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ffiAIM T H EA S I A NM A N A G E R P u b l i s h e d b i monthly, exceptfor three doubleissuesMarch-April,zMay-June 1997, July-August,z S e p t e m b e r - O c t o b1e9r 9 7 , a n d N o v e m b e r December1997/JanuaryFebruary1gS8by the AsianInstituteof Management. IMITA (Pj 196/10/9s KDN pp(S)t076/3/97 |SSN 01 16-77901 EditorialandAdvertising Office: A s i a nI n s t i t u t eo f M a n a g e m e n t1,2 3 P a s e o de Roxas, MakatiCity,Philippines. Tel:1632J 8 9 2 4 0 1 1 - 2 58 ; 92 0435-43;893334F 1ax: ( 6 3 2 18 1 7 9 2 4 0 . Copyright@1998 TheAsianManaget.AIlrights r e s e r v e dR. e p r o d u c t i oi nn a n y m a n n e r in whole or in paft in Englishor other 1anguageswithout prior written permission proh i b i t e d .P r i n r e db y T i m e sP r i n r e r P s r e .L r d . , Singapore.

o;l

EconomicGovernance andEthics

eadingthroughGeorge Soros' Alchemy of Finance,which was written years beforethe currencyturmoilstolethe thunderfrom the Asianmiracle,one rea]lizes that the crisiswill persistfor at least two moteyears- until and unlesslessons are quicklylearnedand mindshiftsrapidly Eorrorrll Bolno take place,manifested in actionson the Chairman:JesusG. GaliegosJr. ground. Thetoolsof traditionalcurrencycrisis Members: ReneT. Domingo,VictorS.Limlingan, theory no longerapply, saysJoey Cuisia Patricia L. Lontoc, Eduardo A. Moratd, in his thoughtfulbut objectivelyoprimistic AshokK. Nath piecein this issue.To the urgent call for Enrrorur Dgp*rusvr concerted actionin theregionandbeyond, Editor-in-Chief:PatdciaL. Lontoc RomyNeri addshis recommendations for EditsialDlrccm Mary GraceAmpil Tirona prudentfinancialpractices. And asprudence ManagingEditor:JocelyndeJesus is the handmaidof valor,so do we find the FeatuesEditor:Peaches S. Castillo resurgence of an ethicalworldviewwith the Iayurt SormvaDisenyo Vic Ordofiez critique and the pearls of Co!â‚ŹrD@n: BeanydelosSantos wisdom from CEOslike David /i on our ContlhdngArtbbSahsah M. Villalba p e a rpl a g e . If there'sanemerging BustNsss crisismanagement DspARTMENT paradigm,it is not one that merelyuses PublishertFelipe B. Alfonso d i s e q u i l i b r i u ma n a l y s i sa s a p o i n t o f Co-publisher: PatriciaL. Lontoc departure. For the Asiancrisisbringsthe OperafionsDirector:Miilie C. Ferrer regionto the brink of a humancrisis:the AdvertisingOfficer: VanessaM. Jaballas turbulencecallsfor the integrationof ethics CirculationOfficer: Eden S. Cardenas i n t o t h e e v o l v i n gf o r m s o f e c o n o m i c Msor,{ RrpnrssNrlrrvrOrrrcrs governance if we areto avoidbeingpreyto Philippines: Delia Gutierrez,{632) 894 4809 our greed.Eventechnology,the driver of AlumniAssociation of AIM Inc. globalization, hassociocultural dimensions (632J893 7408 thatcannotignorevaluesystems. Thisis the Hong Kong:PamelaChoy,{852) 834 5980 quiet thunderthat the articlein this tenth Singapore:Teddy Tan, 165) 440 8760 anniversaryissueof The Asian Manager Indonesia:RamaSlamet,16221)7Sq 2090 thrustsbeforethe eye of the Asianstorm. (6221)7e7 378/ From Wojciech Nasierowski to CJ Malaysia:ConnieNg, (603) 717 5370 Meadows, Purba Rao to Sixto Roxas, India SubcontinentMedia SouthAsia (P) Ltd. Sadahiko Suzuki to Ahmed Ben227 336 19771) H a s s i n e , t h e A P E C c a s e so n g u a l i t y

management to APEC proiects on i n f r a s t r u c t u r ed e v e l o p m e n tt,h e r e i s a recurring refrain, which even Jim Donelan'svoiceof adecadeagoeloquently a n d u r g e n t l y c o m m u n i c a t e st o u s : t o deliberately mislead,to smokescreen the facts,to take advantageof ignoranceand nood t n c h n r f n i r r -r -r i.t . p l 0 c e s s e sa, r e tantamountto graveiniustice. Economicgovernance is inextricably linkedwith ethicalmanagement. It requires predlctability ilansparency, andaccountability. It assumes relationships of trust among stakeholders and constituencies that are strengthened by credible,consistent, caring actioneveryday. Suchis the stuffthat the elixir of humanllfe is madeof - and not potion.Thesagesof TAM's anyalchemist's pageswill attestto that.

4,tUfr Associate Dean lnntoc teachespublic administration, and international relations and IT in MBM, CDM and MDP Email: <plontoc@aim.edu.ph>.

Pakistan: S.l. Salahuddin, (5221)568 2271 Korea:Y. K. Chun, lO2) 738 797A Japan:TokujiNiinuma,(813)35 B2S 104 Thailand:Dr. AnthonySharma,(662)3319303 United Kingdom:Brian Taplin Association [0442) 246034 France:Stdphane (331)39896341 de R6musat,

March-April 1998 I TheAsianManager


TI{EASIAN

IVTANAGER vol. xt, No.2 1998 MARCH-APRIL

COVER STORY to the AsianCurrencyCrisis: PolicyResponses Looking Up Good, Looking

28

JoseL. CuisiaJr. of the AIM Board of Govemors and former Central Bank Governor plots the paths away from

The Co-Chairman

the currency crisis.

36

Ethicsof Credit JamesF. Donelan,S.J. Amid the crisis, the call for transparency is a clamor for morality

in transactions.

38

Sketches oflim Donekn In memoriam.

Fn.JarunsDoNu-au,S.J,36

ManagementEducation: Gearing Up for the Global Future VictorOrdonez If good ethics mean good economict

39

how do you start leaming

to live together well?

MANAGEMENT UPDATE ManagingNationalInnovationSystems: The ASEANAnalysis WojciechNasierowski Imitation

of foreign Patterns of technology management is risky business.

FEATURES The Art of ManagingGlobe'wideTeams: from the SoftwareIndustry Lessons

Vrcron OnooNrz ON

13

MlNecrnarvr

EpucarIoN, 39

CJMeadowsand ChrisMarshall Relationship management is the key to globe-wide working arrangements.

Asia's LeadershipChallenge Lehner Urban

5l

The way out of the crisis is for Asia's leaders to overcome the Curse of Success.

Barometer: The Environment in "Green"ASEAN DoingBusiness

56

Kestemonte PurbaRaoandMarie-Paule The AlM-Louvain attitudes toward

Study gauges ASEAN managers' environmental

initiatives.

Tsr Asrl-Pacrrrc,2l

TheAsianManager I March-Aptil 1998


To influence management thought ancl practice in Asia from the Mission Statementof Tur AsttN MtNncrn

Strategizing in the GlobalAge: The NAFTAExperience

62

AhmedBenHassine Free trade has created a new business class in Canada.

DEPARTMENTS LETTER FROM JAPAN Into the 'Big Bang': The State of JapaneseFinancialInstitutions Sadahiko Suzuki

l9

Dn. SaolHrxo SuzuKroN THE faneNnsr Ecoxovv, 19

After the bubble burst, Japan regains a steadier footing in the global scene.

THE ASIA-PACIFIC SyntheticFibersPhilippines Corporation: Crisisand Response, 1995 and 1997

2l

HoracioBorromeoJr. SophiaNoreenCastillo,Mila LeaFener,ErnelsaVillalba,andPaticia Lontoc

ID2: IdentifyingInfrastructureDemandfor RegionalGrowth lnterview with Paffick Hsiao

AIMLINK INSIGHT The Future of Finance: Lessonsfrom the Asian Crisis Romulo Neri

42

54

Ixsrcnrs Enolr rrrn AsraN Cnlsrs,54

A sobering financial crunch reminds us of the virtue of prudence.

TALKABOUT TALKBACK THE ASIAN MANAGER'S BOOKSHELF

65

Dorr'rc BusrNrss rN "GnnrN" ASEAN, 5tt

March-April 1998 | TheAslanManager


As cohisnoteson the crisisin L4.1vf. JoseL. CuisiaJr. contributed Boards of Trustees oftheAsianInstituteofManagement's chairman American andPresident & CEOof the Philippine andGovernors, to be sought Cuisiacontinues Company, Life& CenualInsurance out for his insights-mostrecentlyby Wharton,in an internaHe was the Governorand Chairmanof the tional conference. from 1990 MonetaryBoardof theCenualBankof the Philippines of the International the Governor to 1993.Cuisiahasalsobeen MonetaryFund,AlternateGovernorof the WorldBankand the Bank,andmemberof the Councilof GoverAsianDevelopment andCentral AsianCentralBank(SEACEN) norsof the Southeast andAustralia(SEANZA). Asia,NewZealand Bank of Southeast

School,anMBAin Finance Finance fromthe HarvardBusiness Physics of Chicago andanMA in Theoretical fiom theUniversity University.Marshallhad also from King'sCollege,Cambridge forO'Connor modeler developer/mathematical workedasasystems fot global modelsandsystems wherehe developed & Associates andtrading. riskmanagement

of AIM, is the presidentof Dt. CJMeadows,VisitingProfessor fum reseatch andconsulting management PraxisR&C,a strategic suchas Technology in industries thathelpsclientsuseInformation Finance& Banking,andTravel& Tourism. Software & Services, Shehelpeddesigrthe "VirtualAIM" to serveastheorganization's Internetand Intranet.Meadowsholdsa doctorate international School from HarvardBusiness de Moncton's in businessadministration is with the Universite Dr. AhmedBen-Hassine Busi Svstems andInternational in Information strategic management with aconcentration wherehe teaches facultyof administration NESS. HealsotaughtattheHowardUniversiry business. andinternational aMontreal in Canada; duOuebec D.C.,theUniversite in Washington at the Universityof New deMoncton'sMBAprogram, Dr. WoiciechNasierowskiis Professor workedasthedirectorfor Universite to sharerevisitingtheAsianInstituteof Management Brunswick andMPAprogram. of Administration Department business, intemational on strategic management, sultsof research with faculty, government's pto- andtechnology He hada roundtable management. PatrickHsiaois in chargeof the Taiwanese andevaluation on aspects of the formuladon projectsfor the PublicConstruction alumniandstudents curement,/infrastructure andtechnologiplans,andthe impactof intemational PCC'sAPECprojecton Infia- of strategic Commission [PCC),andsupervises In the last threeyeats, (lD2).Hsiaois a graduate cal changeson companyoperations. Database sffuctureDemandInformation Poland, Latvia,Mexico,Hong in Canada, (MM) has taught in 1990. Nasierowski Progam in Management of AIM'sMasters Kong,andMalaysia. at the Universite Dr. Marie-Paule Kestemonte,Professor et de Gestion(lAG) hofesor RomuloNeri is the AyalaCorporationChairin Busi Louvain,Institutd'Administration Catholique He is currentlythe DirectorGeneralof the marketing, mar- nessMdnagement. marketing, operational strategic wheresheteaches Planningand BudgetingOfficeof the Philippine keting reqearch,quantitativemethods,businessreseatch Congressional Hehasworkedandservedasconsultant Sheis alsothe co- Houseof Representatives. andmanaging the environment. methodology, NationalOil Com(UCL-IAG), and to a widerangeof flrmssuchasthe Philippine managerof the CentreEntreprise-Envitonment Bank, AsianDevelopment andtheHouse Business pany,MobilOil,Citibank, for the European of the ScientiflcCommittee President participates in the Legislative'Executive Neri reseatch on of Representatives. hasundertaken Barometer. Kestemont Environmental part-time offinance is a teacher and Advisory Council management. Development andwaste strategy, behavior andcompany consumer inAIM. editor,DowJonesAsia,with responsiUrbanLehneris executive from of TheAsianWallStreetJournaland VictorOrdoflezis analumnusof theAIM, havinggraduated bility for editorialoversight Principal hasworkedasareporter MDPin 1972.He is currentlythe Directorof UNESCO Review.Lehner theFarEastemEconomic PROAP) based Officefor Asiaandthe Pacific(UNESCO or editorfor theglobalWallSffeetJournalfor 29 yearc,14of them Regional in Parisas Headquarters He alsoservedat UNESCO in Bangkok. in Asia.Frommid-1992until lastAugust1, he wasthe editorof Division.Before positions includemanaging the PrincipalDirectorof the BasicEducation Previous TheAsianWallStreetJournal. at and Undersecretary Minister was Deputy Ordoflez eco- UNESCO, andWashington editorof TheWallStreetJournal(Europe) in of the Phiiippines and Sports Education, Culture Ministry of chief for the nomicsreportet,TokyobureauchiefandDetroitbureau the'80s. at AIM on TheWallStreetloumal.Lehnerwasa guestspeaker TAM'slOthanniversary. AprII29,on theoccasionot ManTodaJr. Chairin Business Dr. PurbaRao,the DonBenigrro '98. agement of AIM, is currentlythe ProgramDirectorof MBM at the NationalUniversifyof Dr. Chris Marshallis Professor In India,Rao experience. Asianconsultancy Applications for Shehashadextensive Technology on Advanced researching Singapore applylngoperations and alsoworkedwith the Ministtyof Railways, Systems Heholdsa DBAin Information Services. theFinancial

6

TheAsianManagerIMarch-April 1998


SOARINGHIGH IVITH CAOHAI

CONFIDENCE-BUILDER

Wanying'sCaohaiprojectpublished in theMarch-June1997issueof TheAsian Manager drew greatattention,including that of CNN, which has offeredto broadcast the projectsometimein April. Thanksto the trainingat AIM, I can now apply my managerialskills to improve the YunnanProvinceNetwork's management. We helda nationalconferenceon participatory approaches to ruraldevelopment lastDecember in Beijing. It wasverysuccessful. We will soonhold the annuaimeetingto planfor the next three activities.It could lead to the establishmentof a ChinaSouthwestNetwork to promoterural development.

In a countrylike Nepalwherethereis scarcityof materialswith which to keep practicing managers abreast of new conceptsandideas,I am thrilledeverytime I geta copyof TheAsianManager. Now that I haveswitchedto a new environmentwith greaterandvariedresponsibilities, keeping upwith therecent knowledgeand conceptsin variousareasof management hasbecomeindispensable. I encounter governhighJevel mentofficialsdirectlyresponsible for the economyanddevelopment of thiscountry. I dealinith businessmen fromalmost everysphereof theprivatebusiness community. Everyissueof.TAM hasalways sharpened my knowledgeandenhanced LuXng my confidencein dealingwith people Convenor fromsuchdiversefields.

TheYunnanPRANetwork TapasK. Gupta Economic,/Commercial Specialist AmericanEmbassy Panipokhari,. Kathmandu Neoal

TALKABOIJT

corunnueo

research,/computer techniques to railwayoperations. Sheis cur- receivednumerousawardsfor his leadership ln management, ecorently involvedin the InternationalBusiness Environmental nomicsand environmental protectlon. projectwlth the UniversityCathoiique Barometer de Louvainof Belgium. Dr. SadahikoSuzuki is Professorat the GraduateSchoolof BusiistheChairman SixtoRoxas oftheFoundation forCommuniryorga nizationand Management Technology, and President of SKR Managers & Advisors, Inc.in Manila.He is a formerCo-Chair of theAsianInstituteof Management andViceChairmanof AmericanExpress Intemational. Heis alsoChairman of theGreenForum, ViceChairman ofthePhilippine RuralReconstruction Movement and ViceChairman oftheFoundation forPhilippine Environment. Hehas

nessAdministrationof Keio'Universityin Japan.His 29-year experience with the academe includesteachingat the IndianaUniverslty (USA)and as AIM Visiting Professorfrom 1975-1976. Suzuki visited AIM to exchangenotes with faculty, alumni and studentson the impactof the crisison Japan.

March-April 1998 1 TheAsianManager 7


Managing National Innovation Systems:

The ASEAN Analysis uMaturedemocracies canpursuegrowththroughinvestmentand technologicaldevelopment.Excesstvedemands,rashpromises,and

commitmentto highgrowthpoliciesarenot enough."

|. conomistsregardtechnologyas a gainsin quality l- drivingforcebehind position, bothat the competilive *d I levels. L nationaland microeconomic But empiricaltestshavenot beeninclusive regardingspecificmeansthrough which technologicalchangeimpactson performance. Some$500billion economic is spenton R&D:muchmoreis spenton activities.Some othertechnology-related suchastheUSandSwitzerland, counffies, investheavilyin R&D,spendingapproxi mately$700per capita,andsome,such andKorea,mainly asTaiwan,Singapore, acquiretechnologyfiom abroad. Country-Specific Approach to Technolo gy .Management Whiie the Organizationfor Economic (OECD) and Development Co-operation counfiiesindicatethestrongimpactofpat(NIS) ternsof NationallnnovationSystems andtechdevelopments to technological trade, someof their noiogy-related solutionsmay not be applicableand exHowever, their tendedto othercountries. patternsat least technoiogymanagement serveasbenchmuksfor policyrecommendationsandthe evaluationof technology systemsin other countries,especiallyin Asia. DespitedifferentNIS, industrialized countriessharea numberof similariliesin strategies. technoiogymanagement ratioof busi Amongtheseare:increased R&D spending, ness-to-government 8

TheAsianManagerI March-April | 998

(GERD) was 1.8percentin R&D,focus Development reductionof defense-oriented planned to spend 5 percentof GDP betteraccess 1987, on hightechnology sectors, projects genqualifications R&D in 1992to beon domestic for the to appropriate o eral population,strongspecialization c o m e l e s s d e p e n d e n t n i m p o r t e d patterns,intensiveexchange andto inoeaseits capacity of technol- technologies solutions.Conogy, and significantgovernmental to absorbforeign-based im- versely,CenualEuropefunding,beginning in sectors consldered interventionism S&Tacportantto strategic sectors andobjectives in the 1990s,haslargelyconfined tivities,includingR&Dandeducation. of the country. and condiin Sinceeconomicobjectives Therearealsosignificantdifferences U.S.politicalob- tions vary from country to country, nationalR&Dpriorities. jectivesstimulatedefense-oriented arefollowed.RepliR&D differentR&Dpolicies Grantedthat programs. Japan'sscarcityof naturalre- cationisvirtuallyimpossible. mansourcesfocuseseffortson materiaisaving NISarecraftedin a country-specific LikeGermany andSweden, ner, it appearsthen that there is no technologies. andTech- universallypreferablemodelfor technolhasnotsavedforScience Japan It is culturallyspecific. n o l o g y I S & T ) .K o r e a ,w h o s e G r o s s ogymanagement. in solutions andorganizational and Knowledge on Research DomesticExpenditure technologydomainare not easilytransplantedin their originalform between formations. differentculturesor economic LodgeandVogel(1987)arguethat a when its ideologyis nationis successful andthereis little coherentandadaptable betweenprevailingideology discrepancy andactualpracticeof the country'sinstitutions.Whetherto developtechnology, which tendsto be costlyandrisky,or to ignoreprogless,which takesits toll in anideobecomes termsofbackwardness, decision.The logicalandcountry-specific R&Dor economic sameisffue in selecling patterns,and determining speciaiization governmental the degreeof appropriate Nasierowski in AIM: The long and short of development in technology involvement NIS imitation is risky business Thus, mustbeconsidered. andacquisition


pursued Singapore threerechnology educ a l i o n s l r a r e e i e sT h e s ea t e :

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(MNCs), Multinational Companies andthe biggest sitein Asianshiprepairandmaintenance; . Nichespecialization, through concentration of resources andencouragement of foreigninvestment in selected industries. Thlsincludescomputers and industrialelectronics (whichaccountfor overhalftheworld'sdiskdrivesandover two-thirds perroof soundcards forPCst. leumrefining (the"Houston ofAsia"1, and aerospace maintenance andrepair. . primarilyin R&Dspecialization process selected technologies. Thedevelopment ofsuperior infiastructureanda specific technical manpower base, closeandlong-term university-indusrry linkages. and tax incentives supporr Ihesestratesies. Theseconditions have privatesectorfundedR&D encouraged evidenced by the increasing numberof M N C - e s t a b l i s h eRd& D a c t i v i t i e si n Singapore. MNCsfiom advanced lndust r i a l c o u n t r i e sa r e i n c r e a s i n g l y decentralizing theirR&Dactivities to geog r a p h i lco c a t i o nosu r s i d teh e i rh o m e countries, eithert0 tapspecialized scientlflc and technicalskillsor to achievea closerintegration of R&Dwith market d prrplnnm pn tc

World Competitiveness Report 1995; Human Development Report 1994; Pacific S&T Profile 1994; Hofstede, 1984.

nationaltechnologypolicies andtherneans of their realizatlon will almostceftainly reflectthe culturalspecifics of eountfies, Theywill evolveindependently aRdwill not be easilytransferable aoossborders. NISareembedded in societies andcultures thatvarywidelyfiom countryto country. Any assessment of the flt of a solutlcnto localconditionsis extremelycomplex givenrelativismof objectives and paradigms.l

mpnt

Aspartof rhisshiftrowardmorerechnology-intensive industries, Singapore is process emerging asa manufacturing engineering andtransfer center, whichassists MNCs to deployoperations overthe region.Whena newproduct is launched. Singapore is oftenchosenasthe firstsite formakingtheproduction lineoperational, andSingaporean engineers aretypically involved in jointIandoftenconcurrenlJ process development of themanufacturing for thenewproductline.Afterthemanu-

tives,a similareconomic base(asmeasuredby GDP)and a relatively short historyof national independence 130-50 years),themostsubstantial difference existingamongSingapore, Maiaysia, andthe Philippines are the relativewealth of (asmeasured citizens by PPP)andcoun^ r p c r r r r p c c f rr l l v t r y s i z e( a sm e a s u r ebdy p o p u l a t i o n l . t ^ " " - : (See and the operations stabiTable). These differences areexpected implemented to havea dramaticimpacton policies l i z e d f h e v a r e t r a n s f p r l e dt o a n o t h e r location,e.g..Malaysiaor Thailand.with adopted in thecountries. l d L t U l l l l B

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the Singaporean engineersmanagingthe trrnqfpr nrnaaae ASEAN Examples Singapore To assess the effectiveness AlthoughWong (1995)warnsthat of ASEAN Keeplng in minda sma1l domestic mar"fundamental NIS,a descriptive approach is necessary. ket,llmitednaturalresoutces rechnological change since andlimited Beyondambitious the 1970s is development drastically transforming the objec- supplyof indigenous humanresources,

March-April 1998

TheAsianl,[anager

I


thatSingapore. . .is privatesectorinvolvementin R&Darecore environment competitive facingin the 1990s,resultsspeakfor them- issuesof MalaysianR&Dpolicy.The curselves."Singaporeis no longer a rentplanto inueaseGERDto two percent privatesectorconNewly-lndustrialized Country(NIC) but by year2000,increase percent, andconcentrate PPP and tributions to 60 technologically developed. fully proiects, proof of on commercial is similarto those expenditures are education/R&D leadersfrom adopted by technological Instead of being a consumer thissituation. may OECD. Although this level of commitment Singapore of foreigntechnologies, perits will decisively improve technological the development of needto emphasize formance, it may not substantially reduce in the future. own technologies gapbetweenMalaysia internalsocialten- the technological Unlessunfavorable global adverse and innovation leaders. sionsdevelopor thereis a sudden problem pressure The in developing indigitmay main international on Singapore, years human ftom its dominanteco- enousR&D may be relatedto benefltfor few instituMalaysiapossesses nomic, financial,and technological resources. posidonin theregion.Furthermore, Hong tionalandculturalmemories whichfoster in education interest.Investment Kong'sretum to Chinamayprovideaddi- research However, with inadequateattentionto Ph.D.protional businessfor Singapore. prosperityandthe desirefor an gramsand to the outflow of.the best increased to industryalonemaybe insufimprovedstandardof living may force graduates increase knowledge to concentratemore on the ficientto substantially Singapore value-addedeconomicactivities.Sucha stockcreatedin the counfiy.A low level policy could increaseimmigrationto fill of accumulated S&Tcapabilitywill exacin erbate this problem. Under these lower-paidjobs.Aiming at leadership Malaysiamay aim primaselectedareasalsobringsrisks.First, a circumstances, programs, which rily at masteringtechnologydiffusion.Its needto intensifydoctoral in the light of limited advantagelies in not permittingeither maybeunattractive leadership or thecapacityto researchtraditionsin the countryandlu- technological crativeopportunitiesin theindustry,arises follow.Thus,thepenaltyin termsof lower 'new' productsmustbe paid. in response to a needfor humanresources profitsfrom with specializedskills/knowledge.Sec- It may alsobecomemoreandmorediffidoctoraleducation,oneof cult becauseof attentionto proprietary ond,increased may protection. for basicresearch, the preconditions proveto becostlyif areasof specialization arenot commensurate with futureneeds. Philippines Conandrich tuticle 14 of the 1987Philippine Third, beinga highlydeveloped that."TheStateshallgive country,a memberof OECD,Singapore stitutionprovides inwill be compelledto respectmoreclosely pliority to researchanddevelopment, proprietaryrights.R&Dwill be exposed vention, and their utilization; and to to abuseby others,reducingthe beneflts scienceand technologyeducation,trainleadership. Finally,there ing and services."Accordingto the of technological NationalEconomicand Development MNCs in hi areno renownedSingapore techsectors,evenasMNCsarethe main Authority,the main socialand economic planningandpolicyagency, development conffibutorsto its diffusion. aimsto be NIC by the end the Philippines of the Century. Malaysia TheS&TMasterPlan(STMP)provides TheMalaysianVision2020 clearlyrcc ognizesthe role of S&Twithin national clearsignalsto the publicandprivatesecdevelopmentprograms.One of its nine tors on the desireddirectionof S&T.It of the producis "establish- envisionsa modernization cental strategicchallenges in research, andthe society,a tion sector,upgrades ing a scientificandprogressive in S&Tinfraof capabilities societythatisinnovativeandforwardlook- development It contains includingmanpower. ing, one that is not only a consumerof structure, technologybut alsoa conffibutorto the salientaspectsof actionplansregarding and civilizationof some 100 products,commodities, scientificandtechnological technologies in the identified15 leading the future." on in- sectors.In contrastto the long-termconCurrently,gfeaterconcentration of cernsof the S&TMasterPlanfromwhich dustryprojects,andthe intensification 10

TheAsianManagerI March-April 1998

educationa inadequatea

to Ph.D. and to

bestgradua be insufficientto substantially increaseMakysia's knowledgestoclcs. it was derived,theScienceand Technology Agendafor NationalDevelopment (STAND)emphasizes short to mediuminterventions to catchup with term S&T The the race toward industrialization. prodlcts and serSTANDis a list of.22 vicestowardwhich superiortechnologies will beappliedto achievecompetitiveness in the globalmarket. Comparedto othercountries,thereis underinvestment in R&Dat the national level.The$77 millionspenton R&Dmay regarding indicatea basicmisconception Furof innovativeness. the requirements thatthereexist thermore,if oneconsiders threemaiorprograms,some15 corearinterest,andsome easofpriorityeconomic 100priorityproducts,onewouldbelooking at about$25 mittionper program,or $5 millionper sector,or $770,000per priorityproduct. The Departmentof ScienceandTechnology(DOST)furthernotesa low level of involvementamongthe privatesector in the S&Tactivities.The privatesector accruesan estimated20 percentof naunder Incentives tionalR&Dexpenditures. the InvestmentPrioritiesPlansuchasincome tax holidays and duty free importationof capitalequipmenthaveinitiallybeenmadeavailable. Jointresearch to bringthe pri is alsobeingencouraged vate sectprsinto the forefront of the technologicalinnovation.Similarincentiveshavebeenofferedin the majorityof OECD countries,resultingin increased private sectorinvolvementin R&D for some75 percentin Japanto some50 percentin the US.TheOECDprivatesector the benefitsof techseemsto understand and the nologicalcompetitiveness in novelties. resultingneedfor investment


