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VOL. VIII, NO. 4 Internet Address: tam@arm.edu.phA

THENSIANMANAGE,R

AUGUST/SEPTEMBER 1995

COVNR STORII]S

Management Strategiesfor theASEAN-10by Mnrk B. Fuller, Monitor CompanyYou can work out to competitive fitness in the ASEAN-1O bymaking three choices: where you locate your home base,what advantages you want to exploit further, and who youally with.

Managing in Developing Countries 23by Dr. lnmes Austin, Haroard Business SchoolProf. Jim Austin of the Harvard Business School uses hisEnvironmental Analysis Framework (EAF) in the ASEAN-10setting to scan possible areas to leverage into competitive-NESS.

MANAGEMDNT IJ'PDATDS

Kaizen

Technical Analysisby Professor George H . Tnn , AIMIn a follow-up to last February-March's Technical Analysiscover story, Prof. Georqe Tan"furthers the "truth" in Fi6o-nacci numbers and rati"os with solid chart analvsis.

BUSINDSS RDVIf,TY

J-I-T in a Small fob Shop Company 41by Professor Mariano S . Lagman , NMProf. Ning Lagman relates a case study of using.lust-in-Timefor both p"urcliasing and production in an architecturalproducts firm.

Across the Cultural Gap 43by Professor Mario Antonio C. Lopez, NMAsians value relationships within the clan and community;Westerners value work.

POI,ICY T'ONUM

Competitiveness,Competitionand 46

38

JL

by Prolessor Rene T . Domingo , atuQuality is no longer a battle cryi it is executive survival. Onesurvival imperative is to merge TQM goals into employeeperformance appraisals to reduce "firefighting" work as wellas cut costs.

Marketing 34by Professor Francisco L. Rlman, AIMEnvironmentally "friendly" and "clean" products could beanother benefit to push onto consumers of soap, cement, andgasoline. What target segments will buy this pitch?

ConsumefS by Professor Francisco L, Roman, AIMAIM's Policy Forum looks for solid indicators of competi-tiveness in Asia-not competition in a destructive sense, butcompetition that lowers costs and increases quality forcustomen.

OPINIONThinkAbout Itby Professor lesus G. Galkgos,lr., NMProact, not react. One does not need to be a pioneer to beinnovative. Look also for employees who avoid problems,rather than solve them; they may be proactive ones.

50

SuuAsrrr lNsftrrr[ o[ ]ld\.{cIu[]rr

TriE AsrAN MA!AcER-A P!bli.ation olrheAsian InsriruteotManagemcnt and the Federation ot rh. Asian Institute oiMana8emenr Alumni Associations.

Copvii8ht,ql995 bvTheAsianManager AllriShtsr.s.rvedR.pn udion i. nny nanner in whole or rn part in English o.othd l.rngunges prchibit€d TheAsian ManaScr, ispublish.dbi-nonthll, by the Asian Institute ot ManaSement Editorialrnd Adrertising Officer Asian lnsntut. of Managenenr.EuSennr L6pez Foundation, los.ph R. McMi.ting Campus,123 Paseo de Roras, Makarr, Metro Manila, Philippines. Tel:(632) 8921011'25,892 04 35-43, Fax: (632) 81792,t{J Photo-Sraphs soui.ed lrlr the AIM LibrarvPr,nted bl lihesPrinte6 Pte. Ltd., SrnSdporcThe Asian ManaAer MITA (P)215/9/91

rSsN 0r6-7790

Publisher Felipe B. Alfonso(iFPublisher & Udib.-in-(lhief Ricardo A. Liml.rocinre Pul'lishcr

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nose{n h & Produ(tion Am! G. EsDirihrldrerlisi s.lssistsnt Vaness.lM. Iaballas(;i.. ulalion rsttislo l CraceA. CasibansPu blishi ng ltoard Rene T. Domingo, Jesus C Callegos,Jr., Ricardo A. Lim, Victor S. Limlinsan. Eduardo A. Morai6,

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336. P,kirl!n:S.l Salahudd in, Chi€f E\e.urirc, INS Cotrmunicatbns Lld. 6/F, Panorama Cenlre, Fnnma Jinnah Rd.,Kara.hr, lalistan. F.x (92 2l ) 5ri8 2271 hon{: Y.K. Chun,First Media 5€.vices Corporation, Cftl Box 7919, S.oul, KorcaTele! FMSCORP k 29137, Fax (02) 738 7970ltrpnn: HideoNakatama, NakavamaM€dialnternationallnc., FonteAovam705,2 22 l4 MinnmlAoyama, Mj.aklku, Tokyo 102 Japan.Fax (03) 3,179 6130 lh{ilnnd:Dr. AnlhonvShrrn., Manag-ing Dtre.tor, Thai Rcpr€sentative Lt(l., 867158 PomtaveSulhumvit Soi l0l, Prakanong Banglok 10260, Thailand. F.x.(66 2) 331 9303. t nited Xingdonr: Bnan Tdpl'n Assocrts, 32Fish€ry Road, Sorm@i, Henel Hempstead, Herts HPI lND,U K Fa\ 10442) 246 03,1 Imncr: Slaphane de Rinusat, Man-a8inS Dtrector, REM lnternattunal,24 bn ru€ callieni,95l60Montnorency Flance. Fa\. (I r)398963{l

3THE ASIAN MANAGER . AUCUST-SEPTEMBER 1995

I &!

Throughout the Ph i l ipp ines ,working in close porlnersh ipcustomers to providecommunico f ions so lu t ions bosedlotesl lech nolog ies.

For exomple, together with the PLDT, weore ins to l l ing 90 ,000 d ig i to l exchonge l inesond supp ly ing in i f io l l y 92 ,000 te lephonesets for their Zero Bocklog Progrom.

We ore supplying the Segment - 2 of the

In the wodd of communicqtio syslems, we're here to help.Asio Pocif ic Coble Network to provide owhole communicotion systems speclrum,submor ine f iber : op t ic l ink be tween To iwon inc lud ing tu rnkey pro iec t hond l ing , comple teHong Kong, S ingopore , Mo loys io ondPCN networks or rod io occess so lu t ions .the Ph i l ipp ines . The end-user i s our f i rs t cons idero t ion .

We ore olso instol l ing privoteEvery solut ion must be user- fr iendly, f lexiblecommunico t ion sys tems in mony ho te lscnd evo lve w i th ind iv iduo l needs .ond businesses. And on Instrument As port of Alcotel Alsthom, we ore hereLonding System in the Subic Free Trodeo help you. Pleose telephone 815.02.27,Zone oirport. :ox 815.02.25, or write to us ot the

Alcotel's experfise, however, covers the:ollowing oddress. Alcotel. We help you grow.

we orewith ou roovonceo

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A l . o - l D l l o o ' 1 p . , / r M o ' , " p o r o B r l d , 9 2 5 ' o o . o - g l o n oM o L o r M e o M o r l o M o - , o l r e ' . o . o r o l A i p o , t 3 l 2 0 P l , l p p n e ,

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.i' Giae stretchjobs io yory$nagers. Allow tham tlo

and dar{fshoot'un if they t'ail."" ,, Johi P. Kotter

ickLeeson: his names e n d s s h u d d e r sthroughout Asian fi-

nancial systems. As you knowby now, Mr. Leeson led hisown dedvatives trading deskat Barings, and through a se-ries of blunders caused thevenerable Bdtish institution tocollapse. Moreover, the head-linesblared, "28-year old NickLeeson..." This statement sub-tly implies thata major sourceof Nick Leeson's failures washis youth.

The conventional wisdomis that youth means impa-tience, inexperience, lack ofrespect, and bad judgment.These are unfair generaliza-tions, made more prominentby spectacular fiascoes such asMr Leeson's. Youth must cer-tainly first pay their dues andundergo apprenticeships, toreduce the chances of spec-tacular failure, Conventionalwisdom also says that an ag-ing workforce means morein-ertia, lower productivity, andsuccession problems. Theseare also unfair generalizations,butlet's discuss the firstpoint:how do we promote youth tocrpn in rnd Io: ,12

Asian cultures, and to alesser degree Western cul-tures, prize respect for elders.The standard career path forayoung Asian is to spend timeworking under mentors,cross-train in different disci-plines, and slowly move upthe responsibility ladder.Thereare many terms for this:the Japanese use "salaryman"

and the Malays use "kaki-

tangan." Not many under-fifty year olds lead their ownorganizations in Asia.

There are except ions.More and more young peoplenowadays choose entrepre-neurship. Many choose to runtheir own business becausethey are unable to work in or-ganizations, or with bosses.Many like the risk-taking and

6

the associated rewards.Jimmy Lai of Ciordano andBill Cates of Microsoft, boththirty-somethings, made theirmarks early.

Youthful leadership is alsoa function of "fast-tracking"

and "golden boy" corporateprograms, where companiesaccelerate the career paths of

mote 19-year olds to com-mand tank brigades.

But can youthful leader-ship also be built from withinorganizations that do not fitthe above conditions? JohnKotter says yes. In his Man-agers and Leaders' research,Prof . Kot ter says: "Give

stretch jobs to your vounS

of h is success today f romthoseearlydays. Kotteradds:"Develop the managers thathave proven track records ofleadership in their [earlier]vouth: leadership of schoolorganizations, athletics, com-munity work," in hiring po-tential young leaders.

