Strategic Issues Conference: Western Multinationals in Asia - Growth or Decline?
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Strategic Issues Conference Singapore - June 2013 Western Multinationals in Asia - Growth or Decline? - ©2013 Managing Across Asia [email protected] www.ManagingAcross.Asia governance; regional office; cross-cultural management; expatriates; multi-country initiatives
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As Asia takes over from the West as the driver of global economic growth, will Asian MNEs rise to replace Western MNEs as academic theory suggests? Learn what Western MNEs must do in order to retain and grow competitive relevance in Asia.
Transcript of Strategic Issues Conference: Western Multinationals in Asia - Growth or Decline?
Strategic Issues Conference Singapore - June 2013
Western Multinationals in Asia- Growth or Decline? -
©2013 Managing Across Asia [email protected]
governance; regional office; cross-cultural management; expatriates; multi-country initiatives
©2013 Managing Across Asia [email protected]
Speaker profile: 30 year career (half in Asia)developing expertise on MNE management in Asia
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Parent Culture Local Culture
Austrian (parents) Canadian
Canadian Canadian
Quebecois Canadian
American Canadian
British Canadian
French Canadian
American Australian
Australian Australian
South African South African
American American
American Mexican
German American
American Thai
French Thai
ML Chinese ML Chinese
German Korean
American HK Chinese
Canadian HK Chinese
American ML Chinese
Korean Korean
Parent Culture Local Culture
American Korean
Japanese Japanese
American Japanese
Dutch Japanese
Canadian Japanese
French Japanese
British Japanese
German Japanese
Taiwanese Taiwanese
Dutch Taiwanese
German Thai
German ML Chinese
American Indonesian
Canadian Philippine
Canadian HK Chinese
Canadian Indonesian
Dutch Australian
German Indonesian
German Malaysian
British HK Chinese
MNE Client Cross-cultural Mix across 20+ Countries
Canadian-Australian citizen
Unisys - Implemented eftpos in Oz‣ Project Management & Sales Skills
MBA - Ivey Business School‣ Strategy & International Business
Deloitte - built practices in Canada, U.S., Korea, Japan
‣ Managing Business Unit P&Ls
Private consulting practice‣ Working with MNEs to configure
and manage operations across Asia
40+ MNEs Served - strategy/ops‣ understand how organisations
work, particularly addressing Asia
Pursue PhD - University of Sydney‣ mid-career refresh (new ideas)
‣ combine theory with practical
©2013 Managing Across Asia [email protected]
Western multinational enterprises (MNEs) face an economic and mindset challenge in this Asian century
“Asia’s growth in population, economic activity, and income results in huge market
opportunities, implying that the future of industry and innovation will be centered in Asia.
Different systems of competition, organization and management are emerging in Asia
and, as they do, they will have global consequences.
Until now, our [business and academic] theories of competition, markets and firms are
decidedly regional and hemispherical, based as they are on what happened in Western
Europe and North America during the nineteenth and twentieth centuries.”
Fruin, M. 2012. The future of industry and innovation in Asia: firms, networks, institutions and corporate governance. Journal of Asia Business Studies.
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from 1 to 1800 AD, China and india alternated as driver of global economy
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Contrary to Western propositions,Asia does have a history of innovation
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Only during the past 200 years have Western MNEs been pre-eminent
the Bounded rationality and ethnocentricity of key leaders in Asia caused them to focus inward and discount the emergence of the late 18th century industrial revolution of the Western barbarians
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Today, there are many Western MNEs in Asia but they have had widely varying degrees of success in terms of sustained revenue performance
Concept that decision makers have to work under three unavoidable constraints:
1. only limited, often unreliable, information is available regarding possible alternatives and their consequences, 2. human mind has only limited capacity to evaluate and process the information that is available, and 3. only a limited amount of time is available to make a decision.
Therefore even individuals who intend to make rational choices are bound to make satisficing choices (rather than maximizing or optimizing) in complex situations.
US Nobel-laureate economist Herbert Simon
The belief that one's own culture [and business practices] are superior to all others and is the standard by which all other cultures [and business practices] should be measured.
