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Interview with Frank-Jürgen Richter, President of Horasis on Global Future: The New Challenge for Asian Business Co-authored by Frank-Jürgen Richter, Arnoud de Meyer, Pamela C.M. Mar and Peter Williamson |
| Question
1: Frank, this is I
believe the first book you have
written following your departure from the World Economic Forum
(WEF). I note that you again paired with Pamela C.M. Mar, who has
also been with the WEF along with the two Professors from INSEAD,
Arnoud de Meyer and Peter Williamson. What are you doing these
days? How did you pick this topic and how did this team come
about for this project? Answer: I realized a dream by entering the realm of entrepreneurship. I founded HORASIS. The Global Visions Community (http://www.horasis.org) – a strategic advisory firm which develops long-term scenarios related to globalization, systemic risk and Asian business. HORASIS is a visions community - together with our clients and partners we explore, define, and implement trajectories of sustainable growth. HORASIS delivers tailored advice, as well as access to a network of trusted relationships - including potential partners, investors and globally renowned thought leaders. Engagements address the highest priorities of clients-private or public-to provide strategic frameworks with long-term impact and extraordinary return on investment. The book originated at one of the Asia summits of the World Economic Forum. Around de Meyer, Peter Williamson, Pamela C.M. Mar and myself led a workshop on the globalization of Asian firms. The workshop was extremely successful and we felt that we should further explore the subject. We subsequently developed a framework of globalization particularly tailored to the needs of Asian companies, and we invited some of the CEOs attending and speaking at the workshop to summarize and contribute their very personal experiences of globalization. We have been inspired by the fact that Asian companies are truly under-represented on any list of the world’s truly global companies – organizations with an integrated network of subsidiaries that span the world – compared with their American and European counterparts. This is despite Asia’s long trading history and high-profile multinational pioneers from Asia, such as Sony, Samsung and Kikkoman, whose international expansion we explore in this book. Our vision is to provide a blueprint for the globalization of Asian firms, enabling them to catch up with their Western competitors. Question 2: Historically Asian companies have pursued two basic strategies in the past to grow their business. The first was to attempt to wall off their home market and become the dominant player locally. The second was to penetrate overseas markets by exporting from their home base. This has worked well for many Asian companies, why won’t this work as well for them in the future and is change inevitable? Answer: Compared with their American and European counterparts, relatively few invested in building extensive networks of subsidiaries with full-fledged sales, manufacturing and service operations, and support functions around the world. Even among those who did, even fewer developed the processes and systems to run them as a single integrated, global company rather than a portfolio of semi-autonomous businesses scattered around the globe. Many Asian companies have prospered based largely on what can be termed “resource-based” advantages: access to low-cost raw materials and labour, preferential access to capital, and government licences obtained through local relationships. The Salim Group and Asian Pulp and Paper originating in Indonesia or Renong and TRI in Malaysia would be good examples. These companies often came to dominate their home markets. These types of resource-based advantages, however, are largely immobile. A company that thrives because of low raw material costs or access to a government licence can potentially export its product competitively. But a company that relies on resource-based advantages will have little to bring to an overseas market when it establishes a subsidiary there. With the opening of world markets and the continued globalization of services this strategy is a major source for failure. Asian companies will perish if they do not have real global scale, continuing to build their strategies of home advantages. Yesterday’s environment may have given little incentive for Asian companies to globalise. But the reverse is true today: globalization is now becoming an imperative for more and more Asian firms. Question 3: In the book you use a mix of case studies written by key executives, additional chapters including insights on key subjects like finance, human resources, branding and sustainability with sections containing "take aways” and key points. Were you satisfied with how the book worked organizationally and are there parts that you thought were particularly strong and others that you were not as happy with and if so can you give examples? Answer: We are quite happy with the result of the book. The book offers case studies written by Nobuyuki Idei who has been Chairman and CEO of Sony until recently, Yun Jong Yong, CEO of Samsung Electronics, Lee Hsien Yang, CEO of SingTel, Jiang Jianqing, Chairman of Industrial and Commercial Bank of China, as well as five other CEOs from Hong Kong, Taiwan, and Singapore. It is quite unique, I guess, to gather case studies written by CEOs under one cover. Usually, academics compile and write the cases. Our book, however, is not an academic exercise – it is a real life experience. We believe that we have been able to paint a rich picture of how Asian companies at different levels of development can best meet the challenges of a global future. I think that we got some of the most important and interesting examples of Asian companies on the move. We would have loved to include more cases, especially from Malaysia, Indonesia, and Thailand, but we had to make a selection in order to respect the limited book size Question 4: Your case studies are divided into three groups – the first of these is on businesses that have been at the internationalization game for more than 20 years. What you call the pioneers. The second group of three companies for case studies is on companies that started to globalize in the 1990s. What you call “The Builders” and lastly on what you term “The Newcomers”. Those that are building global companies today. For each section, you have picked three companies and the case studies are written generally by the Chairman or CEO. What were your criteria in selecting each company and can you discuss a little of what each group has to teach those that follow? Answer: We start