Practitioners and profes-sors have other advice foryoung ones wanting to takethe lead, fast. Frank W. K.Tsao, the Chairman of the IMCCroup in Hong Kong, pushesfor taking an honest measureofone's own abilities and lim-its ofone's knowledge, amongmany qualities: "When I amwalk ing in a company o fthree, one of them will cer-tainly have something to teachme." Mr Tsao advises to neverlose touch with the the realpeople--employees, custom-ers , and the pub l ic . Pro f .Derek Newton of the DardenSchool in Virginia advised hisgraduating MBA students,"Takeon a manufacturing job,then a sales job. Only then willyou be on the fast-track to theCEO position." Nick Leesoncould have used Sage advicelike these.

In the end someone elsehas to give way. All the afore-mentioned processes have acommon thread: the willing-ness of an older mentor ormanager to risk, to trust, todelegate, to teach, a youngersubordinate. Even Bill Gatesand Jimmy Lai could not havesucceeded in their ventureswere it not for understandingof farsighted suppliers andcustomers, who were prob-ably much older than thevwere. A big challenge forAsian managers will be howto pass on the reins of leader-ship to the younger folk, evenat a risk of their own job secu-rity.

Ptof. Ricku A. L.lntench$ llT anti ManagerJtnt Cotnn olicltlirnt for the EDP nndMtsM pragrams.

brilliant young men and wo-men, such as Anwar Ibrahimof Malaysia, the deputy to andtouted successor of Dr. Ma-hatir (negative case; NickLeeson again); a function ofsuccession, as in many Chi-nese tai-pan companies thatpass the reins over to # 1 sonsia function of strong internalcorporate cultures, such asIBM's or Disney's, which pro-mote their leaders using meri-tocracy more than senio ty; afunction of the nahrre of work,such as advertising and mer-chandising, small service or-ganizations, where managersflourish at a younger age; ora function of sheer need, suchas wartime armies, which pro-

managers. Allow them tomake mistakes, (not fatal ones,hopefully) and don't shoot'emif they fail. Support them."Manny Pangilinan, the fortv-something head of First Pa-cific, a huge Hong Kong trad-ing and communications com-pany, remembers his first jobin the seventies, when he hadto oversee his company's ca-cao plantation in the strife-in-fested southern Philippines."l received a telex: 'Plantation

in Sias i under at tack byrebels!' I thought, my MBAdid not prepare me for this."Manny was literally placedinto a full-fledged firefight,with guns and bullets, and helearned fast. He credits much

AUGUST-SEPTEMBER 1995 . THE ASIAN MANAGER

I

DECT. The new wave in oersonal communications.

ln our fast-moving, mobile world, we need a more advanced

standard for cordless communications. We need DECT -

the new wireless radio interface that provides access' J#: ;:,'"'�il ::,'::::,::'; ;::,presents the perfect solution for cordless

rF I ^a I 'o:.i:l''*'""'at work at home and

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Management StrategiesfortheASEAI-10

he countries that makc up theA S E A N - 10 are ten differentplaces. They are different in terms

of their politics, their cultures and theirper capita incomes. Indeed, they are dif-f e r e n t i n t e r m . o f t h c i r a d h t s i o n i nASEAN at all. In addition to verv differ-ent countdes, we have different manag-ers: public sectors managers; private sec-tor managers; managers of international,multinational corporations; managers offo rmer co lon ia l en terpr i \e \ : en t repre-neurs; managers of former state ownedcompanies; managers of recentlv pnva-tized companies. With all of this diver-sity it is a perfectly legitimate questionto ask: "ls there any commonality whichbinds management strategy across tensets of national boundaries?"

ASEAN is multifaceted structure, butit is a multifaceted structure where twoelements have traditionally and still re-main important elements: secu t)' andeconomics. ln relative terms the secudtve lement ha : been dec l in ing orer t im(compared to the economic element. Eco-nomics has been moving ASEAN closerand closer to a free trade zone, n ith a sig-nificant degree of internal free trade, anda significant degree of commonalitv in itseconomic relations rvith the outsideworld. That economic element ofASEANis pregnant with significance for the man-

8

agement.tr, iteSicr oI ASEAN manager:- whether thev be public sector manag-er\ or pri|ate 5ector mdn.lger.. Two im-p l i c , r t ions J rc par t i cu lJ r lv rmpor tan t

One implication of an emerging freetrade zone is;r, .r ' /,1r. CUncra Ily .peakin8,

as barriers to competition trade fall andas market. open up. lhe pace of economicgrowth picks up. ASEAN has been, andcontinues to be, an engine ofgrowth. Onecomnonalitv across management in anyof the ASEAN-10 countries l'illbe formu-lating and implementing wise strategiesfor grorvth. Hot'ever, ASEAN and otheremerging free zones are more than en-gines of grou.th. They are engines ofcornprfltion, the second implication. Compe-tiiion can be painful, particularly for man-ager. n ho are u'ed to dorng bu.inr::s inprotected market places.

Comp{.lilion is WarLet's focus on five common chal-

lenges for management strategy acrossthe ASEAN-I0. To introduce these, Iwould like to use an analogy: war Man-agers in the ASEAN-10 are entering an eraof total competit ion. Thev are enteringan era rvhere winning is going to be moreand more difficult. There are ferv placesrvhere Ihe pace of.hange i. not piclinSup. and the hali-l i fe oI compclittvenus. i.not diminishing. Managers evervwhere

are being tested to the utmost in terms oftheir abil ity to formulate competit ivestrategies and generate real and lastingcr )mpet i t i \e c . rpnb i l i t ies . ln indus t ry a lter indu.trv thi: i- happening elen inindustries rvhich are allegedly consolidat-ing or a l legcd l1 .ee ing a reduc t ion incompehtion.

A familiar example is the computerindustry. The industry is described asconsolidating, but in fact the number andvariety of competitors has been going upconsistently for 30 years. While the com-puter industrv is onlv one industry rep-resented from the data in fig.l, the dou-bling, tripling, or increasing by evengreater o rders o f magn i tude in thenurnber ofcompetitors causes the dimrn-ishing of the dominant position of anygiven firm. This trend is replicated overand over Many of vou see this in yourown businesses. As ASEAN becomesmoreof free{radezone, more of this chal-Ienge will be visible to you.

The Five llriversThcre ;rc [ite, among manv, ba'ic

,. lr ivers of competitron. One o[ the ba.icdrivers of the increase in competition lsthe changing role of ,qoi,c,"rnsrl. In coun-try after country fhe role of governmentis being transformed. It is being trans-formed through the development of

Aucusr-SEpTEMBER 1995 . THE ASIAN MANACER

ASEAN, and also through priva-tization and deregulation. Cov-ernment is changing in a wavwhich leads to an increase in thelevel of competition. However,the transformation of govern-ment is not the onlv driver(seeli'g.2)

Another important driver isthe explosion in knowledge. TheXerox Corporation occasionallyestimates the amount of knowl-edge generated in any particulartime;it is phenomenaland fright-ening. One Xerox estimate hasit that between the beginning oftime and 1970, "x" amount of hu-man knowledge was created. Be-tween 1970 and 1978, anotherwas created. Between 1978 and1984, another was created, andwe are now creating that onceevery tu'o to three years. Thatincrease in human knowledgemeans that there are manv manvmore opportunities to replicateadvantages and to substitute ad-vantages. Things that used tostay proprietary for 50 or 100yedr\ miSht stay proprietary for onllor 100 days in todav's world.

Accompanying this change in knowl-edge itself is the well-known revolutionin information technology, which allowsrapid processing and communication ofknowledge. My Hong Kong restaurantgu ide had a l l the t rad i t iona ld imens ionsof measurement: how expensive is therestaurant, do they have a good wine list,what kind of food do they:erve. Thedi-mension I had never seen before was theuse of cellular phones in restaurants - afIowed or not allowed. The cellular revo-lution again males Inowledge acce<si-ble around the world quickly and in-creases as a result the ability of peoplearound the world to compete quicker andbetter than they could before.

In addition to those three factors, rTnr-k.,fs are ntomizing,micro-segments are ap-pearing, intangible buyer needs are be-coming more important, and needs, forthat matter, are proliferating. 15 to 20vears ago/ it was not unusual to trackeight or ten key needs for a consumerproduct and be satisfied with that levelof understanding . Today, it is normalfor a consumer product business to look

at 130 or 150needs with respect toa prod-uct thdt doe5, more or less, the:ame thing.

Last and not least, and perhaps mostcontroversially for many ASEAN coun-tries and companies, is that the poruer ofthe indixidual rs growing. As people be-come wealthier and have more choice,they alsobecome more demanding. Thatdemanding quality has grea t implicationsas customers. All ofthese drivers are cre-ating the era of total competition. It is anera where there will be few safe havens;where there will be fevn scenic warerswith lots of profitability; where there willbe few gentlemen's clubs in which com-petition is a white glove affair. lt is goingto be increasingly difficult to do businesswithout doing battle in the competitivesense. That means management strate-gies will increasingly focus on the issueofgenerating real and lasting competitrveadvantage.