Normally,when a MNC decidesto re- impacton countrydevelopment strategies Singapore, Korea,andTaiwanhavebeen locatemanufacturing overseas, in orderto must be consideredin technological increasingtheir exportsin excessof 10 achievebettercoordination betweenR&D change.The sameis true of questionsof percentper year, fasterthan any other production- mobilityandthe appropriateness and offshoremanufacturing, of tech- OECDcountry.At the beginningof the relatedandproductionengineering work nologies, changing tradepattemsin hi-tech nineties,industrialcountriesare importaremovedto themanufacturing site.Over sectors,andthe dilemmaof development inga substantial amountof technologically time, this contributesto the increased versusacquisitionof technologies. productsftomSoutheastAsia The advanced transferof processtechnologyfrom the technological progress of a countrycanalso again,a patternwhich cannotunequivoparentcompanyto its overseas manufac- be examinedin termsof the acquisition callybeaccounted forby classical theories. turing subsidiary.This solution,in turn, andeffecflve diffusionoftechnologies. The Dilemmasin theoriesof international allowslocalcompanies to masterthe pro- impactof politicsand localendowments tradehavereasons. For example,some cess, developing manufacturing shouldnot be ignored,grantedtheseare countrieshave alreadyovertakenadtechnological capabilities to betterperfor- hardto graspquantitatively. vancedindustrialcountriesin some mancelevelsthanthosein headquarters. Technology is a commoditywhich can productsor someproductsshouldno If we maketwo 'back-of-an-envelope'be traded,hence,its transfercan be ex- longerbe classified as high-techgoods. (a) the export of manufac- amined from the perspectiveof Generally,eachtheoryof international assumptions tured productsis $5 billion, and (b) this internationaltradetheories.These,how- tradeandeconomicgtowthhasbeenformanufacturing isin low R&D-intensity sec- ever,fallshortin theinterpretation of trade mulatedto explainpatternsexistingat a tors,wherenormallyR&Ddoesnotexceed patterns,at times contradictingone an- specificperiodof time. Thesepatterns, onepercentof sales,then the needexists other, leavingeconomistsperplexed however,are changing.A shift has ocfor approximately $50 million curred in elementscrucialto to supportR&Dfor exportproeconomicdevelopment:from duclion.Thistranslates to the theimportance of laborat thebeentireGERDin thePhilippines, ginningof thiscentury,to a belief thus leadingto discrepancies in local endowmentsas signifibetweentheory,declarations, cant, to the role of technology reality,andthefactthatforeigr $ emergtngas a and know-howin the eighties companies/subcontractors do and nineties.Yet, the last two process not use local R&Dskillsbedecadeshavewitnessedrapid and transfercenter, causetheyeithercouldnotfind technologicalprogress in MNCs in deploying them or becauseR&Dis not communications, computertechneededin theverybasicnature overthe region' nologies, andbio-chemistry; the of manufacturing. While poli shrinkingof life cyclesof prodcies,objectivesand possible processes; uctsandtechnological benefitswefedrawn,no numandan increasein international bers, targets,detailsor assessment regardingthe selectionof a leadingcon- business cooperation, fosteredby relaxed benchmarks were identifled.Dedication ceptualmodelfor internationaltrade. poiiticalclimatesandthe liberalization of and enthusiasmmay be insufficientto For example,althoughU.S. exports tradebanierswhich havefurtherincreased overcomelack of resources, the underly- shouldtheoretically bemorecapitalinten- the mobility of technologies and knowling problemof Philippinetechnological sivethan imports,this is not the caseas edge. progress.Furthermore,R&D activities explainedby the LeontiefParadox.2 As In someinstances,the potentialfor must be put into the contextof at least well, classical theoriesimply that beyond internationalizing the produclionof hightwo oI moresystems: educationandown- exffaordinary gainsor loses,"the rich get tech goodsis quite different across ership.Neitheris conduciveto R&D. richer, and the poor get children".The industries. Synergy effectsbetweeninventnewly industrializingcountriesof South- ingandproducing newproductscomeinto Appropriateness and Conditions eastAsia have alreadyrenderedthis play.Success in developing new products of Technology Transfer assumption invalid.Thesecountries,fac- dependson personalcontactsbefween Lowlevelof technological development ing a comparativetechnological scientists,engineers,and production isoftenanobstacle forcounfiesthatattempt disadvantage in the early 1950s,have workers.With someproducts,such as to improveefficiency,the standardof liv- gainedsubstantial world marketsharesin computers andmicroelectronic appliances, ing,andtheintegrationwith the business manyhigh-andmedium-tech sectors. This development is normallyconcentrated in communityof more affluentcountries. includesconsumerelectronics,datapro- reseuchdepartments with anautonomous This problemis observable througheco- cessingequipment,andautomobiles. For researchstaff,wherelinls to produclion nomicperformance indicatorssuchasthe example,Japan,in contrastto the U.S., departments are of minor importance. spendinglevelsfor R&Dandthe salesvol hasshowna positiveffadebalancein the Thus,technological sophistication andthe umeof licensesandpatents.In the eraof eightiesin suchimportanteconomicsec- abilityto assureco-operation of specialists the globalvillageto enterthe technologi- tors as automobiles, semiconductors, within variousphases of productdevelopcal big ieague,condilionsthat havean computers,and consumereiectronics. mentandmanufacturing maybe decisive March-April 1998 | TheAsianManager

II


prospects manufacturing in betweenUS$500billion and in assessing An examination ofthese US$1trillionto develop. remotelocatlons. The successful leadKlodt[1991)to identify storiesof conditlons (andconsequently Asian Dragons have also two typesof industries fromseveral technologies), which he referredto as emerged essential immobileandmobileindustlies. Charac- prerequisites for internationalteristically, technologies fromtheso-ca11edi z a t i o n :i n p a r t i c u l a r t, h e "immobilesectors", as well as "petson exchange of technology. Asian embodied" onesarebelieved to be disin- Dragons havecreated stablepoConcunently, the l i t i r a l s n r i e l r n d l o o e l clinedtowardtransfer. arefrequently environments; sametypesof technology developed infiaandhavebeensuc- structure which fosters at thecoreofprogress, incorporated into economic economic development; cessfully enticed progamsin somecountries. technology intensive companies tech- to establish invested Successful transferof advanced subsidiaries local1y; in education nologies doesoccut.Between1951and intensiveiy andhavelearned Trade how to learn;andofferedthe cost-advan19q3,theMinistryof International andInvestment(MITI)ofJapancatalyzed tageof low-wagesin the earlystagesof con- economic development. theacquisition of 42,000technology Yet,thesituation ffacts,at a costof US $17 billion.It is in eachcountryisuniqueandthesuitabilpurchased ity of knowledge that technologies offeredto aliencultures estimated fiom the U.S.befween1956and 1978 mustbe carefu11y investigated on its own fora priceof US$9billionwouldhavecost merits.If inappropriate methodsareem-

'Pedication

Q"nthusiasm

to tnsuffigisnt fas&

thpundefuw

The Nasierowski-developed NIS model organizesselectedindicatorsinto t h r e eg r o u p s :

lrupurs Y GrossDomesticExpenditureon Researchand ExperimentalDevelopment IGERD) Y Employmentin technology-orientedprograms,measuredbytotal R&D personnel nationwideper 1,000of the laborforce and engineers/scientists in R&Dprograms Y Educationalexpendituresand tertiarylevelof educationalexpenditures Y Governmentalinvolvementin technologyprograms,measuredbythe ra" expenditureson R&D tio of business-to-government Y Acquisitionof technologyfrom abroad

MooenarrrucEleruerurs Y AccumulatedS&T capability,in which PurchasingPowerParityand Aduk LiteracyRateare used as proxy; Y The size of the country, measured by wealth, population,'andavailable laborforce Y Specializationpauerns measuredby patent auto-sufficiencyand dependency ratios,and diffusionratetechnology Y Culture characteristicsof the country (which are likely to impact on the patternsin technology delevel of inputs and specialization/concentration velopment)measuredwith the use of Hofstedes dimensionsof individualism,uncertaintyavoidance,power distance,and masculinity.

Ourpurs Y Variouspatentstatisticaldata series(patentsin the U.S.;externalpatents by residents;patentsby residentsin the country total patentsin the country). Y Publicationscountsand citationscounts.intendedto measureproficiency in creatinga knowledge-base. Y Productivitymeasuredby GDPper employee per hour, intendedas a proxy of impact measures (such as export/import in High-techsectors,T€chnology Balanceof Payment,and TotalFactorProductivity).

progre*s' ployed,aaofganization rnaybeonthepath asevidenced, for exto self-destruction, ampJe,by the FormerSovietUnion and Iran. Congequently, not all technologies canbe recommended fot all conditions. Theimitationof foteigt patternsof technologyis riskybusiness. t

Endnotes: 1. In qrderto discussthe NIS of ASEANcountries and Malaysia, andthePhilippinesl, {here;Singapore. apploach a tlvo'stage theeffieimcyof thesesystems, analyFirst,resultsftomsta{istical h3clegfladapted. q€$Sf dAtaEeriespertainingto technologysystems elemenisof NISfrom some areofttbd, eomparing includedin the 19Q4WorldCompeti' 40 eolrn-lries tivenes.fteport,andoutliningtypicalcharacteristics of coun$iessubjectto their clustermembership. keeparedescribed; $ext, thethreenallonalsystems shouldbe ing in mind that some obsefvations ratherthandefiniteconclu' Iegarded ar hypotheses progress of the three sions.$nq,etechnological f ouqqs6:19{ilircntlya$suredmainlythroughacquiand foreign direct $itionref{afpign teehnolQgies issuesin tech' investnentf(lf ?nv),appropriateness qoiqgf,lrans,f,e,J ate outli4ed.The diversityof in the level of techno' reh#9{Xs;u$a$;'diff3rences of tle threecounuies,difficulties lodEalcgrArqittnen!

of ilformation, aswellas hgalsoufces inssr#lFa qegqrding compgfitans of NISresultin

suc&?4{tr$ anfrn$li$ b uniformlyexaningeachcountry's sy$tgBq, 2. Tbe.[eoqtiefpaxadoxcameasa xesultof empilibyWasilyLeontiefin I 951 using €alte*!qFofldu.cted US +.gttfSrilbe year 1947. Sincethe USwas the nationin the world, rnes+..rap{fel.:(K)-abundant Leontiefexpectedto find that it exportedK'intenand importedlabot (L)-intensive sivecommodities testwerestalTtrelesultsof Leontief's commodilies. were about30 tling. The US importsubstitutes percentmoreK-jntensive thanUSexpons.Thatis. to exportL-intensive commodities theU.S.seemed andimportK'intensivecommodities.Thiswasthe oppositeof what the other modelspredictedand becameknown asthe Leontiefparadox. Refereace Eco' 1. Sdvnto.fe, Dominick.(1983).Internationa) no&ieb (2nd ed.l.NewYotk:MacmillanPublishing

-qEqPaIq'' ._

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TheAsianManagerI March-April 1998

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The Art of Managing Globe-wideTeams:

Lessonsfrom the SofrrvareIndustry At the heartof collaborationts rektionshtpmanagement

revolutionis underway, at par with ablefurtherfuturecollaboration, resulting nificantcompetitive advantage for thefirst the globalizatlon of manufacturing in in effective,globe-wide extendedenter- movers. the 19thand20th centuries, and of prlses. Companies havealreadymovedfrom agriculture in thel5thcentury.EnInternational outsourcing of software sporadicinformationtechnology(lT) abledbymoderntelecommunications and development leadsthis revolutionary outsourcing, to strategic IT partnerships, informationinfrastructures, servicework movement.Theseactivitiesrequiread- and to spreadingtheir relationshiprisks is dispersingworldwide.The interna- vancedmanagement methodsmorethan overmultiplevendors.This eagertrend tionalproductionof goodsentailsshipping haveyetbeenestablished. Thesemethods may spel1disasterfor firms that sign on locallybuilt partsaroundthe world for are eitherfor theactivity,whichis mainly suitesof international outsourcers without assembly or salebut globalization of ser- conducted single-site, or for international fully understanding how to manageone production business, vicesinvolvestrulyintegrated which is managed moreasin- relationship or anindividualproject,much acrosstime zones,cultures,languages, ternationaltradethan astruly integrated lesssuitesof them.Byits nature,software legalsystems, andmanagement barriers. production-untilnow.Thesepioneering is a high-riskenterprise.More than half Managingin multiplenationalenviron- management practices will sbonroll out thetime,tensof millionsof dollarsarelost mentsis,not new. Managingreai-time to otherindustries, resulting in successive whentelephones, reservation systems, or interaction acrosstheseenvironments is. anddramaticindustryupheavals, go andsig- other mission-critical infiastructures Facedwith a new setof competitors awry. aroundthe globe,managers areinFigudngouthow to manage these temationalizing thelrproductionand activities,then,would benefitnot administrative serviceoperations, Empirical data were gathered worldwide to underonly the $350 billion globe-wide butwithoutnecessarily understand- stand how to manage internationallyoutsourced softwareindustry,but all othersthat ingwhat " globe-wide management" projects,not just to make the outsourcingdecision; usesoftwareor hopeto learnfiom to show how to manage servicework in an inlernareailyentails.Companies areformits management experiences. tional contexq exposeemerging economiesas teching teamsof intellectual workersin Presented here are resultsof a nologyproducers.not merelyas recipients;and add multiplenationsto provideworldto the understandingof transnationalmanagement, multinational,multiyearHarvard e s p e c i a l l yi n d u s t r i a l i z e d - t o - e m e r g i n g - e c o n o m y Business classserviceat a world-c1ass flow) Schoolstudy that show work. price.In the process, they hopeto how to manage highlycoordination lnitiallyan exploratorystudy on overseasoutsourcing take advantageof the sometimes in Southeast Asia, the research interviewed more dependentactivities,especially surprisingwage./costdifferentials than 70 managersof 33 internationalprojects of communication management, found andsuperior resources fromdiffeent TataConsultancyServices(TCS).Documentswere to bethelinchpinof projectsuccess. projects large and small, structured nations.To collaborate effectively, analyzedfrom Theserecommendations helpmana n d u n s t r u c t u r e d , t e c h n o l o g y - f a m i l i a ra n d managers andworkers mustmanagersidentifyprojectsandtasksthat nonfamiliar,functionalityfamiliar and nonfamiliar. agetheir interactionseffectively,so first-timeand repeat business,communication-inaregoodcandidates forinternational tenseand -nonintense,communicationsmedia-rich theirlaborcanresultin goodprodcollaboration, communications capaand -nonrich,and with varying levelsof success. ucts, good relationshipsand bilitiesandinfrastructures required, management systemsthat will enandmethodsof coordinating, comMarch-April 1998 I TheAsianManager

13


or softwarereengineering singlelocation.Activitieshavebeenmantheproiects. formconversion andcontrolling municating, traderather which are infeasible agedmore as international of legacysystems, with high-cost locallabor,becomefeasible than asintegrated,internationalproducCompetitiveOpportunity time in geography, labor,thus expandingthe tion due to distances is a primeex- with overseas Softwaredevelopment pracbusiness languages, zones,cultures, ampleof globalizingservicework which marketfor IT services. Activities tices.laws.andinfiastructures. Thus,it poses requires tightcoordination. havenot traditionallybeentightlyandinsincede- Risky Business challenges, management sizable A relativelynew productin the inter- teractivelycoordinated,and ongoing signsoftenhaveto bereworkedatthetime relationinterpersonal of softwarewriting, andnew issuesarise nationalscene,softwarehas historically interorganizational, trust-had beendevelopedand managedby staffin ships-basedon hard-earned becomemoreconclete. assystems "contlolmechathe closephysicalproximity,aidedby a host to serveasoneof thefew For individualcomputersystems, methods Management and methodologies nisms"available. ratioof hildware to softwarecostsshifted of tools,techniques goodsproducfor international for sin$e-location teams.Al- developed from80:20in the 1960sto 20:80by the developed in overseas tion may be relativelysimplecompared opportunities late19B0s,and10:90in theearlyI 990s.1 thougheconomic be- with thoseneededfor internationalserdifferences outsourcing aresignificant, the Laborcomprises vicework. vastmajorityof costsinThus,today'sintemacurred.IT staffcanbe managen tional outsourcing percent eight high as as powerful a op are facedwith like banking, industies in portunity intense and and telecommunifinance How diverseare the wages of softwareprofessionalsaround the world? socialand organizational for and12 percent cations, compounded difficulties, Finding a firms.2 other Professionalin the United States: $35,000 high-risk by software's of low-cost, newsource Programmers: nature. quality labor IT high Hong Kong $20,000 Project risks, like couldyield significant Singapore $17,000 slipsand cost schedule resulting costreduction lndia $5,000- $10,000 on more occur oveffuns, Philippines $3,000 in hard-tofindcompetithan50 percentofalllarye tiva rdrrenteop Programmers:Hourly rates Projectcancellasystems. Surprisingly,given North America $150 at about I 0 tions are theinitialattactiveness Outside North America $20 quality percent. Serious of the costfigures,the (all costs in) writer Skilled software uncomare not defects Harvardstudy found United States $100,000 mon. that costwas not alBangalore,India $10,000 Businessoperation waysthe driver in the are alsoinffoduced risk well? ls it any wonder overseasoutsourcing has caught on so decislonto outsource. that into organizations Evenwith'cost-reducthe In software. rely on tionfiguresin theireyes, Sources: f o r e x a m ple, l 9 B 0 s , thatnew "Global Outsourcing lnformation Systems and ProcassingS€ruices." The lnfotr realize managers Apte, Uday. of Assessment (1990):287-303. A Realistic and Jain, Rskha. lost Bhatnagar, S-C-, Airlines mation Society. W American manrisk andadditional of India's Software Exports: Some lmplications fot FutJre Strategy." Vikalpa. Julfsaptemb€r $50 millionin ticketrevproblems will be Labor Affairs. Statistical Y€aragement {1991): pp. 35-46. U.S. Dspt. of Labor, Sureau of Int€rnational "6etting Softwsra Developed Offshore: book. New York: United Nations, 1990. Lima, Paul. enues whenits passenger intoducedwhenintemaFirms Help Others Save by Having Their Prograffi€Witten in lndia." The Toronto Star. Fobrusystemmis26, 1995. reservation arv tionalizingactivities.A thatthe indicated takenly numbetusedoverseas of dishad sold out airline services to outsourcing of fares. Outcomes count supplementtheir limAn avionics lethal. can be software ited workfolceol to gain expertise tweenindustriaiand emergingeconomy faulty "bug"in the F16 fightet inandmanaged. software tet markets.Con- firmsmustbe understood in their 1oca1 unavailable don't really structedthe planesto flip upsidedown s i d e r ,f o r e x a m p l e t, h e w o r l d w i d e Existingtoolsandtechniques specialneedsof international, whenevertheyoossedtheequator.Sepaprogrammer shortageis estimatedat one address proiects. rately,software"bugs"were found millionpeople.Byyear2000,Japanalone interorganizational for severaldeathswhena canofferthe responsible management Caninternational mayneedabouta millionmotesoftware patientswith No, not really.To cer therapyunit overdosed One of neededtechniques? engineersand programmers.3 goes on. list The hasbeencon- radiation. business needed a specific date,internalional TCS'sclientsdesperateiy Largeprojectsentailhigh risk because andhadto gohalf- cernedmainlywith goods-international areaof Unix expertise complexway aroundthe world to find it. In transportof raw materialsor components of their inherentorganizational lack of prior with: at a ity. Proiectriskincreases proiectssuchasplat- with flna1or intermediateassembly addition,beneficial 14

TheAsianManagerI March-April 1998


(successful) experience with the technol- work off-site,but the ethicalissuesand and budgets,enhancement of the workogy; lack of structure,such that project interpersonal fearsremain,addinganother teamcapabilities, or all of theabove. developers ate unsureof what the users layerof managerial complexity. Further,the studyresultsshowedthat reallywant; changesduringthe develop the needfor rich mediadoesnot fall and mentprocess which requireredesigrr and Matdng a llifrerence thenriseoverthe courseof a project,as rework;unavailable or hardto explaininWith the riseof serviceindustriesand manymanagers todayassume. Nearlyall formationon necessary functions;datato globalization, communication manage- projectshada fairlyconstantlevelof combe housedin the system,or existingand mentwill increasingly spellthedifference munications needsfrom startto finish. futureinterfaces. Unfortunately, thesevery befweenglobalcompetitiveness and en- Budgetsneedto reflectthis, and video, projectsare the most tempting to trapmentin yourimmediate environment. phone,e-mail,and other inftastructures outsource:they offermorefinancialsavpractices Themanagement investigated needto beprovidedcontinuously fromday ings and the partner,at ieastinitially, is in the studyaccountedfor 22 to 68 per- one.Aithoughtelecommunications and generallyunfamiliarwith the clients'sys- centin thevariance in success ateachstage management methodsandtools,suchas tem anduserneeds. of theproject,and31 to B7percentof the systemsdevelopment methodologies and In the faceof theserisks,the research variancein overallprojectperformance. softwareengineering tools,canenableinshowsthatsomeof the ternationalcollaboration, mostintransigent diffithey cannotperformthe cultiesinvolvedare essentially humantask of actuallyrelationship collaboration. At its heart problems. Whenbeginis effective communication ning an international and relationship manageoutsourcingarrangement. ment, managingthe Managers andacademclient'sperceptionof ics have already risk,lackof trustin the recognized the criticalnapotentialpartner,and tureof communication and expectations of coordirelationship management nation and control for serviceteams,espeproblems areessenlial. cially in the international In thequaliff-sensitive, context.With theincrease relativelyprice-insensiin effort to managegiobal tive global software services,administrators matket,thereareonly will beforcedto paymore few toolsavailablefor attentionto international evaluatingpotential communication andmanpartnersandforgingrelationships. The studyfoundthat faceto facecon- agementtechniquesthat emergewith Anothersignificantfindingwas that tact was not necessary for most tasks. them.Thetime to startis now, while the priceoftenactedasa proxyfor qualityin Video-conferencing andphonearesuitable learningcurvecanbe scaledaheadof, or the eyesof potentialcustomers. Onefirm substitutes. at leastwith, yourcompetitors. foundthat merelyraisingits priceswasa However,communications had to be successful marketingstrategy!Findingthe managedmore carefully.Acrossall the Managlng Comnunicadon right priceoffering-low enoughto offer projects, when"rich"mediaffaceto face, The first stepis formalizing-measurcost savingsbut high enoughto assure videoor phone)wasneededfor unstruc- ing, specifyinga standardformat or quality-is no meanfeat. turedtaskslike creativeproblem-solving, process, etc.Althoughseemingly cumberNor aretheethicalandlegalissues easy but not used,performance problemsoc- some,the followingrecommendations, to manage.With the potentiaifor thou- curred. Surprisingly,performance when followed,werefoundto be critical sandsofjobsgoingoverseas, govemments, problemsalso cameaboutwhere rich to pfoiectsuccess: laborunions,andworkers arejustifiably mediawasnot needed,but usedanyvvay. o Obfainspecific,spelled-out, written worried.Proiectmanagers haveto deal Usingtooricha communications medium clientapproval beforeconstructing the with somelimes hostilein-housestaffand madesituationspoliticallycharged,introsystem(andat otherkeymilestones). governmentagenciesthat bring suit ducedambiguityto unambiguoustasks This can help uncoverassumptions against firms,allegingthatimportedwork- andinformationoverload.Theeffectcanandpreventcostlyrework.ClientreeISwerenot reallyessential or unique;or not be ignored,whether management q u i r e m e n t s( m i s c o m m u n i c a t e d refusingvisasto projectmembersreturn- definesperformanceas effectiveproiect assumptions neveruncovered, etc.) ing after their holidays.Legallvisa communication, high-qualify outputs,cli arean extremelycommonstumbling problems arebeingavoidedby doingmore ent satisfaction, adherence to schedules block. March April 1998 | TheAsianManager

15


. Makeminutesof meetingsandhave review theothersideofthediscussion them immedi and approve/correct can be atelyso that discrepancies andresolved. uncovered . Try to be overprecise andovercleat, in asynchronous communiespecially cationssuchasfaxor e-mail.Youwill neverachievethisgoal,andalongthe way you will preventsomemiscommunicationandrework. Somemayseemwastefulbut theirreal clearly valuegoesbeyondcommunicating miscommunication. to sensing anon-site"focalperNextisto establish s o n , " e i t h e ri n t h e o'r client organization thevendor,who actsas a focalpointfor all on" site,/off-siteproject ensurcommunication, ing messagesare responded to and open itemsareresolved. Establishing a vendor employeeat the clientsitewill be more due to reloexpensive and cationexpenses possible turnover. Howevet,it may be a wise investment,if: I ) relyingonclientpersonne1forthiscriticallink isinadvisable; 2) investingin employeeability manageris deto functionasan overseas sirable;and if 3) the client doesnot respondquickly. is harderto ignore Physicalpresence Indeed,more than electronicpresence. depended absolutely thanonce,plogress "iustshow on the staunchinclinationto up", aftel20 to 30 hoursof totaltravel time,andresolvean issuein person.The Thetemptation isto wait costsareobvious. justa littlelonger.Howevet,repeated unto project certaintycanbemoredangerous certaincostof thanthatone-time, success travelor relocation. manageWhen doescommunication ment matter the most?Early- and mid project. scopeand reIn earlyprojectstages, quirementslurk everywhere.Managers statearetemptedto makescope-relevant 16

TheAsianManagerI March-April 1998

mentsto the clientthateventuallyevolve thatwouldnot intopromises-statements havebeenput ln writing. Hereis where formalization, thoughit takesextraeffort, savesa gooddealof effort. In the middlestages, ultimateproject performance receivedthebenefitsof caremanagement, as ful communication measuredby frequencyand oiticality of projectlateness, mistakes, andoverallquality. Management must not skimp on richcommunication mediaeven supplying maybeat theirpeak. thoughcostpressures Traveland repaireffortslater cannotreat mid proiect. If a1lyreplaceprevention

costscanit appears that communication eithertheprojectshould notbecontrolled, be scrappedimmediatelyor one party investshouldffeatcostsasa relationship mentto berecouped durtnglaterprojects.

settlng up Risht project, Beforestartinganinternational is analysis infrastructure communications essential. Accessto richmediafot communications-intense tasks,communication procedures to andpatience or theexpertise createthem,sufficientmediafor relation(e.9.,telephone,on-site ship-buiiding presence, or commone-mail),andnecesfor taskslike data sary infrastructures ffansferfacilitiesalsohaveto be ensured. For graphicallyorientedwork like building engineering systemsand prototyping graphicaluser interfaces,eithervideo-

conferencing or interactivecomputerdisplay (with teleconferencing) shouldbe provided. Beyondaccess to rich media,provid i n g a t a l l t i m e s a w i d e r a n g eo f mediaenabledthe more communication projectsto capitalize on their successful specificbenefits.Beyondcost,otherattributessuchasformality,easeof use,and intimacyof contactare key.Telephone, usefulin some for example, wasespecially because it is lessformalthan situations and because written communication, thereis no recordof whateachpartyhas Parties tended cal1s). said(barringrecorded to speakmorefreely.Intimacy was desirablein certaincircumstances, such as face-to-face contactfor trustbuilding especially prior to Also,on contractsigning. wasa occasion, telephone "nomntimate"-enough mediumto beespeciallyusefirl and in depersonalizing conflicl deescalating Giventhe needsof a p r o i e c tf o r e x p e n s i v e videotravel,relocation, c o n f e r e n c i nogr o t h e r you must requirements, thenfactorthecostof the and cominfiastructure municationmanagement time(whichcanbesigttificant)intotheoverallproiectcostanalysis. Richmediadocostmore.Netproiectbenefits may disappearin the face of turnover,time expenses, relocation./travel percommunications, spentmanaging s o n n e l d e v e l o p m e n t ,a n d t h e manageinfrastructure communications ment itself including,for examPle, or videodedicated telecommunications facilities,e mail links and conferencing other systems.It is alsoimpoltantto rememberto factorin slackfor unexpected needs. communication havea direct"link" to Wherepossible, theclient'scomputersystemandusecomfacilities(e.9.,a mon communication commone-mailsystem)for enhanced learning,andrelationcommunication, betweenthe off-siteteam ship-building and the client. The e-mailshouldbe


availableto everyonein orderto encour- individualpartners andthepracticein genagemultipleperson-to-person links thus eral grew,moreand moreprojectshave forminga strongerinterorganizational beenoutsourced ftom beginning to end. bond.It canbe very userfriendlyto en- Practitioners havefoundmodularitythat courage fiequencyof use,which in turn not only suchmodularityailowsfor conencourages the formationof relationships cenffationof knowledgeand learningin anda fasterpacefor activities. partnet,who canthusmake the overseas Finally,don't forgetthat "infrastruc- intelligent decisions independently of the ture" involvesnot only technologybut sometimes inaccessible client.It alsorepeopleandprocedures aswell. Don't ig- ducescommunlcation costsbefvveen sites, nore proceduredevelopment such as speedsup projectcompletion, reduces takingandreviewingminutesof meetings crosscultural probiems, providesmanagandpeopieassignments andtraining. ers with accessto more day-to-day

cal or riskywork couldthen be undertaken.Althoughthework doesnot follow preordained priorities, thework asawhole enjoysmorechances of success. Prototypingis alsoadvisedwherever possible. It is usefulfor learning, uncovering assumptions, and makingimplicit informationexplicit,all of which arespecialchailenges for geographically dispersed workers.Creatinga "moduleleader"for eachlogicalgroupingof work to enhanced learningand communication amongthe projects studied. Anotherinteresting EnsuringSuccess research findingis that \'Vhataresomeof the thosesearching for the study'snoncommunicaholygail ofprojectmantions related agement foundout soon recommendations? enoughthat it did not First,when selecting exist.Timelydeliveries proiectsto "intemationaland overallquality(the ize," don't assumethat fwo mostimportantperhighJevel, unstructured, formancecriteria to communications-intense clients)did not respond work cannotbe perto any one or two manfonnedbyanintemational agementpracticesin team.Theleson frominparticular.Managinga ternationaloutsourcing largenumberof factors successtories is: cofirmuwell-a broadmanagenications-intense work can ment agenda-had a Satbfycllents erlwr if proiect outcornca be conductedinternagreaterimpactthan foarwrtgreat tionally,giventhe right cusingon anyoneor two infrastructure andmanfactors.Thenagain,this agement methods. shouldn'tbe surprising. And what arethese? At the rootis or- information (because moreof it becomes Ouality gurushavelong beentelling us ganization: how work is dividedbetween local),andallowsfor pilotprojectssoman- that everythingaffectsquality. groups, locations, individuals. Analyze processes thework agement canbe redefined on a process for criticalinterdependencies and smallscalebeforeworking on a larger Building Relationships dangerspots.Then analyzethe organiza- pieceof work. Whethernecessary for thetaskat hand tion for intergration weaknesses. In fact,thatverypractice- pilotingor not,doschedule someface-to-face conRemember: don'tmatchcriticalprojectin- once adopted,tendedto becomethe tact during the project.Althoughactual terdependencies with organizational weak favoted,standard practice. Wherepossible, work outcomeswere generallyno better spots! completea pilot project(perhaps in per- or worsewith suchpersonalencounters, How to avoidsuchiethallatches?Di- son)and then havemodularfollow-on clientsweremoresatisfied with theirvenvide labor betweenon-and off-site, projectsof phases, eachoneslightlylarger dorsand the relationships. A trip costs according to modulesratherthanstages. oI more complicatedthan the previous. moremoneythana phonecall,but is far Modulesbreakwork into logicallycoher- Thepilot projectallowsthe clientto gain more valuablefor the developmentof ent "chunk" to be assigned to a single confidence andbothpartiesto improvethe trust.Evenif the onlyeffectof sucha trip group.Stagesdividework accordingto process andcreatea communication con- is relationshipdevelopment, it may still timeor degreeof completion. Earlyon in text beforeembarkingon thebulk of their be appropriate becausein industrieslike the developmentof the overseas work. The earlypilot projectsshouldnot internationalIT outsourcing, most of outsourcing industry,clientsdidn't trust bemission-critical, in orderto leaveroom which is repeatbusiness, the clientrelapartnerswith the critical for learningandgrowingpains.Oncethe tionshipis of valuein itself. their overseas planningand implementation stagesof internationaloperationruns like a finely Threecharacteristics of face-to-face contheirprojects.Theyoutsourced the gritty tunedmachine(whichtakesless timethan tactseemto accountfor mostof its impact work in themiddle.However,astrustin you might think), the moremission-criti- overothermedia:fiequency,informality,

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March-April 1998 | TheAsianManager

l7


Managing thesewhen amountof contact. im can also signiflcantly usingothermedia prove relationship development. fiequently,evenif someCommunicate timesonly to sayyou will communicate later. Althoughit is temptingto restrict infracommunications costlyinternational only,"usingthem structutes to "business is especially for informalcommunications building.Regardvaluablefor reiationship ing the amountof contact,havingclients reviewongoingwork (ratherthanonly final products)usually meantthat overallcommunicationwas faster andmoreeffective.This wofked well when the partieshadsomecontact with eachother before (priorprojects, etc.)But it might spel1disaster where impression-manneedsarehigh, agement when amfot example, bitious promisesare givento a new, skepticalclient,when thereis a hoslileon-siteteamor an unrecepliveuserorganization,when there is or not muchchanceto communicate,as in highlytechnicaiprojects like platformmigation. projects Technologdocused donotencoutor ease age relationship-development of througirthe development communication hisandsharedcommunication an extensive technical tory.Thus,the moresuccessful projectswere thosethe other pany asif were new paftners.Lengthof time is no substitutefor interaction,but it is easyto morefamiliaritythanactuailyexassume ists. historyshouid Sharedcommunication goal.With beasalientrelationship-building nuances anddeeperuneachinteraction, will be of termsandmessages derstanding created,which will be usedagain.Like old marriedcoupleswho conveyvolumes of informationto eachotherin a glance,a contextmakesold robustcommunication partnersmuchmoreeffectivebusiness andmorevaluable. context not only The communication but also existsin the sharedrelationship, of theenvironment in theunderstanding 18

TheAsianManagerI March-April 1998

inhabitedby the otherpartner.When a if keyprojectmemberhas(andespecially all ptojectmembers have)no experience with theotherfirm'snationalenvironment andcommunication style,it is enormously beneficialto havehim or her go therein person,andfor enoughtime to gaincommunication"instincts."The amountof time,of course,depends on the relationshipbetweentheclientandtheemployee to be sent.And the managerwill haveto weigh the costimplications(expenses,

SY|IIBIOIII RttAIt0ilsl|tP

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new to thevendor'senvironment o For relationship-repair unlessit is judgedthatface-to-face contact would affect worsenconflictandadversely emotions . Whenbuildinga "communication context"wlth theclientor "communicationinstincts"in key project members r Forlearning . Forteducing overallworkhours,and especially . Whenscoutingfor new proiects An interestingrelationshipexlstsbetween the trendtowardg1oba1\zallonandtheexplosion of informationandcom: munication-technologies o IT andcommunication areenabiing technologies globaiization by providi-lllH,

f^^+ ldJL

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and by communication, providingever-increasing to manage capabilities cnmnlavitrr.

