compliancemay be lessimportant attributesthan innovation, independentthinking, and adaptability. Many companiesmust engagein serious introspection to determine whether what were their traditional core cultural competencieshave becomecore rigidities in facing the new challengesof a dramaticallychangingenvironment. INTERNATIONALIZATION. The leading companiesin developing countries not only realize the imperative of going international; they are already doing it. The adoption of an internationalization strategy inescapably dictates changesin organizational structure and administrative systems. There is no standard blueprint for thesechanges,but they will generally be disruptive. Staffing will be a key challenge: the winners in the 21st century will be those who can most effectively manage crosscultural diversity. One must recognize that cultural differencesexist but not automatically acceptall the differences.The challengein a multi-cultural organization is to createa corporateculture that capitalizes on those cultural attributes and practicesthat strengthencompanycapabilities and reduces those that detract. Many companieshavedemonstratedthe "culcapacity to create such distinctive tural space"in their overseasoperations by optimumly mixing the coexistingculfures. Suchan attainment.however.is not easy;it requiresgreat cultural sensitivity, consciousplanning, and intensive crosscultural training of employees. Therehasbeenconsiderabledebatein recentyearsabout whetherAsian or Western managementtechniqueswith their different cultural roots were superior. I

30

suggestthat for the global firms of the 21st century this is an outdated debate. "Which is better?" is not the relevant question. The task is to createthe optimum mix. Cross-culturalblending of best practices is the new name of the game. And the manager of the future will be multicultural and multilingual and exceptionally talentedat managing cross-cultural human chemistry. The firm of the future must createits self-image.When you will passfrom consideringyourselfa Filipino or Malaysian company with international operations and consideryourselfan ASEAN entity? Even further, when will you shed your ASEAN identity and becomea globalenterprise with operations throughout the world? Theseare not semanticdifferences;they representprofound transformations. Only the bold will be capable of such a journey of change. The timid will remain in the minor leagues. INTERRELATIONSHIPS.Jointventures and strategic alliancesbetween firms from different countries will continue tobe the dominantmodalityinAsia. Suchrelationships,whether abroador at home,can capturecomplementariesand generatesynergies,but joint ventures are not easyto manage.Many fail or fall short of the partners' original expectations. The following aresomeguidelinesfor creatingsuccessfuljoint venturesor strategicalliances: * Carefully assesscomplementarity. If there is no true operating or resource synergy as well as congmency of values

Inertia Intimacy Innovation Interfunctionality lnclurion Internationalization Interrelationships Information lgnorance lntegrity

between you and your potential partner, stop before you start. Broken engagements are less painful and costly than subsequentdivorces. * Identify potential conflict points. Conflicts are inevitable and they are better managed by spotting them ahead of time and discussinghow they should be handled if they arise. * Make clear rules and transparent transactions.Suspicionis the cancerof collaboration. Clarity and transparency is the antidote. * Beflexible and fair. You cannotplan for everything. Don't be trapped into counterproductive rigidity by your original agreement. Expect the unexpected and be willing to solve problems in an equitablemanner. Review and revisethe arrangementsif necessary. * Communicate, communicate,communicate. Infrequent and imperfect information createmisunderstandingsthat can grow into crises. The vacuum of silenceis often filled with misassumptions. * Know when to exit. As the poker "you've player said, got to know when to hold'em, and know when to fold." foint ventures can outlive their usefulNCSS.

Finally, the company must recognize and managean increasinglyintricate web of interrelationships with government and other stakeholders,such as community groups in its operationsareasand NGOs concernedwith its actions. The corporate accountability equation will becomemore complex.

: Upsetthe statusquo : Becloseto your customer : Becreativeandfill niches : Teamwork! : Flattenthe organization : ThinkbeyondASEAN Communicate3! Usethe infosuperhighway Createa learningorganization Be a responsible corporatecitizen

1995. THEAsrANMeu.q.crn Aucusr-SSpTEMBER


INFORMATION. We are entering knowledgeis in accordance with position. siona duty." Thesecondriskof powerrs theinformationage. Therewill not be a What one saysis more importantthan forgettingthosewithout power To do singleaspectof business thatwill go un- who saysit. this is to fail thebasicethicof busrness (c) Learnfromoul:ider..Donotper- leadership, touchedby the rapid advances in inforwhich is to contributeto the mdtionproces5ing andtelecommu nica- mit a "Not-lnvented-Here syndrome." welfbeingof societvOur dutiesasleadtiontechnologies. Twentyyearsago there Searchout bestpracticesincessantly. els extendbeyondthe corporatedoors. were 50,000personalcomputers;today Somebody somewhere is alwaysdoing Todayandevenmoresoin thefuture,the we produce50,000everyday. Comput- somethingbetterthanyou,andthatrep- p o w e ra n d r e s p o n \ i b i l r tovf b u s i n e s . ersarecentralto theneedededucational resents a learningopportunity. leadersis and will be greaterthan ever (d) Managers r e v o l u t i o ni n d e v e l o p i n gc o u n t r t e s . mustbeactivelisteners before.And thisrepresents anexceptional Internetgivesusenaccess to 14,000 data who valuecdticismasa sourceof growth challenge.Tofaceup to thosechallenges basesrangingfrom CIA to the London andreceive it withoutdefensivene's. we will haveto wrestlewith inescapable (e) Learnby doing and acceptmrs- dilemmas PublicLibrary. Our problemis shifting and to makeharddecr:ion:. frominformationscarcityto information takesaspart of thelearningprocess. It may alsomean to venturinginto unoverload. Computernetworksare beWhenyou've stoppedlearningas a chartedterrainwherefew havetraveled comingthe neryesystemuniting global manager,then you know its time to re- before. companies' far flungoperations.Offices tue. As you go forth on this demanding arebecomingmobile.Havemodem,will INTEGRITY.Thisis the essence of andexcitingjourneyinto the21stcentury, travelis the new managerialcode. The leadership, and leadership is what we fearnot thelesstravelledroad,forgetnot paradigmof access and useof informa- needto meetthechallenges posedby the the forgottenones,and fulfill the moral tionis beingradicallyaltered.Thenature previousnine"l's." imperativeof trueleadership.It mustbe of rvork relationships,communication, so if we, ascitizensof the world, are to and controlmechanisms are beingprorealizethefullnessof our humanitv foundlychanged.The traditionalintermediaryfunctionof middlemanagers is Bibliography: becomingobsolete.Thecreationanduse of informationwill be centralto attainl.Fora fullelaboration of theEnrironing and retainingcompetitiveness. The mentalAnalysisFrameworkseeManaglesson, in short,is eithergeton theinforins in Developine Countries, I. Austin, mationsuperhighway or getleft behind. The FreePress,MacMillanPublishing, IGNORANCE. Managersgenerally New York,1990. fleeignorance.Not knowingis uncom2.James E.Austrn. \ ilgunColgur and fortablefor decision makers.ThesuccessHelenShapiro," Emerging Markefs:The ful managerof the future must discard RisingRoleof Portt'olio Intttstments," thisemotional baggage andembrace igHarvardBusiness SchoolWorkingPaper norance asour ally.Admittingignorance 494-053,1994. is thefirst,step to discovering knowledge. 3. JackCIen,"An InLroduction to fhe Insteadofinvestingexceptional energyin Mlcrostructure of Emerging Markef s,"lnter coveringup our lack of answers,we nationalFinanceCorporation Discussion shouldchannelthat efforttowardleanTheleaderis thepilot who creates the Paper24,1994. i.g visionfor the company'sfuture. The 4.David D. Hale,"St,ckMnrkets in the PeterSengerelatesa story about a leaderis thekeeperof the corporatecul- NewWorldOrder,"Columbialournalof formerplanningdirectorof planningat turewho ensuresthatthecorevaluesare World Business, Vol. XXIX, Number2, ShellOil, who stressed the importance preservedas a powerfulguiding force. Summer1994. of thiswell whenhesaid: "Thecapacity The leaderis a mentorwho develops 5.DennisA. Rondinelli,"Thailand's Exto learnmorerapidly than the competi- otherleaders.Visionary, value-leeper, ptrnding Markets Entiroumental Technol for tionwill betheonlysustainable competi- andmentorThese coreleadership iunc- agyandSerrices: Opporfunities for U.S. tiveadvantage."Tomakeyourcompany tionscannotbe executedsuccessfully TradenndInaestmenf," Tournalof Asian a learningorganization, therearefivecon- without the organization's members' Business; Vol.10,Number1, 1994. ditions: trustin theleaderderivedfromtheirbe6. K.T.Arasu,"U.5.EyesB gingAsinn (a) Makelearninga basiccorporate lief in theleader'sintegrity. MarkrtforEnaironmental Technology ," lg!f: valuecentralto your companyculfure. Youareall leaders.Youwalk in the nal of Commerce, September 23,1993. The possibilityof learningcontinually corridorsof power.Thefirst is theriskof 7.PeterM. Senge. TheFifthDiscipline. shouldbe continuallypresent.He who abuse.Theacidtestof leadershipis the New York:Doubleday, 1990. knowsit all, hasmuchto lear.,. ability to exercisepower responsibly. {b)Accept thdt everyone in theorgani- JohnD. Rockefeller said that "Every Dr tl1.Chai l\ldt af ChallnnnPtuf6 lancs A st1t1is zationcanlearnand that one canlearn privilegeimpliesa responsibility; every sorship,HdnrordUtli|ersil| Cndunt,, Scll,olof Bust from everyone. Do not assumethat opportunityan obligation;everyposses- nessAdmi islratton.

Inelucling

uromenfully into top

management uill raise the auerage manageriql

rQ.