Competitive advantage is about do-ing something smarter than the compe-tition, and that isrelevant to the customer,Cenerating competitive advantage is re-ally about converting informed choiceinto timely action in ways supedor tothe competitors' solution to a similar

equation. Thereis nothing abstract aboutthe choices you need to make to get thatequation right or wrong. They are basicchoices - positioning choices. Tocontinuewith the military metaphor: What battle-field are you going to fight on? Againstwhat enemy and when? It is also aboutchoice of weapons as well as choice ofbattlefield. Some battlefields are inher-ently conducive to certain weapons.Tanks may be good in the desert but notin the mountains. Having said that, thechoices themselves are basic, operationaland even simple-and making thosechoices is hard. Many managers wouldrather die than male unquivocal choiceson an important competitive issue. Theyseek escape in different ways. Two ofthemost popular ways are "let's choose a lit-tle bit of everything." [n one case, youdo great honor to your father or formerboss, but perhaps not great credit to thecompany. On the other, you end up be-ing the globally and locally responsive,low cost, highly differentiated, rapid re-sponse, high tech, everything company,and really not very good at any of thosethings.

Such choices are hard and are also es-

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THE AsrAN MANAGER . AUGUST-SEPTEMBER 1995

sential, particularly if you are goingthrcugh changes ASEAN managers aregoing to face in the next five to ten years.We can make a long list of choices thatASEAN managers are going to conftont,but let's focus on three: (1)choiceoflo-

cation, (2) choice of advantage-whatkind of advantage are we going to pur-sue given any location we have chosen?and (3) pg1h1p5 hardest, choice of link-age when, having chosen a particularloca t ion do we l ink tha t w i th o therplacesl When, having chosen a parlicu-laradvantage, do we link that with othetperhaps, related advantages? ASEANcrea tes great opportunihes for companiesand managers to make lots of monev ifthey get these choice: right, and also im-poses great penalties on getting thesechoices wrong.

Cholee ol LoeallonManagers choose location every day

-thechoice ofwhere to sell, where to buy,where to invest. It's not only a choice forbusiness managers. For those of you whoreprcsent the public sector, it is also achoice for government managers: Whomto let in. whom not to let in, whom to giveincentives in order to come in. In thedaysbefore free trade, the choice of locationwas simple. You generally located whereyou were born, or where somebody let

10

you in. Now the number of options areproliferating, and thev are going to createpainful tensions, and reexaminations ofwhere companies want to be and whythey want to be there. While managersmake these choices every day, they makethem poorly. They do not live up to thestandard o[ making an informed choiceabout locations.

One can male an infor;ned choice.Some gu ide l ine : he lp : we mu: t e ramine

the choice oflocation on threelevels. First, where to sell?What markets do vou want tobe in? Second, where to in-vest? Are we willing to dedi-cate part ofourcapital? Third,and most important, rvhere doyou want our home base tobe? Where do you we wantthe central node in the net-work to be located? All ofthese levels have potential forcompetitive advantage and allof them are becoming morecomplicated.

Let's start with the mar-ket dimension, i.e., where dowe want to sell? When the USmi l i tarv academy at WestPoint was founded in the1800s, thev required course inmap reading. Now, nearly 200years later, the only requiredcourse still in the catalog fromthat era is the course in map

reading. Why? The person with the bestmap usually wins. This is true whenthere is little data about the market, andwhen the market itselfis emerging or rap-idly changing. Where better to place thatdescription than in theASEAN-I0, whereemerging segments and unmet needs arethe stuff of daily conversations? Too of-ten maps do not exist, and when they doexist, they become obsolete quickly.Managers get caught because theyare su-

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Aucusr-SEpTEMBER 1995 . THE ASIAN MANACER

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perficial in their mapping, For example,some managers bel ieve lhat China isChina. Take a quick look at fig.3. Chinais not China. Beijing is not Guangzhou.Multinational manaBers who treat thetwo as the same will have problems.Other managers are a bit more sophisti-cated. They pick out the notion that inmanyASEAN countries, the market is likea Hershey's Kiss, or a pyramid, wherethere is a small but affluent segment atthe top and a large, not affluent segmentat the bottom. Even if they understandthat, the implicit choices which emergeare often defective. It often leads to ex-cessive reliance on that very small tip ofthe pyramid, and a failure to understandany other part of the pyramid like theneed to undemtand their needs and

A second level could vield significantcompetitive advantage, and that is thedecision of location of investment. Again,it 's a decision made everv day, and again.a decision too often made poorly. Theaverage manager making an investmentdecision in a nerv countrv uses one or trvocr i ter ia . One cr i ter ion is input co, ts .What's the cost of labor? What's the costof electricity? Anyone who has livedthrough a Manila brownout or a Bang-kok traffic jamunderstands that the avail-ability and cost of infrastructure, electdc-itv or manpower is important, but rathernarrow Another factor frequently usedby managers in assessing investment lo-cation decisions is OPIC costs - Over-seas Pri\ ate Investment Corporations

costs, after an agencv in the US, which in-sures against $'at revolution, and expro-priation. Horr' ri:kv is the country inn'hich I might invest? If I have assessedthe cosis bv using the input costs cdte-rion, can I assess risk using some form ofwar, revolution and expropriation? War,revolution, and expropriation are as rel-evant as input costs, butnone of thosefactors deserves the weight they aregiven, at least in the traditional invest-ment decisions. In fact, the profitabilityof investments is much more correlatedwith two other factors: the total cost ofdoing business and the overall level ofuncenalntv

The total cost of doing business rn acountry is what reallv determines the costof your investment. The overall level ofuncertaintv is really what ddves the dskof being invested in a particular country.The good news is that both of these fac-tors are highly measurable by corporatemanagers and significantly influenceableby government managers. There is some-thing for government to do in this equa-tion because in a world where govern-ment's role is diminishing in so manyways through deregulation, trade liber-alization, pdvatization, etc., there is oftenthe feeling that there is nothing left forthe government manager: to do. Thatisjust not so. The cost of doing business

-Remedial Costs

Figure 4

the need to build dishibution systemthat will reach them. Many ASEANcompanies do not see this as well asthey should. They take too much apicture of the home market and toolittle a picture of parallel marketsthey might enjoy. They take toomuchofahisto cal view and too lit-tle of a view of new media, newchannels, and new needs. Ifyou takeone thing away from this basic levelof locational choice, that of the mar-ket, I would have one suggestion:Good management strategies in theASEAN - 10 in the next five to tenyears will be ones that rely on goodncps. A substantial increase in themap-making skills of managers isgoing to be required because themaps are not going to be availablefrom third parties. You will have tomake your own maps. You are inthe position ofexplorers, which is al-ways an exciting position to be in.

12

Diagram of Historical Peruvian National Objectives

FUJIMOBI(1991.1994t

a

Redist f lbut ion Fap dotweath Focus oJ Nat ional GfoMh

Economic Ob,ect ives

Figure 5

Aucusr-SEpTEMBER 1995 . THE AsrAN MANAGER

and the management of uncertainty arejust the first couple of elements that gov-ernment managers can manage, in posi-tive and negative ways.

Whatare the totalcosts of doing busi-ness? While input costs are real andimportant, there is morei transactioncosts. How much time does a govern-ment insist that you spend with its repre-sentatives, meeting their needs in orderto do business in a particular country?That is an important factor because themore transactions the government insiststhat you perform to satisfy their needs,the more time you will put in, the moreoverhead costs you will incur, the moredistracted you will become from issuessuch as customer needs, and the Ioweryour competitive advantage. You can cor-relate the competitive position of certainUS firms over time with the degree thattheir senior management spend timedealing with government versus otherconstihlencies. How high are transactioncosts? Covernment managers shouldlower them; business managers shouldcalculate them before going in to anygiven country. (see fig. 4)

The third element is remedial costs.How often does government ask compa-nies or managers to sla\d in loco parenLis,or in the government's role by provid-ing, for example, health care or educa-tion or child care? All of these roles maybe played by govemment, orgovemmentmay ask business to play the role. It isnot necessarily bad if government asksbusiness to take the role, but in each case

Novo-Nordisk

the costs must be calculated.Consider something else which you

rarely see on the investment side whenlooking at government driven costs,which is related to benefits. In conrrasrto the commercial world, one rarely seesthe calculation ofcosts without a calcula-tion of sales. For any given level of cost,there is an acceptable level of sales; noIevel of cost is too high if it generates asignificantly greater Ievel of sales. Simi-larly, the costs of doing business can bequite high and still be acceptable if thebenefits delivered are even higher Someattention to benefits as well as costs is im-portant, particularly in economies that are

changing as rapidly as the ASEAN-10.That being said, the costs of doing busi-ness are still too high in many ASEANcountdes, and it will require a joint effortof business and government to bringthem down and to thereby underpin moresustainably the competitive advantage ofcompanies located in those economies.