ITA[|S I-tAI IOII.OBItilIOI tulnover,etc.)againstthe valueof the highlyimmeasurable ski11s or competenciesto begained,aswell astheemployee's futurerole in the projectandin the company.But the response from managets who have experienced"visit" and "nonvisit"clientswasunanimous: if avisit is possible, do it. Symbiotic Relationship nofwithstanding, Relationship-building a final questionon the mindsof manyinternationalmanagersmust be: "lf face-to-face contactisnotrequiredforcommunicalion-intense work,do I needto use it at ail?If yes,thenwhen?" The researchresultsindicatedthat although face-to-face contactis highly it shouldbe usedin the fol substitutable, lowingcircumstances: o At leastonceperproject(forrelationqhin-hrrildinol

. At leastonevisit by clientswho are

end

. Globalization isenabling in IT andcomadvances technologies munications develthroughtechnology opmentandmaintenance inwork to beperformed ternationally, usingthebestresources worldwide-a practicethat reduces quality,makes price,enhances feasibie work. unfeasible and previously Both trendsare set to continuewith no end in sight.Theresult?A symbiotic of forcesthat will leadto a relationship differentway for flrmsto conductbusiand changes, economic ness,far-reaching a new way for individualsto work"pluggedin" directlyto the globalmarI ketplace.

References: 1.Kim, Chai,StuWestin,andNikhileshDholakia. "Globalization Industry: Trendsand of theSoftware 17(1989): Information Management. Strategies." 197-206. "lT F. WarrenandJulieHertenstein. 2. McFarlan, Widely Varies By the Numbers:CapitalSpending 16 Week.Septembet by lndustry."lnformation (1991):38-46


Into the "Big Bang":

The Stateof I^p^nese Financial Institutions Recovery going "free,fair and effortshavehad thegovernment global"throughcreativeprivateinitlatives, but theproblemsrenutn deeplyrooted

uringthe so-called bubbleyearsin of capitaiin the latterpartof the 1960s, sharepricesbenefited bothpartiesasthey the late 1980s,Japanese banks leadingto their requestthat Japanese accumulated thehiddenprofits.Thusboth extended hugeloansto companies banksincreasetheir shareholdings in banksand customersdid very aggessive engaged in landdevelopment, real thesecompanies. Most of the banksac- business. Whentheyincurredunexpected estate,and retail industries.When the cepted,hoping to cementthe loan losses, they reducedthe impactof such pricesof landandshares collapsed in the relationship with theborrowers. In return, losses bysellingtheshares athigherprices 1990s,the valueof collaterals alsode- banksaskedthesecompanies to purchase but purchasing backat a similartimingto clineddrastically. Sothatwhenthebubble banksharesin the hopethat suchpur- maintaina stablecross-shareholding relaburst,theeconomyturnedsluggish. Many chases wouldhavea positiveeffecton the tionship.As long as the sharesmoved borrowers couldnot repaytheirloans.It pricesof bankshares. upward,thesehiddenprofitswere conwas thus not surprising when,on JanuWhenthe sharepricesilcreased,the stantiycreated. ary 72, 1998,the Ministryof Finance cross-shareholdings benefited both sides. As Japanese banksextendedloans disclosed that the Japanese commercial Despitethe low dividend,an inoeaseof mostlyon thecollateral of landsandother bankshad problemloansestimatedat real estatein the beliefthat land prices Y76.7fiillion. wouldincrease in thelongrun, despitea fall in the shortrun. Relation-based Banking Whenlandpriceswent up, the value yearshad Lookingback,the"boom" of collateral oftenexceeded theloanvalue. spawned theso-called relation-based bankAs a result,bankshad litt1edifficultyin ing to effectivelyexpandloans,thus recoveringtheirloansevenif the borrowleadingboth banksand borrowersto deers defaulted.In the bubbledays,many sire to havea stablerelationship.Banks banksbecame veryaggressive in Japanese thatmadethelargestloanswereregarded extendingloans,and evenevaluatedthe asthe mainbanksandwereheldresponcollateral usinglittlediscount.Whenthe sible for monitoringthe borrower's bubbleburst, thecollateral valuedeclined financialconditionswhen severalbanks belowthe loanvalue. extended loansto the sameborrower. Thethingis,Japanese bankscompeted To stabilizetheirrelationship, boththe for sizeratherthanfor profitability.Their banksand the borrowerswanted to inreturnon assets andon equitywerefairly creasethe shareholdings of their other low when compared to majorAmerican pafiners.Japanese companies felt the inandEuropean banks. creasingthreat of beingtakenover by Suzuki on the "big bang": More reforms In the bubbledays,Americanand Euoverseas companies with theiiberalization are called for ropeanbanksoiticizedtheJapanese banks March-April 1998 | TheAsiantvianager 19


comNow to turn to somekeypointsin the havereducedthe profitsof performing paniesthathadlargerfinancialassets. the Eco economy. A survey by Japanese The liberalization of Beginningfiscalyear 7997, governnomic PlanningAgencyin December foreign exchange of government 1997 projecteda declinein plant and mentreducedtheissuance pelcentage bring down the of equipment investments by corbonds to Japanese transactions will have porationsin the first quarterof 1998, government in the total bond proceeds the greatest impact on followingthe slumpin the precedingfwo revenue.Despitethe governmentefforts quarters.Also,the government surveyon to reducethe relianceon government both domestic and 1997 bonds,thepercentage stoodat 20 percent househoid consumption in December i ntern atio n aI busin ess. disclosed that household expenditures de- in fiscalyear 1998 to far exceedthe clinedby 5 percent,hitting a record1owin UnitedStates'1.4percentandGetmany's 13 percent.Because of the limitedrev the last23 yeas. From 1991,when the Tokyostock enue from governmentbonds,the for practicingprice dumping.This of publicinvestment. restrained marketindexdeclined to abouthalfof the govelnment coursemeantlowercapital.Thiswasone peak,the Bankof Japanbeganto lower The governmenttried to increaseits why Americanand Euroof the reasons its interestrates.The bank continuedto revenuesin 1997by applyingthreemeapeanbankswere eagerto introducethe flows.In April consumption lowerits interestlatesto 1.75percentin suresaffecting internationalstandardsfor capitalratios increased con1993,partly to stimulatethe Japanese 1997, the government Settlements. at theBankfor International sumptiontaxesfiom 3 percentto 5 economy. In September 1995,Bankof Japanre- percent.Fromfiscalyear7997,governFailures and Some Remedies ducedits interestratesfurtherto 0.5 ment discontinuedincome-taxcuts theMinistryof Finance Formanyyears, percent,partlyto rescuethe Japanese fi- offeredin the precedingyears.This convoysystemto adoptedthe so-called nancialinstitution,andpartlyto depreciate changewasregardedasa hike of income finanmaintainthesurvivalof allJapanese 7997, theyen,whichhitY79.75to adollar.The taxes.In addition,fromSeptember cial institutionsunder its control. BankofJapanexplained the actionasan the governmentinffeasedthe individual moreandmorediffiHowever,it became It is estiemelgency measure. Thisabnormal level burdenof medicalexpenses. cult for the ministryto makethe banks hadthe stayedfor morethan two yearsand had matedthat thesethreemeasures surviveand,from 1991to October1997, equivalentto about badeffectson variousareas. effectof tax increases 27 financialinstitutions,mostlysmaller arealsogreatly When the Bankof Japanloweredits Y9trillion.Thesemeasures andcooperaoneslike creditassociations responsible for the current sluggishconinterestrates,commercial banksfollowed fives,failed.In November1997,however, in the economy. suit.The financingcostsdeclinedmuch sumption Japanese Bank,oneofthebigHokkaidoTakushoku fasterthan the loan ratesto expandthe gerbanks,alsofell. profit marginto financialinstitutions. Toward Stability Two big securities(SanyoSecurities govIn December 1997,theJapanese At the end of June 1997, it was estialsocrashed and YamaichiSecurities) matedthat Japanese individualsheld elnment announcedthe Y2 trillion duringthe time,andanothersmallerreof individualincometaxesfor financialassets of aboutY12,000fiillion, reductions gionalbank followedsuit shortlyin the govyear 1998.The Japanese ofwhichaboutY650 trillionwerein bank the fiscal samemonth.Thestabilityof theJapanese postal deposits or savings. Theyheldonly ernmentalso decidedto lower the andthe financialsystemwasquestioned, incometax ratefiom 37.5peraboutY100trillionin eitherstocksor in- coryorate so-called Japanpremiumsurgedover100 vestmenttrust funds. centto 34.5percent. basispoints.Thiswasthe extracostthat government alsoplanned TheJapanese Thereductionofinterestratesto a nearbankshad to payto secure theJapanese andadminzerclevelthuswipedout the interestin- to reducevariousregulations dollarfundsftom the Americanand Eucomeof individuals. At theendof 1996, istrativeguidanceto stimulatethe ropeanbanks. economythroughprivateinitiathe average financialassetper household Japanese 1998,was Whatfollowed,in February wasaboutY13miliion. Howevet,these- tives.As for the financialsystem,the a retreatfiom internationalbanking, hasintoducedthe so-called nior households above60 yearsold held government bankspull out of whichsawfourregionai The big bang,underthe slogan"ftee,fair and aboutYlB millionper household. globaloperations. Fourothersclosedsome negativeimpactwasmuchgreateron the g1obal."The governmentloweredentry subsidiaries andbranches. of its overseas such as and barriersto.financialbusinesses oldergenerations, whichheldsavings introducedmorereThe government and insurance. deposits abovetheaverage.It is estimated trust banking,securities formsthe samemonthto calmanxieties. of foreign that the extraordinarily low interestrate Amongthem,the liberalization ThegovernmentprovidedtheDepositInpolicy is partly responsible transactions will havethegreatfor the slug- exchange suranceCorpqration(DIC)Y30 trillion gishcurrentconsumption. est impact on both domesticand (Y10trillionfiom government bondsand policyalso internationalbusinesses. Many Japanese Theextaordinarily low-interest Y20 trillion in governmentguarantees). havebegunplanningfor new compa- companies allowedinefficientandles profltable The governmenthopedthat the DIC and internationalopniesto suwive.Thereis little evidencethat kindsof businesses would usethe fundsto protect deposi I thepolicystimulated investnents, asthegov- erations. torsandthuscheckthe crisis. rates ernment hadhoped.In factlowerintercst 20

TheAsianManagerI March-April 1998


FIBERS SYNTHETIC PHILIPPINES 1995 CORPORATION HORACIO M.BORROMEOJR. lN DECEMBER 1995Roberto de losSantos andJaimeGo,vicepresident/ general plant manager and manager, respectively, Fibers of Synthetic Philippines (SynPhil), Corporation calledall department headsto a meeting to announce that wasseeking the company lS0 9002certification for its two facilities. Duringthe meeting, theyexplained lS0 9000and its importance to the company's future. W i t h l S 0 9 0 0 0c e r t i f i c a t i olno,c a lb u y e r w s o u l dn o l o n g e cr o m p a rteh e i rn y l o n yarnunfavorably goods. with imported Marketing domestically andoverseas would quality. be easier as the lS09000certification wouldspeakfor SynPhil Theylater invitedthe company's unionleaders to a similarmeeting. ByJanuary 1996SynPhil hadcontracted theSociefe Generale (SGS) deSurveillance to helpthe company obtainlS09002 certification before theendoftheyear.SGS conducted a oneweekseminar, afterwhichit asked SynPhil supervisors to begin d o c u m e n t i nt hge i rd a y - t o - d a ym, i n u t e - b y - m i n uwt oe r k processes, aspartof theinitialinputstowardcertification.

THEKOHFAMILY ANDMARINDUOUE HOSIERY MILLS

ThelateMarcelino Kohwho,asa youngboy,migrated to fromFookien, withhisfatherestablished thePhilippines China, Marinduque Hosiery Mills.TheKohssettledin Marinduque where theolderKohopened a Mom-and-Pop storethatsolda varietyof goodslike hardware, foodstuffs and everyday DelosSantos knewthisinitiative wasa major, andnecessary, household practically grewup sundries. TheyoungMarcelino forSynPhil. departure Almost sinceitsfounding in 1970, the in thisstore, cuttinghisteethin theretailbusiness. problems, company hadto copewithtechnical andfinancial allthewhilecontent withserving markets captive undernear- Among thelessons helearned earlywasto concentrate onone monopolistic conditions. Allthathadchanged. SynPhil's two product at a time.Tiringof takingregular inventories of so plants werenowrunning withoutmuchof thetechnical and manV items, hedecided different to stockontheoneitemthat financial constraints of thepast.Butthebiggest change was people needed daily-rice. Providentially, a typhoon struck the theneed to compete, andglobally at that,onthebasis of quality. areaandalmostwipedoutthe ricecrop,leaving Marcelino withtheonlyricesupply in town. INDUSTRY ORIGINS AfterWorldWarll,Marcelino's fatherdecided to seekgreener Toconserve itsdwindling foreignexchange reserves, the lt wasalsoaboutthistimethat oastures andmoved to Manila. government Philippine in 1949adopted stringent import an unclearranged Marcelino's marriage to a youngmaiden controls thatputtraditional importers undera rigidlyenforced fromtheKoh'shometown in China. In duecourse thebride "lt costmeonlyonepesofor quotasystem. Fewbusinessmen couldsurvive undersucha arrived andthetwoweremarried. regime andmanysimply soldtheirimportlicenses at a premium thelicense andfiftycentavos forthecalesalrideto CityHall," whileothers soldouttheirbusiness altogether. Themoredaring he usedto recall. Outof thismarriaqe cameseven children ventured intomanufacturing andthefirst"industries" to be (twoboysandfivegirls). put up (withthe helpof softloansfromgovernment banks) yarnforknitting werecottonspinning millsthatproduced mills, In Manila, peddlin g GoldToesocks Marcelino began thatwere whichin turnprocessed theserawmaterials intoshirts, socks, imported patiently fromtheUnited States. Hebuiltuphismarket andfabrics. rights Whenthe untilheacquired theexclusive to thebrand. government in restricted theimportation of "non-essentials" (socks Amongthe pioneers in hosiery andstockings) milling 1949- andsocks wereincluded onthislist- Marcelino decided wereTierraHosiery Mills,Buena Manufacturing Corporation, to putup Marinduque Hosiery Millswiththehelgof histwo International Hosiery MillsandMarinduque Hosiery Mills. The brothers MartinandMiguel. Hewasalsoto setup1[4alinduque owners wereFilipinos whohadmigrated Spinning of Chinese ancestry Mills, whichremains todaythelargest cott8hmitiin to thecountry before WorldWarll. thePhilippines.

March-April 1998 | TheAsianManager

2l

To betterappreciate the Asia-Pacific Crisisand Response, this sectionwassponsored by the Institutefor InternationalStudiesft Trainingof Japan


F I L I P I N AFS IBER CORPORATION y i l l sp r o d u c ecdo t t o ns o c k su n t i l T h ef o u rp i o n e ehr o s i e rm fashionable andnylonsocksthe hosiery of choice. nylonbecame B u t n y l o ny a r nh a dt o b e e n t i r e l yi m p o r t e da n dt h e i m p o r t e d for the hosiery costscontinued to rise,resultingin thin margins m i l l sT. h eo w n e r so f t h ef o u rm i l st h e nd e c i d etdh e yw o ul d p u t u p t h e i ro w n n y l o np l a n t e, a c ho w n e rh a v i n ga n e q u asl h a r ei n t h e n e wv e n t u r eT. h e ya g r e e dt h a t C a r l o T s a no f I n t e r n a t i o n a l H o s i e rM y i l l sw o u l dm a n a g e t h e n e wf i r m .

l F Ct,h e l e n d i n g e o r p o r a t i o( n a r mo f t h e I n t e r n a t i o nF a il n a n cC ranintoall sortsof delays WorldBank).However, the expansion a n db y t h et i m et h e yw e r er e a d yd, o u b l e - k n h i ta dg o n eo u t o f f a s hi o n .

T h es a m ef a s h i o nt r e n dl e d a c o n s o r t i u m o f F i l i o i n ot e x t i l e b u s i n e s s m ea n dv a r i o u sJ a p a n e ster a d i n gf i r m st o p u t u p a a ,t a b o u t h e s a m et i m e 1 6 - t o np l a n ti n C a l a m b aL,a g u n a 3 ( 1 9 7 7 )a s F i l f i b e rw a s e x p a n d i n gi t s T a y t a yf a c i l i t y .T h e P h i l i p p i nS e y n t h e t i cC s o r p o r a t i o(nP S Ce) x p e r i e n c eadl m o s t Infact,the Germanequipment vendors exactlythesamedelays. I n 1 9 7 0t h e ye n g a g etdh eG e r m a e n n g i n e e r i nf igr mo f Z i m m e r c o u l dn o t m a k et h e p l a n tr u n .F i n a l l yt ,h e o w n e r sb r o u g h it n A . G .t o d e s i g na n d i n s t a l lw h a t b e c a m ek n o w na s F i l i p i n a s T o r a yo f J a p a na n dt h eJ a p a n e sgeo tt h e p l a n tu p a n dr u n n i n g . just outsideMetroManila,by in Taytay, Rizal, FiberCorporation plant With Filfibe/sexpanded Taytayplantand PSC's Calamba t h ee n t r a n cteo A n t i p o l o t o w n .T h e6 - t o np l a n tw o u l do c c u p 5 y s ould the local h e c t a r ew s i t h i na 2 1 - h e c t a rsei t e .P r o d u c t i ofna c i l i t i ew now operational, their combinedcapacityexceeded f l o o ra r e ao f 2 7 , s itha combined demand.Despitethe overcapacity, both companieskept up b e h o u s e di n t w o b u i l d i n gw production(bothplantsran24 hoursa day 365 daysa year). 7 2 6 s q m .T h e r ew o u l da l s ob e a w a r e h o u steo h o l dt h e n y l o n e a sa c o n t i n u o ups r o c e sasn d i n v e n t o r y r e s i n si m p o r t e du n d e rb o n d .l t t o o k t w o y e a r sf r o m g r o u n d N y l o nm a n u f a c t u rw production installation delays, debugging). buildupwaspreferred overintermittent orshutdown. breaking to start-up(equipment B u tw h e nt h ep l a n tf i n a l l yb e g a no p e r a t i nign 1 9 7 2t,h eo w n e r s T h i sl e dt o s u i c i d acl o m p e t i t i oann di n e v i t a b lleo s s efso r b o t h w e r e q u i t e s a t i s f i e da s t h e y w e r e f i n a l l y f r e e f r o m t h e i r companies. y a r n .A l t h o u g hp r o d u cqt u a l i t yw a s d e p e n d e n coen i m p o r t e d p o o ra n dd e l i v e r i eusn r e l i a b l et h, e p e o p l ei n t h e f o u r h o s i e r y F i l f i b e / sf i n a n c i asl i t u a t i o nu n n e r v etdh e i rc r e d i t o r sI F . Ch a d f i n a n c e ds i m i l a ro o e r a t i o nisn S o u t hA m e r i c aa n d K o r e aa n d m i l l sh a r d l yc o m p l a i n esdi n c et h e yw e r ef a i r l ya s s u r eodf n y l o n y a r ns u p p l i easn d ,b e s i d e st h, e ya l l b e l o n g etdo o n ec o r p o r a t e t h o s eh a db e e no p e r a t i n p . 19 7 9 t h e D B Pt r i e dt o g r o f i t a b l yI n familv. saveFilfiberby offeringa dacionen pagd deal,whichwould giveDBPcontrolof the company. wasin effect Theagreement a s a l e - a n d - l e a s e bcaocnkt r a c w t , h i c hD B Ph o p e dw o u l de n a b l e F E A 5A TN DF A M I N E t h e o r i g i n ailn v e s t o rtso r e g a i no w n e r s h iapf t e r2 0 y e a r s . W h e nt h e d o u b l e - k n i tc' r a z eh i t M a n i l ai n t h e m i d - ' 7 0 s , t h e d e m a n df o r t e x t u r e dy a r nw e n tt h r o u g ht h e r o o f .K n i t t i n g N E WM A N A G E M E N T m i l l sb e g a np a y i n gs u p p l i e risn a d v a n c jeu s t t o a s s u r e , e D B Pe l e c t e dn i n ed i r e c t o r s , lvesof rawmaterials to capitalize on the boom.Thefour U p o nt a k i n go v e rF i l f i b e tr h themse plant's governors r's Filfiber to increase the capacity to 18 from its own board of andtwo from Filfibe ownersof decided seven (Director ( P h P 1 0 . 5 the Bureau m i l l i o n ) t h e y f i n a n c e d The board appointed Victor Lagman of t o n st,h ec o s to f w h i c h t h r o u g h owner. o f S m a l al n dM e d i u mS c a l eI n d u s t r i eosf t h e M i n i s t r vo f T r a d e t h e D e v e l o p m e nBta n ko f t h e P h i l i p p i n e( sD B P )a n d

SELLING

9OOOTO YOUREMPLOYEES

because it means: ISO9000 is goodfor employees o Commonsenseon paper o Jobstability o Employee procedures input to write practical,user-friendly o lmprovedunionrelations o Consistency of purpose r Standardtrainingtoolsand user-friendly guidesand r manuals o Focuson what your customerwants 22

a n d I n d u s t r ycJh a i r m a no f Filfibe/smanagement committee. f i r s t t a s kwas to Lagman's p r o f e s s i oanI i z e F il f ib er ' s managemenr. hisfriend, Roberto delos Heasked just retiredas Santos, who has Textile Manager of Pacific General M i l l s st o, h e l ph i mf i n da s u i t a b l e general Mostof those manager. however, were theyapproached, ei t h e rt o t a l l yr e t i r e do r w e r e jobs. holding comfortable already 1979de losSantos ln December w a s p e r s u a d et d o a c c e pt h e position but himself andagreed,

TheAstanManager I March-April 1998

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onlvfora maximum of twovears.

fiedto produce industrial-gnde resins and,induecoune, more downstream to injection molding. Theyalsochanged thenameFilfiber to Operations continue andthecompany managed to survive, Synthetic Fibers Philippines Corporation. mostlyon its abilityto leverage the Koh's" Triple A" credit ratingin thecommunity intoloansandcredits. Inthelate'80sthePhilippines suffered a severe shortage ofelectric power. Eight-hour in a daywerenotusual. outages ForSynphil, a THE KOHS REGAIN power OWNERSHIP two-minute interruption meant fouranda halfhoundowntimebefore operations couldberestarted. Thisresulted inhugeraw proOnAugust21, 1983,Benigno Aquino, Philippine President materials losses, sincetherawmaterial, oncetheconvenion Ferdinand Marcos's chiefpolitical rival,wasassassinated. This cess wasstarted, couldnotbererycled. Themanagement decided to hada terrible impact ontheeconomy. Thepeso-dollar powerplants exchange install inbothlocations. lt took15months before the rate,whichhadalready beenmovingup slowlyfromthe plant,nowrenamed Calamba Tech-Lon lncorporated, haditsown average of PhP9.60 to US$1duringtheperiod 1978to 1981, powerplantupandrunning. planttook24months. TheTaytay But thenup to 10:1in 1982,skyrocketed to 13:1,finishing at twoyears before thegovernment finally managed tosolve thepower 14.65:1 bv the endof 1983.TheDBP's plantwasoperating dacionleaseback problem, theCalamba independently of the TForthefirsttimein manyyears, agreement wasUSdollar-denominated. quickly Meralco. DelosSantos delosSantos, whohad realized thatin 20yearsFilfiber wouldhaverepaid theoriginal stayed onindeference to Marcelino Koh's request, deathbed could (PhP10.5 obligation million) almost20 timesover(PhP200 finallyconcentrate onwhatSynphil wassupposed to do,namely, million)! Moreover, theauditing firmof SGV hadalready warned manufacture andsellsynthetic fiben. thatcontinued operations under theprevailing andforeseeable conditions wouldbeunviable. Hedecided to askthe DBPto GI0ML COMPEIIMNESS THROUGH ISOgom convertthe lease-back agreement into a straightleaseof PhP600,00 a month. TheDBPboardrejected the proposal but In 1993,Sylvia Koh-del Rosario, Marcelino's daughter and for asked PhP800.00 to whichFilfiber agreed. Underthisnew nowpresident of Synphil, realized that theyneeded to move arrangement, operations somehow continued. intoexports to overcome the limitations of the localmarket. perceived Local historically buyers imported nylonyarnto beof S i n c et h e D B Ph a ds h o w ns o m ef l e x i b i l i t iyn t h e l e a s e betterquality,andwerenowableto import,thanksto the government's policy. liberalization Sothe company negotiations, beganto Marcelino Koh,whohadby nowtakenoverthe Indonesia, China, andevenasfar awayas interests of thethreeotheroriginal owners, wondered whether exportto Vietnam, andlsrael. Butforeign buyers wereevenmoremeticulous heshouldn't simply buybackhisplant. In 1985heasked delos Brazil aboutqualitythantheirlocalcounterparts, andextremely reSantos to negotiate thiswithDBP. luctantto consider newsuppliers despite offersof lowerprices. These,negotiations wereongoing in 1986whena popular revolt sawtheinevitable approval of GATT unseated President Marcos. Thenewgovernment of Corazon Forhispart,delosSantos (theso-called Uruguay Roundof the General Agreement on Aquino, to recover companies andproperties appropriated by andTrade) notasa furtherthreatto theirlocalcompetiMarcos andhiscronies, andto generate fundsforitself, created Tariffs butalsoanopportunity to expand theirexport markets. theAssetPrivatization Trust(APT). Thegovernment sequestered tiveness, thisafterattending a meeting of theEurowholecompanies andturned these overto theAPTfordisposal. ,Hehadconcluded of Commerce, of whichhe wasa member. In Thisincluded assets acquired or takenoverbythegovernment oeanChamber meeting of thechamber, helearned of lS09000. financial institutions liketheDBP. AndsotheKohs foundtheir another company ontheauction lf theywanted block. it backtheywould 1995delosSantos haveto bidfor it.TheAPIwasalsodisposing andGometwiththedeoartof PSC's Calamba In December plant,whichhadbeenforeclosed whatlS09000wasall about,andthe to explain by the DBPandIFCin May mentheads thatlS0certification wouldbringthecompany. De 1985.Fearing thesameovercapacity situation anddestructive advantages losSantos wasnot sureif thr deoartment headsandunion competition of thepastif otherparties tookcontrol of PSC, the leaders understood Theirquestions everything. seemed to focus Kohswonoverthreeotherbidders. pay. onwhatlS09000wouldmeanintermsof theirtake-home TheSGS, contracted in January 1996to assist by Synphil the REHABILITATION company inobtaining lS09002certification 1996, byDecember thenconducted a one-week seminar forthedeoartment heads TheKohfamily,nowthe proudowners of the onlytwo andsupervisors. Afterthisseminar, theywereasked to docunylonplantsin the Philippines, decided to rehabilitaft the plant6 as the first steptowardlS0 Calamba instead of mothballing it,andletit concentrate menttheir work processes plantwouldbemodi- 9002certification. on textile-grade nylonyarn.TheTaytay March-April 1998 l TheAsianManager