THEAshN MANAGER.AUGUST-SEPTEMBER 1995

31


IGIzIN,. . t -

;:i

\lt t

B\ lRoFt5)oRRl \f T. Dovt\(,o

LinkingQualityto Appraisals Performance neof thebiggestsiumblingblocksto thesuccessfulimplementa-

UNLESS QUALITY IS

tion oi TotaiQualitv ManageDEPLOYED CLEARLY ment (TQM) is management's failure to integratethe compaINTO CORPORATE nv's qualitv mission and goals POLICIES. ESPECIALLY into corporaiepolicies. For inTHOSE THAT AFFECT stancemost middle managers arc indifferent to TQM simplv ONE'S PAY AND qualitv because PROMOTION, . is not a Key ResultArea (KRA) THEN THE MANAGERS' . is not a Managementbv BEHAVIOR WILL Objective(MBO)iarget NOT CHANGE. . is not pari of their perf o r m a n c ee v a l u a t i o no r a p praisal. If middle managersbehavethis rlav, then thev arenot to blame. Top oneofthemanvKRAs ofa managermav managementcannot expectqualitv to happen if it is introduced arrd promoted not be enough to change behar,ior. Too only through speeches,slogans,and manv KRAs meansno KRA at all. For seminars. Unlessquality is deplovecl total quality conpanies,clualitvshouldbe clearly into corporatepolicies,especially the first KRA, secondto none,aheadoi lho.r'th,rt,t[fe( t,,ne'.p.rvand prom,'ti,,rt. profits, market share,sales,production, then the manager'sbehavior rvill not and costs. Whenaskedio undertake,support,or change.Qualitv rvill remaina vision. If participatein quality improvement is not supportiveof middlemanagement TQM, then it cannot provide the neces- projects,the tvpical responseand attitudc sarv leadershipto the supervisorvand of n.dddlemanagersare: "We.rrc busv Marketing manager rank-and-filelevels. Including qualitv as

32

meetingthe salestarget. My salespeople cannot afford to spend (rvaste)tjme on qualitv impr,,\ementproiect.:thevar( bcltcr otl .rllinE and lrving t,.r ' hit or e\ceedtheirsalesquota. Productionmanager-"We havea tight productionschedule to follol'. Actuallv u'e are bchind scltedule. lVe have no time for qualitv programs.We har.eb rush deliveries...." "We are Financemanagerbusvbalancingthebudgetand managingthe tight cashflorvs. Quality? Thafs for the production and marketingpeople. We har.eno iime for that, $'e have to cut cost." Other managers rvould sholr' similar indifferenccto qualitv Thev all seemto think thatqualitvis an additional burden to their normal work, and thev rvould do it if thev have the timc and peopl, to.pare rferi'r. Marleting ntan.tg,ersu'ill ai\\ avsrun aftersalescluotas,procluctionmanagcrsafterproductionschedules, and finance managers aiter the budget. Thev rvill never stop this hrefightnlg and \r'ill thereiorehave no time to do an)'thingelsc,much lessquahtv "lep,itimale' T h e r r ' i l l . r l r n . r vu' - e I h L * c

1995. THEAsIANMANAGER Aucusr-SEprEMBEIt


not to do anyimprovement excuses stores' qualitt service, cleanliness,and lronically,whattheyall missedis the value to determine a large portion of the factthat qualitywill reduceif not elimi- storemanagers'compensation.Failureto natemostof theproblems andfirefighting meetMcDonald's standardscanresult in in thecourseof theirnormalwork.Qual- firing or loss of the franchise." . "At Chryslet a managern'ho fails ity is thesolutionto theirproblems,and not a hindranceto their work. Quality to meet quality goals for one week must leadingtoimprovementin customer serv- submit a w tten explanation.ThoseWho icewill makeit mucheasierfor market- miss quality goalsfor a month are called ing to increasesalesand marketshare. beforea highJevelexecutivecommittee." Common among these measuresare Qualitythat cutsleadtimes,wastes,unnecessary inventories,rework,and in- the adverse consequencesof failure to spectionwill increase productivityand meetquality goalson the part of the manhelp productionboostits outputand cutdelays.Qualityimprovement will cutthecostofquality- thecost of not doingtheright thingsright thefirsttime-up to 20%of sales. ACHIEVING SALEs, Thesesignificantsavingsthrough PRODUCTION, OR qualitywill surelyaid thefinance managerbalancehis budget and COSTS TARGETS maintainthefinancialhealthof the DOES NOT MEAN company. Whileit is difficultin theoryto THAT AUALITY dispute the favorableeffectsof GOALS HAVE qualitvon any corporateactivitt BEEN ACHIEVED. in practice,it is hard,thoughnot impossible, to convinceexperi encedmiddlemanagers thatquality canbe the panacea for almost all their problemsand firefighting nightmares. Corectbeliefsandattitudes a g e r . T h e s e f o u r c o m p a n i e s h a v e maytaketimeto developamongmanag- achievedsignificantquality improvement ers.especially amongthosewith erperi- a n d d r a m a t i c b u s i n e s s t u r n a r o u n d ence.To dccelerdte theTQV process, it through their thoroughno-nonsense qualmay be necessary and practicalto just ity programs. The messageof thesepolimodify manager'sbehaviors, regardless ciesis that managersshould take quality of theircurrentattitudes-rightor wrong very seriouslyandmakeitan integralpart -about quality.Thisbehaviormodifica- of their work. Note that quality is no tion is doneby integratingqualitygoals longer an appeal nor a battle cry. It has into theirKRAs and/or annualperform- becomethe rule of the gamecalledexecuanceappraisals. tive survival. Disobedienceor non-quaf YK. Shettyin "The Human Sideof itv act' and decision:- both commission * to and omission- is simplv punishable Quality" citedillustrativeapproaches JinLing qualitywithperformance appraisManagers take very seriously their alsin four majorcorporations: perlormanceappraisaland whatevergoes r"Quality targetsare part of Ford's into it. Unfortunately, traditional items execuhve compensation plan:40%to 657o in performanceappraisalsdo not indicate ofthebonuses for Fordmanagers isbased nor encouragethe manager's contribuontheircontribution to quality,whileonly tion to quality or serviceimprovement. 20%is basedon theircontribution to prof- Achievingsales,production,or coststarits." gets does not mean that quality goals ."lBM's monthlymeasures of inter- havebeenachieved. In most cases,these nalandextemalcustomer satisfaction are are mutually exclusivegoals or have the basisfor a largeshareof incentive cause-effecl relationships in oned irection. compensation, erpecial ly for:eniorman- High quality eventually leads to high agement." sales,high productivit, low costs,and ."McDonald'sregularlymeasures its high profits. But high sales,high producTHEAsrANMANACER. AucusT-SEpTEMBER 1995

tivitr low costs,and high profitsdo not necessarilycomefrom or lead to high qualityor qualityimprovement effortsof themanager.Therearevery few quality improvementactivitiesthat do not lead to highersalesandlowercosts.Butthere arenumerous activities thatleadto higher sale.and lowerco.tsby compromising qualityandcustomerservice.Tonamea few: . pushingproductsto customersto meetsalesquota . sellinginferior or substandard productsdueto materialsubstitution to cut costs . reducingmanpower that resultsin poor customerservice, longerwaitingtimes,uncaring and demoralizedemplovees. Other general attitudes included in tvpical performanceappraisals like leadership,team$'ork, creativity,and responsivenessare too grossor lnaccurateas indicatorsof quality behaviorand

work.. Unlesstheseattitudesare redefinedto includea customerfocusand quality-orientation, theymavfail in motivatingmanagersto embarkon qualitvand servlcermProvementproglams. Quality should be measuredseparate from and in addition to financial and attitudinal indicators. Failurein quality and customerservicecannotbe compensatedby superior salesor profit performance. Rewarding sales performance in spite of bad servicethat accompaniedit is courting disasterandis counterproductive. It sends the wrong signals to the manager. Such bad service will be repeatedand eventuallyresult in more lost customersand lost salesin the future. By linking quality to the managers' performanceappraisals and KRAs, they will ultimately develop the desirable working habit of putting quality in their work whetheril is selling.producing, and administering.Doing thingsright the first time shouldbecomesecondnaturc. *\ational lroductivity Review{Spring 1989) Prof. RetE.? T. Donli,tgo is a fll-tottt p/ofessorat lhc Asiln Instihte of Mnnnget enl (AIM) and the holLlerof lh? Sinl. Dnthv Chlrir for M1n lactur itry. He tench.sop.lat i|1s mnnn{ement,total quality inanngentcl, scrl,ic.dtlii ettl,a d latlagtmcnl o1lorlna t tot1s! stenls.

33


FRANCISCO L. ROMAN,TR. BY PROFESSOR

GreenMarketingfor Developing Countries? ne of the morepleasantaspects sumption, becausefirms in developed s a i d i t w a s c o n c e r n e dt h a t t h e R o d o f m a r k e t i n gi n d e v e l o p i n g countries are by no means clean-green. d i c k s ' r e c o r d i n g r e e n e r y f a i l e d t o countriesis theabilitvto foresee For instance,in England,the Bovemment match its claims. Criticscomplain that the future. That is, one can look at the developed countries,particularly in North America and even frequently enough in Europe,for marketinginnovations,many ol which have becomestandard[are in thesecounlries,but rr hich might offer a companya marlet ed8e,howevertranrire-innovalions tory.Theseonce-and-futu take many forms- new conceptsas well asnew prbducts and product extensions, new mediaand promotionthemes,sometimes new channelsof distribution. One can then evaluate the successfactors of that item in the developed country and gaugewhether said item will fare well in one's home (developing)country. One suchitem is the conceptof green marketing or environmentally-friendly marketing, not onlv through the design and manufactureofthe products,butalso in the promotionand delivery ofthe servicesand advertising themes.This article will focus on the latter aspect,that is, on the company'seffortsto improveits image among consume$ bv acquiring the cachetof greenmarketing. Two important caveatsto the reader arein order First,this articleassumesthat firms that carry productsor advertisements bearing the green label do indeed live up to their word. This is a heroic as-

is cracking down on misleading eco-labelling. False claims by manufacturers that products are environmentally friendly becausethey do not containa specific ingredient are to be prosecuted under the 1986TradesDescdption Act.

InternationalRecyclingSymbol

Second,this article will not delve into the ethicsof greenmarketing,itself a contentious issue. For instance,Body Shop International,owned by Anita and Gordon Roddick, built a global image on its claim to sell natural, environmentally friendly cosmetics. H o w e v e r ,t h e F r a n k l i nR e s e a r c ha n d DevelopmentCorporation,an American ethical-investmentsfund, had reportedly sold its Body Shop shares.lt

Body Shop's policy of not selling its productsthat have been testedon animals in the previousfive years is less rigorousthan some of its competitors, and that its trade, not aid, scheme of s o u r c i n gf r o m i n d i g e n o u sp e o p l ea c c o u n t sf o r l e s ss a l e st h a n i t c l a i m s .I n a 6 5 - p a g ed o s s i e rd i s p u t i n gt h e s ea l l e gations,Body Shop claims to have been the victim of an obsessivecamp a i g n o f v i l i f i c a t i o nb y J o n E n t i n e ,a n American journalist. lStorm in a Bubble Bath,fhe Economist,September3, 1994)

Incidentally,the above incident with Body Shop implies that green marketers are likely to be judged by higher standards than ordinary firms. Greenmarketing is one such concept and productcategorythat beckonsfrom the time tunnel of the developed countries, Green products have been around there for a decade;many multinational companieshave already carried such products to developing countdes,partly due to the mandateftom corporateheadquartersand not necessarilvbecauseconsumers were sufficiently environmentally-conscious.For example,3M devotes 15%of its US$ I B R & D budget to envr-