Let's not stop at the level of cost ofdoing business; let's talk about this is-sue at the level of uncertainty. The realrisk in business is not the risk of OPICfactors like war, revolution, and expro-priation. In fact, OPIC has almost neverpaid off any insurance because rarelyare functioning factories destroyed in

wa6, or expropriated or demol-ished by revolutionary out-bursts. The real risk that man-agers face in making invest-ments is uncertainty. Managershate uncertainty. In fact, theyprefer "bad" certainty to"good" uncertainty. An exam-ple of "bad" certainty is "pre-

dictable corruption." Yes, thereis corruption in country X, butit is predictable. There is apricelistand the prices do notchangethat often. It is completely out-side our control, l ike theweather We might call this the"Bahala Na" factor, a Philip-pines specific term. There isnothing we can doaboutcertainkinds of uncertainty. Other

I0ther

IHoec hst

Insul in Industrv Market Share. 1990

THE ASrA\ M qNACER . Aucusr-SFprE\4BrR l99i I J

FIRI\4 STRATEGYSTRUCTURE AND

RIVALBY

RELATED ANDSUPPORTINGINDUSTRIES

kinds of uncertainty, however, are con-trollable. For example, a company can goout, map the market and change some-thing that is fairly certain and behaves inaccordance with something that thevthemselves have created. This is crucial.A lot of the uncertainty is controlled by

Bo\ emment: macroeconomics poljcy. se-curitv, crime, corruption issues, and regu-la tory implementat ions, which are in-creasingly important in the ASEAN-10.

How kansparent is the legal code? Howconsistent is the implementation of regu-latory interyention? How continuous rsthe policy? When government is eitherinconsistent or incompetent in dealingwith uncertainty, business suffers, Fig.5charts the various governments of Peruover the last thirty years against two kevissues. How consistent were their na-tional economic objectives? Are we moreinterested in growing the pie or are we

more interested in cutting up the pre lndifferent ways? The growth rate and theprofitability rate which corporations en-joyed in Peru is the lowest in LatinAmerica in an era when Latin Americagrew rapidly. This vividly contrasts withcountries that have had consistency ineconomic policies, many of whom are rnASEAN.

In an emerging free trade zone likeASEAN the number of choices on issuesl ike investment locat ion goes upexponentially. Moresophisticated think-ing is required. Things like the cost ofdoing business in its totality or the man-agement of uncertainty can be assessedby business managers, and can be influ-enced by government managers. Goodmanagement strategy should do both.There is a third, final level of competitiveadvantage that you could get from alocational decision. It is the ultimate de-cision. Where should your home base be?Most of us inherited our home base. Wedid not decide to found the company/someone else did; or if we decided tofound the company, we naturallyfounded it where we were located. Asopenings occur , that choice can bereeramined and if there is significant ad-vantage to remaking the decision, thenthe companies that remake the decision

White vs. Blue Collar Workersas a Percentage ol TotalEmployed C iv i l ians in the U.S.

50-\

Whi te Co l la r40- workors

iercerl flfir^ Bnrc lof Trtal ?o_ \^ Dorla.sF-ntnvp.

-- ' - {1982./Clvi l ans Brue col ar Constant

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1 n Aucusr-SEpTEMBER 1995 . THE AsrAN MANACER

will win relative to thosewho do not,

Agood home base hasthreecharacteristics. Itis aplace where you can setyour strategy. The perspec-tive of the marketplace andthe freedom of that market-place is one where you canmake the highest quality ofinformed decisions. Sec-ondly, it is a place whereyou can aray your core as-sets. You create them. Youhone their quality. You de-velop ihem in their fullestpossible manifestations,whether those assets arehuman assets, knowledgeassets, financial assets, orphysical assets.Last, a good home base is a good plat-form for going elsewhere, a good plat-form for linking with other places, a goodplatform for globalization. Not everycountry is going to be an equally goodhome base for every industry. Somecounhies are made for certain industries.Why are the Swiss good at banking? Whatis it about Japan that makes the automo-tive industry so competitive in the US?There are better home bases and worsehomebases, depending on what sector ofthe economy you compeie in. Why?

One example is the insulin business.Insulin is a medical product used by dia-betics and is highly competed for aroundthe world: A number of companies aresuccessful in the insulin business, and one

of those companies, a market share leader,is the company called Novo. 957c of theirsales are outside their home country. Theyhave significant market share againstmajor competitors, including Germanand American firms. (see in fig.6) Novois not US or German; it is Danish. It isnot hard to imagine why a US companymight be highly competitive in the insu-lin business. The US, generally speaking.is the most sophisticated medical mar-ket for a world-class insulin manufac-turer Why then are world class manu-fachrrers in the US bested by a companyfrom Denmark? Denmark does not seemto be a logica) home base, and yet it is agood one . The reasons should give hopeto people who think they come fromeconomies which are excessivelv depend-

ent on natural resources.The reason why Den-

mark is a good home basehas to do with the basic businesses that grew up in Den-mark over a long period oftime, particularly, agricul-tural businesses. The keybusiness in Denmark turnsout to be pig farming. Pigpancreases are the closestthing to human pancreaseswe can find. Taking thingsfrom the pig's panoeas is es-sential for the traditionalway that insulin was made.Pig farming has always beena big industry in Denmark,and it provides part of the

reason the insulin industry was able togrew and sustain itselt but it is not theonly reason. If you are dealing with pigparts, you need process technology thatis good at purifying things. It turns outthat Denmark had anotherparallel indus-try that was good at purifying-the dairyindustry. Purification technology, to-gether with an abundant supply of pigpancreases, was good for insulin inits oldform. After a while, biotechnology gotinto the act. Denmark benefited in thisway because biotechnology depends sig-nificantly on enzyme management, andenzymes are often produced through fer-mentation. Fermentation techniques areusually associated with the brewing in-dustry. Once again, there wasa local baseupon which to grow the industry. This isan example of how from basic agricul-tural businesses, a sophisticated pharma-ceutical business was able to grow andsustain itself. (see fig.7)

Some of you may be familiar with asimplified model of those factors whichMichael Porter at Harvard has popular-ized based on four fundamental condi-tions. You need good factor conditionssuch as raw materials and specialized in-frastructure to support the inputs; sophis-ticated demand-preferably demand thatprecedes world demands in the industry;related and supporting industries, suchas equipment manufacturers; and last,but not least, shong domestic compehtionin the industry. (see fig. 8) If you thinkabout these four factors and combtnethem with the total costs of doing busi-ness and the overall level of uncertainty,

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THE AsrAN MANAGER . Aucusr-SEpTEMBER 1995

Constilusncy Expsclations

Comoetitive lvlindset + Future Choic€ and Action

or semiconductors, the number of domes-ticcompetitors in thosebusinesses is qurtehigh. It has been hard for governmentmanagers, par t icu lar ly in developingcountries, to take this point seriously.Making a choice of home base is hard.In most ASEAN-based companies it willdemand a portfolio rationalization. Youessentially have t$.o choices: locate yourbusinesses in a good home base for thosebusinesses, which could mean changingcountdesj or pick businesses for whichyour country is a good home base. Eitherwav, change is in order

There are important implications forwhat government managers should bethinking about and doing somethingabout the creation of good contacts forcompetitive companies. Many direct andindirect way: can do that. Location is animportant area of choice, one that isemerging increasingly to the fore forASEAN managers.

Cholce of AdvantageWhat kind of adlantage are we going

to seek in this era of total competition?We cannot be specific as to the kind ofadvantages , g iven the d ivers i ty o f

GDFigute 12

you can start to testwhether your currentheadquarters country is in fact a goodhome base. Do it rigorously and do notleave out any unpleasant element of thosesix just described. The one managers liketo leave out the most is the high level ofcomDetition. ComDetitionis easier to deal

with if it's hurting somebody else. Ifyou look at industry after industrt themost competitive companies usuallycome from countdes with a competltlvedomestic market. That is true of the USand Japan. In fact, if you look at famousJapanese industries like audio equipment

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Aucusr-SEpTEMBER 1995 . THE AsrAN MANAGER

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insutries represented inASEAN. But onething will be common to everybody: Youare going to be much less able to rely onhistorical advanlages. No advantage, nomatter how good, lasts forever. If it isgood. it n il l be copied. The fact that ad-vantages do not last long puts a real pre-mium on the ability to irnorrte advan-tages. It is a big challenge both forASEAN-based companies and companiesthat are building their investment net-work in the region.

ASEAN-based companies haveslightly bigger challenges, in particular,

three critical issues: One is to take theiradvantages beyond operafional etcellence.For many years, a lot of the performanceof ASEAN-based companies was basedon the abiliiy to take sets of activitiesthat were once performed in other areas,perhaps higher cost areas, and to pertormthem better or at lower costs inASEAN.That is commendable, but not enough.It is not enough when you have Cambo-dia, Vietnam, Laos, Myanmar, Sri Lanka,and Bangladesh all looking to attain ti-ger stahrs. In addition to going beyondoperational excellence, we must Iook at

other areas thatmight provide innovationin advantage. In the world at large, thed\ \e t base. fo r adran tage i : chang ing .What do I mean bv that? AJI ad r antage i:based on some kind of asset. Firms haveto create assets, then thev have to deploythem. The four major types of assets-fi-nancial, phvsical, human, and knorvl-edge-are all important, but if vou goback to the drivers of competition, the as-set bases change in relative importance.Financial and physical asset<. rr hile im-portant, will decline in relative impor-tance compared to human assets andInowledge assets. What ha' dri len hic-torical performance from an dsiet per-spective in the ASEAN region? Phvsicalassets-raw materials and resourcesavailable in the region; orbybasic humanassets-flexible, well-educated and rea-sonablv inexpensive labor; or in somecase5 capital-pa rticularlv Chinese capi-tal. Less of it has been driven by highll,sophisticated human assets or knor,ledgeassets. ASEAN must go in this direction.