©2013 Managing Across Asia [email protected]
Only during the past 200 years have Western MNEs been pre-eminent
the Bounded rationality and ethnocentricity of key leaders in Asia caused them to focus inward and discount the emergence of the late 18th century industrial revolution of the Western barbarians
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Today, there are many Western MNEs in Asia but they have had widely varying degrees of success in terms of sustained revenue performance
©2013 Managing Across Asia [email protected]
MNEs are home-regional:few MNEs perform well outside their home region
Alan Rugman et al
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The nine global MNEs where identified as Coca-cola, Canon, Flextronics, IBM, Intel, Moet Hennessy-Louis Vuitton, Nokia, Philips, Sony.Rugman, A. M., & Verbeke, A. (2004). A perspective on regional and global strategies of multinational enterprises. Journal of
International Business Studies, 35(1), 3-18.
©2013 Managing Across Asia [email protected]
Home-Regionalisation has been proven repeatedly; “it is likely to be a long lasting phenomenon”
Dunemann wolf
Retail
Banking
Pharmaceutical
Automotive
Cosmetics
Services
American MNEs
European MNEs
British MNEs
Japanese MNEs
Asian MNEs
Rugman et al
Asmussen
Dunning
Ghemawat
Wolf
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Industry Geography Academics
©2013 Managing Across Asia [email protected]
Dilemma for Western MNEs
For the past century, Western MNEs have been prominent as their home region was in the economies driving global economic growth
As the centre of global economic activity shifts from Western markets back towards Asia, regionalisation theory implies that Western MNEs are condemned to slow relative decline
There is an imperative therefore to break historical patterns and determine:
How can Western MNEs compete more effectively in Asia? (Why will your MNE be different?)
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©2013 Managing Across Asia [email protected]
Americas-Australian-European commerce encounters familiar constructs compared to the cultural distance with “Asia”
Europe and North America draw on shared heritage
Hellenic-latin-germanic-nordic-christian influences
Nation-state constructs
“Asia” is a Western term demarcating the area east of the Bosporus Sea
Buddhism, Hinduism, Confucianism, Shintoism influences (complicated by Islamic derivative of Abrahamic religion)
Civilization constructs
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Drawing from Hofstede 1997, Sakai 2000, Russell 2000, Acjarua 2010, Duara 2010, Hui 2010,
©2013 Managing Across Asia [email protected]
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Australia Canada United StatesGreat Britain GermanyNetherlands France
Source: Adapted into spider charts by G. Perchthold based on concepts and data from Cultures and Organization, Geert Hofstede,1991
Advancement / competitiveness vs work relationships or caring
Power Distance
Masculinity
IndividualismOriented
AvoidingUncertainty
Long-Term Orientation
Acceptance (and desire) of benevolent power distributed unequally vs operating as equals
Loose ties between individuals vs cohesive in-groups
Extent of feeling threatened by uncertain or unknown situations
Perseverance, observing order, thrift
Power Distance
Cultural tendencies are quite different from west to east
Japan South Korea Singapore Indonesia ThailandPhilippines India
©2013 Managing Across Asia [email protected]
Typical Job Ad (including unstated):
Global/Regional/Country Executive for Asia
As our home region in the West continues to stagnate and demonstrate limited prospects for high growth, Asia has become the most strategic geographic region to sustain competitive relevance. Therefore, we seek a Western executive with:
Deep technical expertise
Strong leadership presence
Effective management skills
Proven track record within Western markets
little to no experience in Asia
Minimal propensity to draw on those with experience in Asia
Willingness to repeat the mistakes of the past13
A Master of the Universe!
©2013 Managing Across Asia [email protected]
Academic research1 suggests that Western MNEs need to address a number of fundamental questions in adapting to Asia
How is your MNE applying its unique “firm-specific advantages”?Superior assets or capabilities that are transferable to markets in Asia in order to overcome its “liabilities of foreignness”
How is your MNE’s “experiential knowledge” captured and applied?Objective knowledge can be read in a text book while experiential knowledge is progressively learned by exposure to a market becoming an internal asset
How is your MNE harnessing its “network of relationships?”“Liability of Outsiderness” takes many years to overcome by developing competitively differentiated constellations of networks representing a strategic advantage
How is your MNE overcoming “Physic distance” & “institutional voids?”Western multinationals must adapt their business models (using their experiential knowledge and networks) to compensate for the immaturity of institutions/agencies (e.g. audit, actuarial, credit agencies, regulatory, judiciary) in emerging markets
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1. Drawing from Internalisation Theory (Buckley and Casson, Dunning, Rugman, Zaheer), Internationalisation Evolutionary Theory (Johanson and Vahlne), Internationalisation Network Theory (Johanson and Vahlne), Physic Distance (Johanson and Widersheim-Paul, Ghemawat), Institutional Void and Relationship-based Governance Theories (Khanna, Singh)
©2013 Managing Across Asia [email protected]
30 Years of field experience suggests thatWestern MNEs must address multiple levels of their organization to sustain performance in Asia
Organizational Passion (raison d’etre)Is ‘Asia’ a number in your company’s spreadsheet at corporate/regional office or are employees socially committed to the people within the countries in Asia? Example
Does your MNE have an innovation centre based in Asia subject to the competitive pressure for survival from the developing billions of entrepreneurs in Asia?