1995 . THEASIANMANACER AUGUST-SEPTEMBER


ronmentallyrelatedresearch;furthermore,recycledproductspromiseproduct savings, dependingin partonthecostsystembeingutilized.Indeed, The IPollutionPrevention Pays]program has also beenextendedto 3M p l a n t sw o r l d w i d ee, v e n i n r e g i o n s where ecologicalissuesare far less p r o m i n e n tI.n 1 9 9 2 f, o r e x a m p l ea, d o z e ne m p l o y e e as t t h e c o m p a n y ' s factoryin Manilacameupwiththeidea of makingtoilet-bowl fromthe brushes leftoverplasticfibersusedin making Scotch-Brite cleaning cloths.(lt Really CanPayToCleanUp YourAct, by Kevin Kelly,Business Week,Nov.7, 1994)

seemingopportunity;theymayalsoseeit go througha similarcycleor waves.The maindifference is thatgreenmarketingas factwill eventuallyrequireALL products to carrythelabelor ALL firmsto carrythe Reportsof the death of Green Market- image,thus losingany impactfrom difi n g i n A m e r i c a a r e d e c i d e d l yp r e m a - ferentiation. Sothemoreimportantquest u r e . E n v i r o n m e n t aal d v e r t i s i n ga s a tion is whethergreenmarketingwill sigs p e c i a l t ym a y b e o n t h e w a n e i n s o m e nificantlyinfluencebuyingbehaviorin its c o n s u m e rp r o d u c tc o m p a n i e sb, u t t h e favor. m o v e m e n th a s n o t d i e d . O n t h e c o n The answerwill probablyvary by t r a r y , i t i s r a p i d l y b e i n g m a i n - country-culture, values,incomelevels, s t r e a m e d . . .W e s e e e n v i r o n m e n t a l sophistication, etc.-and by productpesm a r k e t i n ga n d a d v e r t i s i n ge n t e r i n ga ticide-freefruits might swaya consumet n e w p h a s e - T h e T h i r d W a v e . . .T h e but doestheconsumer understandor care FirstWavestartedmore than five years whata greenTV setor computermonitor a g o ,t r i g g e r e db y a s e e m i n g l ye n d l e s s reallymeans?However,one can peer s t r e a m o f a p o c a l y p t i ch e a d l i n e s . . . throughthefutureby evaluating whatothE a r l ye f f o r t st o c a p i t a l i z eo n t h e r i s i n g ersin developed countries havesaidand t i d e o f p u b l i co p i n i o nw e r e o f t e nh a s t - doneaboutthisconcept. i l y i m p l e m e n t e da n d i l l - c o n c e i v e d . . . Anecdotalevidenceseemsfavorable. T h u s s t a r t e d t h e S e c o n d W a v e Paintsreprese\t50-70% of household hazl w h e r e l c o m p a n i e sw a i t e d u n t i l l e g i s - ardouswastein Americaand probably veloping country is whether the green marketing conceptwill be a fad or a fact. To answer that question,look back to the future, circa1,993,

A few domesticfirms in developing countrieshavealsoexperimented with theuseof a greenimageasa toolto distinguishone'sproductsfromone'scompetitors.Cementis the 36-yearold PHINMA (PhilippineInvestmentMan- l a t o r s a n d r e g u l a t o r sp a s s e d l a w s , Inc.)Group's core d e f i n e dt e r m s a n d f o r m u l a t e dg u i d e agement Consultants business, andit hasspentheavilyon pol- l i n e s .T h e T h i r d W a v e . . ,w i l l b e c h a r Iution controlequipment;its decisionto a c t e r i z e db y a n e m p h a s i s o n s u b taketheleadin environmental manage- s t a n c eo v e r s t y l ea n d b y t h e m a r r i a g e mentin the industryis giving it a green o f e n v i r o n m e n t a bl e n e f i t sw i t h t r a d i imagewhichmay differentiateit from its tional performancebenefits...Dressing competitors. Soit seemsappropriateto u p a d sw i t h i m a g e so f e a g l e sa n dt r e e s askthe questionwhich is the title of this w i l l n o l o n g e r w o oa n e n v i r o n m e n t a l l y article. s o p h i s t i c a t eadu d i e n c e . ,F. o r i n s t a n c e , Beforeansweringthe question,how- p e o p l e h a v e a l w a y s w a n t e d m o r e evet first takenote that the greenmar- m i l e s f r o m t h e i r c a r s a n d t r u c k s .T h e ketingconcept(andproducts)followsa f a c t t h a t a c a r m a y l a s t l o n g e ra l s o a f Ionglineof once-and-future-innovations.f e c t s a h o s t o f e n v i r o n m e n t a il s s u e s Memorialplotsandcondominiumswere r a n g i n gf r o m l a n d f i l l st o r e s o u r c ec o n - residein everybasement, TheMassachuonceculturally unacceptable in many s e r v a t i o n .T h e e n v i r o n m e n t a li s s u e s setts-based GreenPaintCompanyrecycles developingcountries whosefamiliesonce a r e a l m o s t s e c o n d a r yi n t h e c u s t o m - old paintsandputsthembackon theshelf hadclearandfixedideasof whatconsti- e r ' s m i n d , b u t t h e y r e i n f o r c ep r i m a r y andnotin riversor landfills.TheOregontuted a burial ground and a dwelling n e e d s a n d w a n t s . ( G r e e nm a r k e t i n g basedDiegoShoefirm's productscome place.If onewereold enough,onemight Awash in Third Wave,bV RobertRehak, from recycledtrashsuchasold tires,trim remember a timewhenCoca-Cola wasun AdvertisingAge,November22, 19931 from wetsuitsand diapers,polystyrene availableat thelocalsupermarket; for that cups,coffeefilters,etc.Thecompanyuses matter,one might still rememberwhen Or take the caseof energy conserva- no leatherbecause of the toxicchemicals supermarkets did not existin Asiaasa tion ads placedby utilities,which avoid usedin tanning,andto conserve wildlife. channelof distribution. plant expansion,thus eliminating poten- Wellman, Inc.'sEcospun productlinesof Theuseof expiry dateson products tial environmental problems,and saving fleeceouterweatjerseyT-shirts,pile fabthat are perishable-milk and freshly money for the ratepayers.The main ap- rics,webbings,knits, etc.,are all made bakedgoods-and datesof manufacture peal is saving money, and environmen- with a newfiberusing100%recycledplasfor thosenot so perishable-sugarand tal saving complementsthe performance tic bottles. sugar-free substitutes-hasmadethe benefit. This third wave makes common All the aboveeffortsareaimedat the transitionfrom an exclusivemarketing senseiafter all the consumer buys a bar greenconsumer.Who is he or she?One gimmickto a virtual necessityand com- of soap to wash hands, not to save the can easilydivide the marketinto real monplacefor manyconsumerfoods.Will planet, greensand realbrownsat eitherextreme, greenmarketinggo the sameway? Whether fad or fact, the marketers with the bulk in the middle as "maybe" Oneissuefor themarketersin thede- must take immediate advantage of this or "wannabe"greens.However,a 1,991

The eonsumer buys a bar

of soap to

wash hands, not to saue

the planet.

THr AsreNMeNecEn.Aucusr-SEpTEMBER 1995

35


True-Blue Greens Percent ofU.S AdultPopulation 11%

Greenback Basic Greens Sprouts Grousers Browns il%

Median Education Above Average High Median Income

$2,000

26%

24%

High

BelowAverage BelowAverage

31,5m 32,000 24,9m

Willingness topay more for Products Above Green AverageHigh

Exhibit

Average Low

28%

24,000

Extremely Low

prove cost-effective. As longasclaimsarâ&#x201A;Źspecific, limited to facts,and unconhoversial(remember the Bennetonads),environmentaladvertising canbotheducate andsell the product.And corporationscaneducatethemwell; selves as McDonald'steamedup with the Environmental DefenseFund to reduce wastein packagingand gainedboth savingsand anenhanced credibilityas a SreencomPany

1

In terms of new channels,direct marketing and especiallycatalog m ai l i n g , a r e a l o n g identifiedfive paniesblanketingcommunitiesin gray standingsuccessin developedcounstudyof greenconsumers specificsegments, basedon environmen- dust(inlndonesia), or of firmssellingbot- tries.Catalogsellingis becomingmore tally friendly purchasingbehaviorfor bio- tled naturalmineralwaterwith ingredi- p o p u l airn d e v e l o p i ncgo u n t r i eass i n itemsandrecycledproducts, entsmoredangerous degradable , nd catalog thanthesupposedly f r a s t r u c true i m p r o v e s A for making and charitablecontribuiions contaminated piped-water(in thePhilip- c o m p a n i e si n A m e r i c ah a v e h a d a to environmental causes. pines).All told, marketersmust still rough time. After EarthDay in April The aboveclassificationmay assist bridge the gap betweenexpressions thesefirmswereaccused of such of 1990. marketers to createa similardistribution concernandachralpurchases, eco-crimesas killingtreesfor paper, of consumersin developingcounhies,for Thediscussion aboveleadsto a pre- pollutingriverswith inksandchoking instance, in urban cent-ers. The scdptionto use premium pricing with l a n d f i l l sw i t h p a c k i n gm a t e r i a l sa n d "Greenbacks" junk mail.(Doeslt Pay To andthe "Sprouts"arethe caution.Instead,research is neededto es- unsolicited swingsegments. Theformerarewilling tablish a psychologicalprice- which Be Green?by MelissaDowling,Catalog to paymorefor environmentally-friendly "seemsright" or fair to theconsumer, for Age,October1994) products,but are unwilling to sacrifice particularproducts.Moreover,recycled convenienceor time. The Sproutsare productsmay not be able to shakethe Sincetheirveryexistence wasin jeopswayable,budding environmentalists, perception hadto respondby of poorquality,andfirmsmay ardy,thesecompanies but areuncertainaboutpossible tradeoffs haveto uselow pricesin order to gain mailing smarter.After all, whethera betweenenvironmentalprotectionand shareof market(andto dependon econo- catalogis printed on recycledor virgin performance benefits. Forbothsegments, mies of scaleand TQM to derive their paper,it still represents paperwaste.So consumereducationis a must. FrenchlacecatalogerRuede Franceofprofits). Educationis also importantto deal to customers who noGreenmarketingopportunities there- fen gift certificates with two negativeperceptions of green forehaveto bedisaggregated notonlyby tify them of duplicatemailings...and marketing.On theonehand,consumers consumers to andby price,but alsoby prod- quicklyhonorsanycustomerrequests may pay more for environmentally uct. As the exhibit suggests, advertise- betakenoff itslist.Iibid.,p. 110.lSeventh friendlyproducts;on the otherhand,a mentsto buy recycledcans,bottles,or Generation defiesconventional wisdom 1992studyshowedthat consumers per- paper/are alreadywell-receivedby that moremailingsmeanmoresalesby ceivevirginproductsto beof higherqual- Americanconsumers, but the latter are offeringitscustomerstheoptionof receivity thanrecycledproducts.Furthermore, not râ&#x201A;Źadyto cut-downon their driving, ing onecatalogeachseason(four in todisbeliefis the first reactionby consum- for example, in orderto reducepollution. tal)in lieuof theoftenrepetitiveproduct ersin both developed and developing The exhibitsuggests potentialopportu- offeringsthatappearin monthlycatalogs. countriestowards company "green nities- for chemical-free fruits,and po- Other firms areshifting from paperto the claims."Consumersare more likely to tential pitfalls- for companieswith a electronichighway,via online seruces have imagesof the past firmly im- reputationforpolluting.Onceagain,con- andCD-ROMs. planted- of an industrysellingleaded sumereducationis essential, Toconcludethisarticle,let two acadand possigasolinethatcauses braindamagein in- blecostlyin theshortterm. emicianshavethe last word. Jacquelyn fants(in Thailand),of largecementcomgreenmarketingas a On the other hand, ecoJabellingcan Ottmanadvocates Source: 5.h Adv.nced ManagEmdt Jouml