23

To betterappreciate the Asia-Pacific Crisisand Response, this sectionwassponsored by the Institutefor International Studiesft Trainingof Japan


WORKFORCE ANDISO9OO2 SYNPHIL

whoquestioned why fromthe"oldtimers" in suchgrumbling paya premium recruits. forinexperienced should thecompany

"through personne the I hadmoved up Mostof Synphil's "oldtimers" werealsoreluctant to enrollinskills-upgradbygaining experi- Some i.e., fromtheranks, andmainly backdoor," working onthepower Forexample, electricians feltthatthey ingprograms. DelosSantos longyears of service. encethrough "copycats," plantinTaytay for refused for manymonths to goto Calamba workbutunable to ableto dorepetitive weregood plantsupervision. They finallyagreed when training onpower orwithoutgoodsupervision. actoncontingencies in theycouldnotbeupgraded toldthatwithoutthetraining wastheonlywayto justifuanincrease hadonlya highschool dirank, andtheupgrade worker theaverage Synphil Since started a in theirsalary. plomaortwoyears school, thecompany ofvocational program in 1986to upgrade their foritsemployees scholarship to unwerealsounanimously averse heads financed Thedepartment thetuitionof Under thisprogram, thecompany skills. they Theyclaimed dertaking the lS09002documentation. lf theemployee didnot whowanted to study. anyemployee elsefor theirwork,oranything thetuitionschol- werenotusedto documenting andobtain a diploma, complete theprogram andthattheysimplyhadno timefor it. De los couldnot the matter, intoa loan.Manyemployees wasconverted arship to themthat it wouldonlytake30 referred triedto explain to as Santos dueto whatde losSantos finishtheirstudies "cultural" wouldfallon problems. eachdav,buthefeltthathisassurances earlyandhave minutes Theywouldgetmarried process documentafor reviewing firstdeadline andresponsibilities, deafears.The rightaway. Withsuchobligations children withSGS, tioncameandwentonJune30.So,in coordination therewasnotimeforstudies.s forJuly14. heseta newdeadline without outthoseemployees DelosSantos thentriedto phase triedto talk graduates approached, delosSantos qualifications, recruiting college at wage Asthenewdeadline academic headsindividuallv aboutlS09002. graduates. department Thisresulted to various levels higher thanthatof noncollege H e h e a r dd i f f e r e n rt e s o o n s e s to cauranging fromthesupport aboutworkers' tion to skepticism THE20 ISO ELEMENTS for. abilityto dowhatlS0called

AS FOUNDlN ISO9001, 9002 AND 9003

ISO 9OOl Elements Responsibility Management OualitySystem ContractReview DesignControl Document Control Purchasing Purehaser-Supplied Product Productldentification andTraceability Process Control Inspection andTesting Inspection, Measuring, andTestEquipment Inspection andTestStatus ProduCts Controlof Nonconforming Action Correction Packaging, andDelivery Handling, Storage, OualityRecords InternalQualityAudits Training Servicing Technioues Statistical 24

"We needthis

lso 9002

lso 9003

YE5 YES YES NO YE5 YES YES YES YE5 YE5 YES YES YES YES YES YES YES YE5 NO YES

YES YES NO NO YE5 NO NO YES NO YES YE5 YE5 YE5 NO YE5 YE5 NO YE5 NO NO

al[1509002], thoughwecannotdo everything Weshould dothisbit immediately. itsbenbybit.Wehaveto explain efitsto alllevels of ouremployees (n.b. andnotjustto management heads). meaning thedepartment willthink Otherwise, ourworkers just usinglS0 managers are that more them strictly." to supervise "Wewill harvest its fruits,espei n m a r k e t i n bg e c a u s e cially require customers international pass products lS0 buy that they goal, quality. we Butto attainour workers valmust.first teachour uesanddiscipline." "This 9002]isgoodbecause a [lS0 party audited byanoutside system will obligeus to reallyfollowa for quality.Theywill standard Butofcourse upeverything. check

onourpart it'shard i:::ffi"i

TheAsianManager I March-April 1998

Studiesft Trainingof Japan by the Institutefor International this sectionwassponsored Crisisand Response, To betterappreciitethe Asia-Pacific


SYNTHETIC FIBERS CORPORATION 1997 SOPHIA NOREEN S.CASTILLO, MILA LEA C.FERRER, ERNELSA M.VILLALBA ft PATRICIA L.LONTOC l N J U L Y1 9 9 7t h ec u r r e n ct uy r m o ibl e g a n t o g n a wa t A s i a ne c o n o m i eSso.m e quarters viewthe AsianCrisisnot merelyas a banking or a currency crisis, but a h u m a nc r i s i st h a t t h r e a t e nesr o d i n tgh e g a i n sm a d eb y n a t i o n tso i m p r o vteh e qualityof life. It alsoreveals a darksideto globalization asa "raceto putin a precari- SynPhilhad notyet thebottom" where, oussituation, multinational firmscompromise qualitystandards;obtained its ISO 9002 satisfying international SMEs abandon evenconsidering embarking certification, and onstandards-based management; andeconowith the currency miesrethink theircomparative advantage to crisis, it could be remain comoetitive.

In December 1997hewasinvited to oarticip a t ei n t h e A P E CI n t e r n a t i o nO au l ality Assurance System(IOAS) Executives Works h o po n S t a n d a r d s - b a sMeadn a g e m e n t "lmproving Systems: YourCompetitive Position Using Ouality and Environment Management Standards."The APEC Vancouver Declaration a monthbefore, afterall,hadunfurther delayed. derscored the needfor a response at the SynPhil hadnotyetobtained itslS09002cerregional level to assist in recovering from the This was another tification, and de los Santoswasalready crisis. ThisAPEC executive course conducted round of crisis. worried thatwiththecurrency crisis, thiscould byexperts nominated bytheAPEC economies befurtherdelaved. Hestared andstared atthe t o r e p r e s e tnht e m ,w a sg r o u n d eodn t h e 20ISOElements. Witheachonehewondered premise qualthat,especially intermsof crisis, if theycouldstillaffordit-liketraining, thenewcosts of pack- ity management is notenough. Instead, thereshouldbean aginganddelivery, retaining all theirpeople. Thiswasyet integration of quality; environmental andchange management another roundof crisis. pondered systems. DelosSantos if heshould meetwith his department heads again.I page {from previous

plantisold.Wehaveto doa lotof repairs andpolishing onour machineries andequipment to beassured qualoftherequired ity,otherwise ISOwilljustbeon paper andnota reality."

i n ga c a l lo n t h e i n t e r c o m a r e c o r d i ncga nb e h e a r dr e g a r d i n g

ts0.'.

Meanwhile, de losSantos haddecided to withhold all salarv adjustments forthemanagers andsupervisors untiltheycould "For part, my thisisa bother because I havefewpeople. How- complete thelS09002documentation. Hewasaware thatthe ever,this[lS09002]isanadvantage to thecompany oecause middle management groups andsupervisory hadbeenexpectworkers willbeobliged to conform to a system." ingtheirannual increases ranging between 9 percent and12 'percent since April, and too long a delay could lead more to "Thiswill good be for ourcompany because a system thatwill grumbling among theranks, or worse.I qualityof ourproduct improve will besetup.Theburden on 'A horse-drawn, thepartof theowners willbelessened oncethissystem two-wheeledcarriagestill usedin ruralareastoday. ises'A synthetic-nylon fabricusedfor men'spants.Nylonprovideselasticpropertyand easy tablished. Thiswillhelpcommerce forourcompany andforthe f i t t i n g . T h e " d o u b l e - k n i t " a d d s m o r e s t r e n g t h a n d t h i c k n e s s , p r e v e n t i nogf tshaeg g i n g country because trustfor ourproducts willwidenourmarket." fabric. "lS0 willfosterteamwork among all departments andworkersbecause thefailure of oneisthefailure of all.Butwilltake sometimebeforethe lowerlevelof ourworkers canrealize this.We haveto makeeffortsfor an intensive campaign to bringdownto theirlevelourintentions andthebenefits this willbring. Onesuggestion thatI haveisto announce bymeans of a loudspeaker system policywhereevery ourmanagement employee canheara recording every houron the houruntil everybody memorizes thepolicy. Maybe alsobefore answer-

3Two hour-drivesouthof Manila(seeExhibit1 ) aexchanging the company's assetsfor its iiabilitiesto the bank. s PacificTextile l\4illswasestablished in the'latel95Osby a groupof Filipino-Chinese businessmen. De losSantos,a Filipino,had beenwith PIV1C from its inception.WhenPMC w a sp l a c e du n d e rt h e m a n a g e m e notf P h i l i p p i nN e a t i o n aBl a n ki n t h e e a r l y1 9 7 0 sh, e was retainedby the PNB-controlled boardasexecutivevice-president andgeneral mana9er 6 UnlikeFilfiber'sTaytay plant,the CalambaplantofPSChad beenidlefor two and a half yearsunderreceiverships. Weedshadovergrownthe areaand snakeshadtakenup residence within the factorywalls. ' l\4ERALCO distributeselectricpowerin the GreaterManilaArea. 3Theaverageageof the Synphilworkforcewas36 years.Thosewho joined Synphil after 1986 average5.5yearswith the company,while thosewho hadjoinedthe company beforethat time averaoed8.3vears.

March April 1998 | TheAsianManager IobetterappreciatetheAsia-PacificCrisisandResponse,thissectionwassponsoredbytiretnstitutef an

25


DEMAND INFRASTRUCTURE lD2: IDENTIFYING FORREGIONAL GROWTH hasbrought abouta greater activity region Asia-Pacific economic INCREASING clamor notinginvestors' Taipei, development. Chinese for infrastructure demand in the sector,developed throughAPECthe Infrastructure for moreinformation (lD' ).Mr. Patrick and Hsiao, lD2projectcoordinator Database lnformation Demand (TAM)to discuss APEC's spentsometime with lhe AsianManager AIM alumnus, i ni t i a t i v e . IS ID'? WHAT

in the longrun.Themain development purpose of this surveyis to projectthe of the privatesectorin the investments projects of eachmember infrastructure ec0nomy.

lnformation Demand TheInfrastructure (lD')isa database setupbyChinese Database results of the With lU, we couldhope andcompile Taipei to present Demand. for morecompanies surveyon APECInfrastructure to ARETHEBENEFITS OFID'? WHAT information thisisajointAPEC activity, Since engagein the (hftp.'/ intheInternet canbefreelyaccessed in Easily, infrastructurebusiness access to APEC theseare:additional / id* 2). f www.pcc.gov.tw information; infrastructure economies, APEC. r e g u l a t i o nlsa,w s ,o r p r a c t i c eosf t h e committee of APEC In 1995, theeconomic i n f r a s t r u c t u r ei n d u s t r y ; b r o a d e r workshop to an infrastructure established of eachcountry; environment private of theinvestment in theregionin diverse understanding sectorparticipation encourage data.Whileyou canget socio-economic projects. inJuly1996, usefulreferences Workshops IntheSeattle infrastructure fromanymagazine, program information economy on eachmember inundertaking APEC's Taipei tooktheinitiative Chinese to longinformation on mediumplanning derive specific andimplementationyoucannot of infrastructure onthesharing WithlD2,we sector. in the infrastructure a surveyon infrastructure termopportunities information, and it conducted intheinfrastructure to engage medium-to-long-termcouldhopeformorecompanies to APEC's demand and its relations in APEC. Workshops in October business IntheManila development. economic whereit wasfound waspresented, 1996,a briefonthesurvey FACE ID,? majority of WHAT CHALLENGES Malaysia andthe Philippines that in Indonesia, projects Thistrendis a areprivatesector-led. infrastructure projects Taipei A problem to come.InChinese signof moreinfrastructure it is new,andmost Because is lD2's unpopularity. in the haveinvested companies alone, a number of foreign about it yet.Another people do not know conomies in member whichincluded is people thequestionnaire industry. lt laterpresented That's system. from this do not knowthe benefits quotations status, contact Taipei's type,current execution, onprojects promote member economy. lD2 in each nextstep to duringthe for confirmation and projectsource, agency, to updatelD2oncea year.lt is It hascomeupwithstrategies in January 1997. workshop Vietnam andplansto include of itsfunctions theextension considering of existing like case studies in thedatabase, moreinformation projects (B0T) Infrastucture of a valueof morethan$40M,completed Build-0perate-Own (800)andBuild-Operate-Transfer weretargets of this 1994-2002 between orto becommenced procurement government information projects, andaccess to duringthe June1997 systems. werereported Initialresults survey. used havesuccessfully countries Afterall,Asia-Pacific Mexico workshop. priprojects. more Moreand B0Tmodelintheirinfrastructure in needed the willbe andinvestments involvement vatesector Mexico, thePhilippines future,wherewecanexpect byIndonesia, Theproject, co-sponsored Asiaglobal in the focusto be the provide sectoral and aimed to efficiently States, andtheUnited growinginfrastructure market.lD' is very Pacificregion's planners improve precious: access to information; cross-sectoral whowantsto to beusedbyanyone it canandhopes government sector; and andprivate between communications market.I plana project or breakintoa newinfrastructure of infrastructure andeffectiveness resource allocation enhance

26

TheAsianManager I March-April 1998

by the Institutefor InternationalStudiesâ&#x201A;Źt Trainingof Japan this sectionwassponsored the Asia-Pacific Crisisand Response, Io betterao0reciate


to the Asian Currency Crisis: Policy Responses

Looking Good,Looking Up With the benefitof hin&ight, policy enors can be corrected madein a regionalcontefr sinceAsian and recommendatiotts recoveryis intertwinedwith individualcountries the natureof theAsian nderstanding poses crisis a big challengeevento professional who never economists that anything of thismaganticipated happened in nitudeandscopecouldhave soshorta time.Therearestill a lot of discussionsand analysesgoing on that of attemptto comeup with explanations the currencycrisis. The Asianoisis deviatesfrom tradiof tionalcu encycrisistheoryrbecause the absence of the usualsourcesof currencysress,whetherin theformof fiscal difflculties, the deficitsor macroeconomic pronouncedboom'bustcyclein asset pricespdorto thecurrencycrisis,andthe severityof the ctislsandconkgion eftect thatseemedto bavefew on countries linkages. In fact,thecountdes economic affectedhave all registeredbudget surpluses or minimalbudgetdeficits. conditionshavebeen Macroeconomic by the sus' relativelystableasevidenced Iowinflailon tainedgowth in producdon. seemingly lim. ratesand,undlrecently, itlesscapitalaccountinflows. TheAsiancrisisis seenasonebrought and eventualweal' on by the excesses lts rootsare eningof financialsystems. to befoundin structuralandinstitutional particularly in wlongincendeficiencies, tivestructure,which channeledtoomuch in the wrong places.'The inresources centivesuuctureensh nedcapitalgains and foreigninflows, both portfolio capital and borrowings,asthe mainsource 28

,TheAsianManager I March-April 1998

of wealth.3Billionsof dolla$of plâ&#x201A;Źcioussavinefrcient, ingshavebeenpouedintowasteful, economic secto$.Theexandlessprcductive cessive rislq lmding of financialinstitutions the {with moralhazard)deatedinflation,not of tradedgmds,but of assetpices.Pricesof tradedgoodsbecametoo lorMrelativeto thoseof nontradedgoods,e.9.,property, realestate,andstocl$,thuscreatingimbalances and distortionsin the flnancial andrealsectors.

The PhilippineCase UpbeatKey Indicators Letuslookat how the c sisstuck the Priorto the pesoplungeon Philippines.

Cuisiaon the economy: Thingslook good, but groMh will be slowet in 98.

July11, 1997,the Philippineeconomy's pedormance hadnot only been nve-year satisfactory, but pointedto an economy that was ready to take off toward a sustainable $owth path. After all, the Philippineshad just shedoff its imageas the "sickmanof Asia"andwassetto ioin Asian theothertigercubsof theSoutheast region. growthin 1992,Gross Fromnear-zero DomesticProduct{GDP)had grown moderately at an averageof 4.2 percent ftom 1993 to 1996.Inflationhad been containedandbroughtdownto single-digit levelsbeginning1992.lntelestrateswere at levelsconducive declining andalready gowttr. Since1994, tJ'â&#x201A;Ź to sustainable public sectorwas running a budget From1993to 1996,merchandise surplus. exportsenjoyedstrong growth at an rateol 20 percent(TableI ). average ofpeaceandorderand Therestoration political stabilitywere in' the attending dispensablefor a more predictable i n v e s t m e n ct l i m a t e .D e r e g u l a t i o n , pdvatization,andbadelibelalizationlikewise revlvedinvestorconfldencein the . economy. Reformsalsokeptthe Philippinefinancialsystemrobust.Highercapitalization. widet oper' a hefty$ofih in resources, ating network,and expandedservices characterizedthe financialsector.As of of the fust half of 1997,totalresources the flnancialsl,stemstoodat PhP2.8 tril-


lion. Almostthreefourths(73 percent) wereaccounted for by commercial banks (Ftgare1). Assetqualityof thebankingsystemalso remained sound. The ratio of nonperforming assets to totaiassets went down fiom 4.4 percentin 1992 to 3,5 percentas of June 1997.On the other hand,bank pastdueratiosloweddown to 4.02percent from6.84percentin1992. Capitalization adequately coveredrisk Theratioof net worth to totalrisk assets. assets wasrecordedat77.47 percent, sulpassingthe I 0 percent statutory requirementratio set by the Philippine CentralBankaswell asthe standardratio of 8 percentsetby the Bankof Interna(BIS)(Figure2). tional Settlements Exposureto the real estatesectorwas moderate, with theratioofrealestateloans to total outstandingloansremaininglow at 11.6percent asofJune1997.4

EarlyWarningSigns A closerexamination of otherindicators.however.reveals certainfundamental weaknesses in thePhilippine economy and theftnancial systemthatcontributed to the country'svulnerabilify. Industrial Hollowing OuL Whlle GDPhadgrown,industrialgrowthdecelerated.The growthin manufacturing, in particular,fell from almost6 percentin 1996to lessthan4 percent in mid-1997, with its shareto total output stagnating compared to a decadeago.sTheshareof industry'inGDPdeclinedftom an averageof 40 percentin 1980-1985 to 35.7 percentin 1996 while the shareof services to GDPincreased, bolstered by structuralreformsand infiastructure development. Industrialhollowingout wasreflected in the patternof the country'sexport growth. The strongexport gtowth was concentrated onlyin a few commodities, notablyelectronicsand transportequipment,whichhadtheleastdomestic inputs andveryhighimportcomponent. Beginningin 1996othermanufactured exports aswell asagriculturalexportsactuallydeclinedor simplystagnated. Studieshave shownthat this cutiouspatternof export growthis in fact an indicatorof worsening competitiveness.6 Wdening current accountdeffcits.As

Prrr.rpprues:SELEcTED ftuorcarons,1993-1996 1993

1994

GDP growth (%)

2.1

4.4

Inflation (% average)

7.6

9.0

8.1

8.4

1.0

0.6

18.5

29.4

0.3 ' t7.7

FiscalBalance{% of GDP) Merchandiseexport growth (%)

15.8

1995

1996 5.7

Sources:NationalStatisticalCoordination Board.BangkoSentralng Pilipinas

a percentage of GNP,the country'scurrent accountdeficitworsenedfiom 1.6 percentin 1992to 4.5 percentin mid 1 9 9 7 , r e f l e c t i n ga l a c k o f r e a l competitiveness. To financethecurrentaccountdeficit, the countryrelied on foreigncapitalin flows, mostly the highly mobile and portfoliocapital.Foreigndirect speculative investments, which are crucialfor increased economicoutput,havetaperedoff since1996.As ofJune1997,therehas actuallybeena netoutflowof foreigrcapitalof around$ 1.SnUioncompared to the year-end1996neIinflowof $1.2billion (Figure2). A stablebutovervalued currency.Over the lastthreeanda halfyears,the Philip pine pesomovedonly wlthin a limited

bandof PhP25.7to PhP26.4perUSdollar. I haveasserted that the pesoshould graduhavebeenallowedto depreciate ally in order to maintainthe country's competitiveness vis-d-vis othermajortrade competitors(Table2). Our monetaryauthoritiesseemto haveoptedfor a policy thatkeptthepesoovervalued, thusallowing importsto balloonfar beyondwhat exportearnings couldfinance. Excesslveforeign borrowing. The cheapness of foreigncapitalencouraged dollarborrowings.Takingadvantage of interestrate differentials undera stable exchange-rate regime,the privatesector engagedin foreignborrowings,mostly short-term. Thus,totalforeignexchange liabilities of theprivatesectorleapeddramatically. It morethantripledfrom$4.7

Ptrilippines: Total Resources of the Finarrcial System, 1*12-1!Jf|7 (ln Million Pesod ,

1992

1993

Source:BangkoSentralng Pilipinas

March-April 1998

TheAsianManager

29


Pnrlrppuuss:SELEcTED ASEAN Excxnuee Rnrrs vs rHE US Dounn, 1991-1996 1991

1992

1993

1994

1995

1995

PhilippinePESO

27.5

25.5

27.1

26.4

26.2

26.3

ThaiBAHT

25.5

25.4

25.3

25.1

25.2

25.6

Indonesian RUPIAH 1.950.32,429.9 2,087.1 2,160.82,308.02,362.0 MalaysianRINGGIT

2.8

2.5

2.6

2.54

2.53

C h i n e s eR E N M I N B I

5.3

5.5

5.8

8.6

8.4

8.3

t ank S o u r c eA : s i a n D e v e l o p m e nB

Punrpprues:Ner Fonrrcr lruvssrmpnrs,1992-1997 {ln Million US$) 2000

1500

1000

500

-500

10 0 0

1500 1952

1993

1996

1997 (Jan-Jun)

Source;Bangko Sentral ng Pilipinas

billionin 1993to $17.9billionasofJune 1997 (Figure3). Rapidexpansionin creditto theprivate secfor.Net domesticcreditto the private sectorgrewrapidlyin 1995and 1996by 43.5percentand5 1percent,respectively. In fact,it hasalreadybeenincreasing since the startof the nineties.While gowth in domesticcreditis necessary to finance productiveactivilies,it shouldnot significantlyexceedGDP growth. Otherwise, therewould be investmentoverheating andflnancialfra$lity.Yet the Philippines had a very high ratio of growth of bank creditto theprivatesectorrelativeto GDP. Fragilefscal position.Thebudgetsurplusesrecordedduringthepastthreeyears 30

TheAsianManagerI March-April 1998

did not reallyreflectefficiencyin revenue generation.Tax collectio.ns were consistently below targets.This shortfallwas camouflaged by the proceedsfrom privatizationand the saleof government assets. with theseassets depleted, fiscal weaknesses are becomingmore evident andtheprospect of incurringbudgetdeficitsthisyemis veryhigh. Lowsavingsrafe.Unlikeits Asianneighbots,thePhilippines hasnot improvedits savingperformance. Grossnationalsaving hasremained below20 percentwhereas othercountriesin the regionarealready in the30 percentto 40 percentrange.This impliesinsufficiency of domestic resources to financegrowth,therebycompelling the

countryto resortto foreignborrowings. Whenthe currencycrisishit Asia,the earlywarningsignswerealreadytherefor the Philippines. The countrysuccumbed to vulnerabilities that led to a currency crisisratherthana generalbankingcrisis.

PoliryResponses ForexMarket Interuentionand the In terestRateCure.Policiesadoptedby the BangkoSentralng Pilipinas(BSP)'revolvedaroundthetypicallinesof defense: interventionin theforeignexchange market, and monetarytighteningthrougha policy of h.ighdomesticinterestrates. Thesetraditionalinstruments.however. haveprovedto be costlyandineffective. Followingthe fall of the Thai baht on itsdollu sales Iuly2,1997, BSPintensified to prop up the currency.The strategy provedto becostlyastheBSPlostaround in just11 days.As $1.8billionin teserves the attackon thepesopersisted, the BSP realizedthe limitationsof its strategy.Fi nally,on July 11, the BSPabandoned its defenseof the pesoand allowedthe curIency to move within a wider ffading band.Sincethen, the pesohasdepreci atedsubstantially, breakingthe P30l$1 markin Augustandhittingitslowestpoint ot P45.42/ $1markbyeuly January1998, andstabilizing forsomeweelsnowwithin the P39-P40 range. Simultaneous with its directintervention in the forex market,the BSPraised its key interestratesto rein in liquidify. The overnightborrowingrate rosefrom 15 percentin end-June to ashigh as32 percentin mid-July.On the otherhand, the overnightlendingratewasalsoraised fiom 17percentin end-June to ashighas 34 percentin mid-July. TheBSPalsotemporarilysuspended its overnightlending facilityin Augustto takea firmergip on llquidity.The generalmovementin market interesuates followedthehikein BSP rates. TheBSPfurtherraisedthe liquidityreserveratidsof bank from2 percentin July to a highof Bpercentin Augustto control further specuiativeattackson the peso. Thismeasure onlysucceeded in establishingaverytightmonetarysituation, thereby causinglendingratesto shootup by 10points.Seeing 15 percentage the adverse impactof thispolicyon interesttates,the


Ptnlrpnues: Pnvere Secron FoRexOelrcnrloits, 1993-1ggz {lnMillionUS$)

I

aunro

lNon-Banks

Source:BangkoSentralng Pilipinas

BSPeventually loweredthe liquidityre- innovative hedging facility available seweratioto 4 percentin November. throughcommercialbanks,to cover or The dampeningeffectof persistently limit the risk of eligibleborrowerswith highinterest ratesis now beingtransmit- existing unhedgedforex liabilities. ted to the real sectorwith the stiflingof Thisfacilitywasalsodesigned to easethe loan demand,cutbacksin consumption strainon thespotmarketdueto demand andinvestments, andhighercostsofwork- pressurefrom unhedgedborrowersfearing capltal.Thedangerof a contractionin ing a furtherpesodepreciation. the economyincreases solongasinterest Precautionary measures to maintaina ratesare to be maintainedat unrealisti- prudentfinancialpositionandsound cal1yhigh levels. RemedialMeasures.TheBSPadopted Policy Implications othermeasures to helpstabilizethe situaThe ongoingregionalcurrencycrisis tion. In order to rationalizeforeign doesnot fit the conventionaldescription exchangetrading,new bankingregula- of economicandfinancialinStability. This tionswereimplemented suchasrequiring has,in fact,beenshownby the apparent prior BSP approvalfor the sale of ineffectiveness of traditionalmonetary nondeliverable forwardsto nonresidents, policiesin the Philippines particularlythe tighteningof banks'overbought positions short-term defense of thecurrencythrough while reiaxingthe oversoldposition,1ow- a policyof high domesticinterestrates. eringtheceilingon over-the-counter sales, The BSP'sinterventions in the currency andimposingtighterrequirements in the marketwereunsustainable dueto limited computationof banks'foreignexchange reserves andonlysucceeded in introducpositions. ing more uncertainfyinto the flnancial TheBankers'Association of thePhilip- system.Thevigorousdefenseof the curpines(BAP)alsoenforced awidervolatility rency had adverseeffectson the real bandin October1997 in an attemptto sectors of theeconomy. Whilesomemonstabilize theforeign-exchange market.This etary tighteningwas necessary to abate bandconsisted of three-tiered leveisof 2- inflationarypressure, theprolonged useof 1-1 percentfrom a referencerate (the high lnterestratesto achievethis has1ed average of thepreviousday'stransactions). to theprohibitiveaccess to capital,thereby In January1998the bandwasincreased impingingon growth in the real sector. to 4-5-6percentftom thereference rate. ThePhilippines isalreadyexperiencing the In December1997theBSPofferedthe start of a generaleconomicslowdown, CurrencyRateProtecflonProgram(also with many businesses shelvingmodernknownasNon-Deliverable Forwards). an ization and expansionprojectsand an

increasing numberof firmsfilingpetitions for debtrelief. The policyof maintaininga stableexchangerate,evenduringperiodsof heavy foreigncapitalinflows,hasresultedin a defactoappreciation of thepesos and,consequently,the loss of Philippines' competitivenes in world trade.Records showthatbetween1991and1996,most ASEANcountrieslost somecompetitivenessbut it was the Philippinesthat lost themostglound.e Estimates indicatethat basedon realeffectiveexchange rate,the peso(priorto July11)wasovervalued by about17 percentvis-a-vis competing countriescurrencies, i.e.,ASEAN,Taiwanand SouthKorea.ro On this premise,the overvaluedcurrencysignificantly contributedto the hollowingout of industrialgrowthI mentionedeariier,whetherin exportingor import-competing industries, and represented the bias against domestic production.Currencyovervaluation made importscheap,andexportsexpensive and uncompetitive. Thisgenerally explainsthe wideningtradedeficitsasimportscontinued to outstripexportsduring the past decade. The Road Ahead Wlth the benefitof hindsight,certain policy errorscan now be correctedand more appropriate measures adoptedto enablethePhilippines to betterweather the ongoing cunenrycrisis.Recommendations are likewisemadein a regionalcontext since the Asian recoveryis closely intertwinedwith that of indlvidual countries. Throughoutthe region,restoring growthmeansrestoringconfidenceespecially in the financialmarkets.Investor confidence is botha matterof perception andrealify,andwould dependto a large extent on the fundamentalstrengthsof individualcountriesand their respective governrylents'resolve to address theweaknesses. Adjustments in macroeconomic poiiciesare thereforeneededacrossthe board.Comprehensive measures desigrred to stabilizeconditionsin domesticfinancial marketsand institutionsmust be enforced. Tnnsparency. As a necessary firststep, policymakersshouldmakeanhonestand March-April 1998 l TheAsianManager