If you look at the US experience, vousee knowledge increasing enormouslyand you see that increase in kno$'ledgehaving major rmplicationi for companies:the kind ofworkers thev employ, the kindof investments they make and the kindof problems thev have. The number ofknowledge. or rn hite collar r 'orlers. tf ig.

9) far outstrips the number of blue collarworkers; the amount of money invested

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Aucusr-SEpTEMBER 1995 . THE ASHN MANAGER1 8

in information or knowledge as-sets far exceeds that invested inphysical or industrial assets; fi-nally, while blue collar produc-tivity increases in a predictableway, white collar productivity ismuch more erratic. Nowadays, ifyou have a cost problem, it wealsa white collar That presents chal-lenges as companies enter the erawhen they need to build knowl-edge assets.

In an emerging market, thevalue ofa product is largely stillin the physical inputs and in thephysical transformation of thoseinputs. The information contentof the product, represented bytechnology or advertising, is gen-erally lower(fig.10) Added to thefact that the product is not par-ticularly knowledge intensiv€,the process itself is not particu-Iarly knowledge-intensive. Thereare few segments in the market-place, and the number of chan-nels is rather limited. It is not acomplex system. Let's comparethat to a more sophisticated mar-ket place, the kind that more and moreof the ASEAN-1O are becoming. The in-formation value of the product is goingway up. The result is a huge premium onthe ability to manage knowledge andbuild assets that will manage knowledgefor you.(see fig.11)

ASEA,N companies must go to anentirely higher order of human assets.ASEAN companies and countries havedone well with their human assets formany years. However, the kind of humanassets they brought to the market placewere general human assets, flexible andnot specialized, good at things like lowcost operations and operational excel-lence, and often tightly conholled. Thekind of human assets we are going toneed more of in the future is quite differ-ent. It is something with a high degree ofstaying power. It is much speedier in re-sponse, which means much higher de-grees of initiative, for which a lot ofASEAN middle managers and companiesare not prepared. A much higher degreeof productivity in the white collar workforce, which is going to grow bigger be-cause all companies-non-ASEAN com-panies as well-are decision factors in to-

day's world. A much more competitivemindset holds the n otion that competitionis the diter.The drsaster scenario in com-panies is one that says no change, paro-chialism, follow my neighbor, and forhessASEAN. The fact is: fortressine ASEAN' : , . ,will not work because competition willcome after you and will nibble away thecomers of the castle, and the castle willfall down.

To generate that higher level humanassets, that higher level of organizationalcapability, you have to rnake a radical re-design of the company. That is going tobe hard. It will require major changes incore elements, and three core elementswill change a lot in the next five to tenyears, atleastto thosecompanies that aregoing to do well.

One of the core elements is "the defi-nition of victory" or what you might callthe mission of the organization. Everycompany with a lot of competent humanassets has a clear mission which must beconsistent with the needs of the core con-stituencies that support it. Core constitu-encies include owners or stockholders, lo-cal govemment, employees or customers.Constituency needs are constantly chang-

ing. In the emerging reality of theASEAN-10 market, they are changingrapidly and dramatically. Take the caseof the stockholders. In how many com-panies have the first generations passedthe baton? Perhaps the first IPO has hap-pened. Perhaps the first investor has beenbrought in. Perhaps the first alliance part-ner has been joined together Perhaps thefirst merger acquisition has occurred. Theowners and their needs might be chang-ing. Another constihrency is "invisible"-

the ASEAN customer As customers be-come more well educated and wealthier,they will demand higher degrees of serv-ice and quality. These are changes in therelationships. (see f ig.12)

Changes in the second factor, whatKarl Von Clausewitz called "moral fac-tors" and what Lee Kuan Yew called "in-

tangibles," are things like leadership ormoral purpose that motivate an organi-zation. The challenge here is big forASEAN-based companies because theintangibles are eroding. They are erodingthrough emulation. They are also erod-ing because of their own success.

Take employees: they are better edu-cated; they are wealthier; they have more

THE AsrAN MANACER . Aucusr-SEpTEMBER 1995 19

EUROPE 0.6 -

CANADA 0,6

UNITEDSTATES

1 . 8 r,o,*o" rr.olHONG KONG 6.0

AFRICA 0.1r VIETNAM 0.8 -

1.5 MYANMAR LANNAMERICA1.0 r

5.2 MALAYSIAI 2.0 SINGAPORE

Source: Ha0ad Busin€ss neview

choice; they have more leisure time. Andthey are,becoming more demanding.Every survey shows them to be less loyal,less patdotic, less self-sacrificing, andmore self-interested than they weretwenty years ago. New kinds ofmanage-ment interyention are going to be re-quired to buck-up moral factors and makethem ihe kind of competitive advantagein the near future that they have been inthe past.

Last but not least, w€ must questionthe kind of assumptions that we use informulating our strategies. Every com-pany and every set of managers has as-sumptions about itself, about its indus-try, about its competitors, and about itscountry. These assumptions shape choiceand management shategy.

The competitive markeiplace is goingtodemand new choices. Those choices aregoing to be difficult. They will requrre aredefinition of historical relationships, a

20

5.8 THATLAND INDONESIA 7.2

Figure 17

questioning of historical assumptions, aredesign of the intemal world of manage-ment-whether that is the language spo-ken, the incentives used, or the stylescultivated. A premium is going to beplaced on innovation, not only for corpo-rate managers but also for governmentmanagers. The example of Denmark andinsulin is deliberate. There is a corporateand govemment equivalency here. Thereis a govemment equivalency of innovat-ing competitive advantage; i.e., innovat-ing in the context for advantage.

Govemments have a role. Some coun-tries do movebeyond factor endowmentsor natural resource-based economies. Wehave an ercellent example in ASEAN; i.e.,Singapore. They had a harbor They arecentrally located. They have done some-thing with that. We see some other coun-tries, fine countries, who have not beensuccessful in upgrading. New Zealand isan example, a lovely country which has

seen its relative standing in the world percapita income drop from 5th to 18th intwenty five years. There is less success inupgrading in that economy.

Cholce of l,lnkagesLet's assume we have a good loca-

tion from which we expect tobecompeti-tive. Let's assume further that we'veworked the issue of innovating advantageand we really have in our home base sig-nificantly upgraded knowledge assetsand significantly upgraded organiza-tional capability. Is that enough? Probably,if you do those two things well. But ifyou want to go the whole route, there'sone step more, a hard step; in fact, thehardest. It yields the most sustainableform of advantage, the hardest to be rep-licated by competitors: Iinkage, linkingacross national boundaries or across cor-porate boundaries, specialized assets, orspecialized activities. A new study has

Aucusr-SEpTEMBER 1995 . THE AsrAN MANACER

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come out that shows that707a of the costof certain types of products is determinedby the interaction of four or five key ac-tivities-marketing, research, manufac-turing. If you want to get the cost out ofthe product, manage the linkage. Thegreat thing about the ASEAN-10 is thatmanagers here have the opportunity todesign their own competitive systemsacross national boundaries. It's not onlylimited to the corporations; governmentcan plav a role as well. The wars and com-petition that you all will be en-gaged in will be increasinglywars of coalition across na-tional boundaries in the future.

You must look at ways ofmaking the agglomeration-the coming together of theASEAN world-into an advan-tage, linking specializedcenters within ASEAN effec-tively. An example is the US,still the world's most produc-tive economy. It's worth re-membering that when the UScame together, its entities con-sidered themselves independ-ent countries. The economythat resulted from that comingtogether is veryheterogenous,one that has an enormousnumber of different industriesin it, and an enormous amountof benefit in terms of increasedproductivity because compa-nies do not replicate everythingin each region but source fromregions that have specialized

The ]apanese automotive industry overthe last 15 years has experienced a lot ofproblems but also rewards in takingthemselves out of Iapan. The US is oneplace where the fapanese have relocatedautomotive manufacturing and assemblyand in so doing they've gotten real ad-vantages. Fig. 14 indicates that for Japa-nese relocated assembly facilities, the de-fect rate is low. But even as it works atthis level, there are problems in other lev-els. In Fig.15 look at the column that says

2 lJ I

4)5)6)7 l8 )q l

10)

Subordinate the Al l iance to Overal l Competit iveStrategy

Specify the Purpose of the Al l ianceAssure the Mutual i ty of Partners' GoalsBalance Advantages Contr ibuted by the PartnersExchange Advantage; Share AdvantageAnt ic ipa te Change; Seek Equ i l ib r iumInstal I Su pport ive ArchitectureMinimize Transaction CostsMaintain Strategic ControlLearn