36

Aucusr-SEpTEMBER 1995. THEAsrANMANAGER


Doing the Right Thing Most Americansare already on the recyclingbandwagon, but few have cut back on their driving. (percentof adults by frequencyof selectedenvircnmentalbehaviorson a scaleof I to 7, with I for neverand 7 for very frequently)

VERY NEVER Recycle cans, bottles,or paper

Buyrecycled products packagedproducts Avoid companies thatpollute Avoidfruitsdue to chemicals Votebasedon envircnment Cut backon diving

Noter Don't know respon36 were excluded irom the cal.ulation3. Sou..e: Amen.an Denographis 04/92, Cambridte Resear.h IntehatioMl,

r99t

Exhibit 2

necesslry

mentis alsoa themeofdevelopingcountries. Ottman'sbookis builton thethemeof Ottman'sbookoffersspecificadvice. i n e v i t a b i l i t yt h: e i n e v i t a b i l i t oy f t h e For example, children can influence emergingforcein theform of environ- adultconsumers, because theyaremore m e n t a l l yc o n s c i o u cs o n s u m e r sa, n d likely to heed ads to savethe environthe inevitabilitvof failurethat awaits ment for one'schildren,than by an abcorporationsthat do not respondto stractcallto savetheenvironment for the this new force.lEaswarlyer,BookRe- fuhrre. However,shealso presentsa diviewsl lemma: Ottmansuggeststhreeaspectswhere consumervalueshavegone througha fundamentalshift and thereforeunderscorethe themeof inevitability.According to her,consumervalueshaveshifted from quantityto quality,from short to long term,andfrom meto we.Marketers in developingcountriesmight want to hackthesethreevaluesamongtheirconsumersto seeif greenmarketinghasbecomeinevitablefor theirfirmsandproducts.Stillon thesametheme,shealsobelievesthattheconceptof sustainable developmenthas madegreenmarketing inevitable; notethatsustainable develop-

When it comes right down to it, the termgreenconsumeris an oxymoron. C o n s u m i nu g s e su p v a l u a b l en a t u r a l resources andconsumes waste.(Green Marketing: ChalIengesand Opportunities for the New Marketing Age, by Jacquelyn Ottman,1993.NTCBusiness Books)

management;and in product positioning, he recommendspiggybacking envrronmental claims on top of the product's unique selling proposition- to complement the lattet not to be the lead theme. However, his book does emphasize a broader theme, which will serve to conclude this article: Environmentalmarketingis not simply a b o u t i n c r e a s i n gs a l e s b y c o l o r i n g a product or products green. Environmental marketingis about much more thsn that. Seenmost broadly,it entails far reaching changes in attitudeabout the role of the environment in corporate management practicesand product planning, and also about the role of the marketer in environmental management.(Ervi ro n me ntaI Ma rketingi Positive Strategies for Reaching the Green Consumer, by Walter Coddington, 1992,McGraw-Hill)

Walter Coddingtonechoescurrent practice,, for example,in productdesign, by recommendingspecificbenefits,to counterthe nondisposableproblemand Ptof.Fnncisco L. Roftan, ofthe I/. is theDirector to promotepollutionpreventionrather AIM PolicyForun anAifs SystenConrytitivethan to addressbroad issuesof wasre nessDesk.

THEASIANMANAGER.AUCUST.SEPIEMBER 1995


BYPRoFESSoR GEORGE H.TAN

ElliottWavesand Fibonacci Numbers Editor'sNote:Prof. George Tan nndErrolPerez aretradinginteresting salaos here. In TAM's April-MauissueErroIwrotethat stockvricesfollowa random

u)alk,thnttheyareindEendent. in thisreNot so;saysGeorge

priseot'hisFebruary-March articleonTechnical Analysis

he ElliotWaveTheoryclaimsthat the stockmarketmovesin repetitivewavelikepatterns.Variations in theformsof thewavesweresimplya matterof amplitudeand time.Thebasic pattemis five impulsewavesfollowedby threecorrectivewaves.A studyof the Dow JonesIndustrial Averagesincethe pointedto fibonaccinumbers(1,1, 1920s 2,3,5,8,'13,21,34,55...)andratios0.382, 1,1.618,...) 0.500,0.618, asthemathematigoverningthestockmarcalrelationship ket.Fibonaccinumbersandratiostend to determinemarkettops and bottoms.It 38

Aucusr-SEpTEMBER 1995. THEASIANMANAGER


P H I S I XI N D I X

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3250

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3000

3000

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Ghail l: Philippine Index The Kobe-Barings-Mexico shockscauseda fibonaccidrop in the Phisixof 50%of its entire1993gain.

had even showed uncanny accuracyin determiningtimeperiodsfor markettops or bottoms.Amongthemanyareaswhere fibonaccinumbersandratiosaroseareas follows: 1.Thenumberof wavesin bull cycle (1,5,21,89), in abearcycle(1,3,13,55) or in a completemarketcycle(2,8,34,144) areall fibonaccinumbers; 2. Thethird impulsewaveis usually about161.870 of thefirst impulsewave; 3. Succeeding wavesin a symmetrical triangle during consolidationare about61.870 of thepreviouswave. 4. Correctivewavesusuallyretrace about38.29o , 50?a,or 61.870of the previousimpulsemove. 5.Theaverageprice-eamings ratioof

the US market gyratedfrom a low of 5x to a high of 21xfrom 1930sto 1980s. 6. The marketcrashof 1987was exactly 55 yearsfrom a 1932low, 21 years from a 1966markettop and 13vearsfrom a 1974\ow. Sofascinating,yet accurate,aretheresults of fibonacciapplicationsthat they havebecomeimportant tools in analyzing markets:stocks,currencies, or commodities.Fibonaccianalysishasbecome an integraltool in computerizedcharting softwares. As a caveat,the theoryis not perfect. As anyothersystem,it couldnot encompasseverythingthat happens.Fromtime to time, it will be unableto explainsome movesin themarket.

. Aucusr-SEpTEMBER THEAsrANMANAGER 1995

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Ghart 2: Petron Thedropof Petronfrom 21.60to 12.80is 61%(afibonacci ratio)of its initialgainfrom7.20to 21.60.

Tlbonsccl tratlos ln the Phlllpplne Stock Market The 1993bull marketstartedfrom a low of 1,183.50 onDecember 18,1992and peakedonJanuaryZ 1995at3,308.37. This represents a riseof 2,124.87 indexpoints. Years1994and 1995tumedout to be the correctivephaseof the 1993bull run. Dudng this time the marketretracedtwo key fibonaccitargets:38.2Va and 50.0%, beforebouncingback.Thesetargetsare belowwith theattachedchart. discussed The first targetwas hit on March 11,1994 when the marketdroppedto representinga drop of 801.04 2,507.33, points,or 37J% of the entire1993run. Thisbottomwasonly 10.66pointsoff the fibonaccitarget,representing 38.270 a deviationof only0.5%!The sametargetwas re-tested whenthemarkethit 2,510.7b on 40

(formingthehaditionaldouJuly15,1994 blebottom). Themarketsuccumbed to moreselling in 1995on accountof badnewsfrom Kobe,Mexico,Baring's,etc. The stock market droppedto a closinglow of 2,248.39 on March31.1995.Thatmarket bottom was exactly1,062.43 points,or 5070of the1993bull move! Doesfibonaccideterminethe fateof thestockmarketor wasit justsimplecoincidence? Fibonacciratioscanalsobe foundin retracingPetronshares.From an IPO priceof P7.20pershare,thestocktraded at a closinghighof P 21.50on November 2, 1994.It laterdroppedwith thegeneral marketand hit a closinglow of P 12.80 on January24, 1995.From IPO to peak pricewasa gainofP14.40. Fromthepeak

priceto the low closingpricewasa loss of P 8.80.Theratioof P 8.80lossto the P 14.40gainis...guess what...61.1%, a hair predicted 61.8701 off Fibonacci's Unbelievable? True? Surely,morefibonacciratiosandnumberswill keeppoppingout.Youwill identify them as the market revealsthem. However,finding them beforeprice moves and usingthemprolitablyis the eternalchallenge.

Prof. GeorgeH. Tan the American ExpressBafik He Follndotiofi Prcfessor ofFifiancialMnnaSement. joinedthefacult! il11985aftergrad atingwith an MBM degrec(uith distrnclion).Heleaches FinancialAccounlins,Mandgeriql AccountiflgandControl Systefis,afidFi anceandTechnical Analysis, an electioe in theMBMprogram.

Aucusr-SEpTEMBER 1995. THEAsrANMANAGER


MARIANOS. LAGMAN BY PROFESSOR

I-I-TinaSmaluob ShopCo*pury forasmalljob shopmanu- in ceiling heights and widths of rooms J consulted yearsago, h p r p i n t h p P h i l i n n i n p c I facturingcompanythree . Numeroustypesof finishes,colors, Iand got an opportunityto try out manufacturing tech- and wall coveringsare available,and someof theJapanese niquessuchasJ-l-Tand 5-S. To the ex- caterto thedifferenttastesof customers. . Panelwidths on foldingdoorscan tentit waspracticalI askedfor andwas givensomeline authorityto implement them, prodThecompanysellsarchitectural uctssuchasfoldingdoors,operablepartitions,wardrobedoors,officepartitions, etc. Thecompanyis theindustryleader in its field. lts workforceis 25 persons oneshift per day, andoperates thathaveimMostof thecompanies like plementedJ-l-Tarelargecompanies Toyota,Nippon Denso,Kia, etc. One mightwonderwhethersmallcompanies in the Philippineswho operatein a job coulduseitat all. Why shopenvironment so? Thebargainingpowerwith suppliers of small companiesis much,much whendealingwith large Iess,especially companies.Fewsuppliersarewilling to deliverin smalllotswith frequencydue highset-upcosts,and to trafficproblems, costs. orderprocessing In thecompanywe tded a two-prong rangefrom 4" to 10",and operablewalls as rangein width from 0.5m to 1.2m and We triedJ-l-Tpurchasing approach. well asJ-l-Tproductionin the job shop heightsftom 1.8m to 4.5m The followingmajormaterialsare whereeachsalesorderis environment of foldingdoors reallyoneof a kind for thefollowingrea- usedin themanufacture andoperablewalls: sons: . paintsandwall coverings . Thereis hardlyanystandardization

Jnst-in-time

ean be done in small joh shop eompanrcs,

and thefinaneial impaets are equctlly tmpresstue.