3l


r-

o w n . e c o n o m yb y u n d e r t a k i n gt h e of the situation. ffansparent assessment reformsparticularlyin its necessary reduceuncertainty Thiswill significantly A strongelJapanese financial sector. the markets in the systemby reassuring will investmentflowsto economy allow in the futhat therewill be no surprises I believe that outrvard to the region and in' continue turc.At the sametime,the currencyand Philippines will not the demand for Asian crease its domestic financialsectorsshouldbe allowedto ablmports. in orderto minimize shocks sorbextemal experience a severe theeffecton therealsideof theeconomy. economic crisis, Future Policy Directions Concomitantwith reFundamentals. to the In thePhilippinecase,responding storingeconomicstabilitywould be although growth would require some currency tulmoil and instituimprovingmicfoeconomic policy will be slower definitely direction, such as the changes in t i o n a l f u n d a m e n t a l sT . his would following: necesitateestablishing effectiveregulatory in 1998. o The exchange-rate policyneedsa fungovemance, improvingcorporate systems, a market-oriented damental shift to on a bfoader ard enhancing tansparency geared policy that is towardlong-term thathaveundulyoverscale.Corporations and competitiveness the developmenexposedthemselvesand engagedin ,) tal tradeoffbetweentradableand expansionactivitiesmustbe speculative TheBSPmustrenontradable activities. aspartof the cost ableto taketheirlosses parity a new valueforthepeso the rolesof establish of doing business.Rescuingthem now ftom a regionalperspective, (lMF), over that can sustaincompetitiveness MonetaryFund othersto overinvest the International wouldjustencourage rateshould in similaractivitiesinsteadof the more World Bankandthe AsianDevelopment thelongrun.Theâ&#x201A;Źxchange projects. Bank,andcreditorcounties,specifically not be usedasan anchorfor inflation; productiveanddevelopmental however,inflationshouldalsobe kept andJapan,arecriticalin Rehabilitationand Reform. T|'e c]UJ- theUnitedStates ratesincedrasticprice at a manageable rencyturmoilwasprecipitatedby financial restoringgrowth in the Asian region. increases alsodiminishcompetitiveness. andcountdesarein the andexcesses acrosstheregion. Theseinstitutions weaknesses andreformfor bestpositionto providethe foreign-cur- Admittedly,thiswould entailthe diffiA programofrehabilitation cult taskof choosingthe dght mix of thebank- rencyliquidityneededto meettheaffected theflnancialsector,partlcularly A more countries'short.termforeign-currency monetaryandfiscalpoiicies. istherefore imperative. ingsystem, If allowed to work its efJectswithpolicies claims. reviewoFbanking comprehensive spiral,the out triggeringa wage-price Howevet,graveconcernshavebeen bank with a view towardsuengthening depreciationcould providethe boost supervision and examinationis urgently raisedregardingthe IMF's advocacyof neededto rekindleexportaIId indus' Newpolicies shouldalsolookinto tight monetarypoliciesandhigh interest needed. trial growthand allow us to regain to varioussectorsof the rates,astiese may fuither aggravatethe banks'exposure A competitiveex' competitiveness.r2 A partiallist of the task aimed affectedcountriesfinancialcrisis.It has economy. changerate will alsodependon how that tie IMF should atstucturalreformsandinstitutionbuild' alsobeensuggested the baht, the ringgit,the rupiahand the addressand not ignorethe short-term ing would include:strengthening currencies othertladingandcompeting devel- bankingprobleminsteadof just focusing frameworkforcreditduediligence, in theAsian will farewhenthesituauon I thinkthese solutions. o p i n g d e b t c a p i t a l m a r k e t s , a n d onmacroeconomic regionhasstabilized. astheAsian arevalidinasmuch fundamental changes in bankshuctureto comments form o Interestratesmust go down to more an unconventional o[ thecreditdecision- crisisis precisely achieve impardality reasonable levelswith both the govern' of finarcialinstabilitywhoserootsarealso makingprocess." inefficiencies. ment and the privatesectorworking Intemational Coopention. The $oundedon pdvate-sector togetler.Lowerinterestrateswlll stave TheUnitedStates, beingthelargestrecontagion effectbasalsounde$coredthe off the threat of largeportfolio capital needfor moreinternalonalcooperation positoryof dolla$ in the world, hasthe inflowsthathavecausedtheunwanted to currency moralobligationto stepin and assistin in prevenlngandresponding ofthe past.Fiscal stabiliry in cunencyappreciatlon rhe effort to restore financial for future. Several levels crisesin the playsa crucialrolein thelow' discipline possible cooperation havebeendiscussed, r'sia.With the Asianregion'shopeof reeringof interestmtes.Byensudngthat suchas the exchangeof informationon coverypinned on exports,the United prevent fuian it doesnot spendmorethan it eams, will wanr to cheap Stares markets, cuffencyandfinancial countries' the governmentavoidsborrowingftom U.S. market and exports ftom floodingthe ASEAN among elaborateconsultation with the the markerrhatwill justcrowdout pfi' further widen its ffade deficit a n d t h e m a c r o e c o n o m im c anagers, vate investmentsand further drive region. creationof an Asian fund to mitigate ratesup. interest the largest investor in the as Japan, rurrs'r!y'rurruduurJ. however,is A formidable challenge, its Asian region, needs to stimulate Finally, CrcditorBanksandCountries.

Ittt

32

TheAsianManager March-April 1998


achievingfiscal prudencewhile BSPhasalsointensifiedits effortsto bring solidation, whichwill pavethe way for increasing the socialandinftastructure downinterestratesby loweringthestatu- the country's economic resurgence in spendingneededto raiseproductivity. toryreserve I requirement from 13percent 1999andbeyond. To achievethis, revenuesshouldbe to 10 percentin February1998,thereby increasedprimarily through a more reducingintermediation costs. coherentand efficienttax coliection Somerisk factorsworth mentioning, program. however,would be the holdingof cred- References: . Toattainlong-term competitiveness, the ible electionsand the smoothffansition Antonio,EmilioJr.ThePhilippineEconomy:Weath. Philippines(like its ASEANneighbors) to thenewleadership mid-1998.Problem eringthe CunencyCrisis.Universityof Asiaandthe needsa systematic, consistentand in this politicalexercisecould delaythe Pacific.January1998. BangkoSentralng Pilipinas.ThePhilippines: Staypersistentprogramto improve its returnof investorconfidence in the coun- ing on Course.November1997and.JanuaryI 998 physical,financialandhumanresource try. Concernsaboutthe increasing past issues. inftastructure. Countries thatlagbehind duesof banls havealsopromptedinter- Corrigan,E. Gerald.The CurrencyCrisisand Beyond.Goldmal,Sachs& Co. Remarks madeat the in industrializationalso need to nationalcredit rating agencies such as AsianDeveiopment BankInstituteInauguralSymemphasizeprogramsto steer their Moody'sInvestorServiceto downgrade posiumin Tokyo, December 1997. Japan. economiesaway from nontradable the creditratingsof major commercial De Dios,Emmanuel;Diokno,Benjamin;Fabella, Raul;Medalla,Felipe;andMonsod,Solita.Exchange towardtradableactivities. banls. RatePolicy:Recent Failutesand Future lasks. Pubo The impactof the currencyturmoil is Despitetheseuncertainties, I believe lic Policy.October/December 1997issue. varied aooss different groupsof the that the Philippines will not experience a Fabella,Raul.TheEconomicChoicesWeFace.Unipopulation.Theroleof the government severeeconomiccrisis,althoughgrowth versityof the Philippines.February1998. is to provideor strengthensafetynets will definitelybe slowerin 1998.The Krugman,Paul.WhatHappenedtoAsia.Typescript, Instituteof Technology.January for the mostaffectedsectorsof society, Philippinesis set to exit from its current Massachusetts I 998. suchasthewageeamers.Followingthe IMF programby the end of March and Magdaluyo,Ralnnund.SoutheastAsian Currency generalprincipleof lettingpriceshock enterinto a new precautionary arrange- Flu:A Lookat theFundamentals. AsianInstituteof go though the economicsystem,the mentthatwill ensurecontinuedfiscaland Management PolicyForumbriefingpaperno. 2. January1998. governmentcan allow wage adjust- monetarydiscipline. Malkiel,BurtonandJ.P.Mei. WhyAsia'sTigersWill mentsfor thesesectorsbasedon the Attestingto the confidenceof the in- RoarAgain.New Yorklrmes.December 21,1997. impacton theircostof livingratherthan ternationalcommunityin the Philippines 0n nervousreactionsto exchange-rate is World Bank PresidentJames fluctuations.Inflationmay be allowed Wolfensohn. In hisrecentvisitto theAsian Endnotes 1. "WhatHappened toAsia?",Paul Krugmal,Masto go up but not to such a level that countriesaffectedby the turmoil, Mr. sachusetts jan. 1998 Instituteof Technology, would triggera wage-price spiral. Wolfensohn said,"1fr cleatthatin tetms 2. "The CurrencyCrisisand Beyond",E. Gerald Corrigan, Goldman, Sachs & Co.,Dec.1997 of therc$on, thePhilippinesis clearlythe "The EconomicChoicesWe Face",RaulFa3. Looking Good, Looking Up leastaffectedcountty, and what we'rc bella,Universityof the Philippines, Feb.1998 While a generaleconomicslowdown lookingatis not theexteme'situation that 4. BangkoSentralng Pilipinas,"The Philippines: is expected in the Asianregionin 1998, we facein someothets."He reiterated, Stayingon Course",Nov. 1997 5. "ExchangeRatePolicy:RecentFailuresandFuthe Philippines hasbeenidentifiedasone however,theimportanceof vigilanceand ture Tasks",Emmanuelde Dios,et al, Universityof of thecountriesmostlikelyto emergeear- thepursuitof therightpoliciesfor sustaintha Philinninas Ort 07 lier fiom the crisis for the following ableeconomicgrowth. 6. ibid. reasons: oureconomic upsurge beganlater In fact,the whole regionis viewedat 7. CentralBankof the Philippines 8. It hasbeenobservedthat the BangkoSenffal than the rest,our propertysectoris less with optimismdespitethe currentproboverbuilt,andwe arelessleveraged when lems.All of the soundmacroeconomicng Pilipinaslargelytoleratedthe pesoappreciation duringheavyportfoliocapitalinflows,andthen deit comesto short-termexternaldebt.Our elementsthat had made the ASEAN fendedthe pesoaggressively when attacked. ratio of short-termdebt to total external miraclepossiblearestill present.Accord9. "ExchangeRatePolicy:RecentFailuresandFudebtis only18.5percentcompared to the ingto economists Professor BurtonMalkiel ture Tasks",Emmanuelde Dioset al, Universityof 20 percentto 40 percentin otherAsian andJPMei, "We believethatAsiangov- the Philippines,Oct. 1997 10.ibid countries. emmentswill do whatisneededtorcstorc 11. "TheCwrencyCrisisandBeyond",E. Gerald Interestratesare expectedto decline confidence.... the fundamentalstengths Corrigan,Goldman,Sachs& Co.,Dec. 1997 12.A competitiveexchange rateis key to the inas local bankshavestartedto gradually ofAsia'smilaculousgtowthrcmainintact reducelendingrates.Thereis alsoagree- and thesewill make Asia'stigersrcar centiverestructuringthat recaststhe systemof incentives froman unsustainable biasfor non-traded ment amongbanksto adopta maximum agdin."rz goods(property,real estate,banking,stock, trad3 percentto Bpercentspreadoverthe 9 1I amalsooptimisticthatthePhilippines ing) towardsthe erodingtradedgoodssector both exportsand domestic-oridayT-billrate,which servesasa basisfor will beginto seesomerecoveryby theend {manufacturing, pricing loans.I believethere is further of the year.The centennial year, 1998, ented). 13. "Wy Asia'sTigersWill RoarAgain",Malkiel room to bring down thesespreads.The will be a periodof adjustmentand con- andMiel, New YorkTimes,Dec. 1997

March-April 1998 | TheAsianManager

33


Ethics and the CEO

CYtgryaasfom rhe @oarlAftniv6n6ry @.0undtabb "Wat we havein Asiatsa fnancialproblem,andat theheartof it is a mfsunderDeregalationdoesnot meanno regulation.Whatis needed standingof deregalatton. gorcrnmentinstitutions- to restoreconfis prudentregutatton strengthening havebeenso usedto stablecutenciesin Asia-for denceandgivehope...Peopte 40 years,for example,the ringgithardlymoved- but introducinga regional councilor rethinkingBrettonWoodsinstituttonswill takemoretime and one ASEANcurrencyis stillfarther away.Let's do whatis pragmaticandfeasibleand business andpeoplecancome practicalnowwith whatwe have.Govemment, get It's excessmanagement. id of rates, exchange togethertofght inftation,stabilize people need to but the importantto knowthatthercis lightat theendofthe tunnel, train. Weneedto cooperateefectivelyto knowif that light isfrom an accelerating pantc, prcblems...don't be our overcome flexibleandnimble'footed." and TanSri DatoDr. Lin SeeYan,Chairman CEOof PacificBankBerhadandRecipientof six RoyalAwardsfor distinguishedserviceto Malaysia;foniler Deputy Governorof Bank NegaraMalaysia

inspireloyalty,and lead. "Finatly,we musthavemanagers of integrity.Managersmustbeseenastrustworthy.And thisappli$ to of Asia'seconomicsuccess,and everysingleindividual.Conldenceis crucialto the recovetyand maintenance of integri% therecanbe no confidencewithoutmanagers "Thechallenge Asia,if it is to maintaingrcwth in the next millennian"ts to ensurean adequatesupply for who will be neededasmuchaselecticity, housing,and capital.And this,of of talentedandskitledmanagers, course,bings me backto the30th anniveBaryof theAIM. TheInstttutehasexcelledIn producingyoung unlessthey skills.But it alsoknowsthat suchskillsaremean[ngless managers with outstandingmanagement the andabsorbed menandwomenwhohaveobseryed arcemployed bymenandwomenof character, of the seNe as a rcminder the last sk months unspokenvalueof their teachersand mentors.Theeventsof thattherawmateialis herein theform ofmanyrtne management oJAsia.I'm conrtdent needforhigh.quality youngAsianmenand women.I will be mostinterestedin schookand the businesscommunityand heaingIromlellow participantshow business " govemmentcanworktogetherto developthe managers we needfor tomorrcw. Dr. DavidK.P. U, CEOof Bankof EastAsia,Memberof the ProYitrclal Irglslative Council of HongKong,and Chairmaoof the ChineseBants' Association "TheAsianmiracleis significantlyoverrated.me keyis peaceand orderand stability. guidance,and the needto educatetheperson,the I'Vhatis neededis administrative into the21st century,beyondphysicalxsets." citizens,to buildhigherfoms of assets Mark Fuller, CEOand Founderof Monitor Company

" Incompetencewasoverlookedin thepa$

'The last30 yearshavewitnessedthe ise of Asiaasa dynamicpatt of our world economy.TheAsianInstituteof Managementhasnot beena bystanderin thatptocess;it hasin fact beena greatcontibutot. Today,morethanever,AIM hasa vital contributionto maketo the region'sprosperity. "Asia'srccentserious financialturmoil hasdeepstructuralroots.Faults in in Asia'ssociopoliticalsystemshaveled to poor decision'making growth hasbeendriven Asia's In too many cases, circlesand commercial financial business between bonowers, lendersand betuveen byhiddenpersonalrelationships suchsystemscannotwork andpovernment.But while the resultswerespectacular, is envircnment where the business indefnitely cannot continue Confdence forever. playing level. not close,and the feld 'lt is easyto hide or ignorewaming signsundersuchsystems: few peoplequestionedthe levelof borrowing, the qualityof lendingdecisionand thepronenessto currencyrisk. Onlywhenthe cunentaccountdertctsbecame lf we arcto behonest,Asiahassufrered from low too largeto ignoredid theconfidence finaltycollapse. provepalnluland might changes that very now have to endure region will standards. The management far-reaching in new,more will bring These changes progress enioying. it's been dilfrcultbut areessentiattf Asiais to enioythe golden opportunityfor Asiato bea openandprofessionalregutatoryandfnancial systems.Withthemwill comea and betterwork Tradeand investmentwill be liberalized, signifcantlybetterplacein whichto do business betweenbusinessandgovernmentwill be more and relationships fnancial marketswilt bedercg)tated, people of Asiawill retaintheirstrengthand remaihdedicatedto the work proJessional andfatr.Meanwhile,the ethic,saveJor thefuture, and educatethe nextgeneration. 'The dawnlngof a new millenniumwill surelyheraldthe beginningof theAsia Century.Howevet,Asiawill and it will needmanymoreof them. Wewill needmanagetswith their needa new typeof top-qualitymanagers, Everycompanyin Asiawill face individualstrengthsand chartsmaseNW asthefoundationof leadership. extemalshocksbeyonditscontol. Thishashappenedin the lastfew months;it will happenagainin unpredictable of thlserumustbe someform or other.It is in suchtimesthat the true teadershiprcvealsitself.Asianmanagers beableto communicators, must be effective mey and authoity. leadershipand responsibility ableto assume

in all sectors.Labor rtveyearsin management productivitywaslow.Manypeoplewereself'tndulgentand neglecteddevelopingtheir core in tndustry, morethanthe competencies. Thefocusmlustbeon seniormanagement potiticalconnections,In the end,businesses locatein a countryor reglonnot becauseof politicalconsidentionsbut commercialviability- thefundamentals.How do wepick up Workto be ourcelves confidently?Gobackto the basics,Focuson corecompetencies. Costcut. Develop stategic in and day out. competition day competitive.Studythe alliances..,suniseandsunsetindustrtesis an outdated,crazyconcept.we haveto update Droduction.Wedon't wa[tfor timesto be bettet Wecreateoppottunitlesto maketimes better.Welook into brandcreationfor products,add valueto raw materlals and exportVhoi Phutrakul,ErecutiveChairmanof BoonwardAsiaand Senatorin the Thai Govemment " Wetend to makedecistonson the basisoffear or gree4 but the timescall Jor who valueslikegenetosity...he andinterdependence assumes interdependence diesrtch diesthusdisgraced." JoseCulsia,CEOof Philamllfeand former PhilippineCennalBaakGovemor

"Showcapable leadership andkeepfocused." CEO of Judine Davis AloysiusColayco,


Ethics of Credit Deliberatelymisleadingthe creditoris an injustice

I thicaldilemnasseemto beIorall Tenyearsago,TheAsian I seasons. Manager tntroduced a section, I L nVhatls YourEthical I.A?", which prcsents manage ment casele tsciltingJor ethcalrcsponses. It wasatimewhenAsia wasiust recoveingfrom the economic fecession, andconuptionhad beenuncovercdastaprcotof economicplunder and mismanagement. Thefitst Ethical I.Q. caseletshad Fr.JamesFrancis Donelan,S.J.witing the responses. As Asiag/rateswith the cunencyturmoil, andtrunspatency in transactions begins to soundmoreand morc like a euphemtsmfora clamorforethics in economic govemance, we reproduceTAM's1988 Donelanblegacy:Ethical expectations nedd not go out of fashion.

36

me AsianManagetI March-April1998

It wasoncethoughtthat the manwho deliberately chosea businesscareerfor himselfwasessentia.lly senshandmate aiisticor if he hadany religiousor ethical motivation,it wasthe Calvinisdcid€athat becominga millionafeprovedyou were oneof God'select.Thisis no longertrue. The businessman of the twentiethcentury, especialiy sincethe lasrwar, is expectedto havedevelopeda senseof socialawareness and responsibility. He musttry to reconcilethe goalof profltwith The Caselet the goalof communityservice. to supplynnanJoseCruzis requested Societyalsorealizesthat in a world cial informationabouthis tool and die, predominantlyhungry, overwhelmingly shopto the MagkanoTool Cornpany be. poor,andfor the mostpartstill unaffluent, fore the latter will extend credit. Before the roleof thebusinesmanis byno means doing so, Cruz tells his bookkdepetto al- unworthy.Bettermanagement of business ter the balancesheetby reducingCruz' and public administrationis the greatest cunent indebtedness in orderto coveruD singlesourc€of aitruismin today'sworld, weaknessin working capital. and one might evensayof romanticadventure.It holdsout to onenationandto The Analysis all at their varyinglevelsof life the quickThe basicconditionrequiredof the esthopeof the improvement of one'slot. companyseekingcredit is evidenceof Thisis especially true of the Philippines. ability to pay for the goodsthat are sold The tuture of this counfy will d€pend on tlust. Altering the recordof currentin- moteon economics thanon politics,and debtedness, as describedin the caselet, businessmen will haveto guide the crudeliberatelymisleadsthe MagkanoCom- cialdecisions of our statesmen. pany, with intent to deceive.JoseCruz \ryhatkind of businessmen do we need actsunjustlywhen he seek to get an ex- to tulfill rhisrole?what shouldthe busitensionol creditunderfalsepretenses. He nessmanagerof tomorrowbe like? is guiltyof deception,andof injusticewith the obligationto make restitution, if he He shouldbe a professional,a trained receivesthe goodsand fails to pay for businessman,who holds hisposition by them.Cruz' bookkeeperis morallyforbid. meit and performancerather than by dento coopemte in thisinjustice. bloodor maniageor utangna loob.Some caseletandDonelan'sI q89response.We ako tn- clude his views on the businessman's role in the twentieth century, whtch wasnot originallypatt of the caseanalysisand - you betterbelieveit written in 1q65,morethan threedecades ago,which rccuned in hiscaseroomdiscussions on ethics. The ethical expectationsof businessmen neednotgo out offashion alter alL


of thefamilycompaniesof the Philippines would do well to pondet the differcnce betweenthe family"govenedFord Company of the thifties and eatly fofties,and that sameprcfessionalizedcompanytoday.Or thedeclineof thefamilfdominated MontgomeryWard. The managerof tomonowshouldbe relations. Thisskill skillfulin interpersonal arisesnot only out of a sincereconcern for people,but ftom trainingin the beDespitethe conformity havioralsciences. o na n " . c l a i m so f w h y t e ' s" o r g a n i z a t i m on the therehasbeena $owing emphasis in lhe company. It roleof rhe individual hasbeenfoundthattoo muchemphasis on a systemcannurturea built-inmediocdtyandstiflethe creativeeffortsof the individualof unusualtalent. Tomorrow'sbusinessman will also background not only needsometechnical with so thattheycancommunicate their but sothattheycanmakereli' associates, ablecompanyplansin termsof products, of geogaphicaldis' capitalinvestments, tributionof markets.They will haveto havesomeacquaintance with whatisnow the appli calledinformationtechnology, c a t i o no f t h e c o m p u t e rt o b u s i n e s s problems. Thecomputerhasmadeit poss i b l e f o r t h e m a n a g e rt o g e t m o r e comprehensive and more detailedinformation and at more frequentinteNals thaneverbefore. History's Verdict Whattheverdictof historywill be I do not know.Whetherits judgmentwill be thatwe havewastedour patrimonyor that we haveplayedthe roleof nationbuilder only timewill tell. It will dependon one thing.Not on the intellectuala-bilitynor the krowledgeof scienceor mathematicsor engineering or skillat interpersonal relations.I am certainlthe businessman of the futurelwill havethesequalities.It will dependon whetheror not theyhave rhe faith and rhe couragero placeprin. self-sacrifice ciple beforeexpediency, beforesellgain,honestyandintegritybeforecheatingandmeaness, whetier tiey will bewilling to servethet agewith stewardshipoverthe goodsol thisworld. I

word in ths Ethicsseemsto have becomea much-used(abused?) businessworld.An "inside"scandalis only oneof manyrgcentinstancas of unethical practicesby leading and hitherto respectsd businessmen. By striving to protect private interestsin the absenceof any moral standards, peopleare led to act collsctivsly in ways that actuallyharm those interests. I have provided discussioncaseson the assumptionthat a person's ability to reasonabout moral matterswill improve if the personattempts to think throughsome concretemoral problemsand allows himseJfor herselfto be challengedby otherswho resolvethe issueon the basisof differentmoral standards.Thesekinds of challengesforce us to confront the adequacyof our moral norms and motivateus to ssarchfor more adequateprincipleswhen our own are shownto be inadsquats. An ethics course is not designedto give moral advice or persuads one to act in a certainmoral manner.As it dealswith moral dilemmas facedby managersand the principlesusedto solvethem,the mainpurpose is to give an understanding of the basicmoralprinciplesand how theseare applied.Suchwould include: Basic Principfeeof Ethics: moral or ethical iudgments, corporate responsibility, individual responsibility, the "loyal agent", moral reasontng

Three Most fmportant Ethical Principleai utilitarianism, principles based on moral rights, and principles of justice (including kinds of justice, par ticularly distributive). These provide a partial solution to dilemmas of normlessness,and lie at the basisof most of our own moral reasoning, They can therefore legitimately serve as the criteria for ethical dilemmas raised in the businessworld Th6 Market and Business:Conditionsnecessaryfor a free market,government controlled markets; market system versuscommand system; the mixed economy "free" are free markets?Pertect comEthics in ths Marketplacâ&#x201A;Ź: How petition, value of a free market, monopolies, oligarchies,price fixing, tacit agreements, "inside" infomation, bribery, extortion Busin6e3s and ElcernalEnvironmenti Ecologicalethics,private costsand social costs, dangers when social costs are ignored, difficulty in quantifying social costs or future benefits Ethics of Consumer Production and Maaketing: Contract view's four moral duties, "due care" theory measuring 'due care", manufacturer's responsibility for social costs, advertising ethics, social effects of advettising "rctional" organization, The fndividual in the Organization: I/te employee's obligations and the firm's duties to workers. This section was taken from the Tedching Notesof Donelan in the 19&s. Excery's can also be found on the Donelan Web page on the AIM Web site dedicated to management ethics and management communication: http://www.8im,edu,ply' DonelanPage.

March-Apr 1998 | TheAsianManaget 37


A TRIBUTETO ONEOFAIM S FOUNDING FATHERS

Editor's note: Beforc this issuecould come out, Jim Donelan, in his sister'swords, "took his last flight to heaven." We reoroduce the leaflet distributed during his wake at AlM.

did-not just the play but hosts of olavers'hearts.