Regional and country cross-cultural management teams (silos)do the different functions of the management team socialize periodically outside of the office and work towards the common objectives of the CEO or are managers operating in silos with courteous and tenuous relations with their colleagues?
Expatriates (Short-term self-interests)Do expatriates manage from the perspective of the long-term to build the people, process, and technology foundations of the business or do they manage within the context of the tenure of their posting? (MNEs fail to realise full value from expats)
Corporate Top Management Team (ethnocentricity)Does the corporate management team unconsciously judge and act based on perceived superior Western ways of doing business or is the local context understood and appreciated?
Corporate Board (Bounded rationality)Does your corporate board have sufficient Asian context for deliberation to make informed decisions appropriate for Asia (experiential vs objective knowledge)? 15
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Do Asian directors provide context to Western Boards? A look at Anglo-Saxon FSI MNEs active in Asia
sample frame
Forbes Global 2000Largest Companies
Anglo-Saxon MNEs
Financial Services MNE
MNEs Committed to Asia
Population of MNEs
106 Annual Reports Reviewed
54 MNEs
30 U.S.12 U.K. 7 Australian 5 Canadian
Extract of research conducted by Gordon Perchthold during 3Q2012 16
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Anglo-SaxonFinancial Services MNEs active in Asia
Forbes 2012 Edi t ion of Global 2000 Fi l tered for Anglo-Saxon FSI MNEs wi th As ia Object ive(sor ted by h igh l ighted Asian Nat ional i ty Propor t ion then Asia F inancia l Propor t ion then Global Revenue)
Extract of research conducted by Gordon Perchthold during 3Q2012 17
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Influence of Asian DirectorsHow many Asians on Western Corporate Boards?
sample frame
Forbes Global 2000Largest Companies
Anglo-Saxon MNEs
Financial Services MNE
MNEs Committed to Asia
Population of MNEs
106 Annual Reports Reviewed
54 MNEs
524 (76%) Home Country 81 (12%) Other Anglo-Saxon 34 (5%) Other Western 29 (4%) Asian
ResearchedNationality of 688 Directors
Year Asian Appointed to Western MNE Board
30 U.S.12 U.K. 7 Australian 5 Canadian
Extract of research conducted by Gordon Perchthold during 3Q2012 18
to 3Q122011201020092008200720062005200420032002200120001999199819971996199519941993199219911990
0 1 2 3 4 5 6
‘Global’ Financial Crisis
Number of Asian Directors
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Key questions as to how the Asian context is embedded into deliberations and decision-making of Western corporate boards
Will the number of Asians on the Western corporate boards increase?
What role do Asian directors play on Western corporate boards?
Do Asian directors help Western MNEs to perform better in Asia?
What other mechanisms, and how effective are they, do corporate boards use to instill the Asian context:
inclusion of Western nationals who have lived and worked extensively in Asia?
Engaging external advisors with (proven?) Asian experience to provide reports and presentations to the board?
delegating decision-making to country level boards, where they exist?
establishing an Asian board to parallel the corporate board?
Other (there has been no research in this area)?
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Fundamental question for Western MNEs
Do they recognise that the challenge even exists?
or will bounded rationality and ethnocentricity among Western leaders result in history repeating itself?
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BUSINESS AT THE SPEED OF ASIA!
Theme of my PhD Research at University of Sydney
How Can Western Multinationals Compete More Effectively in Asia? (starting with)
The Role of the Corporate Board