1995 THEASIANMANAGER. AUCUST-SEPTEMBER

r plywoodandlumber . extrudedaluminumsections . metalrailsandothersteelfabricated components Whatdid wedo?Wewentintosingle sourcingof paints,plywoodandlumber by doingthefollowing: . lookedat total purchases per year Any last two years. of eachitem for the > we purchased P50,000/year materials wasa likely candidate. . assessed the qualitycapabilityof eachsupplierby talkingto theusers,and visitedthesupplier'sfacility.We looked. at their productionand quality control their laboratories, as well as practices, theirtechnicalservicecapabilities. . spoketo their salesmanagers(or higher)andmadeandof commitments on quality, service,on-timedelivery short Iead times,paymentterms,exclusivity, etc.in exchangefor beingour solesupplier for their products.Priceswerethe last topic for discussion.We also told themthat we would not toleratekickbacksboth internallyand externallyas pricesandaffectedqualtheseincreased

iry . debugged andsimplifiedthe whole deliverybillingandpayment purchasing, system.Wealsoaskedthat the plantbe allowedto ordersuppliesdirectlywiththru Makati out coursingthe purchases n"rh:<ino

affirp


. reviewed and discussed (functionrooms),and annually homes,restaurants improvementsfor pdcereduction:rehrrn- condominiums. Our oartof thebusiness ablecontainers,simplifiedpackagingand laggeoDenlnoconsrucnonoI tne nouse labelling,newtrends,etc.Withplywood or buildingfrom onemonthto eighteen andlumber, wherethepreviousarrange- months. Forecasts werenot possibleas mentwasfor us to inspectthe plywood productmix andvolumewerecompletely at the supplier'swarehouse,they now unpredictable.Moreoverorder sizes delivered to us and we inspectedran- could run from P5,000to P1.5M and domly whileunloading. monthlysalesfrom P1M to P3M. A large supplier of aluminum was By the very natureof job shop,J-l-T We bought ten hadto bepracticed. Any extracomponent especiallytroublesome. differentsections whichwereusedin dif- couldnot be usedfor anotherorderbeferingdimensionsand proportions.The causeof size,colorandtlpe of finish and Workersof sectionshaddifferentweights/meter,and otheruniquecharacteristics. lead time was 30-45days. Worse,we the productionmanagerwere making were also trying to order more efficient exha components to allow for mistakes Thesupplieralso andscrapin subsequent This sizesto minimizescrap. operations. wanted a minimum order of 300kilo- waseasyto corectby justputtinga stop gramsfor eachsection.Forlight andslow to thepractice.Peoplebecame morecaremovingitems,thisleadto extremeover- ful andmoreconscious ofqualityin their stockconditions.We wereableto con- respectiveprocessingareas. Of course vincethesupplierto allowus to ordera thereweresomeinstances whenwe had total kg. This go minimum of 300 allowed to backto theinitialcomponent manuustoorderthesections in theDroDortions used; we avoideddislocationoi invenFigure 1 : Results tory, the carryingtoo muchof onesectionandnot enoushofanother.As faras l qq,l leadtimeswereconcerned, we couldnot get any concessions. We insteadapSalos{000) 12580 proachedthison thecustomerside,where Invantoryl(Xro) 3407 weaskedfor deliverydateconcessions so Turnover(S/l) 3.7 that on largeorderswe couldorderthe (minimumscrap). exactdimensions What did we do aboutstocklevels? We brute-forcedand finessedthis. Initially we cut all stocklevelsin half,then facturestagewhenmistakeswereindeed we startsdrelatingthemwith historical committedin laterstages.But thisprobusage.Finallywe cut stocklevelsto the lem wentawayovertime. equivalentof lessthanoneweek'sworth Aparticularproblemareawasplastic of supplies.Paintwasespecially gratify- extrusionbecause of set-uotimes. Two ing as we couldnow get deliveriestwo nourswereneeoeoto neat-uPano anto threetimesa week.Theexception was otherhour to cleanup at the end of the aluminum,wherewe usedtheequiva- run. A coloror die changealsorequired lentofonelargesalesorder, or theequiva- a downtimeof one hour. The bestwe Ientof twentypanels,asthe averageor- could do herewas to bunchthe orders der size. We had to do this as another togetherand ran themtogether;if there companyobjectivewas 9570on time de- wasexhatime we iustran ascloseto the livery.(seefig.1) standardsize(8')as possible.This creThe resultson inventory reduction atedsomeinventory One altemativewas over four yearswere impressive.We to speedup the heat-upstageby installwereableto reduce inventoryby 55V" ing largerheaters, but thisincreasedour while sales grew by 43Vo.Inventory electriciiybill in termsof dernandcharge penalty. Wewould havehad to increase hrrnoverincreased by 322%. Theproductionsidewasanothermat- our contracteddemandby 4570,resultter because of ordersizes,machineset- ing in an increasein fixed demand uDtimes.andminimumworkforce.The charges.Wehadjustcompleted a project productswereall for internalusein of- on improvingour powerfactorand we pf. We fices,training rooms,schools,private had consistentlv attaineda 10070 A)

werenot aboutto sacrificethis. Our alternativewasstill betterthan the previous experience of runningseveraldays on onesizeandcolorandholdinga much larger componentinventory and for a longerperiod. Our estimateis that we reducedinventoryat leastthreefold The areaswe couldstill improveon by practicingJl-T to the extremewere qualityandscrapreductionin component and internallyfabricatedparts. Our approachherewas to assemble a prototype paneland checkthe fit and functionof eachcomponent.Oncewe knew they were perfect,we startedmanufacturing the components and thenbroughtthem all to an assembly station.Wealsomade no extra wereproduced sure components asthesewould be scrapped.Exceptfor thepaintingdepartment,whichwasnot ( andwhichis alsothebottleautomated. neckarea)you will now hardlyfind any work-in-process inventorv.

1992 10471 2499 4.2

lqa?

1994

12674 1624 7.8

18015 1519 1' t.9

AII of thisinventoryreductioncanbe confirmedby theamountof spacewe liberated.We addedsomeequipmentand we improvedthe plant layout.Thereis still plentyof idle space. We realizedalmostthe sameresults especially asJapanese J-l-Tpractitioners, in the areasof quality. The lessonwe learnedis thatit canbe donein smalljob shopcompanieswith somecompromises, andthefinancialimpactsare equallyimpressive.Whatdoesit taketo implement? Patiencâ&#x201A;Ź in theface andstick-to-itiveness of adversityand pastpractices.A nagging questionis: Is thisJ-l-T, or is this tustbettermanagement?

Direclorof Prcf. MariafloS.IAgfianis the Program Prcgram. He alsotaltght theMasterin Managemenl ManaSemenl asaneleclipe in lhel stilute's Matetials Masterin B siness Management pfo\ramosuell as OpenlionsManaSemenl andManagemenl af Setuie Pragrams. Oryfttioftsifl theErecttil)eDeL'elopmeflt

AUGUST-SEPTEMBER 1995. THEASIANMANAGER


hroughoutour formal training, we were taughtto think,often that manageunconsciously, ment was mostly"culturef r e e". " A c h i e v i n ga g r e e d upondesiredgoalsefficiently, working effectivelythrough o t h e r s "w a s t h e u n i v e r s a l management value.Whenit cameto Human Behaviorin Organizations, Administrative Practices, or Managing Peoplein Organizations, everyoneagreedthat "cultural differences haveto beconsidered."But the values,principles,andpractices developed in the industrializedWestTaylorto Elton fromFrederick Mayo to AmericanManagement AssociationCommunications(AMACOM)publications-were the undisputed for excellence in benchmarks mostof theothersubjects. But evenbeforebusiness globalized,peoplealready knewtheneedto helpmanagerswho werebornandraised in onecultureimprovetheir performance whenworkingin anothercountrywith people from other culture.Studies haveshownthatmanyexpafailedaschiefs triatemanagers ofoperations overseas, ashigh as 40%in a 1981study.Yet thesemanagersperformed very well in the homecountry.Theyfailedapparentlybecauseoftheirinabilityto work within the cultureof the host country. Globalizationhad paradoxicaleffects.lt helpedcrea t e w h a t K e n i c h iO h m a e world" calledthe "borderless wherebusiness activitiestake placewhereverandwhenever they proveprofitable.And it a l s ob r o u g h ta b o u ta n i n creasedsenseof nationalism (race, and groupuniqueness religion,very strongtradiIt is no$' tions)in manycases. for managers to learn critical to managewell in different

culturalcontexts,sometimes cultural level,we seethe truth changingtheirpointsof refer- of the Kluckholns'secondsenencesand mindsetsas thev tence. move from one room to anCulture is a framework otherin thesamebuilding. that helps us make senseof A n t h r o p o l o g i s tC s l y d e an increasinglycomplicated and Florence Kluckholnonce world. Our culture gives us a wrote: "All men are alike. model of how the world supSomemenaremorealikethan posedlv works and how life others.No two men are the shouldbe lived. It consistsalso same."While the sentences o f v a l u e s a n d n o r m s , a n d seem contradictory, the specifiesthe behaviorsthat Kluckholnswere expressing give expressionto thesevalues

)ANToNro G. topsz merrtCnmmunicalion C,tmeoFreeFress;1994

what we know about our species. At the most basiclevel, as animal speciesHomo sapiens, we are all alike in almost all physiologic functions-our reproductive systemshaving the most obvious difference. This past decadehasrevealed even more possible gender differencesin brain structure and biochemistrv Different g e o g r a p h i e sa n d c l i m a t e s have accounted for different families within our speciesto grow very different physical traits. More dramatically,we developed different cultural and linguistic characteristics. Hence, on a geographic and