C o n s i d e r :H e c h a m o i o n e d excellencein managementeducation in Asiawith thefoundingof the ev.Fr.JamesFrancisDonelan. Asian Instituteof Managementin S.J.,wasbornon July25,1921, 1968,duringhistenureas President in NewYorkCitvto JamesDoof the Ateneo de Manila, putting nelanSr.and Catherine Clearv. forth the convincingargumentthat He completed his elementaryeduthe underlyingpremiseof the AIM cation in 1935at the St. Sebastian' s idea is its natureas a ioint venture School in Woodside, New York. of Zobel-Ayalas,Ateneo-La Salle, Three and a half years later he and business-academe. Hechampigraduatedwith distinctionfrom the onedsavingstreetchildren, mobilizing B i s h o pL o u g h l i nH i g h S c h o o li n B r o o k l y n H . i s s i s - supportfortheLauraVicuia Foundation.Hechampioned ter,Sr.Catherineof the Sistersof Charity,recallsthat the appreciationof greatworks of artthat recordedman s in Fr. Jim's Vouth, his mother described him as a experience,and embarked on the Grand Tour-4,200 "go-go kid." He was full of life and energy,tried and slidescapturedby his own cameralensesand ranging excelled in everything from baseball,softball and from the Egyptianerato the Victorian,the sunnyAegean basketballto ballroom dancing,from soaring high to the Scottishmountainsand loughs-the core of his i n h i s s t u d i e s a s a c o n s i s t e n th o n o r s t u d e n t t o pioneeringcourseson ManagementCommunication and flying high into the skies,closerto God, as a trained Ethics. And becausehe championedmoral standards and licensedpilot. He startedcollegeat St. Francis in word and work, many believethat excessesof even Collegeand Fordham University,and on June 21, the hardestof heartsin the pinnaclesof near-abso1941,he enteredthe Societyof Jesusat St. Andrew- lute power were tempered by his mere presence, on-Hudsonin Poughkeepsie,New York. and movedto Good by his eloquentand subtlehomilies. Coach of Champions After taking philosophy at Woodstock College Last Flight to Heaven "colorum" in Maryland,he had his first assignmentin the PhilHis students and oarishionersrecall ippines: his regency at the Ateneo de Manila. He how Fr.Jim, in one of his recent homilies,had extaught English,Latin,Frenchand Historyfrom 1947 pressedhis desireto board the flight to heavenand to 1948.He moved on to the Ateneo de Davaoto soughtthis prayer intentionfrom all.The greatcomteach Englishand Religion,and to be the Dean of municatorthat he may be to many, but to him, the Disciplinefrom 1948to 1950.He was Moderatorof Great Communicatoris his creator who has gifted the Bov Scouts and the basketballcoach who in- him with the fullnessof life and freedom and friendspired the local team to be nationalchampions. ships.On April 4, 1998,at about 1:30 p.m., Fr.Jim, in Yearslater,in the Asian Instituteof Management, his sister's words, "took his last flight to heaven." it is said that he was also the basketballcoach dur- The Salesiansisterssay he must have been singing ing the yearsthe facultyteam would win the games. "Hossana"on Palm Sunday of that Holy Week, beA compleatathlete,he was also usedto iogging ev- side St. Peterat the gates. ery day around AIM and Makati,and played great Fr. Jim, who "nourishedAIM like a child, nourgolf.He usedto strikeanalogiesbetweensportsand ishedwith his sanctityand virtue,"continuesnow to management:in both, skill-building,team-building nourishall who come in contactwith his eloquence, and coachingfor fair play are the key to success.In with the eloquenceof his life. I both he always played to win. And win he always

TheAsianManager March-April 1998


Management Education:

Gearing Up for the Global Future TheAsian crisisclearlydemonstrates that if your goals economic are verynarrow,they backfire. he futureis likewalkinga tightope school,to decideon the basisof thismap we haveto constant.ly balarcetheten- wheretheyshouldcharttheirpath. sionbetweenextemes. On the one hand,we havethe Individual and Social phenomenon youmustmaintain of globalization. On the Thesecond balance othel, we must do whatevetwe can to is the balancebetweenindividualinitia preserve localcultures, national rraditions tiveandsocialcohesion.Mosteducators andidentities. are fond of the old fashionedroutememorysystemof schooling.We must getchildrento develop Clobalizer and Globalizee? initiative,to becreThiscenThe first balanceyou would haveto ativeandto express themselves. maintainis betweenmodemifyon theone handandtraditionon the other.If globaf izationis inevitable,I worry aboutit becauseit appeals to me assomething like "colonization."If thereis globalization, then theremustbe a "globalizer"and a "globalizee." That'sdangerous. We have Lobe very carefulto makesurethe balancecontinuesto exist.The UnitedNationsEducational, Scientific andCultural (UNESCO) Organization is reallycon' cernedbecause we arepartof the United Nationssystem.It is thuspartof our task to protectandcelebrate the diversityand differences betweenculturesandnot homogenize it to the pointthatwe loseour individualidentities.Now thafs got to jn educational comeLhrough systems fiom gradeschoolall the way to graduate s c h o o l so f m a n a g e m e n tY. e t , t h e UNESCO-creared Internadonal Commis. sionon Educationfor the 2lsr Century, did not providea recipeon how to teach Otdohez and AIM's Pearl Anniversary thechildrenof thetuture.Whatit didpro- Conference: Greatestgift ofthis century is vide was a map of what the futurewill not so much teaching global knowledge as fosteri ng gl oba I responsi bil ity, look like. It's up to eachcountry,each

turywill godownin historyasa greattime of teachingand learningknowledgeand skills.Its greatest failureis the inabilityof schoolsin our societyto teachandleam how to live together.In business terms, thatmeansthatwhileyoupromoteentrepreneuiship on the onehand,you'vegot to lookat collegiality on the other.While you'repromotingcasestudiesanddiscussions,you alsohaveto promotea kind of coherence. Notching Niches Thethird balance is thatbefweencompetitionandequity.I'vespentsometime in countries at arerapidlyuansforming, countriessuchasMongolia,Kazakhstan, andVietnam. What I am talkingabout not marketsocietaremalketeconomies, ies.Therearemarkets thatareusefultools for thedistjibution of goodsandservices but theycannotanswerthe otherhuman aspirations of mankind.Aswe talkabout the powerof the market,we haveto talk abouta marketeconomyandrecognize haveto be a that it doesnot necessarily marketsocietysincecertainthingstranscendmarketrules. AIso,if we facethe capitalism, marketrealitjes andunfetrered therealitythatstatistics tellusaroundthe worldis tharthe rich countries aregetringricherandthepoorcountries aregetting poorer.Thisis true evenwithin the samecountryandthesametown.I'm not I'm talkingabout iusttalkingaboutmoney, information aswell.Taketheinformation highway,for example.Thereare some

March-Apdl 1998 | TheAsianManager

39


600,000 villageson this planetthat haveno elecficity. We canthen clearly seethatbesides buildingthe information highway,we alsohavethe responsibility to build the informaton by-waysto see generators how bicycle-powered canget link going somekind of communication with thosewho haveless. Whenwe look at the future,let'snot think of ourselves in the cities. On this planetto this day,one out of five men cannot read and write. Two out of fivewomencannot readandwrite. We cannot createan artiflcial nichefor ourselves withoutassuming a globalresponsibility forthe rest of our fellowmen. Media,for instance,feed the short-terminterest by beingon the lookout for what's popular, what's interesting,and whai'scunent. It does not payattentionto the morefundamentalproblemsof societybecause thesearedifficultto discuss;thereforethey're not discussed. We have a responsibility to make surethat our education look not only at shortterm goalsbut at longterm goahaswell.

halfhasnot beeninventedwhenwe were still in school.Thecycleis no longerlinear. Youdon't havea pro$essivestudywork-restsequence an).rnore.Butschool systemsaroundtheworld andeverywhere still think thafs the way it works. These are fundamental implications on how knowledge shouldbecommunicared in a learningsociety. It's not justpeoplethat'sagingquickly

useimprovingon Ihe Titanicbecause if you might as it's goingto sink an1'way, well find anothermodeof transportation. In tiis case. modeo[ learning. Tn another quest the old for information,a teacher was reallya guideto a studentin the "desert."Nowadays, it's not a desertbut an oceanof information. Onceupona time, the MBA wasthe onlystorein town. Ifyou wantedto geta goodlob,you would haveto havean MBA or would have to c o m ef r o m a g o o d school. Now,it isone storein a "megamall" of knowledge industries.Getit in many forms,asyouneedit. Thereisstillaneedfor t h e h i g he n d s t o r e , b u t i f t h e h i g he n d storethinks that it's the only store in town, it will soongo the way of the dino' s a u r . l t h a sg o t t o adaptto the competition andthe factthat it mustfill a veryspecificniche. F i n a l l y ,w e a l s o haveto maintainthe balancebetweenthe spifitualand the ma' terial.Let me quote theDelorsreport:"Often without realizing it, the world has a longing,oftenunex-it's knowledge. getsold fast. pressed, Knowledge for an idealand for valuesthat In thiscontext,Iearningisgoingto beless we shalltermmoral.It is thuseducation's andlessin rhe begrnning of life bur re- nobleraskro en(ourage eachandeverymain all the way throughout.Lifelong oneactingin accordance with their own andpalng full leamingis thethemeof theDelorsreport. traditionsandconvictions Whatthisirnpliesforbusiness schools are respectto pluralismto lift them out of differentdeliverys)'stems.We canstive this." to becomeanincreasingly betterMBA proThesecondpointin the Delofsreport gram,lor example,but in ar era where ispreciselyabout this.Education wasonce as theMBAis muchmorecommonthanthey lookedat in the sixtiesand seventies youhave the process knowledgeand wereduringourpatiarchs'time, of conveying thephenomenon of diploma devaluation. skills- learningto knowandlearningto cameathird As you providea betterandbetterMBA do. Thenin theeighties,there progam,what you'rereallydoingis just piliarof education,leaming to be- which and buildinga betterandfastership. It's no is aboutself'esteem, independence,

|l/lA|\lAIIMI|l|T [IIJIATII|i| OIiI ]IIITIfitlIROII

Knowtedge Ocean Theotherbalancewe haveto maintainis the explosionof knowledgeandour ability to absorbit. I cite two main pointsftom the ComDelors'report. missionPresident Jacques Fhst,theobservadon aboutthechanglng cycleof society.The expectationmaintained was that you go to school,learn what you needto learn,go to work and geta profession, getpaidandthenretire. The cycleis very predictablFyoustudy, work, and then rest. Nowada!'s,it is unreaiisticto think that what you study is enoughto carryyou througha profession. Halfof what we leamin schoolis obsoleteby the timewe graduateandthe other

40

TheAsianManagetlMarch-Aprtl t998

ITllI[S IiIIl]tBAIA|'I[I


not enoughto setve markets,one must discoverthem. It's not enoughto meet demands, onemustcteatethem. Drtvefot excellence.Themostsuccess1998 Advertislng politiciansandeducators ful businessmen, Medla-PR Dlrectory aroundthe world arenot amongthe most In 'l'16 p.g.!,. compr.h.n.iv. lh intelligent or thosewho got the highest ot tri-m.dl. .nd rllied orgrniz.tbn. ln the Philippin.t. includino Filipino trigrades,but the oneswho havethe drive madia abroad. to excelevenif they did not havethe talP55O.0O/cop i ny t h o P h i t i p p i n . e ; ent or intelligenceto startwith. The ones US'3O a copy to, ov.,B..s ordar!, inclurivo ot mailidg .nd h.ndllng. who arc committedto excelling,to being the best that thev can be. are the ones lmnlgraUon Prssport that finally succeed. Vlsa Manuel Businessschoolsmust emphasizethat l^ 212 pag.., . compil.tionof oftici.l onemustbe motivatedby a gteatergood vba intormallon ttom gmbassics and consulata3of ov€r 60 counhiat. rathet than a narrcw selfishgood. The P550.00/copyin th. Philippih.s; Asianeconomiccrisishasso clearlydemUS$30 a copy for ovar3aas orda.3, onstratedthat if yoUI economicgoalsare inclusive of mailing and handling. very narow, they finally backfue. There 1998 Dlplonetlc and aregoodandbadwaysto makemoney.If Gonsular Dlrectory we ale to stlive for a lastingpeace,it isn't (AvallableMarch 1996) peace enoughto havedefensearmaments, Comp.ahgn3iva liat of toralgn heaties,missilebuild-upsor the inspec- gmbassios and con3ulates in Manila, Ospt. of Fo6ign AtLlr3and Phillppine tionof hiddennuclearsites.Lastingpeace tt|t0rlI|ail0|l. embaggioa and consulatas. alc. can only be achievedthrough the intellectual and moral solidarityof mankind. Philipplnes I€t me citea portionof the uNESco conGovernment citizenry.TheDelorsrepoftmentioneda stitution: "lf war is built in the minds of 'gos pilld lourth for the ard the next cenDlrectory men, then it is within the mindsof them A comprehenalva list of otficag tury: leamingto live together. Education thatthedefenses ofpeacearebuilt." This namos. addossas. Lx and Dhom! ol must havea multicultural and ethicaldiolfic.! in tha lh,aa baancha3ot govamis the foundationof goodbusiness.You mension. In marketing,for example, 'nent. R.l..r.d in 1997. cannothavegoodbusinesunlessyou have P550.oo/copyin th. Philippin.s: you're looking at differentmarketingapgood economicdevelopment,and you US$30 r copy for overleas orde6, * proaches customization, differentprodinclu3iv€ of m.iling and handling. cannothavegoodeconomicdevelopment uct mixes, different managementstyles, unlessyou havepeace.Andyoucar't have The Diplonetic Port and different def,nitionsof clients. In a peaceunlessyou haveits foundations, Monlhly n9wlpapa. of now! and society,youarelookingatits citizens.Geofaafu l€s aboart diftgrgnt countriag, such as tolerance,understanding,and a graphicboundadesarc fast disappearing including 3pocial direct9ri.3. respectfor diversity. because ofthe IT explosion.We haveto PhP300.00.nnu.l 3ubacdplion in th. If a businessman is interestedin the Philippin.siUSt25.00fo. ov.rr..3. be ableto handledifferentcultureswith greatergood- not just in what's good For overseas olders ease.lvhereasit is necessary to havethe for his staff,clientsor his customerbut for Paymsnt ahould bc rcmittld hard management sciencesubiects,the throught.l.grrphic transferto U.S. societyasa whole - therewill be a consoft managementsubjectsmust take on DollarAccountNumb€r5294-O(xF-+4, cernfor makingsue thatwe havea planet geater urgency.The hard sciencesare Th€ Diplomatic Pod PuuishirtgCorp., whoseenvironmentis still livablefor fuBPIFamlyB€nk,EOSA,iihlb€y *!ndr, equallyimportant, but it's not so much ture generations,thatwe have a societf PasayCity,iibto Manib '1300Phila how to do bookkeepingor to operatethe Uponleccipaof remitbnce,copyl€a that doesnot forget the unreachedand computer,ashow to usethe information, will bc mailrd with oftcial recaiDl. the excluded,andmakingsurethereis a the resultsfor people. For ordeF in Philappaneg rcsponsibilitythattanscendsour national Ploacoedd PhP6O.mlo oor/aaD.io. fo. boundaries. meiling.S.nd l.ller ord.r.nd paym.nt Educatlng M.nrgeE throuChdonand dran/nanaga.'achaok I think a concemfor the greatergood p.y.bl.lo The Oiplo.n.tic Po3l Prrbli.lting Thee things arc absolutelynecessary is not just goodmoralsor goodethics,it is Corp.. PO. 8ox 4246 iri.k.ti CPO 12t2, formanagement educationprogamsof the Philippino..Copb. .v.bbb h nrF. bool. also good economicsand most signififuture: dorE .rd hoLl bbby !t|op. b iiLto lbnL. good I cantly, business. Senseot creativityand llexibility. BeFor inquiries Tob: (632)833-2818,833858 causeol the changingenyironment,it's

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i s s o c i a t i o Innsc .V o l .V l l l N o . 1A p r i l1 9 9 8 A P u b l i c a t i oonf t h e F e d ear t i o no f A s i a nI n s t i t u toef M a n a g e m eAnltu m nA

Adapting to Change Ensures Or g areizatioreal Sunriv al - GabyMendoza "The world has just weathered a recessionthat has inflicted on business the same havoc that earthquakes do to civil works," Professor Mendoza said. "It compels us to rethink our philosophy on organization and policies on employment."

ProfessorGaby A{enclozainJakarra

"If we are to sulive and prcsper in the challenging and perilous world of tomorrt)w, we must be willing to change with the changing times." Professor Gabino Mendoza emphasized this point in his talk about "The Organization of the Future" in August last year, which was among a series of activities on continrring management education for the AIM Alumni Ch-rbof Indonesia. The former AIM Presiclent,senior faculty member, and author of several books on management including Management : The Asictn Way, mentioned that the rise of the Infcrrmation Age is a time of " great geological upheaval."

Professor Mendoza cited how General Motors, Caterpillar, and IBM downsized their respective operations to regain competitivenessin the process. This paradigm shift has left the age-old psychological contract tattered and torn. "There used to be an assllrance of employment stability for employees to get their loyalty and commitment. Companies now have to find a new basis or a new reasonwhy employees should commit to them their loyalry and initiative," he claimed.

Inside: Alumni Chapters CampusNews Homecomings Fr.JackMahoney ClassReunions andmore...


"Messagefrom the Alumni Relations Directof"

AIMLink i

15 April 1998

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Dear Fellow Alumnus,/Alumna, On behalf of the Institute, I welcome you back to the Alumni Corner - AIMLink. I am very pleased to inform you that you now belong to a network of more than 24,000 alumni in both degree and nondegree programs holding key positions in business and management in more than 60 different countries.

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Banglaclesh Milon B. Paul Lucius Lai King Pui Hong Kong India Juzar Khorakrwala Through the Alumni Relations Office based in Makati Indonesia Leonard Tanubrafta City, the Institute maintains regular and frequent contact Korea Chul-Jin Lee with alumni and seeks to involve former students and Nepal Bimal Chapagain participants in its various activities. In particular, AIM Tan Sri Dato'ir Talha Malaysia and the Federation of AIM (FAIM) Alumni Associations Haji Mohd. Hashim work closely in organizing annual international Pakistan Shaikh Muhammad Ali management conferences for alumni, members of the Guillermo L. Parayno Jr business community, the officials in government, and Philippines non-government org,anizations. Basic alumni information can also be accessedthrough 'STebsite, the AIM such as the listing of all AIM alumni clubs in various countries;contact personsand addresses of Philippine local chapters; and even privileges and establishmentswhere AIM cards are honored. You can also find recent developments and activities initiated for and/or by alumni at bnp://wwut.aimonline.org/ alumni.btml May I encourage you to get in touch with your local clubs and participate in our various activities. Also, please make it a point to inform us of any information changes. Doing so will allow us to keep you abreast with developments in AIM and your peers updated on your whereabouts. Please feel free to c()ntact me or any of my staff for any comments, suggestions, and/or whenever you require information on AIM, particularly on alumni and placement matters, through the following numbers:

URL Respectfully yours,

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rul{1h..-

ofEqA Dilelor

ODILAIO-BISNAR - Placement & Alumni Relations Officc

MBM '95 MBM'77 MBM'73 MBM'82 MBM'82 MBM'92 MBM'74

EditorialBoard . Bob Chandran Editor-in-Chief.......... Ofel Bisnar Managing Editor ........ Michelle Liwanag AssociateEditor Dandy Claudio FeaturesEditor . . . . . .R . o s eC a s t r o C o p y E d i t o r. . . . . . . . . . . . . . . . Arnel Ferrer Layout Editor ....... Lourdes Co Reporter

: (632')893-74-1.0 : (.632') 892-10-77 to 25 :254/298/360 : ofel@dataserue.aim.edu.ph : alumni@dataserr,-e.aim.edu.ph : recruit@dataserue.aim.edu.ph : http://www.aim.edu.ph

Direct Line/Telefax Trunk Lines Locals E-Mail Addresses

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Singapore Taiwan Thailand U.S.A.

Dulce P. Casaclang Gan Cheong Eng Christopher J. F. Lin Porntip Iyimapun Robert V. Chandran

MM'88 MBM'BO MBM'75 MBM'77 MM'75 MDM'95 MM'76

AhrmniReminder Sendyour e-mai1addressesand update your personal information with the AIM Placement and Alumni Relations Office(PARO) ContactDes Co orAmel Ferrerat Telephone No:(632)892-4077locals254 and360 or at TelefaxNo:(632) 893-741.0.

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CampusNews Ttrelnternationalsfirdâ&#x201A;Źnt Exchangennografii

hosted by the companies. Some of the companies in Indonesia they visited were P.T. Mustika Ratu, P.T.Blue Bird, Prijohandojo, Boentoro & Company, P.T. Tankindo Perdana, P.T. Astra International (Gaya Motor) and P.T. Central Sumahi Motor (Indomobil Group). In Malaysia, the group visited the Palm Oil Research Institute of Malaysia ( P O R I M ) , M a y b a n k S e c u r i t i e s ,M u l t i p u r p o s e Holdings, and T.A. Enterprise Berhad. The study program culminated with ten-week academic classes at the AIM campus from October 13 to December 19, 1997.

AlumniForum with Fr. Jack Mahoney ISEPparticipanls in Kuala Lumpur, Malaysiawith AJM Admissions and Student Services Director Emy De Veyra (second row, extreme leit) and host AIM Club of Malaysia lead by Tan Sri Dato'ir Talha Haji Mohd. Hashim (front row, center).

Twenty-two inbound students from Asian, European and North American business schools joined this Student Exchange school year's International (ISEP) which consisted of internships in Program Philippine corporations, an ASEAN study tour of Indonesia and Malaysia, and academic classes at the AIM campus. The three-week internship from September 1 to 19, 1997, gave ISEP participants the opportunity for exposure to management styles in an Asian setting. They worked on specific projects at the end of the internship program. This year, the ISEP students worked with the following companies: ABN-AMRO Bank, Asian Bank, California Bus Lines, Center for Transformation Organization, Far East Bank and Trust Company, JAD Company, Oiland Development Corporation, PT & T, Swift Foods Inc., Tutuban Properties, US Commercial Service and Varifold Architectural Products. A two-week ASEAN tour from September 22 to october 4,7997 followed, which brought the group to Indonesia and Malaysia for a glimpse at how business is done in the region. They visited companies of diverse industries and interacted with presidents, CEOs and senior officials, most of whom are AIM alumni. There were some olant tours and luncheons

AIM Associate Dean Patricia L. Lontoc hands the plaque of appreciationto Fr.JackMahoney, SJ.

The AIM Alumni Relations Office, in cooperation with the AIM Alumni Association-Philippines, hosted a luncheon meeting with Professor Jack Mahoney, SJ., Dixons Professor of Business Ethics and Social Responsibility, London Business School, last August "Modern Business Ethics," 14, 1997. The lecture on held at the Itochu-Chemoil Room, was attended by a distinguished group of AIM alumni such as Gilberto Vendiola, MBM'76, and Triple A Awardee for 1996; Ed Castafreda, President of AIM CEO Club, and Alumni Representatives of different nationalities; Khoo Boo Boon (Malaysia), Anup Jagwani (Indonesia) and Tony Silitonga (Indonesia). Prior to this forum, Fr. Mahoney held a one-week lecture series with AIM students and other members of the AIM community.


AlumniChaptets lnrdra AIMHumnioflndia Hosts Luncheon Meeting for Philippine President Fidel V. Ramos

Khun Diosdado Salvador and Khun Tanavadee Kasetsuyan, and Khun Suchart Narkasavaek provided donations. The winners of the golf tournament with a handicap of 18 and below were Khun Tayeepong Senivong, champion, and l(hun Suchart Suwannasri, runner-up while the winners with handicap of 19 and above were Khun Viset Phongsathorn, champion, and Khun Somphong Jitanada, runner-up. From the golf tournamentrs proceeds of 10,000baht, ACT donated part of it to the BangramoongHome for the Aged.

Malaysia Ilf;;alaysian Minister Graces zOtIl.AIM Club Dinner Celebration

His Excellency President Fidel V. Ramos poses with the Asian Institute of Management Alumni Association (India) and the Chamber of Indian Industrialist during his state visit to India last March 4, 7997. Jtzar tsJtorakiwala, AIMAA (India) President, hosted a luncheon at the Le Meridien Hotel. Some 40 Indi^based alumni including AIM Govemors Jagdish Parikh and Ratan Tata were on hand to welcome the oresidential entourage.

Thailand Alumni and FriendsCoursethe Greens 2ndACTGolfTournament They were there mainly to relax, not to compete. Thirty three AIM alumni and their friends showed up in full gear at the President Country Club for the 2nd AIM Club of Thailand (ACT) Golf Tournament last March 2. Participating teams included Bangkok Bank (2 teams), Kung Thrai Bank, SGV Na Thalang, RA Advertising, Strong Pak and Zendec. Khun Piti Amnuai chaired this event with Khun Jess Ballesteros as overall coordinator for the tournament. Khun PreechaJamngidanan, Khun John Cabato,

Dato' Mustapa Mohamed, Malaysian Minister of Entrepreneur Development, was AIM Club Malaysia's guest of honor during its annual dinner last July 5, 1997. Other guests included AIM President Felipe B. Alfonso, former AIM Governor Tun Ismail Mohd. Ali, AIM Associate Dean for International Relations Pafiicia L. Lontoc, and the Philippine Embassy's charge d'afl'aires Corazon Belmonte. The Holiday Strings Quartet and the Bubur Cha Cha Acapella Group .provided the entertainment.

A Mdaysian Executive Floor for ACCEED The sixth floor of the AIM Center for Continuing Executive Education (ACCEED) is now called the Tun Executive Floor, in Ismail Mohd. Ali-Malaysian honor of Malaysia's former Governor for Central Bank and former Governor of AIM. Malaysia's representative office and AIM Club Malaysia spearheaded the fund raising drive for ACCEED which generated US$35,000 each from the following companies: Berjaya Group, Island and Peninsular Berhad, KUB Malaysia Berhad, Kuok Philippines Properties Inc., Lembaga Tabung Haji, Malayan Banking Berhad, Metroplex Berhad, Petroliam Nasional Berhad, and Sime Darby Berhad. Nine of the 13 rooms will be named after them.


Philippines

Singapore

No less than His Excellency, Philippine President Fidel V. Ramos swore in the new set of officers of the AAAIM Philippine chapter led by AAAIM Chairman and Bureau of Customs Comrnissioner Guillermo V. Parayno Jt., at the Ceremonial Hall, Malacafrang Palace last July 28, 1997.

Present at the oath-taking cerernony were, (lefi to right)Jose Maria Fernandcz, MBM '73 (Vice Chairman)l Presidential Legal Counsel Rene Cayetano, Malacariang officerJosie Cruz Alirvalas, MBM '79 (Assistant Treasurer)r Dulcc Casaclang, MBM '73 (Executive I)irector); Presiclent Fidel V. Ramost Commissioner Gurllerrno Parayno Jr.. MBM '77 (Chairman); Alfred Xerez-Burgos Jr.. MBM '71 (Aclviser ancl immediate past Chairman); Edtrarclo Trinidacl, '78 (I)irector); '73 ('lieasrrrer); ABMP Mario Gatus, MIIM Danikr (Director); Principe. MBM'76 Gary Gre1,.MBM'74 (Director); Ofelia Oclilar>Ilisnar N1BM '88 (Director); and Evita Oc:rmpo Florendo, '76 (Secretary). BMP Other members of the boarcl who \,vere not '72 in the picture were Defense Secretary Renato De Villa, MIIM ' 8 1 (Secretary); Amina Rasul-Bernardo, MIIM (Director); Jett '89 (Director); Magsaysay, MM Alex Lavina, MIIM '78 (Director); France Monje, MM '76 (Director); Francisco Alampay, MBM '74 (Director) and Prof. Titos Ortigas, MBM '83 (AIM's Chief Information Officer).

Of'el Ilisnar. AIM's Director for the Placement and Alumni Relations Office, and I)es Co, Alumni Relations Oflicer. poses with Singapore'97 basecl MtsM alumni, (from left to right) Mrinmoy Das (ARMS), Sanjay Kapil (Flirdustan Dott-Oliver (1) Ltd.), Akash Mohapatra, Kuncheria Thomas (Caterpillar Asia). Thomas Kuruvilla and Pranab Kumar Sarmah (Daiwa lnstitute of Research Pte. Ltd,) in September 1997 during the Alr.rmni Netn-orking ancl Executive Placement Proqram Caravan.

Hire fellowAlM

graduates

Innovative... Effective... Flexible...

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A dinner attended by about 30 T:rirv;rn,based alunrni was l'reld last November 7, 1997. Guests from AIM $,ere Professor Mariancr Lagman and N{s. Mary Grace Tirona, the new Director of AIM's Public Affairs and Publications Office. Among thc alurnni present were President Chris J. F. Lin (Super Cornntunications Inc.) and Secretary John T. T. Yang (Vurth-The Assembly Professionals).

Vouldn't it be a decided advantage to your company if you had innovative, effective, and flexible managers trained in global management with an Asian network?

Contact: The Director, Placement Office Asian Institute of Management 3/F CoL Joseph R. McMicking Campus 123 Paseo de Roxas, 7260 M^kati City, Philippines Teiefax: 63-2') 893-7410 Trunkline: 63-2) 892-4011to 25 Local254/360 E-mail: recrr-rit@aim.edu.ph


ClassReuniorrs To enhance institute-alumni network linkages, the Placement and Alumni Relations Office (PARO), hosted mini-class reunions for Degree and Executive Development classes celebrating their jubilarian anniversariesin 1998. Some classesthat held their gatherings were:

MBM'73

lxr $ xrx*nr T0 Al.t.

MBM'78 Attended by 18 graduateslast July 37, 1997 at the Itochu-Chemoil Room (Llbrary Extension), the lead hosts for the 1998 AIM Homecoming elected Professor Sonny Coloma as Homecoming Chairman.The classwas treated to a video showing of AIM's past achievementsand its current progfams and activities and a group tour of the ACCEED Conference Center. Professors Jess Gallegos, Dean of the Institute,Jun Bernardo, and Ed Morato were on hand to meet their former students (who were not necessarilyyounger or even youngerJooking than their former professors). PARO and AAAIMPhilippines staff headed by Ofel Bisnar, MBM'88, and Dulce Casaclang, MBM'73, respectively, jointly organized the mini get-together.

MBM'78. Standing (left to right): JesusMontemayor, DeanJess Gallegos, Prof. Jun Bernardo, Chito Alarilla, Abet Mamacatao, Nestor Dolina, Cielito Mecachor, lfilly Pamplona, Prof. Sonny Coloma, Basilio Yap, Ramon Garcia, George Chuacosu, Sergio La Rosa, Mario Sales, Prof. Ed Morato, and Virgilio Mallari. Seated: Ofel Odilao-Bisnar, Lala Fojas, and Dulce Casaciang.

MBM'73. The batch of Dean Jess Gallegos held their class reunion at the Metro Pacific Room of the ACCEED Building last December 17,7997. Seated, from left to right, Capt. Roberto Lim, Roberto Garcia, Dulce Casaclang (Executive DirectorAAAIM), Hilda Rita Lopez, Ramona Ang, Eloisa Reyes-Barretto, and Prof. Francisco Bernardo. Standing, left to right, Prof. Sergio Salas,Eduardo Sison, Ernesto Velasco, Dioscoro Pacis, Bienvenido Araw, Christopher Gotanco, Jose Ma. Emmanuel Fernandez, Mario Gatus, Jose Nograles, Dean Jess Gallegos, Teodoro Villanueva and Celso Vivas.

MBM'88

MBM'88 held their class reunion at the Itochu-Chemoil Building on September 5,1997. Seated,from left to right: Cecile Nubla, Chit Valdellon, Suzette Crisologo-Coldenhoff, Ofel odilaoBisnar, and Ann Tolentino. Second row: CJ. Jesena, Bing Castro-Cacnio, CesarZampaga, lna F abra-Baradas,Olga Lapitan Salas, Joel Baradas, Marvin Beduya, Jess Clamor, Dodge Domingo, Fritz Gaston, Emon Reyes, Eric Olaguer, Tony Matoto, Toti Bengzon, Ric Blanco, M-Rey Morales, Tony Valdez, Rainier Luna, Alfred Ng, Omar Salvo, and lfirst name] Abaya. Top row: Chades Ngan, Mon Dizon, Ed Yatco, and Fred Tiu.


MM'78

MM'78's class reunion was held on November 6, 1997, at the Itochu-Chemoil Room. From left to right: Ed Evangelista,Chito Madroio, Kathleen Yulo, Victor The, and Oscar Josef.

MM'88

MBM'83

MBM'83. Led by Prof. Titos Ortigas Jr., the class had its first â&#x201A;Źlet-together at ACCEED to celebrate its 15th year after graduation. The group looked forward to helping organize the 1998 Alumni Homecoming. From left to right: Luizo Ticman, Kockuan Ong Chong, Cherry Kintanar-Rosario,Titos Ortigas, Dodi Rodriguez, and Greg Atienza. Not in photo are Danny Saracin,Arlene Tan-Balangue, and Amor Salud.