Figure 18

fair degree of success. Other things likehuman resources management structuralpol icy rarely get t ransplanted withsuccess.(see Iig.16)

It's not just market mapping and do-ing good market entry strategies that wehave talked about. It's not just having aninnovative corporate architecture. It'sthings like having improved skills inmergers and acquisitions and alliancebuilding. It's things like tapping into as-sets and networking assets that we al-

ready have. Washington SyCipmentioned that the Chinesebusiness community was in andof itself a potential source of net-worked advantage, and wemust confirm if in fact it's usedconsciously and that thearchitectures exist to exploitit.(see fig.17)

The ASEAN-10 are at an in-flection point. ASEAN is ex-panding and the companiesand managbrs which make it upare entering a new era. Dealingwith a new reality will requirea lot of shifts: shifts in perspec-tive, shifts in choices that youmake with respect to location,or type of assets, or in the link-age that you seek in the world.And these shifts are going to behard to do well, but they areunavoidable. (see fig. 18)

The late Charles de Gaullehad four excellent maxims ofpolitical strategies. They are allrelevant for businesspeople. He

skills, and specialized assets. (see fig. 13) engineers and look at the column that used to say, "Always exploit the inevita-Specializationandlinkage.You'vegot says English speakers. This is a repre- ble." It's a good maxim for formulating

to consciously and constantly redesign sentativegraphfromtheNissansupplier good management strategies in thethe system. Start with your home base family;theToyotasupplierfamilywould ASEAN-10overthenextyears.Thosethatand identify other specialties and perhaps not be significantly different. They've got confront the challenges with that maximother ASEAN countries where you build the engineers there to make sure that the in mind, with the determination to exploitlinkages. You must change information network works and to make sure that what is inevitable, will create their ownsystems, human resource policies, Iead- those defects are low in the US. But do luck. And those that fight against the in-ership practices-a whole new architec- they have the English speakers to make evitable will pay the price because the in-ture. Change is hard ; but if it were easy, sure that the network works and that the evitable is the inevitable.then everyone would do it. factories in the US continues to have low The other three maxims, are: "Always

When you do have that network, real defects? In fact, if you use Japanese com- keep the initiative," " Always stay in withadvantage can result. And the bounda- panies as your model, what you'll find is the outs (because you'll never know whenries of competition don't stop in the a highly asymmetric ability to run net- they'regoingtogetbackinagain),"andboundariesof ASEAN.Buildingbeyond works for advantage. In fig. 16 some "Never get caught between a dog andASEAN is going to be an issue. Many things like manufacturing do get trans- lamp post."companiesarealreadyengagedinit,and ferred well, but things like R&D don't tn^-t.D t.,11^-;^.t^^;-*-.-^trt-^^r^.-:r^_.it's worth doing. But likelriilding a net- work at all. Some tnt"gr rit. .o'porut. Y:k?#nn;#:#i::!L:,#';:I'f;T:#,1work within ASEAN, it will be difficult. philosophies are transplanted with some ako a"Gouernor ol the ArM.

22 Aucusr-STpTEMBER 1995 . THE ASIAN MaNecrn

fl

Bv Dn. Tanrs AusrrN

ing in developing countries is a true acidtest of managerial capability.

My observation of scores of busi-nesses in developing countries leads meto conclude that the more successful havebeen those who are better able to analyze,understand, and adapt to the threats andopportunities in their business environ-ment. I shall briefly present an analyticalframework for scanning and examiningdeveloping country environ-ments. Next I shall use theframework to identify some'critical trends shaping ourbusiness environment. Lastly,I shall suggest a set of com-pe t i t i ve success de te rm i -nants.

Dnvironmentalanalysis framework

Developing countrybusr-ness envrronments are com-plex, continually in flux, andhighly diverse. I have seenmanagers fall into two traps.The first is Ad Hoc Plnnning;they deal with issues andpressures as they arise, ratherthan identifying and study-ing them in proactive, sys-tematic manner. The secondtrap is L4yopic Plnnning; theyfocus their examination of thebusiness environment on

only a small piece and thereby miss criti-cal forces impinging on their business.

To function effectively managers mustbe able to scan, analyze, understand, andreact to the environmental forces that sur-round the firm. My EnvironmentalAnaly-sis Framework ( EAF) provides a concep-tual map that can help scan systematicallyand comprehensively the critical contex-tual variables to examine and the analyti-

CULTURAL. Social Structure

and Dynamics. Human Nature

P o r c n o n f i r r o

. T ime and Space0 ri entati o n

. Re l ig ion

. Gender Ro les

. Language

POLITICAL. Stabi l i ty. ld io logy. lnst i tut ions. Geopo l i t i ca l

Lin ks

DEMO.GRAPHIC. Populat ion

Growth. Age Structure. Urbanization. Migration. Health status

ECONOMTC. Natural

Reso urc es. LaD0r. Capital. lnfrastructure. Technology

Figure 1

Managing in Developing Countries:Challenges for the 21st Centu ry

Editor's Note: Prof . James Austin spentmore than two months at AIM on re-search and faculty deaelopment. His EAF

framework is one foundation t'or theMBM program, and his analysis of thisyear's " The Asean-l} : Toward an Emerg-ing Common Market" AIM Conferencein Manila should be good reading for aIIthqt haue used the " Austin model."

J s management in developing coun-

I tries any different than managementI in developed countries? My 30 yearsof researching, teaching, and managingthroughout Latin America, Africa, andAsia lead me to an unequivocal YES. It isdifferent because the different levels andprocesses of development create distinctbusiness environments. Although certaintechniques, concepts, and approaches areuseful to managers everywhere, their de-gree of utility and nature of applicationmust be modulated by the character oftheir business environments.

Not only is management in develop-ing countries different, it is more difficult.The developing country manager has tocope with the country environments thathave more resource constraints, weakerinstitutions, fewer givens, and greateruncertainty. Being a manager in NewYorkis simple compared to the difficulties de-veloping country managers face. Succeed-

TsE Asrax MeruecER . Aucusr-SEpTEMBER 1995 z-J

cal pathways to follow in probing themanagerial implications of environmen-tal forces. It does not provide answers, butenables a more orderly and thoroughsearch process.

The EAF's approach is one of divideand conquer. It breaks the complexity ofthe environment down into more man-ageable analytical blocks. It does this inthe form of four sets of environmentalfactors and four levels of analysis.

FOUR FACTORS. In the EAF exter-nal forces are categorized into four fac-tors: economic, political, cultural, and de-mographic. Each of these can be exam-ined in terms of key components thatserve as cells of analysis, such as thoseshown in figure 1. A manager is askingwhat are the implications are for his orher business of the state and trend of eachof those components. Not only does onescan and a\alyze each of the four factor

areas but also their interrelationships. Bvfirst disaggregating the factors, we mak!the analysis more manageable; by subse-quently reintegrating them, we capturethe relevant interdependencies.

FOUR LEVELS. To trace environmen-tal effects more systematically, the EAFuses four interrelated levels of analysis:international, national, industry, and com-pany/ portrayed conceptually in figure 2.It is important to emphasize that manag-ers are always scanning the environmentfrom the fourth level, that of the firm. TheEAF provides a reference for comprehen-sive analysis, so that critical dimensionsare not forgotten, but the manner can scanand analyze selectively or focus in on par-ticular or levels depending on the com-pany's situation and needs.

As with the factors, at each of theselevels one examines specific dimensions.For example, at the international level one

is focusing on cross-border resourceflows, bilateral and multilateral agree-ments/ and global industry linkages (fig-

ure 3). At the national level one examinesin particular the impact of governmentactions. This path of analysis is illustratedby the Public Policy Impact Chain shownin figure 4, where one can trace throughhow the four factors shape national goalsand strategies, which in turn are ex-pressed in policies (monetary, fiscal, trade,investment, social, and sectoral), whichare implemented through different kindsof legal and administrative instrumentsand carry distinct effects on one's indus-hy and particular company. Applying thisanalytical tool one can project, for exam-ple, the likely affect that a possible gov-ernment action will have on relative com-petitive situation in one's industry, andeven the particular impact area and ef-fects within one's individual companv. Atthe industry level of the EAF one exam-ines the competitive dynamics. The FiveForces model of my HBS colleague Prof.Michael Porter is relevant, but with onemajor adjustment: In developing coun-tries, governments represent a megaforceand consequently should be incorporatedas a sixth force modulating the other fiveforces, as illustrated in figure 5.

TFends shaping the developingcountry business environment

With the EAF as an analytical refer-ence point, let us now examine some ofthe significant economic, political, cul-tural, and demographics forces andtrends that are shaping the business en-vironment in developing countries as weenter the 21st century.

ECONOMIC. In the economic areathe most significant and irreversible trendis international integration in terms oftrade, investment, and capital markets.