1995 THEASIANMANAGER. AUGUST-SEPTEMBER

and norms.An overwhelming majority of societiesshare these beliefs and thev pass these,consciouslyand unconsciouslvto the next generation through the processsocialsci"socialization." entistscall Cultures are not static,yet many remain very stable. They mav experienceno radical changeso1'ermany centuries. The lack of radical new knowledge, the resulting incrementaltechnicaland techn o l o g i c a l c h a n g e se x p e r i enced,difficulties in travel, poor international communications and the resulting few intercultural exchanges,and the vestedinterestsof the rul-

ing classes(socio-economic, political, and religious) have ensured the relative stability of cultures. Japanis the exemplarof cultural stabilitv It is a conservative culture, but open enoughto adopt forms which help it becamestronger.Chineseculture is anotherstrong culture, thus, the perceived difference of the ethnic Chineseeven in countrieswhere manv Chinesemigrants have settled.Manv of the lslamic states-several of them monarchies-enjoyedmuch stability until the entry of radical thought with resultingrevolts. Islam is seenas a very conservativeand binding theological-culturalf orm which allol's very little deviation and no palpableopposition. Culture embracesthe conceptsof ethicsand moralitywhatwe judgeasgood orbad, right or u'rong, true or false, fair or unfait and other similar dualties.Our culturescondition us in the wav we perceivethe objectiveworld and hon' l{e ought to respond to it. It affectshow we value what we value,how we behave in a given context,how we go about achieving what we rvantto achieve.It strongly influences $'hat we strive to achieve. Thereare valuesthat seem the sameall over the world. ln a 1973survey of various ethnic groupsin the U.S.(fig.l), J. Rokeachidentified two sets of values professedby these various ethnic groups . There are terminal values, values that describean ideal stateof being or of life. And there are instrumental values,values that should help us achieve the terminal values.While his researchdesignnas criticized, there seemsintuitive validity in the results. There is surprising agreement that thesevaluesare im-

43


Theeighteen teminalvalues areasfollowsl life a cornfodable Iree00m anexciting life happrness a sense ofaccomplishment Inner hatm0ny aw0n0at peace mature love preasure a worldofbeauty equality satvar0n iamilysecurity se[-respect socialrecoqnition truefriendship wrsd0m nat0nalsecurlty

Balinese. TheNorth Suma-trans can be asbluntassomeurban AmericansI havedealtwith. C,,lrlro

nrn-

vides a backdrop,a contextthat shongIy influencesa person's behavior Its effects,clearly perTheeiqhteeninsttunentalvaluesarc as follows. vasrve, are not lnambition imagination evitable. Eachmembroadmindedness independence capability intelectualism ber of a culture excheerf!lness logic hibits these effects c eanlness lovrng c0urage 0Deo ence differently.Aperson polteness lorgvefess helping responsibility adjustshis behavior honesty self-control often in anticipation Solt.e J Ao|eacn,fhe NatuEof HunanValues of what he believes freePress19731 lNewYork is expectedof him Figure 1 by the people he is interacting with at portant in the different cul- the momentwithin a specific tures.lt seemsthat at the most context. basiclevel of being a biologiPeopleultimatelywork cal species,as well as at the out comfortable modusoperhighest levels where "we ap- andi with differentindividuproach the angels,"all men als and groupsfor the many seemalike. differentrolesthey play.But However, discussedmore eventhosepeoplewho have deeply, it becomesapparent learnednot to rely solelyon that differentculturesand difstereotypical behaviorsand ferentpeoplewithin thesecul- expectations dictatedby cultures value thesecatagories turestill startwith thesesteredifferently. They are evoked otypes.Butall people,includby different stimuli under difing managers,who excelin ferent cjrcumstances and dealingwith otherslearn to actedout differently by differchange tack as new facts ent people. Take social haraboutthe situationand the mony,for example.It features peoplethey are dealingwith in the lists of North Ameriemerge. cans, Europeans,Africans, and Asians. But for the Japa- Some frameworks neseand theJavanese of IndoMostmanagement theorenesia,harmonyis the mostimticiansseeexcellent enterprise portant value; the Japanese performance as the resultof have enshrined it as the first the confluenceof excellent principle in their constitution. management, whichincludes I t i s l e s s i m p o r t a n t t o t h e the ability to handlepeople Americansand the British for effechvely, andconducive enwhom franknessandraw hon- vironmentalforces.Excellent esty seemmore impo antbemanagementin this view is causethey make for higher characterized as beingmotiefficiency. My experiencein vatedby a philosophyand a Indonesiais thatit is really the set of attitudestowardsits who valuesocialhar- variousstakeholders Javanese that inmony the most, followed by corporatestakeholder values t h e M a d w a n e s e a n d t h e as well as thoseof the larger 44

society.Managementcon- the companyis to act successstructivelyaddresses the de- f u l l y i n u n i s o n t o w a r d s mandsof the environment achieving the vision. The viwithin whichit mustoperate. sion is followed by a mission It craftsmanagement practices statement-what the comthat reflectthe valuespro- pany intendsto do, for whom, fessed by its peopleto achieve why, and how. This is usually goalsconsideredsupremely supported by statementsof worthyby thesociety. key philosophies and values Wheremanagement can- about life and man's relationnotclearlyincorporate thekey ship to his fellows, and the valuesof a peopleand their meaning of work and service culture-thisoftenhappens in to man. Asia amongAmericanand The leader and key stakeEuropeancompanies-it, at holders-people in the comleast,doesnot openlyprofess pany, customers,suppliers, not practicevaluesthat clash community leaders, et. alwith thoseof greatimportance together craft a strategy of to the "locals,"which has achieving the desired results. gottenmanymanagerc in hot This involves the careful dewaterwith their headoffices. sign of work structures,with Theconventionof gift giving functions clearly understood and gift taking is a common and accepted by all conproblemarea. cerned,to ensurethat the orTo achievethis good a ganization achievesits goals mesh,excellentmanagers de- with minimum resourcesand pendon effective communica- maximum satisfactionto evetions.Indeed,strategic leader- ryone involved. The leader ship dependson effective makes sure that everyone is communlcanons to ensureex- competent in his assigned cellentresults.Communica- task,isjustly compensatedfor tionsis usedextensively in doing his work as specified, management. [n fact,excellent rewarded when he performs management hasfor a major excellently,and developedto characteristic, excellentcom- assurefuture growth. munication(fig.2). In all this, effective comLookingat themajorfunc- munication is key.We need to tions of the managerin this clearly describethe desired diagram,one seesjust how end states;lay out the plan for centralsuperiorcommunica- achieving this desired end tionskillsaretoexcellent man- state;and state the reasons agement.Termslike define, why peopleshouldwork hard clarify,link clearly,motivate, to bring about the desiredend energize,be transparent,be srate. consistent, systematize, make The simplicity of the momeaningful, andensureallre- del hides real life implemenquireahighdegree of commu- tation difficulties. There have nicativecompetence. beenmore cross-culturalmanE x c e l l e n tm a n a g e m e n t agement failures than sucstadswith crystallizingand cesses.Looking at thesecases, articulatinga visionof thefu- we begin to see some of the ture andthecorporation'srole more plausible explanations andpositionin thatfuture.In for the failures and the succraftinga vision, excellent cesses-all involving socioculmanagersconsultwith key corporatestakeholderswho In all these,culture and the must buy that vision. Their values it containsplay a cruactivesupportis necessary if cial role. For the manner in AUGUST-SEPTEMBER 1995. THEASIANMANAGER


whichthevision,mission,values,philosophies, goals,shategt and operatingsystems andstructurcs is setisdictated by business imperatives in interactionwith theculturalrubric. We must understand theserelationships when we attemptto transplant managerial practicesfrom onecountry andcultureto another.

c o n c l u s i o na m o n g t h e m selves.But therewereeven morenegativestereotypes of , , r # \ .\ GOALS 'l ,/ | Asiansamongthe"open,can\.. ,/ l=srRArEcY did, and direct" modern,in./ to&rEc-nvEsl \ dustrializedCaucasians. ./ 1"Asiansare inscrutable," Define/Clarify Morivare Link "Asianshavemade high Enersize clearly ; i a art , , | .-i-r.] of vaguenessand equivocaI MANAGER "-=-7--.: ' <:' "Asians \ tion," are lazy," '!! ' / Asians are superstitious," Be Transpa.eni Systemalize/ I l "Asianshave I Be Consislenl Make l.,leaningful i nosense of time, Stâ&#x201A;Źreotypâ&#x201A;Źs precision,or conceptof planM o s t p e o p l ep l a y s a f e ning." Thesearesomeof the propr-e I twoRK--l whenfirst touchingbase with c o m p l a i n t sw e h e a r n o n Ensure __-a differentcultureby reading Asian,andWesternized Asian Currenl Future -_ C o m p/e l e n c e - , up on what they shouldor managersmake,working in Figure 2 might expectwhen dealing Asia with Asians.In Western with peoplefrom different eyesandvalues,muchof our countdes.Mostly,they get a behaviorwill indeedseemas "How to Do Businessin ..." gerousfor any Asianto think list ofstereotypes ofthediffer- theydescribed. ButweAsians and"How to Dealwith the..." of Europeans as"all alike." ent nations.On the surface haveour complaintsof West- seriesof the popularpress. Many Asiansstill react manyof thesestereotypes will ernersaswell. Ninety-fivepercentof all In- simplisticallyto Americans. helpduring the first encounWeAsiansoftenmakethe donesians speakin Bahasa In- TheyarestillJohnWaynes(or ters.But in most countries followingcomplaints:"Ame- donesia;over 90 percentof Clint Eastwoods,or Bruce now, peopleare sufficiently r i c a n s a r e i r r i t a t i n g a n d themprofesstheIslamicfaith. Willises)as screamingmavariedandbecoming moreso. pushy,""The Bdtish are too Thereforethereis the veneer rines rushing headlonginto Note,however,that we "na- cold and overly concerned of sameness in all the three the fray without understandtives" often unconsciously with their conceptof good time zonesof the thirteen ing thenuances of a situation. surrenderto thestereotyping mannersandright conduct," thousandislands.But the InMuchhasbeenwrittenfor andactout whatmightbeex- "ltaliansaretoodramaticand donesiathatemerges with fa- Caucasians and other nonpectedof us by foreignerswe usetheir handsexcessively," miliarityis onethatis hardto Asianson how to go about "Germansare robots," dealwith. and put into a few simpleguide- doingbusiness with Asiansor In trainingprogramsand "TheFrenchheatus like sec- lines.My Malaysianfriends managingAsian employees. conferences in Europeandthe ond-class humanbeings." tell me, "We are productsof We should seeit from the U.S.,weoftenfoundourselves With Asian mindsets,all Malaysianculture,"to which other side as well. Again I behaving,asour hostsmight this soundstrue. But indi- I naughtilyask,"Whichone?" make the necessarycauexpectus Asiansto behave- vidualexperiences showthat Malaysiais multiracialand tions-therewill bemanyobpolite,quiet,and reserved, thesegeneralizations are not multicultural. servationsI will makethat evendocile-in order not to only increasingly untrue,but In fact,Asiahasbecome so peoplewill disagree with.Perc o n f u s eo u r E u r o p e a no r alsogettingin theway ofpro- diversethatmanyAsiansare h a p st h e s ed i s a g r e e m e n t s Americanhosts.Weobserved ductiverelationships badly findingit difficultto dealwith should be surfacedbecause thatbecause of their expecta- neededfor successful interna- fellow Asians.Many people theywill improveour undertions,theyhadpreparedwell tional cooperation. Lumping fromtheprimatecitiesofAsia standingof our constantly to matchthebehaviortheyex- diversepeoplesand cultures cannotassume culturalsame- changingworld. pectedus to exhibit.In many in anyregionof theworld un- nessin their dealingswith instances,when we demon- dera label,no matterhow ini- their moretraditionalcountrystratedmore spontaneous tially convenient,ultimately menin the rural areas.Many Editort note:ln the ne),iissueProf. Lopezdiscussesthe sourcesof difbehaviorandbeganto openly blocksreal understanding. E u r o p e a n n a t i o n s a r e ferencesbetween"Western"and anddirectlyquestion, anden- The socioculturaldiversity socioculturally dive6e;Swit- "Asian"behaviors. gagedour codiscussants in thatexistsin theworld defies zerlandis a good example. spirited,frank and bluntdeAnd certainly the United Prof.Mnrio A.llonit)C. LoFz is the bates,hosts,whowerelessexAsia is not homogenous. Kingdomcannotbesaidto be PilipinasShdlCorporalion Prolessor of posedto emergingAsia,were Japan,a favoredexampleof culturally homogenous. The PublicAdnitlislrationand Assislant visiblyshocked. cultural homogeneity, is un- tragedyin what used to be Dea hr thcExectftit]fDnrelapntnlProareminage Somecommented thatwe dergoingbasicchangesthat Yugoslaviais further testa- gnmfi.HiscLrre,rti, eresls rinl d&)elopment, deteloptnerlmafioge "not were typical Asians." aremakingit lessandlessthe mentto thesedeepdiversities menl, cfoss-culhtnlmanagement , a tj Most simply mumbledthe the stereotypical nd mat?getnc,tt. Japanof the in Europe.It would be dan- prciecldmtlopment THEASIANMANAGER. AUCUST-SEPTEMBER 1995