MBM'93

MM'88, the batch of Prof. Tommy Lopez, had their class reunion on November 27, 1997. Seated, left to right: Linda Lim-Mafiy and Michael Mcleod. Standing, Tommy Lopez ancl Juan Tablizct.

MDM'93

Representatives of MDM'93 touring the ACCEED Building during their class reunion on December 4, 1997. Left to right: Reno Rayel, Dave Ingles, Dandy Claudio, Nic Torre and Jerry Leones.

MBM'93's classreunion was held at the Itochu-Chemoil Room. Seated from left to right: Bong Obsuna, Harry Gue, Gerro Santos, Lluljt Lardizabal, Ferdie Henson, Nilo Badiola, Alfred Dy, and Larry Tan. Second row: Nap Go, Elma Laguinia, Tomo Bate, Julie llalarbar -T ahada, Ritzi Elizagacue-Roldan, Marivic Pernia-Sugapong, Mel Kimpo-Ignacio, Dulce Pelaez, Beng Abella, Ruth Inciong-Go, and Butch Guerrero. Third row: Jay Bernardo, Mike Pingol, Sherman Yap, and Bobit Dobles.

Calling all1999 jubilarian classesof '74, '79,'84,'89 and'94. Your classreunions will be held during the second half of 1998to give you opportunify to prepare for the approaching Homecoming celebration. Please contact the Placement and Alumni Relations Office (PARO) for details.


AIM Alumni Homecoming'97 Billed as the most well-attended AIM Alumni gathering, the 1997 Homecorning was held at the Shangri-La Manila Hotel last May 29,1997 with 7,200 alumni and guests in attendance. This year's honorees were the Silver Jubilarians from MtsM'72, who organized the affair with MBM'77 ,'82,'87 , and'92.ln attendance were renowned alumni of the Institute such as Defense SecretaryRenato DeVilla, Bureau of Customs Commissioner Guillermo Parayno, Atty.Joy Estrada, and Mr. Alfred Xerez-Burgos of the Ah-rmni Association who exert considerable influence in the Philippine business and government circles. They were joined by their foreign -based classmates in the festivities. AIM President Felipe B. Alfonso, Dean Jesus G. Gallegos, and other faculty members also joined in the celebrations.

The lucl1r wiru-rerfor therOnc-N1illionJeso Raffle Drau, was Capt JamesDomingo from tl-rel3rrreauof Custornsin Mactan. Cebu.

The People Behincl the Scene - The Hornecoming organizers included (left to light) Casper Javellana, MRN{'77; Dulce Casaclang,MBM'73: Executive l)irector, AAAIM (Philippines); \Tilson Chan, MBNI'77;Jun Nicclao(rvith wife). MBM'77; Ofelia Odilao-Bisnar, MBM'88r PARO Director N4anny Faustino, MBM'77; Susan t,lmaly-Guanio, A'lRNI'77tAtty. Joy Estrada, MBM'77; ancl Berna Lomotan, MBM'74 rvith other AIM Alumni, friends and guests rvho attended the bonrecoming night.

afin@horne.98 Lead host class NIBM'78 otgenize<l a successful homecoming celebration last Febnrary 19, 1998, at the Coconut Palace. l'he event, which commernorated AIM's 30th Anniversary Celebration ancl the Clentennial Apart from bringing together old fiiends to relish past Anniversary of Philippine independence, will be school experiences, the homecoming night was alsc> featured in the next AIMLink issue. an evening of fun as various Filipino performers enhanced the occasion with musical and dance numbers that brought back to lif'e the ambiance of the past two decades. The cast of perfbrmers included ArielRivera. VannaVanna. and the Mulatto Band. EdJoaquin, BMP'77, General Manager of Duty Free Philippines, hosted the event together with Mitch Valdes. Silver Jubilarian class MBM'72 and liiends come to the stage for a souvenir picture.

MBM'78, on the right photo, discuss their plans lbr the homecoming celebration with the Silver Jubilarian class of MBM'73 during the latter's class reunion. Left to rip;ht: Lala Fojas, Mildred Atendido, Itos Chikiamco, Chito Alarilla, and Mario Alba.


A Journalist'sView:

Asia'sLeadershipChallenge Will thefamedpragmatismof Asianleaders beableto breakthe curseof success?

somebusiwhy businesspeoplehowthistyphoonisdesuoying Speechdeliveredat theAsianInstitute I can understand for others the would today naked without nesses, ceating opportunitles Management on April2Q, l QQB, on almost feel of posing profound to Asian Manager's 1)th it. The business and financial developand challenges occasionof The Asian m e n t s i n leadership, my topic today. t h e r e g i o na r e s o b i g , s o anniversary. fast-moving, and so interrelated that no businessperson or investorcan feelsafe Political Will regionalview.For Asia'sleaders wereactuallyfacingenorto bewithyou,andit's withoutan up-to-date ! t's a pleasure pleasure evenbeforethetyphoon to behereas The makeno mistake:A financialtyphoonis mouschallenges I a special Fast-growing Asiawas Mabattering the region. The Philippines has hit last summer. Asian Wall Street Journalbegrns I so rapidlyit I nila printing.TheAsian WallStreet beensparedthe worstof it thusfar,and like an armythat advances for salehere hopefully will continueto be.Butit'scriti getsaheadof its own supplylines.Or like Journalhasbeenavailable forFilininos to understand a buildingthat hasexpandedskylvard, since1976,hashada bureauheresince ca1nonetheless . 1 new storiespiled manyfinecorresponwith unplanned-for la77 andhasposted atoptheinitialconfiguration helter-skelter d e n t sh e r eo v e r t h e y e a r s i,n c l u d i n g until the foundations ate no longeradReginaldChua,the paper'scurrentediequateto allowfurtherexpansion. tot. crisishadnot first Imagine thatthefinancial Asavisiting/ournalconespondent, fromTolcyoandthenHongKong,I have occurred.Eventhen, to keepgrowing, Asiawould havehad to surmounthuge sincethe early1980slookedforwardto bottlenecks, eduinfrastructure In no obstacles: my manytripsto the Philippines. arms tradebarriers, Asiancountryarepeople cationalshortcomings, otherSoutheast maybeeven as races,pollution,corruption, aswillingto talk openlyto journalists Tomakethenextleap resource shortages. Asian theyarehere.In no otherSoutheast manforward,.Asia neededmorefocused of rapcountrydoyougetthesamesense port.But becauseTheAsianWallSffeet on creativity, agement,greateremphasis for talentedpeople increased opportunity solateln theday,I always /ournalatrived from familieswithout "connections." felt a little cut Offfrom the rest of the neededto devolve SomeAsiancountries world.MorningdeliverylinksManiiato powerfiom the centralized stateto comthe restof the reglonand the wolld for panies,churches,foundations and local me,and,I hope,foryou. governments. Theyneededto relylesson And the print launchcouldn'thappen thesingle"gteatleader,"to nurtureleadat a bettertime.If I, asa newsjunkie,felt The crisis according to Lehner: Reform policies and institutions, not values ershipat all levelsof society. cut offwithoutthepaperin themorning,

es;

March-Aprif 1998 | TheAsianManager 51


Asia'sleadYet,if theclisiscomplicates To doalithesethingswouldin thebest of timesrequiredvision,courageandskill. ershipchallenge,it alsooffersAsia's havebeenup to that leadersawindowof oppoltunity.TheFar WouldAsia'sleaders East er n Econ omi c Revi ew pointedlhis fue theyup to it now? challenge? in a coverstorycalling and out lastSeptember The financialcrisiscomplicates Thepoliti challenge. the crisis"Asia'sBigChance." Asia'sleadership exacerbates neededto makedeepand rates,noAsiancoun- cal consensus Despite highsavings to genis impossible changes try, excludingJapan,can thrive without fundamental capital.That'sthe eratewhen all the iineson the chartsare to international access painfulreality.Asiancountrieshavelittle headingsuaightup.It takesa crisisto genhas choice;theymustdo what it takesto at- erateit. Oneof iapan'sbig problems tract internationalcapitalor stagnate. beenthat howeverawful its economy pub1lc the Japanese More looksto foreigners, Tougherbankruptcyprocedures. Higherfot- lacksa senseof crisis.Thatmakesit diffiin accounting. transparency of changeto triumph limitations.Betterbanking cult for advocates eign-ownership regulation.Nevermindthatthenecessary over thosewho benefitfrom the status stepsmay hurt powerfuland politically quo. entrencheddomesticinterests.Ot that sen- Simplistic Views theymayoffendvoters'nationalistic I realizethat in sayingall this,I run a timentsandthreatenpoliticalstability.The certainrisk. Asianswho blamethe crisis alternativeis stagnation. Somemaylamentthe markets'power on globalcapitalismmay assumeI have to shapegovernmentpolicies,but that boughtinto the opposingview that Asia poweris a fact of life worldwide.When itselfis to blame.In fact,I haven'tbought hiseco- into eitherview. And, by the way, I am BillClintonwasfirstinaugurated, nomic adviserswarnedhim that if he certainlynot a shillfor the IMF or theU.S. or intelnationalinvestors.If I went aheadwith his domesticspending Congress a g e n d a i, n t e r e s tr a t e s i n t h e U . S . advocatecertainchangesfor Asia,it is in my humbleopinion,theyare government's debtwouldsoar because, enormous real andthe bondmarketwould tank.Oneof goodfor Asia.Whethertheyaddress matter; the crisis is another causes of Carville, Clinton'spoliticaladvisers, James groused thathe'd like to be reincarnated they'regoodfor Asiaanyway. I amactuallyan agnosticon the causes that'swhere asthebondmarket,because in New of the crisis.At a conference all the poweris. of theUnitedStates Zealanda few week ago,a Singaporean Thatthepresident "Weknowthecauses. declared: is in thesameboatmaynot bemuchcon- academic My reacThey'retheones Let'stalk aboutthe solutions." solationto Asia'sleaders. "Not sofast."I amnot at on the firinglinetoday.They'rethe ones tionwas,andis, facingthe impossiblechoices.Will they all surewe graspwhat causedthe crisis. the moreyou learn about proveup to the challenges? Sometimes TAM meetsAWSJ: (from left) TAM editor Patt Lontoc, AWSJ editor Reginald Chua; Lehner flanked by AIM's Vic Limlingan and Sol Hernando; and AWSJ circulation manager Richard Small.

TheAsianManagerI March-April 1998

something,the lesssule you areyou reWhenI was its essence. a1lyunderstand posted in to Asia as a corespondent first friend advised me, 1980,a iournalist "Writea bookin thefirstmonth."In other words,write it beforelearningtoo many inconvenientfactsthat might fog a prernnrairrad

<nin

In a similarvein,mostof thegrandiose of the Asianfinaninstantexplanations cialcrisisstrikeme aswriting the bookin thefirstmonth.How is it we havesucha of last summet's clearunderstanding marketcrashwhen peoplearestill argu ing aboutwhat causedthe New York crashin 1929?Thefiuth StockExchange is almostcertainlythat the causeswere numerousand their interrelationships complex,which meansmostlikely our great-grandchildren will still be debating PaulKrugman theissue.Astheeconomist saidrecently,"Anyonewho claimsto fu1ly thathas theeconomicdisaster understand overtakenAsiaproves,by that very certainty,that he doesn'tknow what he is talkingabout." I am especiallyagnosticaboutoverly that atffibutethe sweepingexplanations on crisisto thingslike "cronycapitalism" capital the onehand,or "flawsin g1oba1 ism" on the other.And I was positively dumbfounded when an Americanbusinessmagazinelastyearblamedthe crisis on a formerManilaresident,Gen.DouglasMacArthut,on groundsthat he allowedJapanandby imitationtherestof Asiato set up "commandand control" capitalistsystems.You might as well blameit on the Creator. At the risk of soundingcynicalor pedantic,I would point out that financial criseshavebeena recurringfeatureof They everywhere. moderneconomies that were havezappedboth economies relativelycleanandthosethat wete relatively corrupt.They have sometimes involvedflows of capitalacrossborders beenpurelydomestic. and sometimes and Theyhaveplaguedboth laissez-faire formsof capitalism. state-guided what all financialcrisesseemto have risk-taking.Exin commonis excessive risk-taking actlywhat causesexcessive andwhat canbe doneaboutit is another matter,but thereis no doubttherewas plenryof it in Asiain recentyears. LastJanuary,I intervieweda senior


to markets,capitaiandtechnology. capitalflows.I don'tper- access executiveof one of Korea'slargest overshort-term Thiswas the man responsible sonallythink they're the right solution, Thisformulawasperfectfor its day,but a chaebols. for raisingseveralhundredsof miilionsof buttheywouldn'tbetheendof theworld. new formulais needednow, andthe old precisely because it to foreigncapi oneis hardto change dolluseveryyearto financehiscompany's But morebroadly,access chalambitiousinvestments. Sippingteain his tal, technologyand marketshavebeen workedso well. Asia'sieadership the Curseof we talked criticalto Asia'ssuccess, and for Asiato lenge,then,is overcoming officeln a Seoulskyscraper, In the end,I'm confidentAsia's aboutsomeof the company'sfar-flung turnitsbackon themnowwouldbefolly. Success. projects that EuropeandSouthand If anything,tomotrow'sAsiawill needto leaderscan do it. The pragmatism in Eastern CentralAsia,aswell asits movesinto new integrateitselfevenmoredeeplyinto the guidedthem in the pastwill guidethem againln the future. businesses. When I askedhim for his world economy. for Of the manyimaginablescenarios analysisof the risksinvolvedin someof fromthecrisls,I'd focuson rwo. Breaking the Curse theseprojects, helookedatmewith barely emerging fusk,hemadeclear, In the firstscenario, countries like Thai Contraryto the fearsof someAsians concealed contempt. gloatingof someWestvocabulary. Risk land and Koreaand Malaysialearnthe andthe occasional wasn'tin his company's of the crisis.Theirleadersprove ern pundits,meetingthe new challenges was for stodgyWesterncompaniesto lessons its traThey changetheir doesnot requireAsiato abandon worry about.He was confidenthe could up to the challenge. Thechanges neededare raisethe moneyfor whatevernew brain- policies,theyswallowthebittermedicine, ditionalcultures. poli andeconomic stormshis chairmancameup with, and they practicetriageon their sick compa- in politicaiinstitutions niesto keepthe healthyonesalive,they cies,not values."Asianvalues"isn't a riskbe damned. TheAsianvalAnotherthing financialcriseshavein bottomout. Bankruptcies soar,mergers codefor cronycapitalism. liquidity,which and acquisitions soar,the ranksof the uesthat matterarehardwork, respectfor commonis excessive bubbles. Early unemployed soar.Assuming thesecoun- education,strongfamilyties,a respectful naturallyleadsto asset-price an openness to a sma11 trieshit bottomrblativelysoon,theycould styleof publicdiscourse, in1996,1vislted UbonRatchitani, for shades of new ideasanda preference town on Thailand'sLaotianborder,with beout of the crisisin two to threeyearsPaui Sherer,the Asfan Wall Street if severalconditionshold. If Indonesia grayover blacls and whites.Thesevalwith themore in Bangkok. Ubon doesn'tmelt down. If Japan'seconomy uesareperfectlyconsistent Journal'sconespondent pluralistic, g e t representative, market-driven in the surd o e s n ' t a n y I f t h e U . S . hasno manufactudng; the soil worse. greatleap poor. Asia needs for its second is Yet when economycontinues to $ow at a healthy order roundingcountryside we stopped in on thelocalToyotadealer, rate.If china is ableto stayon a decent forward. Finally,in focusingon where Asia was booming.On speculation growthtrack asit reformsits bank and business prop needsto go,let'snot losesightof how far state-owned enterprises. that a new highwaywould bebuilt, painful plices farmers As asit is, this is an optimistic it hascome.As a universifystudentin erty wetesoaring,and1oca1 who scenario. It isn't an impossible scenario, the late 1960s,I readeconomists were sellingland to buy cars. would The articlethat resultedfiom this re- but a 1otof thingshaveto go right.What thoughttheworld'spoorcountries portingtrip had tremendous tesonance. if theydon't?Scenario they neverbe ableto alleviatetheir poverty, two assumes I remainin denial, mustlesscatchup to therichcountries. A businessman in Ubon decided,upon all gowrong.Countries readingit; to cancelhis plansto build a refuseto taketheir medicine,try to keep reada historytextbookentitledA History alive.Indone- of the Modern Worldthat was,with the factoryandto proselylize hisfriendsabout eventheirsickcompanies the dangersof too much borrowing.As sia goesbadlywrong. China'sgrowth exceplionof a few pageson the Ottoman journalists, we appreciate knowingthat slowsand pressureto devaluebuilds. EmpireandMeiji Japan,almostentirelya economygetsworse.The Dow's historyof Europe. our work may havechangedsomeone's Japan's it run-upturnsout to bea bubbleandwhen Thirfyyearslater,Asiancountrieshave life for the better.We alsoappreciate that thosepessimistic recognize whenourcolleagues ou efforts, it bursts,U.S.growthslowssharply.This demonstrated werewrong.And I submitto andthusI amproudto pointoutthaI22 is the "lost decade"scenario-fiveto ten economists you that in the yearsto come,no histoyearsof wastedopportunities to $ow. reportersof TheAsian WallStreetlour Only time will tell whetherAsia fol- rianwill be ableto omit Asiafrom a book nal and The WallStreetJournalwonan one,scenario two, or some calledA History of the Modem World. OverseasPressClub awardrecentlyfor lowsscenario in between.But sooneror later, And when historystudentsin the next scenario their coverageof the Asianfinancialcri Asia'sleaderswill rise to the challenge. millenniumareaskedto recallwhat hapsis. Asia'sleadershaveshownconsiderable penedin Asiain 1997,I predictthe right pragmatismin the past.While develop- answerwon't be financialturmoil.It will Some Scenarios andtheendof dithered,Asia's be HongKong'sreversion Wheredoesthe crisisgoftomhere?It ing countrieselsewhere a neat500 years colonialism, focused relentlessly on growthand European depends on how well Asia'sleadersrise leaders The angrybacklashin pursuedthe path of high savingsrates, afterthe arrivalin GoaofVascode Gama. to their challenge. By then, I trust, it will be very clear Asia againstglobalizationand liberaliza- exportorientationanda strongemphasis chaltion,while understandable, is a worrying on massliteracy.Theytook goodadvan- that today'sAsiamet its ieadership thecurseof success. sigr.I understand thepique.I understand tage of a favorableinternational lenge,andovercame I the argumentfor somesort of controls environmentthat gavetheir countries March-April 1998 | TheAsianManager 53


The Future of Finance:

Learning from the Asian Crisis Theclearestmessage from thefinancial crunch leadsus back to the basics-

prudentfinancialpractices f there'sonefinallesson we canlearn from this financial crisis, it is tharof I go tfre need to back to school andreI I leun the basics of Financeand Economics.A secondmessage is that we shouldalwaysgound ourselves on the financeof a prudenthousewife.In the end,it maybe superiorto the financeof Whartonand Harvardgraduates. How do we guardagainst financialcri sesin the future?Hereis a checklistof factorsandissuesthatspeculators lookfor whentheywant to attacka currency. I l

"

A Host of Factors One factoris overvaluedcurrency. products Whencurrencies areovervalued, are overpricedinternationally,and comp e t i t o r s ' p t o d u c t s 'p r i c e s b e c o m e relativeiycheap.An overvaiuedcurrency alsoleadsto a currentaccountdeficitas exportsare discouraged and importsencouraged.When you incur a current accountdeficit,yourearnings arelessthan youl expenses, andwhen that happens, youhaveto lookfor a wayto financeyour deficlt.In flnancinga deficit,oneusually asks,"Wherewill I get my financing?" and that bringsme to the third issuethe issueof vulnerability. Whenyouhavea currentaccountdeficit, you becomevulnerableto your you spendmorethan creditorsbecause whatyou'reearning. Thethirdissuedeals with the question:"How did you flnance your deficit?"Try to financelong-term 54

TheAsianManagerI March-April t 998

projects with long-term financingandtry prudenthousewifethink very,verycareto hedgeyour financingso that if your fully beforesheputsanyof her savingsor expenses are in dollars,then preferably borrowsanymoneyfor business or investyourincomeshallalsobein do11ars. Then ment. For the countrieswho have you'rehedgedin termsof currency. Dur- experienced meitdown,the mdn issueis ing the crisis,manyof our economic and that of inefficientinvestments. No matter financemanagers violatedthesebasicprin- how rich you ale, if you put your money ciples.Wereliedtoomuchonveryvolatile in the wrong business and the wronginportfolioinvestmentsor on short-term v e s t m e n t ,y o u c a n b e c o m e p o o r debt.We alsofinancednonexport-ori- overnight. enteddomesticprojectswith short-term Thecure?If currencies areovervalued, foreignloans.This was the problemin then you depreciate.That solved indonesia andThailand, problembecause andto someex- Singapore's theydidnot tentin SouthKorea. havea currentaccountdeficit,but a curThefourthfactorcurrencyspeculators tent accountsurplus.In Singaporean look for is efficiencyof investments. A financing, thepresence ofa surpiustranslatesto lesserdependence on financing fromabroad,andSingapore hasbeenquite cileful in theefficiencyof its investments. So,in theircase,depreciating thecunency easilysolvesovervaluation.

Neri on the financial future: It's a return to the basics, and taking greater care

Inefficient Investments ThePhilippines, on theotherhand,has both an overvaluedcurrencyand a large currentaccountdeficit.Althoughwe do not havemuchof a problemwith flnancing, we reliedtoo much on portfolio investmentsbut did not overborrowin termsof short-termborrowings.If the Philippines hada problemwith inefficient investments, then we would be in deep trouble,becausethat takesa very long timeto resolve. Whatthenis the solutionfor countries that haveproblemsof inefficientinvest-


How do we ments?If the problemstemsfrom too On the otherhand,if your projectsare solvedis theissueof agency. makedecisions loansthatcannotbere- good,the bankersarerepaid,the inves- makesutethat managers muchshort-term insteadofjust and thatbenefitthestockholders paid,asis usuallythe case,that'sthe time torsarerewafded, thereis corporate In manycompanies in Asia, thesecountrieshaveto run to the Inter- economicgrowthand job creation,and themselves? they is stable. agencyis verystrong.Forexample, nationalMonetaryFund (lMF) because your balanceof payrnents Tobeableto achieve these,someprob- maybemakingtherightdecisionbut they only the IMF cantakecareof a 4060 billiondollar-tlpeofloanrestructuring. lemsneed to be resolvedin the Asian keepall the rewardswithin the company in Southeast anddo not passthemon to shareholders. systems, especially If theproblemisinefficientinvestrnents,economic of a gooddethe Asia and includingChina,which has In otherwords,thebenefits becomes reforming thebankingsystem perks, of around65 cisionresultin a lot of corporate muchof theintermedia- bankswith capitalization solutionbecause for themselves, but very is billiondollarsandproblemloansof about highersalaries tion betweensavingsand investments Thisiseasto shareholders. coutsedthroughthebankingsystem.IMF $175 billion,or around60 percentof littledividends in the UnitedStates because normallyputsthat into the conditionality China'sGNP,doubleKorea'spercentage i1yresolved your of GNP. when agencyoccurs,or the corporate suchthat you endup de-politicizing do not sharetheneedsof their Thereis a needfor thebankingsystem managers decisions soasnot to endup investment the stockpricegoesdown, corporate sectorto be mote transparent shareholders, with verybadinvestmentpositions. the company beLet me now focuson efficiencyof in- so that investorscan investmoreeffec- andwhenthishappens, areproperly comesripefor a companytakeover. vestmentsbecauseit is a very grave tively.Oncetheir decisions for corporate problemfacingthe financeof the future. Lastly,anotherchallenge managers ln financeis the volatilityof We startwith the saversandinvestors capitalflows.This is a very big problem. moneyinto the who put theirhard-earned as Moral hazard happens banksasdepositsor into corporations Justlike typhoons,they comeand go. How do you dealwith them?Thesecapiand the very crucial stockinvestments; because you're not made questionthat hasto be answeredby the tal flowswreakhavocon the realmalket 80 perbecause financialflowscomprise responsible and not made to banlsis:"Dowe lendor not?"Whenpoli centto 90 percentof the totalflows,far ticscomesin to thepicture,theycanlend suffer from the results of a exceeding the tradeflows.That is why for the wrong leasons,and to the wrong andvolatile. projects.If corporatemanagers they'resounpredictable, ale not bad decision. prudent,andbecome Let'ssaythere'sa surgeof capitalinthey tooaggressive, flowswhich normallyresultsin a strong tendto investin badprojects. - in turndiscouraging policies exports, currency To a largeextent,government proper in trade imports and resulting inforencouraging investrewarded, they will need the affect the efficiency of these also in capital deficits. When there's a surge That's issue transparency. an overvalued mation. the of ments.Forexample, having plentiful, pressing liquidity becomes and of ad flows, investA second issue is that currency,normallydiscourages people more careless with inbanks' tend to be verse selection. This refers to.the mentsin expoltsandtendsto encourage just gave policies, It's as if somebody market vestments. their conditions, and the in nontradable exports,such investrnents thebadprojectvis-d- your familya 1otof moneyso everybody as real estate.An overvaluedcurrency thattendsto choose g o o d hasmoneyto spend.Thatmoneytends in what v i s t h e o n e s .F o r e x a m p l e a, investments which discourages "tradable," good because an overvalto gointo tealestate, very,very hlgh interest rate repels the the lackof abilityto we call discourages manufacturing, ued currency competein the exportmarket,andcheap borrowetsand forcesthe bad borrowers andexports. imports shift investmentsto the to staywith the bank.Highinterestrates investments, effectin the Again, the hollowing-out sector;andthe mostlogical tendto resultin adverseselectionwhere nontradable good the reai you go occuts, damaging borrowetsaretutnedoff. Only bad economy sectorthat can lnto is nontradable for both ecoThe challenge the realestate.We seethenthat an over- borrowersremain.The samething hap economy. pens policy. now is how finance managers In a nomicand in a bad economic valuedcurrencywas one reasonwhy manypeopleinvestedin the real estate politicallymotivatedinvestmentpolicy, theydealwith thesetypesof inflowsconthedamage andchaostheycause advetse selection comesintoplaybecause sidering sect0r. projects chosenmay not alwaysbe in the economy. Entry barrierscan alsoaffectinvest- the In thepast,whentheseflowscomeout, can havean good. ment decisions. Incentives The thitd issueis the issueof moral financialchaosoccurs.Insteadof having impacton decisionsby shiftinginvestand a strongcurrency,your currencydrops. mentsinto eitherthe right or wrong hazards,How doyoumakebankers, projects. for their own And insteadof havingptopetliquidityin Thechoiceof goodprojectsis a financialactots,responsible very convery crucialdecisionto be madein fi- actionand take the heat if their actions the system,liquiditybecomes nance.This is how foreigninvestors, resultin somethingbad?Moral hazard strained.There'sno definiteanswerto like you'renotmaderespon- this,therehavebeensomeproposals because checkthevulner- happens lendersandspeculators abilityof a countly.With badinvestrnent sibieand not madeto sufferfrom the the Tobin tax, your tax inflows,so forth projects, you becomeveryvulnerable andsoon. Thisneedsto be resolved.I be- resultsof a baddecision. loans. The fourthproblemthat needsto be cause ofyourinabilityto repayyour March-April 19981 TheAsianManager 55


The Environment Baromerer:

Doing Businessin "Green" ASEAN Environment friendltnesshasbecomethepreferredindustrialmode, but are the developingeconomlesreadyfor this?

surgeandurgefor externalforcesfail to inducesuchinitia- increased profitsand sales.Thesenew I n thedesperate growthandhigher tives. more economic products wouid alsogenerate newopporI productiviW, many organizations preferred tunities and offer more substiI I overlook andfailto reviewprojects Corporate Benefits tutes.Therewill be lesswasteproduced which causeseriousdamage to the enviTo develop a practical strategy to make andalsolessrejections on accountof not ronment.Organizational concernforsafe- organizations takea positiveapproach to- meetinginternational regulations. Thus guardingthe environment is a relatively wardtakingenvironmental initiatives,the productivity wouldriseandsowouldthe recenttrendamongmanufacturing com- manager firsthasto seethecorporate ben- marketshare. panies in developing economies. Sincethe efits.Hence,thefirsttaskwouldbeto enIn the Philippines, the generation,/enlateseventies, differentinternational and hanceawareness asto the strategicben hancement of strategic benefitsis perdomesticenvironmental organlzations efits.The managers shouldb'einformed celvedto be emanatingfuomtacticalbenhavetrieQto promoteconsciousness on thattheirorganlzation profitsandcostsavingsJ. wouldgainin com- ey'ts(short-term thenegative effectsof rapidindustrializa- petitiveness, proflts,new mar- Thus,in thiscountry,the roleof tactical long-term tion on the environment. Amongthe ket opportunities, productivity increases, benefitsemanatingfiom environmental Ieasons citedfor the depletionof natural marketshare,andsa1es, andsoon,if they initiativeshasto be emphasized first. If resources are the productionof toxic undertookenvironment initiatives. the managers therefore, informedof the wastewhichleavesa negative impacton As theworldbecomes moreandmore substantial costsavingsand short-term soil,atmosphere, rivers,and lakes;air environment conscious, a company which profitsgained in undertaking environmenemissions; solidwastes; nolseimpacts; ol- producesenvironment-fiiendly products tal initiatives,would then alsobe confactoryimpacts; andsoon. Thesein turn becomes morepreferred thanthosewho vincedaboutlong-term strategic benefits. leadto coralreefdepletion, cyanidefish- do not. Thiswould,in time,giveriseto Theywouldthenperhaps havea $eater ing, globalwarming,greenhouse effect, compulsion to takesuchinitiatives. depletionof mangroves, extinctionof In Indonesia, howevel,it is the safls wildlife,mineralabuse,andso on. faction funefitsthat reallyleadto stateApparentapathytowardenvironmengicbenefits. Thus,in thiscountrythemantal concernssometimes stemfiom peragersshouldbe awarethat environmenceivedlackof corporate benefitsbothin tal initiativeswould enhancethe product the strategicand tactlcallevels.Someandcorporateimagesubstantially, which times,theobstacles to environmental ini would bringaboutthe strategicbenefits. tiativesemelgefiom the notionthat such In Malaysiaand Thailand,sinceboti endeavors turnout to be costly.Thelack tacticalandsatisfaction benefitsaffectstraof expertise or lackof drivingforceslike Kestemonte and Rao: Managers must first tegicbenefits, therateof bothconstructs marketmechanisms anddirector indirect see the corporate benefits shouldbe emphasized. 56

TheAsianManagerI March-April 1998


benefltsascomparedto the cost. anyothercoun*Yf, it is the In somecountrieslike Thaiiandand indirectexternal. agreeIndonesia,the links betweenlack of ex- ments,in , etc.J perienceandlackof commitmentarealso which playa significant.Thus,in thesecountriesthe In the Thaimanagers couldbemadeto beawarethat land,it is the {En' if the technology for properenvironmen- vironmental Obstacles ppulaThesinglemostcriticalobstacle to tak- tal action could be freely availableand tion, national rFedia) environmental initialive is that it is moreexpertisebroughtin with the help which bring ing nl-#tion. perceivedto be too costlyand lackingfi- of domeslicand international agencies, tiativeto taking nancialsupport.Thisis seenin the Struc- thenit would bemucheasierfor themto Thus,these.gl be file fot all developcommitmentfor environmental encouraged turai Modelsfor the obstacles to to infour counffieswhere the links between action.Of course,the experience haste- ducemanu :t{ take cost-construct and lack of commitment- allyto bebroughtin to facilitatesuchcom- environmental in all constructare highly significantin every mitmentand action. thosecountriep case.Thisperceived"cost"notioncanbe role, doesnotseem toetrsi that this little DrivingForces with more awafqnee$, overcomeby emphasizing Lookingat Driving Forces,it appears growing additionalinvestmentwould be totally overtheye$h.Ffrih'lssureto justifiablewhen huge strategicbenefits that it is only in the Philippinesthat the beenhanced. Verysoot{#@e will come acmuein the organization. Thustheman- marketmechanism(competitor,con- whenthemarketi*alf n4['t?itrt a prodagers shouldiookupon"cost"in conjunc- sumer,organizations, customers, etc.)has uctfroma companywlddlistsnothave tion with the corporate benefitsandmust a signiflcantrole to bringaboutorganiza- environm entalinlti*S*t"".+ be awareof the much highervoiumeof tionalinitiative.This doesnot happenin Once the manageris ableto seethe initiatives,it is benefitsof environmental possiblethat helshe would like next to or problemswhich examinethe obstacles maybe faced.