by analyzing the lessons offered by early pioneers like Sony, Samsung Electronics and Kikkoman. We then examine the experiences of companies well down the path of building global or pan-Asian networks, companies such as Li & Fung, Singapore Telecom and Olam. Finally we turn to initiatives being adopted by those who have more recently embarked on globalization, including Uni-President, ICBC (International and Commercial Bank of China) and China Netcom. Although all cases are quite unique they all have one thing in common – the respective companies are successful globalizers – irrespective their stage of globalization. The editorial team worked with those companies in the past, and we believe that they symbolize best of what we have when talking about the global future of Asian companies. The ‘pioneers’ evolved along the lines of very careful but purposeful globalization. They are true pioneers in that they globalized from the early days of their inception, albeit in varying degrees. They followed a certain logic of strategic development, focusing on corporate growth based around core advantages and core capabilities, before embarking on their global outreach. Early on, they started to network with partners overseas, and tried to tap into international sources of capital. In rapid succession, they also succeeded in integrating capabilities through the establishment of consistent processes in human resources, quality, and branding. The pioneers can be considered established role models for other Asian companies that want to internationalize. The ’builders’ are still in the process of building their international management capabilities. It is their ability to create appropriate capabilities that has enabled them to be successful. The newcomers, by contrast, have only recently begun to pursue their globalization strategies. They are already dominant players in their home markets, and may have achieved a similar status in a neighboring market. The three companies featured here are from Greater China. China is currently leapfrogging into the age of globalization and its companies are a symbol of the great ambitions of this country. Question 5: In the article titled “What Role Does Geography Play In Company Globalization” your book lays out the key challenges that companies typically face in moving toward becoming a global company and also sets out critical competitive strength that current Asian companies need in order to succeed in globalizing, can you discuss these and also discuss why they are critical in the transformation process? Answer: Until recently, Asia was a collection of highly segregated national markets, separated from each other by a mix tariff and non-tariff barriers, divergent choices about local standards, and regulatory differences between countries. Within this environment it made sense for companies to approach each national market pretty much as a separate competitive playing field. This fragmentation was reinforced by various forms of preference given by governments to their local companies through the allocation of licences, preferential access to finance, and other kinds of direct and indirect support. Fragmented national markets meant that Asian companies rightly focused on becoming a big fish in their local pond. Leveraging their local knowledge and relationships in their protected home-country market, a majority of Asian companies chose to diversify their assets across industries to form sprawling local conglomerates with interests in everything from agricultural products, through manufacturing to property and financial services. Moving into a series of different industries while staying within their national borders allowed Asian firms to exploit their strong relationships with local or national governments, maximise their bargaining power with local distributors and suppliers and access capital from local banks. Foreign direct investors mostly win when they have abandoned any kind of ‘home-protection’ and when they have been able to develop ‘system-based” advantages that leverage intangible assets like quality systems, marketing competence, technology and know-how that are proprietary. These are the kinds of competitive advantages that can be transferred to markets where these systems are lacking. Leading multinationals like Unilever, Procter and Gamble, BP or IBM have prospered by reaping the advantages of their ability to transfer these intangible assets transferring across borders. Question 6: In the book you discuss certain “handicaps” that Asian companies faced is becoming a global company. Does the fact that most of these companies are latecomers to becoming a global player also open up potential advantages they can exploit? If so, can you note what they might be and discuss why they are important? Answer: Asian companies might have a late-starter advantage – they can study what went wrong in the U.S and in Europe, and they can develop their own distinct model of globalization. Asian companies should not necessarily use the ‘Western blueprint’ to model their own globalization strategies. In strategizing and approaching global markets, companies should seek to build tomorrow’s global company. The challenge is not to mimic the successful habits or competencies of today’s market leaders, but rather to be able to fashion the firm with tomorrow’s markets and challenges firmly in mind. This requires not only an understanding of how future global markets will operate but also how risks and uncertainties may shape their evolution. Indeed, creative adaptations of Western management practices might be useful, and occasionally one may be able to find solutions that harness Asian cultural traits. It is not all about Anglo-Saxon hegemony, about ‘disneyfication’ of all corners. Developing long-term relationships based on mutual trust stands in contrast to the Western inclination toward short-term orientation, eg quarterly reporting, maximizing of shareholder value, etc. In Asia, it is believed that social relations between economic actors do not impede market functions but promote it. Question 7: In the book you note “Meanwhile, South-East Asia should not be underestimated. Together the major South-East Asian countries comprise 450 million potential consumers, currently with a higher spending power than either China or India.” Do you feel that South-East Asia is in fact not getting the attention it deserves in terms of investment and if you agree with this doesn’t this also mean that there may be opportunities waiting to be developed for those willing to take the time to look beyond India and China? Answer: With the continued emergence of China as “the factory of the world” and India as the world’s “back-office” more and more companies