45


-$,

s"

Potrcy By PRoFESSoR FRANcrscoL. ROMAN,IR.

Competitiveness, Competition andConsurners (1) andgovernmentpolicymakershaveel- dynamicinteractionof four elements: evatedto the statusof motherhood.ln Rivalryamongfirmsin theindustrythat this bravenew world of globalinterde- makesthesefirmsalertandefficient;wrtpendence, how cananyonebeagainstit? nesstheJapanese con5umer electronics Competitiveness enteredmanage- industry.(2)Asophisticated anddemandment jargonand probablyreachedits ing homemarketthatteststheindustry's apexthroughMichaelPorterHedevoted abilityto compete in worldmarkets,such threebooksovera ten-yearperiodto de- as thecon:umers in the ltalianshoeinvelopingand elaborating upon the con- dustry.(3) Clustersof relatedand supceptof competitiveness throughcompeti- portingindushiestied to the coreprodtive advantage, first for the industry uct or businessthat exchange ideasand (1980), (1985), processes thenfor the corporation quickly,asin theTaiwanese PC andfinally for thenation(1990). industry.(4)Lastbut notleastare factors T h e t e r m ,c o mp e t i t i v ea d v a n t a g e , of production thatarees:ential for firms takesaimatthetraditionaleconomic pre- in the industry to continuallyupgrade scriptionof comparative advantage. One theirproductsandprocesses; Porteremsimplifiedversionof comparative advan- phasizes productivity,particularlyin hutagepositsthat a countrywill produce manresource development. Forinstance, for exportthosegoodswhichutilizeone doctorates in theappliedsciences aredisfactorof production,suchas laboror proportionately presentin manyKorean capital,that that countrypossesses in industries,andadvanceddegrees arereabundancerelativeto the other factor. gardedasessentialto competitivesuccess, This versionof comparativeadvantage especiallyin commercializing research thusseeksto explainto someextentthe anddevelopment, and in reengineering expansion of laborintensive exportssuch productsto reducecostsandimproveperas garmentsor woodenfurniture,by formance.Thesefour elementspresumthosedevelopingcountries,suchas the ablygenerate the innovation,productivP h i l i p p i n eosr l n d o n e s i aw.i t h a l a r g e ity,customer-driven quality,andflexibilp o o l o f u n d e r e m p l o y e d a n d ity thatareessential UVES, to nationalcompetiunderutilized,and thereforeabundant tiveness within industries. Compâ&#x201A;Źllllveness andconsequently cheap,labor Nothingamissso far,apartfrom the Porter's prescription forcompetitive- intellectualgive-and-take Competitiveness hasjoinedthe elite amongschollistof concepts whichbusiness executives ness,simplified somewhat,requiresa ars,which fortunatelyseldomstraysbeompetitivenessis one ofthe three cote researchissues of the AIM Policy Forum. The Forum is studying competitivenessin severalconte\ts not only ds it applie: to firms,industries,and countries,but alsoin different economicenvironments,suchasin the forthcoming trading regime of the WTO (World Trade Organization) and AFTA (Asean FreeTradeArea), as a key factor to meeting the goal of Philippines 2000, "sub-regions" and in rblation to such as EAGA (EastAsiaGrowthArea) and "subs l r u c l u r e * "s u c h a s e r p o r t p r o c e \ s i n g zonesand industrial estates. This article will not cover the research on thesedifferent contexts.Instead it offer( a itarting point by discussingthe foundation on which researchand policy analysison competitivenesswill take place in the AIM Policy Forum. The article will use the competitivenessmodels of the Harvard BusinessSchoolguru, ProfessorMichael Portet as a stading point for the discussion,primarily becausehis model is probably the most widely disseminatedin thebusinessworld, and possibly most readilv understood by execu-

4b

AucusT-SEpTEMBER 1995. THEAsrANMANAGER


yond academic journals. Unfortunately, oncecorporateCEOsand policy makers take competitivenessto heart, several potential problems emerge. First, this definition of competitivenessimplies and createsa zero-sum,winor-lose,competitive approach. The firm, the industry, the country: all must grow faster than the "average" or the "rest"; competitors build market shareat the expenseof others. The traditional conceptof comparative advantageimplies and createscomplimentary,rather than competitivetrade: a labor-surplus country will produce those goods best suited to its resources, such as rubber shoesand handicrafts,for export to a labor-scarce,and probably capital-rich, countrt which will do the reverse- exporting machines and automobiles.The traditional notion. however. does leave aside the issue of whether a country might not wish to alter its resourcemix to produce an altogether different packageof goods and services. Second,the Porter model seemsto work best with global industries with oligopolistic industry structures,such as telecommunicationsand shipping, for instance.These are industries wherein a small number of largemultinational firms and conglomeratesmight dominate their respectivemarkets.Competitive practices in such industries might lead to market concentration,to the detriment of new firms with newer or different products seekingto gain market shareagainstentrenchedleaders. Conglomerates-those multi-firm, multi-product enterprises,are in a position to establishleadershipin multiple markets, in order to create a dominant network. For example, the Salim and Sinar Mas Groups of Indonesia together are probably in almost every important industry in that country, including food, banking, paper and pulp, cement, automobiles,etc. Even the United States,with its wellintentioned government intent on opening up markets through deregulatory policies, may have dramatically restructured the airline industry into a small clique of megacarriers,groups of airlines with deep pockets and strong hub-andspoke networks, tied together by strategic alliances to exploit regions that each already dominates,which may in turn

dominate the global airline industry. Third, some governments, including not onlyJapan(HDTV) and France(computers)but alsoKorea(shipping)and the Philippines (the "sunrise" industries), chooseto ignore Porter'slaissez-fairerecommendations,and translate competitiveness into a "pick-the-winner," national-champion strategy,whereby these governmentsattempt to createa competitive industry or company,usually by subsidizing start-up costs,or by providing assortedincentives.Unfortunately,economic history doesnot suggestthat governments,with the possible exception of Singapore,display any consistentor sustained record at being competitive themselves,or at building competitive enterprises.Porternotesthat theJapaneseMITI (Ministry of Tradeand Industry) was not responsiblefor the competitive successof the now global Japaneseautomobile industry. Last,competitivenessbecomesan end in itself. For instance,profitability is clearly an essentialingredient to sustained growth. But evenif corporatecompetitivenessleadsto ever increasingprofits, as in the tobaccoindustry, the surplusescould just as easilyresult in higher salariesand more dividends, or diversification to other industries, rather than to value-addingcapitalformation in the core business. Competitivenessalso usually translates into an aggressivequest for market share,which in turn createsconditions of market dominance. However, this form of competitivenessdoesnot automatically Iead to profitability: For example,Airbus may or may not be profitable, given the yearsof subsidiesand financial assistance provided by the governmentsof the three countriesin the consortium.But Airbus is clearly competitive;it hascapturedsubstantial market shareworldwide from its once-dominantAmerican competitors, suchas Boeingand McDonnellDouglas. Competition The quest for market dominance in oligopolisticindustriesappearsdetrimental to competition. There is clearly a differenceand divergencebetween competition and competitiveness.A monopolist, by definition, can be very competitive in terms of market share and profitability. But by definition, it is in an industry

TnE AsraruMeNecrR . AUGUST-SEpTEMBER 1995

where competitiondoesnot exist. Competition itself is difficult to define in the "real" world. In the economists' ttpure" world, competition implies severallimiting assumptions,suchasperfect information, insignificant transport costs, no barriers to entry for firms that sell undifferentiated products and which are unable to influenceprice. Priceand quantity are the only factors determining the laws of supply and demand.Theselimiting assumptionsdo not existin many global industries,and oligopoliesoften engage in non-price competition,where advertisingdoes more than provide information. Porter addressedcomDetition indirectly,in his first model which analyzed industry structurewhen he referredto the intensity of rivalry among firms as one

The quest for market dominanee in oligopolistie industries appears detrimental to eompetition of the five driving forcesinfluencing the competitivenessof an industry. However, in his analysisof the airline and drug industries,he notesthat the lack of rivalry (or competition) generated profits for both industries,until deregulation and the threatof generics"openedup" them up to other rivals. Porter also offers one scenario,which approachesthe economists'view of pure competition- that both industries ultimately could become "commodity businesses,"where more firms enterthe market, thus increasingindustry rivalry; thesefirms end up selling essentiallyundifferentiatedproducts,and competitionis basedprimarily on price, and competitivenessdependsprimarily on driving down costs. Bear in mind three points from the precedingdiscussion:One,competitionin essencemeansthe contestabilityof markets, that is, rivalry. Competitivenessimplies the ability to keep firms out of the