The key engine of global growth overthe past 40 years has been trade. TheNorth recognizes this, which explainswhy developed nations were willing tosacrif ice domestic polit ical pressuregroups to ensure the passage of the Uru-guay round of GATT. The ASEAN nationsknow that the trade route has been theirpathway to extraord inary economicprogress. The Latin American countrieshave reawakened and abandoned theirprotective cocoons of import substitutionand adopted export promotion strategies,

ECONOMTCFACTORS

CULTURALFACTORS

NATlOilAt ENVIRONMEIiITGovernment Strategy and Policies

an00perations

POLITICALFACTORS

DEMOGRAPHICFACTORS

INTEFNATIONAL ENVIRONMENT

Market Bilateral Multilateral GlobalTransact ions Lingkages ^ Mechanisms Industr ies

lI

i

l

t

d '-,I'IHI$I#'h"* Dynamics..

n t %COMPANY

Strategy

a A

Figure 2

AuCusT-STpTEMBER 1995 . THE ASIAN MANAGER

too. The world community's collectivevested interest lies in furthering globalintegration. It is a proven win-win para-digm.

Trade integration will continue andaccelerate. The fear that the world willbe fragmented into regional trading blocsthat wi l l become iso lat ionis t is un-founded. The emergence of regional blocsshould be seen as a transitory process ofrationalizing the global economic system.The regional blocs permit small groupsof nations to achieve integrated econo-mies with the concomitantbenefits of fac-

Instead of viewing the trading blocs withtheir somewhat protected markets as theend point, it is more reasonable to seethem as staging grounds from which na-tions and their blocs will become more in-tegrated globally rather than isolated.

Trade integration is further fostered bythe flows of foreign direct investment(FDI). FDI has grown continually and hasbecome the major source of capital to de-veloping countries. The trend towardcompanies creating global production andmarketing systems will accelerate andgive rise to growing intra-company trade.

Aheady20Vo of theJapan-U.S. trade flowis intra-company. In a fundamental sense,the more relevant unit of analysis is notthe formal trading blocs created by po-litical treaties but rather the multinationeconomic subsystems created by compa-nies' investments and sourcing and dis-tribution arrangements. Similarly, theoverall geographical scope of a tradingbloc is less relevant than particular sub-sets, for example, Hong Kong andGuandong, Taiwan and Fujian, Brunei-Mindanao-and northeastern provinces ofIndonesia and Malaysia, Thailand andVietnam, Singapore-Johor-Riau. Analo-gous subregion pairings exist withinNAFTA, MERCOSUR, and the AndeanBloc. It is also useful to think in terms ofeconomic hubs: single cities or locationsthat perform a critical function in the glo-bal system. The economic origins of HongKong and Singapore rested initially ontheir strength as international transship-ment points. In the Philippines we arewitnessing the emergence of the con-verted military base at Subic Bay as a keyhub in the Asia region, with global firmslike Federal Express making Subic theirAsia hub. I suspect that the new businessoccupants of Subic will turn out to beeven better peace keepers for the regionthan their military predecessors; alwayschose butter over guns.

In short, as we move into the 21st cen-tury we must recognize that economi-cally viable integration depends more onthe investment decisions made by busi-nesses than on political borders createdby historical accident.

Furthermore, it is increasingly com-mon for a company to source its technol-

ECONOMTCFACTORS

wCULTURALFACTORS

POLITICALFACTORS

.:d

r;")\ A )\=--\\

MarketTra nsa ctions

Bilateral Resource Mult i lateralLinkages Flows Mechanisms

Globa lI ndustr ies

\r,\I Country \

\'/wrDEMOGRAPHIC

FACTORSFigure 3

tor mobility, specialization,complementarity, and eco-nomies of scale. Industriesand investments becomereconfigured for greater ef-ficiency. Such structural ad-justments are neither easynor painless. Politically, thatadjustment process can bemanaged more easily on aregional basis with fewernations. Blocs also enablecooperating countries andtheir companies to movealong the export learningcurve and increase their in-ternational competitiveness.

POLICYINSTRUMENTS

& INSTITUTIONS

l r l

TUT AsIeN MeNecTR o AUGUST-SEPTEMBER 1995 25

ogy from one country, its raw materialsfrom a second, manufacture in a third,obtain its capital from a fourth, get itsmanagers from several countries, sell itsfinished products in yet others, and haveowners from various nations. What na-tionality ip that company? To whom is itaccountable? The global firm has a vestedinterest in creating a borderless world; itwill be a continuing force for integrationand against isolation.

In addition to trade and FDI the thirdintegrating force is capital markets. Thenew trend is portfolio investments fromdeveloped country institutional investorsand managed funds into developingcountry stockmarkets and company andgovernment debt instruments. Portfolioinvestments were almost nonexistent in1983 but ten years later were providing23Va of allthe capital flows to developingcountries. Between 7987 and 1993 theyexpanded eight times to $56 B, exclud-ing $12 B that flowed to Hong Kong andSingapore which have graduated into theranks of developed countries (see figure6). Yet the U.S. institutional investorsholdings in the emerging markets is less

26

than a half percent of their assets, so thereis a lot more money to be tapped (see fig-ure 7). From 1,982 to 1992 period devel-oping country stockmarkets grew eleven-fold. These markets are tightly linked be-cause they share common instltutional in-vestors. Disruptions in one instantly rip-ple to others. Wtness the international re-verberations of Mexico's recent difficul-ties. Domestic mutual funds and unittrusts are emerging as significant capitalmobilizers; Chile's private social securitysystem generates monthly $300 M ofinvestible capital. The challenge to thelocal stock markets in developing coun-tries is to ensure market integrity throughtransparency, full information disclosure,and regulation against insider trading. Asthis advances, so too will capital inflows.Markets that fail to make these requisitereforms will be bypassed.

Trade, investment, and capital mar-kets integration will be further enabledand accelerated by the continuing ad-vancement in telecommunications andinformation technologies. We will be in-stantaneously linked, whether you like itor not. There will be no hiding.

POLITICAL. The end of theCold Warhas, ironically, increased the complexityof the political environments rather thanclarified them. Black and white choiceshave evaporated and we are left gropingin a world of grey filled with greater am-biguities, confusing alliances, and differ-ent kinds of competing political demandsand forces.

One trend is clear: increased democ-ratization is inevitable. The forms willvary but three elements will be present:increased participation, representative-ness/ and responsiveness by, of, and forthe people. The underlying forces givingrise to democratic expression are, first,growing personal incomes that lead to amore self-reliant civil society and greaterdemands for individual rights. Second,higher levels of education that generatepolitical awareness and insistence ongreater accountability of politicians to thepeople. Third, international communica-tion that exposes people to political op-tions and processes occuring in other

Parts of the world.How pervasive is global television? A

few months ago I was travelling in ruralKenya and stopped at a small roadside toget a softdrink. I struck up a conversationwith a young Kenyan man who hadbarely more than a primary education.Instead of simple niceties about theweathet he asked me what I thoughtabout President Clinton's decision to sendtroops into Haiti to restore democracy tothat country. He had seen this event onCNN World News on a TV set in thevillage. We engaged in a surprisingly so-phisticated discussion of the pros andcons of using external forces in the causeof freedom and democracy and the rel-evancy to Kenya's current political situa-tion. The politically ignorant peasant is adisappearing breed.

A companion phenomenon to democ-ratization is privatization, usually accom-panied with growing market liberaliza-tion. Privatization constitutes the biggestasset transfer in the history of the world.In 1968 developing countries completedprivatizations worth $2.4 B; in1992, $23.2B. Privatizations in Asia and elsewherewill continue to produce marvelous busi-ness opportunities, give rise to more for-eign investment, joint ventures, and newdeal configurations, as exemplified in thePhilippines by the recently approved $183

Aucusr-SEpTEMBER 1995 . THE AsrAN MeNecER

M Philippine-Malaysian joint venture tobuild water treatment facilities here, us-ing for the first time a build-operate-trans-fer scheme. Privatizations will grow andthen decline over the next ten years. Even-tually you will run out of state assets toprivatize. More profoundly, however, thisprocess represents a fundamental trans-fer of power and responsibility to the pri-vate sector. Managing business-govern-ment relations will remain, however, acritical task for managers in developingcountries, because even as the role of thestate changes, its fiduciary responsibilityfor national developmentwill continue toinvolve it in economic matters.

Looming ominously behind the busi-ness-government interface is the darkcloud of corruption. No country is totallyfree of corruption. Recent governments inBrazil and Italy have fallen because ofcorruption scandals. Corruption is a can-cer that eats away at government's cred-ibility, erodes societal trust, waste re-sources, and diverts energies into coun-terproductive activities. Governance com-petency is becoming increasingly impor-tant as a source of international compet!tive advantage. Professionalism, transpar-ency, and honesty must be the norms forgovernments, if nations wish to be win-ners in the 21st century. We are not look-ing for bigger governments, just betterones.

CULTURAI. Let us now turn to thethird factor, culture. Countries' culturesare neithgr constant nor monolithic. They

are surrounded by forces that lead tosocio-cultural change and different sub-groups within a society act in differentways and change at different rates. Be-cause culture is dynamic and varied, wemust scrutinize it carefully and continu-ally.

International communication mediavia television, movies, print, computers,and travel are geometrically increasingsocieties' exposure to different prefer-

ences/ att i tudes,customs. Individu-als' cultural framesof reference andbehavioral optionsare expanding. In-ternat ional eco-nomic integrationexPoses businessmanagers, emPloy-ees/ and consumersto different culturalapProaches to or-ganizational struc-tures, relation-ships, and commu-nication and atti-tudes toward com-petition. Counhies'cultural bordersare Permeable.