from Southeast Asia will find that they home base is no longer competitive as the base for the majority of their manufacturing or back-office service operations. To maintain their existing supply-chain advantages they will need to globalise – perhaps relocating some operations to China and India and others closer to their target markets to provide more rapid response and customisation. As with leading-edge multinationals from the US and Europe, today, the focus will need to shift towards reaping significant network economies by inter-linking their subsidiaries in a tightly connected web. Such a web may be designed to exploit potential cost synergies between subsidiaries, share technologies, systems and best practices, or to unlock new potential for innovation. However, the Southeast Asian economies do still have their advantages: proximity towards India and China, a relatively educated workforce, and a growing common market, created through ASEAN. I would recommend Multinationals not to put all eggs into the (China and India-) basket – diversification is key. Southeast Asia, lead by Singapore, offer valuable alternatives. Question 8: What are the greatest threats to Asian company’s global strategies? Answer: The more enlightened of Asian companies such as Astra of Indonesia or San Miguel of the Philippines, built efficient local assembly plants, powerful distribution networks and sometimes strong local brands to reinforce their underlying resource-based advantages . These types of advantages rest on physical assets that can be replicated in a foreign location. But to the extent that a company is no better than its local or other foreign competitors in building assets like plants, distribution networks and brands in an overseas market, it will lack any competitive advantage as it globalizes. Many Asian companies need to broaden their sources of competitive advantage well beyond low cost of manufacturing or service operations. This means they need to build their own brands, distribution capabilities and service centers in markets around the world. To better differentiate their products and services, they may also need to conduct R&D in global hotbeds of new technology and locations with a deep pool of qualified scientists and engineers, to complement innovation activities at home. This will require the globalization of a new, broader range of activities than in the past. Another threat is overexpansion – the current newcomers are very ambitious, especially Chinese companies. Take the recent cases of Lenovo acquiring IBM’s PC-business, TCL acquiring Thomson’s consumer electronics, and Shanghai Automotive (SAIC) buying the British car manufacturer Rover. Now it is all about post-merger integration, and I fear that some of the quoted cases may fail due to the lack of management expertise and cultural sensitivities. Question 9: What is “the globalization staircase” that you lay out in this book? Can you explain what this “staircase” contains and why it is important to company’s globalization efforts? Answer: We propose the following key steps to be required to build a global company:
Question 10: Late in the book one of your contributors has a very pessimistic view of Japan which he feels has become uncompetitive and writes that he “suggests that Japan has become “unglobal” in the labor and financial markets and could possibly be heading in that direction with the product market.” Do you all agree with this assessment and are you optimistic that change will in fact occur? Answer: Companies must be backed by strong global tendencies in their home markets in order to sustain initial successes at the global level. Japan’s problem is that it has in fact disconnected from these markets – Japan ‘de-globalized’. Just as the robustness of the business sector helps to shape a country’s competitiveness, it is also the case that the framework for the private sector is still very much determined by the government. Of the companies we call “the pioneers” in this book, two of three are Japanese, and we could have included many more from virtually every sector — Panasonic/Matsushita, Toyota, Honda, Shisedo, Itochu, and the list could go on. Following the argument of our contributor, Professor Takeuchi, one may conclude that more Japanese companies will encounter difficulties in the coming decade, hindered either by their home market or its habits. If Japan can recognize the trends towards global markets in the areas of finance, labor and products, it might be able to save itself and begin to chart its return to economic form. Question 11: In the last chapter in the book you talk about your collective vision as to what Asian global companies of the future will look like. Could you tell us what will tomorrow’s global companies look like? Answer: Focus and challenge for the future Asian global firm are as following:
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| About the Authors: Arnoud De Meyer is Professor of Technology Management and Asian Business and Comparative Management at INSEAD. He is also Deputy Dean. Dr. de Meyer has widely published in the field of innovation management and manufacturing strategy. His most recent publications are on the use of internet to stimulate innovation (with S.Dutta and S, Srivastava) and the management of projects under high uncertainty (with C. Loch and M.Pich). He currently prepares a new book on the management of innovation in Frank
Jürgen Richter is President
of HORASIS, The Global Visions
Community - a Geneva-based consultancy focusing on long-term scenarios
related
to corporate globalization and Asian business. Prior to founding
HORASIS he was
Director of the World Economic Forum, in charge of Asian affairs. He
has lived,
studied and worked in |
About the Interviewer: Christopher W. Runckel, a former senior US diplomat who served in many counties in Asia, is a graduate of the University of Oregon and Lewis and Clark Law School. He served as Deputy General Counsel of President Gerald Ford’s Presidential Clemency Board. Mr. Runckel is the principal and founder of Runckel & Associates, a Portland, Oregon based consulting company that assists businesses expand business opportunities in Asia.Until April of 1999, Mr. Runckel was Minister-Counselor of the US Embassy in Beijing, China. Mr. Runckel lived and worked in Thailand for over six years. He was the first permanently assigned U.S. diplomat to return to Vietnam after the Vietnam War. In 1997, he was awarded the U.S. Department of States highest award for service, the Distinguished Honor Award, for his contribution to improving U.S.-Vietnam relations. Mr. Runckel is one of only two non-Ambassadors to receive this award in the 200-year history of the U.S. diplomatic service.