47


eignexchange from international visitors and OCWs (overseas contractworkers).Onenewairlineoffers a "pick-up" servicefrom a CONSUMDR hotelto the localair terminal, to reduce the hassle from haffic delays.Another airline provides direct flights from Menado(Indonesia)to Davao (Philippines)and vice versa;beforethat,travelershadto go through a circuitous s\s'ITil route-from Davaoto Mafi)||PfimrTNris nila to Jakartato Menado, msr which waslongerandmore exPâ&#x201A;Źnslve. COMPXTITION c0iltPITt TrvxNxss The secondPhilippine situationinvolvesthe telecommunications industry. Thelocalmonopolywasat one time on the receiving endof theire of the former marketin orderto dominatetheindustry firms enterthe market,and lower prices Prime Minister of Singapore,whose andto reducecompetition.Thua both the do benefitthe consumers. On the other henchantcommentsarea matterof pubindustries in 1990s airlineand drug the hand,Porter'smodelsof industry and lic record.Thatcorporationthenbecame responding via alare to changes strategic nationalcompetitiveness enhancecon- thetargetof protestby consumergroups, liances,in effect,buyingmarketshareand sumerwelfare,if not through lower and the subjectof considerablescrutiny After a competitors,insteadof fighting ihem. prices,through rivalry that generates ftom ihe Philippinegovemment. Two,Porter'smodelis dynamic,involv- fasterandeasieraccess to goodsandserv- seriesof persuasivenegating,the indusing a processof change-for example, ices,moreand betterand differentprod- tryis now anoligopoly,andtheerstwhile from leaderto loser,from low cost pro- ucts,attentionto consurnernicheswhose monopolisthas rapidly discoveredthe ducerto focuseddifferentiator,andsoon, tastesand needsare not met by mass meaningof customerservice,asit accelfor teleratesits goalof a "zero-backlog" andalsovice-versa.He thusoffersoneex- marketing. the new enplanationof how industriesmightreach Thenextthreevignettes areexamples ephonelines.Furthermore, a stateof "pure" competition.A final from thePhilippineswhich serveto dem- trantsareproviding a variety of products note:Porterhimself subscribesto rivalry onstratethe benefitsto consumersof and servicesfor both niche and mass (or competition)as a meansof keeping openingup an industry markets.In thecellularcommunications thefirms in theindustryalert,innovative, Thefirst exampleis on the air travel segmentof the industry for example, and efficient;he regardsalliancesas a indusky.Thenationalair carriercouldnot competitionis intense,prices have "cop-out"of sorts.However,thisposihon sufficientlymeet the.expandingtravel dropped,serviceshaveimproved,and haveincreased. doesnot preventfirms fromexploitingthe needsof an contractlaborforceseeking Droductfeah.rres "darkside"of competitiveness, Thefinal caseis a moremundaneinthatis,to employmentoverseas,foreign investors reducecompetitionto becomecompeti- exploring sites,and the usual local and dustry,beer,but an impo ant onefor its hve, internationaltouristssearchingfor new irnbibers.Thereoncewas a virtual mo. destinations. Theairlinenaturallyresisted nopoly,onecompanythatfor over a cenConsumers attemptsto openup theindustry,and the tury successfullydefendedits market comers. Incidentally, thatcomIf competitiveness and competition nationalgovernment, primarilythrough against.all arenot complimentary,andneitherguar- the Philippine Civil AeronauticsBoard, pany long had a reputationas being a anteesgrowth and profitability, the eco- steppedin. An erecutiveorderby Presi- "good" monopolist(muchlike the old nomicrationaledoâ&#x201A;Źsnot lie in eithermar- dent Ramos allowed easierentry for "Ma Bell" beforethe US government "Baby ket dominanceor profit maximization,for otherlocalandintemationalcarriers,and broke it up in very competitive either the firm or the nation. Consumer thenationalairlineis a privateenterprise Bells");it is still rankedasoneof thewellIn any welfareat thenationalandinternational at leastin theoryas of this writing. The managedAsian conglomerates. levelmight bethemoreappropriategoal. resultis consumerbenefitsall aroundevent,thebeerdrinking public for a long For instance,the economists'conceptof lower priceson many destinations,more time had few choices- a pilsen,a dark competitionleadsto lower pricesasmore flights and betterservices,and morefor- beer,anda draft beer.As of thiswriting, 48

Aucusr-SEpTEMBER 1995. THEAshN MANAGER


theindushyis nowaduopoly,buttheentry of the competitorhasimprovedthe consumers' welfare,leavingasidecritical issuesof moralityandalcoholabuse.The new competitoris pdcing its pilsenbelow themarketleader,it hasintroduced several brandssothatthemarkethasaf most a dozen locally brewed beers.And importedbeeris now availablein greatvadetyin supermarkets andliquor stores,albeitat stiffprices.

courseeasiersaidthandone,andwill be the subjectof future policy papers.But note that two presumablyfree-market andworldclasseconomies, Germanyand the UnitedStates,still felt compelledto setup a FederalCartelOfficeandanAntihust Dvision in orderto monitorrestric-

tive businesspracticesand to contain marketdominance. Perhapsthe final wordshouldbethatcompetitiveness has not yet reachedtheunquestioned status of motherhood. Prof.Frflncisco L. Ro/in,Ir i5theDircctor ofthc AIM Poli.yForron a d ils Sltslem Comrytitiuness Desk.

Coureq SERVERS SpeNTHs DrsrANcr

Ooneluslon To reiterate,the goalof competitiveness is consumer welfare. Market shareand profits are merelytheresultsof satisfyingthe consumen. Tosumup, thequestfor competitivenessmaycreateunwanted side-effects, suchasrnarketdominanceand baniersto both entry andgrowth.Dominance andbarriersmay resultin a lossof consumerwelfare,eitherdirectly throughhighprices,or indirectly through insufficientquality or variety. To conclude,the policy issue on competitiveness is how to use it to promoteconsumerwelfare. Thisphenomenon to someextent alreadyoccurs,as corporations takeon thecustomer-driven ethic of TQM (TotalQuality Management).Or\ the otherhand,businesses and their CEOsmust behavenormally,that is, to maximizeprofitsandgrowthfor themselves;and this behaviorcould reduceconsumerbenefits. Sothe governmentplaysthe criticalrole of strikinga balance betweenallowingfree market behavior,in order to promote competitiveness, and restraining any abuseof market power,in order to promotecompetition. Thegovernment is forcedto play botha passiveandan activerole, and its bureaucratsmust know whenandhow to interuene. This is no mean feat. One policy guidelinemight be selective interventionin an ex-post regulatoryfunction,ratherthan pre-emptivestrikes.This is of

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ost businesses in companysrzesmay not matAsia defineeffec- teranymore. Arethelargecortivenesson thejob porationsreadyfor this?On as the abilitv to solve prob- thehomefront,areyou ready lems.This definition includes for your childrenrunningto thedecision-making involved vouforcomputer assistance or in problemresolution.ln light is it theotherway around? Let us answerthesequesof a rapidlv-changingenvironment that constantlvcreates tions togetherwith the issr.re turbulent businessscenarios, of performance appraisalsvsproblems regularlv crop up, tems rewardingonly indiand effectiveproblem-solvers v i d u a l sw i t h e x c e l l e nite f t Problem-solva n d d e c i s i o n - m a k e r sa r e brainactivities. needed. ersanddecision-makers may Hence, performanceap- bereadyto address thesevaripraisal svstemsare gearedtoouscvberspace scenarios, but

In this case,theproactivecompany 1srmdy for the change, not merely ,"cndv rgflirsl it. Beready for the next paradigm shift in your industry. Anticipate, anticipate,anticipate. Prepareby having an agile, flexible, and changefriendly organization.Once the paradigm shift arrives, immediately assumethe role of the paradigm pioneer Then innovate, innovate, innovate. Ride the crestof the wave that was causedby someoneelse, and not just be a dpple that

wards rewarding the excellent problemsolversand decisionmakers.Managementschools teach left-brain activitv skills to its students, n'ho later on applv theseskills in business which, in turn, expectsand demands them to do such. Right brain activity happens mostlv due to raw talent or serendipitv Let's use a timely example, cyberspace. Cvberspace millions of PCs encompasses hooked up to the Intemet, and millions more connected by localareanetworks.Cvberspacealso includes cable TV, phones, and the satellitesorbiting the earth.All theseplay a major rolc in the emerging era of the Infb Superhighwav What aresomemajor issuesin this Superhighwavtrek? In the future, buvers and sellerswill transactvia electronic shoppingmalls, without launching expensivemarketing campaigns.Furthermore, the lntemet wil] most probablv bring about a global marketplace.Are marketing departmentsand advertising agenciesready for this? The advent of cvberspaceand the ever-increasing affordabilitv of informationtechnology level the playing field somewhat for both big and small players. ln an environment where agilitv and smallness equal competitiveflexibility,

organization who rarely encounter problems, and are thereforebypassedfor promotions since they have not

50

proventhemselves aseffective problem-solvers. Forstrategic planningsessions,makeit a point to ask theopinionsandideasofcompany newcomers, since no traditionalbottleneckshamper their thinking.Another approachis to suggestto the companypresident(who bemoansthe lackof ideasfrom hisexecutives) to makelateral transfers amongsomedepartproperly, ments.If supervised a marketingexecutivewould havefreshideasabouttheproductionoperationsand viceis not versa.If the suggestion ask operationallyacceptable, the presidentto form crossfunctionalteamsasanaltemative.Thelatteroptionusually if not more is morepalatable, effective. PnorEssbn JrwsG Finally,continuallyquestion and explorein greater detailcomments that dampen proactivity, suchas"That'snot possible"and "That'sagainst companypolicy."A simple right-brainapproachis to assumethattheproposalwill be Thenask the implemented. question,"How canwe eliminatethe obstacles andbottlenecks?" ln summary, the nextcenall attempts simply become w i l l s o o n b e e n g u l f e d b y will herald the adventof reactions.In effect,they are larger waves. turv There may be some para- numerousopportunitiesthat ready against changesin the envlronment. digm paralysesalong the $'ay, will mostprobablybe seenas But was the reaction nec- and theseironicallymay come threatsto be resolvedby the Thereis only e s s a r y i n t h e f i r s t p l a c e ? from industry leaders them- problem-solvers. anticiWouldn't a proactivestancebe selves.Keepin mind that they onestrategic approach: the better alternative?One arenot necessadlyright all the pate, then innovate.Since does not have to be the para- time, expertisenotwithstand- Murphy'sLaw is operational all thetime,theproblem-solvdigm shifter, since one can ing. RememberIBM and Aperswill still be neededin this also be the paradigm pioneer. ple? process VCR technologywas invented There may also be bottle- anticipate-innovate by theAmericans,a paradigm necks within your organiza- cycle. It'sabouttimethatcompashifter,while quartz technol- tion.Maybereactiveproblemon niesplaceaddedemphasis o g y w a s i n v e n t e d b ) ' t h e solvers are rewarded, while thanonly S w i s s , a n o t h e r p a r a d i g m proactive problem-avoiders problemavoidance problemshifter.But the paradigm pioare ignored. It is time to take on the stereotype solvingapproach. neer, Japan, now dominates a closerlook at peoplein your

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The Asian Manager, August 1995 Issue