March-Aptil I


partof thefindings Thispaperpresents of an ASEAN-ECfundedextensiveresearchconductedjointly by the AsianInstituteof Managementand the Catholic Universifyof Louvainin 1997to explore theperceived corporate benefits,thechlef drivingforces,andthe maiorobstacles in undertakingenvironmentalinitiativesin leadingmanufacturing companies in the Philippines,Indonesia,Malaysia,and Thailand.In orderto ardveat meaningful comparisons betweenthe resultsof these four countries,bothexploratoryandconfirmatoryresearch havebeencarriedout. ReseuchDesigr.To capturethe salient features of managers' attitudestowardenvironmentalinitiatives, a minimumrandom sampieof 50 companies from each country was obtained.Using the countries' top 1000 companies as sampling quesframe,an extensiveandexhaustive tionnairewas administered. The sample sizeconformsto a 95 percentconfidence leveland marginof enor of lessthan 15 percent.Thequestionnaire wasmailedto 514 companies in the Philippines, 494 companies in Indonesia,572 companies in Malaysia,and430 companies in Thai land. 61 Philippine,31 Indonesian, 35 Malaysian, and32 Thaicompanies finally completedthe questionnaires. Data Analpis. To assessthe actual influenceon the companywhen considering to undertakeon environmental initiatives, the following driving forceswere examined:compelitors,consumerorganizations,customers,distibutors, management, employees, iaborunions,environrnental organizations, bartk, insurance companies, voluntarya$eement,local population,nationalregulators,international regulators,owners,press./media, scientificinstitutions,and suppliers. FactorAnalysis.Using the ratingson the S-pointscaie,a PrincipalComponent Analysiswas catriedout, combiningthe data for all four countries.The KeiserMeyer Olkin index was = 0.84, which was highlyacceptable. In orderto deter58

TheAsianManagerI March-April 1998

Strategic benefits

Competitiveness Long-term profits Marketshare New market opportunities Productivity increases Sales

Satisfactionbenefits

Corporateimage Ownerssatisfaction Productimage manaqementsatisfaction

Tacticalbenefits

I Cost saving

Cofipalitivansss

Mark*tshsr6

Y*:ti*,r1,=l $ales

Pr0ducl ifiage

Top managementsaler


Marketmechanism

Competitors C o n s u m e ro r g a n i z a t i o n s Customers Distributors Suppliers l n s u r a n c ec o m p a n i e s Voluntaryagreement

o . o o .

Lackof humanskilledresources Lackof financialsupport No feasibletechnicalsolutions Difficultiesto organize Low demandfor environmental products . Too costly o No reguiatoryincentives . No competitiveadvantage

Indirect-External forces lnternationalregulators Scientificinstitutions

Usingthe rafingson the aboveitems,a completePrincipalcomponentanalysis Domestic forces Environmentalorganizations was carriedout for all respondents from Localpopulation generated all four countries.The analysis Nationalregulators a KeiserMeyer Olkin index of 0.67. Press/Media Thereafter,a Varimaxrotationgenerated Management thefollowingfactors with theconespondEmployees ing indicatorvariabies. Owners Followingthe sameline of approach as for the Driving Forces,the next objectivev/as to identify the linkages mine the factorloading,a Varimaxrota- Obstacles In this part of the researchthe objec- betweenthesefactors.However,in ortionwascarriedout. moremeaningThe factorsasmentionedaboveiden- tive was to assess the role playedby the der to makethe analysis tifiedthe inherentpropensilies for implementingthe ful, someof the latent constructswere or dimen- followingobstacles sionsin the dataasperceivedby respon- envitonmental management, asperceived redefinedaccordingto usual logical In otherwords,the Prindentson differentaspectsof the Driving by the respondents, in their companies: understanding. cipalComponentgenerated factorswere Forces.The next objectivewasto setup o Lack of informationregardingthe modifiedto a certainextentwhen underlinkagesbetweenthesedimensionsand tools takingthe Lisrelmodeling.Thus,for indeterminewhich dimensionsigriflcantly o Lackof management stance,the generalfactor,labeledlack of leadsto otherdimensions. support experienceabove,was bifurcatedinto: StucturalEquationModeling (Lisrel modeling).lnorderto construct Sffucturai aswell as Measurementmodelsfor the latentconstructsfor the Driving Forces, the followinglatent consffucts(unobservedvariables) were used. Thedatafor drivingforcesis composed of foursetsof datafrom the four different countrieswith differentbackgrounds and differentconcerns.Thus,separatesiluctural modelsfor the four countrieswere developedand statisticallyvalidatedusing variousquantitativemeasures, while keepingthe measurement modelsthe same. Eachmodelhad an acceptabie Chi squaresignificance level of more than 5 percent.While the criticalratioshad to bemorethan 1.96to besignificant, these were slightlylower in somecases.The modelswere run with the AMOS-graphicsfor Windowssoftwarein conjunction programs. with EXCELspreadsheet

March-April 1998 | TheAsianManager 59


,i,..!,

(a) lack of nt and (b) lack of :experlence. In the ftld"&Hh&p latentconstructs

and thd Ntrdryf.ft{kator variables whichforM #seasurement models giwn asioiiows. rortlw{t{nffiSw ffilre latentconfor thefour using the the

have a lev,Gt

obtainedfiom

Lackof experience

Lack of information regarding the tools No feasibletechnicalsolution Difficulties to organize Lackof human skilled resources

Low demandfor environmentalproducts No regulatoryincentives

foundto valuehaving

than5 per-

Lackof financialsupport Too costly


cent. The followingtablegivesthe four modelsfor the differentcountries,completewith the unstandardized regression co-efftcients andthe criticalratioswhich, ideally,shouldbe geaterthan 1.96.

l,nck af inionfretion

CorporateBenefits Thissectionof the research aimsto assessthe estimatedbenefitsof corporate environmental actions.The queslionrelatedto theseestimatedbenefitshad the followingitemsto beratedon a fivepoint scale,with 1 asvery negative,2 asnegative, 3 asno influence,4 asposilive,and 5 asvery positive. . Competitiveness . Corporateimage . Costsavings . Long-termprofits o Market share r New marketopportunities . Owner'ssatisfaction o Productimage o Productivityincrease o Sales o Short-termprofits . Top management's satisfaction The Principal Component Factor The explanatoryfactor analysiswith PrincipalComponentcriteriayieldedthe followingfactors,with the associated labelsand indicatorvariables,as givenin thefollowingtable.Thefactorswerealso subiectedto varimaxrotation. The factorswere generatedusingthe combinedUatafor all the four countries. For the subsequent Lisrel-modeling the samefactordefinitionwasusedto deflne the Measurement models.However,the sftucturemodelsweredetermined ashaving differentlinkagesfor the different countries. The analysisworkedout in detailthe latent constructs{unobserved variables) and the linkagesbetweenthem. Thus, there are distinctperceptionmodelsinvolvingdrivingforces,corporatebenefits and obstacles, as perceivedby representative respondents in eachof the countries concerned.With thesemodelsto assistthemakingof actionplans,thefield is now readyfor the layingdown of marketingstrategy to inducemanagers to take environmental initiatives.

lcc:lnicai s$h:li{:ns

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Recognitronof the environmental challenge Managers Attitude Driving Forces Obstacles Faced Definition of lssues lncentives

Management Response

Environmental Strategy EnvironmentalSystems IEMSI

Results

Environmental Performance Biophysical Socio-economicaspect Productionand results in other areas

March-April 1998 | TheAsianManager 61


Strategizing in the Global Age:

The NAFTA Exoerience t

Onenotableeffectoffree tradehasbeenthe outpouringof Canadtaninvestmentsouthwardinto Washington, New York,andNew England.

odaymanygoodsandservices that nical personnelamongits subsidiaries. of localproduction,with onlya minimum were providedlocally,including The multinationalenterprise assumes a of directinvestment. perishable products, giobaloutlookstrategy. andseasonal (FTA) BeforetheFreeTradeAgreement partsof inte$atedproduction proMorethan40,000multinational enter- andNAFTA(NotthAmericanFreeTrade cesses,routine officework and direct prisesin the world controlmore than a Agreement)went into effect,largerCa'nadian consumercontact,aretradedglobally. firms beganthinking North thirdof all private-sector assets anda quarWhatarethe forcesat work in the glo- ter of the productsmanufactured in the American. They had beenadoptingdebalage?Thepaceof technologicai change world marketeconomiestoday. For fensivepositionsagainstincreased and the spreadof worldwidemarket Canada,thesereachvery high levelsbe- competitionandfor maximumadvantage economies ale amongthe forcespromot- causemoreof themining,peiloleum, and of new opportunities.Many firmssetup globalization. ing The reducedtransport manufacturing Toronto, sectors areowfledandcon- officesin Monterey,Guadalajua, costsandadvances in telecommunlcationstrolled by foreign multinational and Chicago,in anticipationof a new and computingsystemsspeedup infor- enterprises. Themultinationalenterprise NorthAmericanmarket. matlonflows. Globalcommunication producesin anycountrywherethe costs TheffendtowardNorthAmericanprohelpfirmscoordinatetheir finan- of materials,labor,capitalandtransporta- ductionreallybeganwith the US-Canada systems cial operationsand productionplanning tion areminimized. It alsousestransfer FreeTradeAgreementof 1989,but inin manycountties,and enablethem to pricingto shift its profitsto the country corporatedadditionalprovisionsrelating manageglobaloperations. with the lowesttax rates. Leadership in to Mexico's entry into the group. The coversnot onlyphysicalgoods, innovationis a keyelementin technology- agreement Shapers of Global Economy intelecommunications, intensive industries suchaselectronics and but alsoservices, Theprincipalagents reshaping theglo- pharmaceuticals. Asagroup,multinational vestment,intellectualproperty,and a baleconomy arethe gowingnumbersof enterprises investmorein Research and varietyof othermutualconcerns.These multinationalenterprises. Thesetrans- Development(R&D)thanother enter- provisionsincludethe phasingout of tarnationalcorporations accountfor the prises.They are able to transferthis iffs on 99 percentof the goodstraded inceasingvolumeof ForelgnDirectIn- technologyabroadwith little additional amongmembers.Tariffandnontariffbar(FDI)anda largeproportion vestrnents of costs. will also rierson agriculturalcommodities international trade.ThemultlnationalenForoperating with stablegov- be phasedout within 15years. countries terpriseis a companywith headquarters ernmentsandlarge,prosperous FreeTrade The 1989 US-Canada markets, in onecountry,andcontrolsmanufactur- multinationalenterprises turn companies generallyprefer AgeementsawCanadian ing facilitiesand salesin many other FDIs.In developing productsthatmade countries with a high out highlyspecialized countries. It involvestheflowsof capital, levelof politicalrisk, theyrely mainlyon their way into the United Statesin imgoods,services, andmanagerial andtech- exporting,togetherwith somelicensing pressivequantities.NAFTAfurther 62

TheAs[anManager1March-April 1998


The North AmericanFreeTradeAgreementhas t h e h i g h e s t i n t r a r e g i o n atlr a d e r a t i o a m o n g t h e subregions of the Asia Pacific Economic Coope r a t i o n ;a l t h o u g ht h e r a t i o i s s t i l l l e s st h a n o f t h e EuropeanUnion. NAFTAexports rely heavily on its member economies(seeTable)with more than 30 percent of its exports going to the region itself. However,it should be noted that the export share to China,Chinese T a i p e ia n d H o n g K o n g C h i n a ( C H T )h a s i n c r e a s e ds t e a d i l ys i n c e 1 9 8 0 . Moreover,APECeconomiesreceivemore than 50 percentof NAFTAsexports,and that ratio seems to be set in a long-term upward trend.

NAFTAsimports also come primarilyfrom the region itself, at more than 30 percent over the w h o l e p e r i o df r o m 1 9 8 0 t o1 9 9 5 .A s s h o w n i n t h e sametable,that sharehas steadilyincreasedsince slipping to a low of 31.7 percent in 1986. However, the import share from CHT has shown the strongestincrease,climbing steadilyfrom4.7 perc e n t i n 1 9 8 0t o 1 0 p e r c e n ti n 1 9 9 4 . M e a n w h i l e , t h e i m p o r t s h a r ef r o m t h e E U h a s b e e n o n t h e d e c l i n es i n c e r e a c h i n ga h i g h o f 2 0 . 1p e r c e n ti n 1986. In sum. the status of APECeconomiesin NAFTAstrade relationsis obviouslyrising,a wellk n o w n p h e n o m e n o nt o m a n y o b s e r v e r s .

Distribution of NAFTA's Exports to APECSubregions and Other Unit: %

50

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China,ChineseTaipei,HongKongChina Australia-New ZealandCloserEconomicRelations ThoseAPECeconomies not included in NAFTA.AFTA.CHTor CER European Union Restof the World

1421slr-April1998 | TheAsianManager 63


guralmeetingof an organization extendedthistrend,asfirmsconductedtheir morelabor-intensive taskedto dealwith the problems that developingcountriesfacein operationsin Mexico. By thus GATT negotiating rounds or the manufacture of marketingtheirproductsin theinconcentrating sessions took place as follows: certainproductsin one location, dustrialized countries. TheUnited firmswere ableto generatethe NationsConference onTradeand first in 1947, then the Geneva Round in (UNCTAD), economies of scalethatgavethem Development operpower. 1949, ANNECY Round in 1950, Uruguay world-class competitive ates jointly with GATT, the Nationalfirms of all three meminternationaltrade centerin Round in 1956, adopted this North ber-countries Geneva. It functionsthrough Geneva Round in 1960-1961, Americanstrategy. committees, eachconcerned with The Canadianeconomygrew a particular staplecommoditypro Ditlon Round in 1964-1967,Kennedy Raund rapidlyin 1994helpedby an exducedin developing countries. portboomgenerated in 1973-1979,Tokyo Round, largelybythe ByptovidingCanadian compasharpfall in the externalvalueof nieswith neweconomies of scale, and the Uruguay Round in 1986-1994. the Canadiandoilar. NAFTA the originalFTA, and now the membership helped,accelerating NAFTA,in additionto lowered economic deregulation andpushtradebarriersby GATT,boosted ing sffonggowth in the United thefirms'worldwidecompetitivewhich accounts for morethanB05 States, ness. The resultingexportsurgemade merchandise of Canada's export. The Canadathe fastestgowing of the seven tradeboom in 1995 helpednatrow buriers.Theseroundsprovedinadequate leadingindustrialcountries. As a result, Canada's currentaccountdeficitto $ 13.1 in dealingwith internationaltransactions Canadabecamethe chiefwinner in billion,the lowestin 10 years. ftom both otherthanthe reductionof tariffsanden- NAFTA. Foreigninvestments Theexchangerateplaysa leadingrole forcement of ruies for trade in UnitedStatesand non-NorthAmerican pouredinto Canada. in Canadamonetarypolicy. Thisreflects manufactured goods,agriculturalcom- sources producthe country'sdependence on world de- moditiesand internationally The advantage for companies traded mandof commodities and U.S.demand services.Althoughthe originalGATT ing in Canadafor North Americanand goods.Themoneymar- chartergranteddevelopingcountriesa world marketsare lower costsbecause for manufactured ket pushesthe crucialovernightrate up broadlicenseto usetradedrestrictions rateof the Canadian to of a 1owexchange or down in directreactionto a riseor fall protecttheirbalanceof payments, many dollar; the high productivityof a loyal, in the externalvalueof the Canadian dol- of thesecountrieswere dissatisfied work force (engineering with well-educated lar. The Bankof Canadaconstructsa theresultstheyhadachieved fromGATT. and technicallaborcost30 percentless MonetaryConditionIndex(MCI),which Theyobjectedto the fundamental and access to ratio- thanin theUnitedStates): givesa short-hand measure of combined nale for GATT,which was basedon the world'slargestmarket.One notable impacton short-terminterestratesand neoclassical tradetheory,with its idealof effectof freertradehasbeenanoutpourthe exchdngerates. This helpsthe bank universal fieetrade.Thistheyconsidered ing of Canadianinvestmentsouthward to decidewhetherit needsto adiustmon- inappropriate into Washington, Minnesota, New York for theirproblems. etary policy in order to pursueits 1 Responding to thiscomplaint in 1994, States,and New England.Since1989 percent-3 percenttargetfor inflation.The the UnitedNationsconvenedthe inau- the total valueof Canadiandirectinvestpaper MCI usesthe 90-daycommercial ment in the UnitedStateshas closely t^lo thp lt'zrlomatchedthat of weightedexchange U.S.investments in Canada. rate, againstthe groupof 10 leading the stratC1ear1y, industrialcountries. egiesof Canadian It is importantto companies in the Y rn n OurwanoFDI Srocx globalagearesucmentionthe contri1980 26.93 1n bution of the cessful providing a strong GeneralAgreement 1990 25.16 competitiveposion Tariffs and 1992 22.69 Trade,and its suction in a global market. I cessor,the World Source:lndustry Canadacompilationsusing data from various sources. TradeOrganization (WTO),in lowering tariff and nontariff 64

TheAsianManagerI March-April 1998


REVIEW

TheAsian Managemente Manager's the TAOand the AsianCrisis By Slxto K. Roxas

fravea simpletestfor judgnghow I feelabouta newbook. Newly Industrializing (NIES)of Southeast Economies Asia ffre t.rt of .nuy. If, as i riad it, I feel, I wish I had written Indonesia, Malaysia and Thailand." I .l. it, thenit's a qoodbook.I feltthatwhenI readSilos'Olkos.. Theeightincludingjapan arelabeled"HighPerformingAsian TheTwo Faces ofbrganization (Astanlnstitute of Management, Economies (HPAEs), sharingtheseperformance characteristics: . From 1960to 1990thesecountriescombinedturned 1991).ByandlargeI feelthataboutManagement andthe TAO: Organizationas CommunityfAsianInstituteof Management, out an average per capitarealincomegrowthof 5.5 percent 1998).Not asmuchenvy,however.I recognized that I could peryear.Bythiscriterion,Chinabecomes a ninthHPAE,having not havewrittenit. Silosis uniquelysuitedto bdits author.I do hada 5.8%per annumgowth in per capitarealincomesince not know anyonein Philippine management education who is 1965. o They havealsoshowna consistency asfamiliarwith the Germans-Weber, Popper,Habermas, and of growth over theFrankfurtCriticalSchool. Now,he hasbecomea Confucian this period.Somecountrieshad high growthratesduringthe scholarasweli. decadeof the sixtiesbut growthtapereddown from 1970to In Oikos,l said,usinga mininganalogy, that the veinsof 1985.Taiwan,HongKong,Korea,Singapore, andJapanhave insightsSiloshad openedup on this whole field of eastern shownthisconsistency. MalaysiaandThailandhavemaintained contributions to management couldbe minedat manyievels. growthratesduringboth perlods.Indonesia hasmovedfiom Therewererich outcroppings thatthepractitioner couldpickif amongthe lowestin the first periodto amongthe highestin hechoseto "high-grade" themine.Thereweremldleveldeposits thesecond. . Thesecountrieshaveshownhighgowth in realphysical thatthemoreserious studentcoulddigthrough.However, some of therichestnuggets wouldneeddeeperexplorations to getat production,primarilyin industry,and moderategrowth in the profoundspiritual,philosophical, cultural,andsocialroots agriculturefor thosewith hinterlands. o Theyhavemobilized of our modernbureaucracies and business organizations. highGrossDomestic Savings rates Managementand the TAO preciselydelvesinto the deeper of around30%of GDP.Asforeigninvestments pouredin to ride regions. on the growthmomentum,GrossDomesticInvestments run at Thebookwaswrittenwhen the EastAsiancountries were ratesof between37 to 41 Dercent of GDP. 'What puttingon an economic growthperformance thathadbecome made the wonderof the world. It was beingcalledthe EastAsian the performance miracle:a quarterof a centuryof almostuninterrupted growth interestingwas the in GrossDomestic Product(GDP),in exports, in incomes andin way it defied humandevelopment measured in termsof distribution equity, the conventional lifeexpectancy, amenities andlifesryle. dichotomies: Westand With theeconomic boomwasapublication boomin literature E a s t , M o d e r n a n d analyzingthe factorsthat accountedfor the prodigious Traditional,Rational performance of thesecountries. and Intuitive. The A special WorldBankresearch studypublished in 1993was growthpoliciesdid not devotedto explaining the miracle."From1965to 1990,"said fall neatly into the WorldBank'sTheEastAsiaM[racle,"tne 23 economies of East conventionalpoles Asiagrewfasterthanali otherregionsof theworld.Mostof this o f n e o c l a s s i c aol r achievement is atuibutableto seeminglymiraculousgrowthin mercantilist. The 'FourTigers'-Hong eight economies: Kong,the regimes Japan,the of governance iust Republic of Korea,Singapore, andTaiwan,China;andthethree thatprovedsuccessful f

TU,+o


wwl" , l

^ . 1

Silosprooidesinsights into prablems ', af:our resl ecarconty,'insights into the af a moreresponsiae deliberstedeuelapment prioate buresucracyand fr moreresponsible

sector." . .W@ ffi,

.. pi.n* ffiffiWc*ffi@&i

as beingeitherliberalor could not be readilyclassified Theorganizational modesandmanagement styles authorltarian. or gemeinscha,ft, escapedthe readycategories of gesellschaft formalor informal, rational or paternalistic. Growth The 1993WorldBankstudv'ssubtitle."Economic focus.Thepublicpolicies andPublicPolicy"showeditsanalytical rangedover a full spectrumfiom neoclassical to revisionist. "Neoclassical" indicateda laissezfaireposture thatleftthemarket government Positive of directlons. to be the maindeterminant andforceon the otherextreme intervention of varyingscopes The Bank'sown positionwas situatedinwas "Revisionist". noroutright dirigiste."Marketbetween,neitherful|y laissez.farre filendly"wasthelabelcoined. Two years1ater,theAsianDevelopment Banklaunched lts The studyruledout the own study,focusedon Govetnance. anddemocratic regimes simpledichotomy between authoritarian ratheron bureaucratic capability asanexplanation. It focused to implementpolicyand the effectiveness of state-civil society that achievedthese interface.Authoritariangovernments progtams. in mobilizingsupportfor its Democratic succeeded processes wereno guarantee of bureaucratic abilityto carryout programs or of participation of civilsociefyin policymaking. Sllos'Managementand the 77O providesa rigorous forunderstanding theroleof nature,mythsandbelief fiamework in the evolutionof systems, moral and culturalimperatives which achievethe capability to carryout bureaucratic systems economicand socialpolicyeffectivelyand elicit civil-society participation the literatureof in policymaking.It compliments the EastAsianMiracleheyday. However,it ispublished undera totallydifferentcircumstance are intellectual milieu.Theseveryeconomies anda transformed in crisis. "ln a mattetof just a few Harvard's JeffreySachswrote: went frombeingthe darlingsof months,the Asianeconomies communify to beingvirtualpariahs. Therewasa theinvestment touchof the absurdin the unfoldingdrama,as international harshlycastigated the very sameAsian moneymanagers governments they were praisingiust monthsbefore."Joseph of theWorldBank andChiefEconomist Stiglitz,VicePresident madea similarpoint:"On1ya yearago,theEastAsiancountries countries. Today, wereheldup asmodelsfor otherdeveloping legions0f citics are condemning them for their unworkable economic systems, whichthe criticssayhavelongbeenbound

swingin opinions aboutthe to collapse intocrisis.Thisdramatic in model,matchingthe dramaticchanges Asiandevelopment the markets,has gone further than is iustifiedby the somuch, system hasdelivered fundamentals. Noothereconomic to somany,in soshorta spanof time." the natureof thiscrisis. We needverybadlyto understand Weneedto understand Howdeepandfundamental areitsroots? particularly malaise. fue we rea11y thenatureof thePhilippines' merelyfiomthebacklash of a problemthathasnothing suffering situation or shouldwe question to dowith outownfundamental of the coursewe hadbeenpursuingwhen thebasicsoundness by theThaidebacle? we wererudelyinterrupted problems of our own?Therearetwo Aretherefundamental problems. First,thecrisisis beingviewedasentirelyof external in nature.Whentheterm andfinancial origin,entireiymonetary "fundamental" is used,the sensestill seemslimitedto the conditionandperhaps eventhestructureof thefiscalandfinancial problems of institutions. No attentionhasbeenpaidto second: of naturalresource the real economy,the configuration deployment, the anatomyof the country'sphysicalproduction of our institutions, and distribution system,andthe adequacy organizations, culturalvaluesfor the tasksof sustainable development. arethere.In the gapsin our In fact,our realproblems productionstructurethat leavesdelinkedout consumerand fiomourprimarynaturalresource-based capltalgoodsindustries generation forourpeople thelivelihood sectors soasto maximize In the in the countryside andreduceour importdependence. which social,cultural,moral,and politicalorganization reformsin the determines ourcapacity to designandimplement our native resources. dispositlon of whereSilos' aspect of our realeconomy It is in thesecond provides development of a more insights into the deliberate work private responsible sector and more responsive bureaucracy management. organization and isreallyto producea thirdvolumet0 ForSilos,thechallenge complete theTrilogy.Thisvolumeneedsto movethediscourse downstreamto the applicationof Ihe oikosmanagement paradigmto practicalorganization and human transformation prlvate public bureaucracies. forboth and resource development If he producesthat volumewith the samerigor and dieof envy.I meticulous excellence asthe firsttwo, I sha11

We needverybadlyto understand the natureof thisAsiancrisis.Are t h e s e f u n d a m e n t apl r o b l e m so f o u ro w n ?


TOPMANAGEMENT SEMINAR The Shangri-la,Jakarta , 23 July 1998

ffi When all of the economic signs are bleak... When your claysin businessare numberecl... Why clon't you give a chance to Quality ?

Ke)tnote presenter: Prof. Rene T. Domlngo "Quality Author of means Survival" ancl Professorat the Asian Institute of Management,Manila,the Philippines.

Presentation s ancl Di al ogues: Quality means Survival However, Presentations by Inclonesian Quality As Dr. Deming and Charles Darwin said , Crusaders on how Quality turns arouncl Survival is not compulsory. their companies, reforms their So you always have a choice to enjoy your sleep... businesses, and change their beliefs "goocl " management about Goocl luck or goocl night, whichever... (clelivereclin Bahasalnclonesia)

Further lnformation about thls "life-saving" semlnar: PQMConsultants,Phones:(62-2l) 425 1836,425 1887, 470 7928; Fax: (62-21)425 4836. Attn.:Ms, Jeanne/Ms.Yoyo. E-mail:pqmcons@idola.net.id;

Organized by:

This seminar is organized to welcome the launching of the lnclonesian version of the bool< "Qualigr means Suwival" (Mutu atau Matl). Every participant will receive a copy directly from the author ancl be the first to read it.

PROUTCflVtry& OUATITY MANACA'ENT CONSUTTANTS

Supported by: TFIEASIAN

IVIANAGER


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The Asian Manager, March 1998 Issue