Communications and business actions aretwo powerful vehicles for penetrating thesocial fabric through a process of culturalosmosis. Thus, we must expect the future'to

produce much greater cross-culturalblending and more rapid changes in cul-tural patterns. We can no longer take cul-ture as a given; it will become a movingtarget. Traditional assumptions aboutconsumer or employee behavior will be-come less valid.

The Harvard Business Review con-ducted a global survey of 13,000 manag-ers from developed and developing coun-tries. The managers were asked two ques-tions: Has the average quality of youremployees increased over the past fiveyears? Has the loyalty of your employeesto the firm increased or decreased? Yourcounterparts around the world have con-firmed that education had increased andloyalty has decreased. As employees be-come rnore educated, gain greater eco-nomic independence through higher sala-ries, and face more external employmentoptions as economies grow and competi-tion for talent increases, their mobility isgreater. kaditional cultural norms suchas loyalty being given to a company inexchange for paternalistic security be-come more tenuous. Growing competi-tive pressures on firms also have de-

Source: Estimates of Baring Securities

South Asia

Europe/Central Asia6 .7

Source: World Debt Tables 1993-94

Figure 6

THr AsnN MaNecER . Aucusr-SEpTEMBER 1995 27

creased their financial ability to sustaintraditional promises of job security.

These trends mean that companleswill have to reexaminc their internai cor-porate cultures and make adjustments toaccomodate the changing attitudes oftheir ernplovees and the growing cross-culturality of the business world. A com-panv's internal culture is not simplv amirror image of countries' culture. It issignificantlv influcnced bv the externalculture, but it is not a prisoner of it. Thecompany's organization represents a so-cial spacc in lr,hich distinct norms andbehavior can be developed.

Before we leaye our exanination ofthe socio-cultural trends, we must spot-light education, which generallv has cul-tural roots. Skill scarcity is the most c ti-cal bottleneck to development. Althoughit is proven that you can surge forwardeconomicallv on the backs of low costlabor, this is an evaporating advantagebecause development generates risingwages. Skill enhancement is the key ve-hicle for creating sustainable adr.antage.Thus, the real competitive race into the21st century is the race to educate.

We must rethink fundamentally theissues of who should be the educators,where should education take place, whatshould be taught, and how should it betaught. To simplv invest more resourcesin the same old ways lvould be a Iousyinves tment . We must redef ine andbroaden society's educators to includeinstitutions other than the formal schools,such as, businesses, civil societv organi-zations such as NCOs, families, and in-dividuals. Wc must have borderlessclassrooms where on+he-job training andintemship arcincorporated into the leam-ing process. Information and multi-me-dia technologies will be mobilized to en-abJe long-d is tance learn ing and .e l f in -struction in the home. The concept ofone-time formal education must be replacedwith that of continuous leaming. Inshtu-tions and processes aimed at retoolingand retaining existing workers must re-ceive much greater attention to enable theworkforce to adapt to the rapidly chang-ing environment that will make obsoleteexisting skil ls more quicklv What wetrain people in will be more closely hedto actual and forecasted capability needs.Educational producers will become morecoordinated and integrated rvith educa-

28

tional users. Our educational processesn il l increasinglv shi[t lrom pd\.irc tradi-tional methods of informational transfersuch as lecturing to more interactivelearning methods aimed at developinganalvtical and creative thinking capabil i-t ies rather tl.ran just memorizing andmechanistic processing skil ls. We needthinkers more than harmonizers.

DEMOGRAPHIC. Demographic dif-fercnces constitute the most striking con-

Get theChineseto eaeh clrinkone morebottle ofCoea-Cola:You will sellone billionmore bottles.

trast between developing and developedenv i ronments . Deve lop ing count rypopulation growth rates are four timeshigher, u'hich means that almost all thedemographic market expansion in thene\ t cen turv w i l l be in the deve lop ingn, t t ion ' . I h i5 means tha t a l l those bur i -nesses based on population-driven de-mand will increasingly migrate to de-veloping countries. The highestper capitasoftdrink consumer is Mexico; China wasCoca-Cola s faste\t growing market laslvcar , e \pand ing 64a, and tha t ' son lva t aIevel of threebottles per person. Get themto drink one more bottle each means you

sell a billion more bottles. It is clear whvthe mass consumer goods multinationalshave "Creat Wall Fever."

The differential growth rd tc. give ri\eto d ramat ica l l v d i f fe ren t popu la t ion agestructures. Developed countries are rec-tangles r.r ' i th aging population:, and de-veloping countries are pyramids withmost of the population being under 20year<. [f you are a producer of babv dia-pers or food, or a manufachrrer of chil-dren's shoes, it is obvious where the

growlh markel rr ' i l l be. A. countrier de-velop cconomically, birth rates fall andchange the age structure. Thus, the fourAsian Tiger. face a gre\ ing population inthe next century, which means they willhare to dea l \v i th the gro t l rng economicburdcn o[.upporting the elderlv. Tradi-tional familv support systems tend torveaken and a greater f iscal burden isplaced on the state. Covernments n'illhavc tu wr*tle |\ i th the polit ic5 of ag-ing. The elderlv become a verv powerfulpolitical group that resists tampering withthe i r en t i t lement p rogram5, as i5 e \ ' i -denced by U.S. politicians' fear of cut-ting Social Security benefits.

The other striking demographic phe-nomenon in developing countries is rapidurbanization and the creation of enor-mous cities. Although these concentratedmass markets stimulate business devel-opment, they also create serious road-blocks in the countries'rapid develop-ment path, such as large groups of poorpeople living in desperate socio-economlcsituations, stresses on traditional culturalvalues, family structures, and social prob-lems of drugs, crime, and AIDS. Further-more po l lu t ion , env i ronmenta ldegration, and congestion have chokedmany cities. From Mexico City to Bang-kok we are witnessing Megacity Cridlock.If $.e were to utilize a Quality of Life In-dex, we might discover that for manydeveloping country cities, as develop-ment $'ent up, the quality of life wentdown. We are earning more, but enjoy-ing it less.

The economic cost: are large. Bang-kok's gridlock costs the country $1 B ayear in petrol and time losses. Pollutioncaused 51 mill ion days of lost work ac-tivity and 1,400 deaths annually due tore5piratory di.tress or i l lness. l-oreignexchange earnings from tou sm are jeop-

ard ized. lhar land 's Pat tavd resor t go tcrossed off many travel agencies'list dueto se$'age disposal pollution of thebeaches. MexicoCity's pollution is so badthat you can no longer.ee the mountains.Not only toudsts but also foreign inves-tors are having second thoughts aboutgoing to such locations.

The Harvard Business Review GlobalSurvey revealed that developed countrybusiness leaders put ecological problemsalmost at the top of social problems rel-evant to business; developing country

AUGUST-SEI'TEMBER 1995 . THE ASIAN MANAGER

euaporatingaclaantage

deuelopmentgenerates

managers placed environmental prob-lem( at the bottom of their l ist. This his-torical relegation of environmental issueswill be corrected as we move into the 21stcentury. Covernments and NCOs willinsist on environmental sensitivity. Thisbusiness problem translates into a signifi-cant market opportunitv. The demandfor environmental goods and services rnAsia is estimated at about $31 B with anannual growth rate of over 16?.

The final demographic phenomenonis international migration. Cross-borderflows of workers will increase as part ofthe process of global economic integra-tion. Labor mobil ity wil l join capital,trade, and technologv flows in creatingoptimum economic configurations. Re-source complimentarities will drive theflows. In thi: region Singapore, Valar-sia, Brunei, Taiwan, Hong Kong, andSouth Korea are labor short and capitallong . wh i le the Ph i l ipp ines . Indones ia .China, Vietnam, and North Korea arelabor long,ind c,rpilal short. The compli-mentary and flows are clear. Of course,people flows are more complex and cul-turallv disruptive than capitaland goods.

These international human resourseflows donotsimply involve unskilled andtechnical workers. The managerial mar-ketplace is also increasingly global. Justask one o f Harvard 's b r igh t MBAs:Would prefer to take a job in Pittsburghor Hong Kong) They would l ikely reply:"That's a no-brainer. I'll go where theaction is, and that's Asia."

Determinanls of successful eom-petiliveness

Keeping the foregoing economic, po-litical, cultural, and demographic factorsand trends in mind, allow me to suggesta set of managerial actions that will con-tdbute to success as wejournev forth intothe complex business environment of the21st century. I call them the " Ten I's ofCompetitiveness."

INERTIA. The environment is filledwith unparalleled rapid, complex, struc-tural, and irreversible changes. The wontand most insidious enemy of a companyin this context is inertia. The antidore roinertia is to adopta Change Mindset. Thismeans being re(eptive to Lhe po.sibil i tv.necessity, and desirability ofchange. Thecurse of succe.s is thdl it breeds compla-cency, Presuming that vou can do busr-

ness in the next ten vears as you have inthe last ten is to assume vour way intomediocrity, if not extinction. Having aChange Mindset means tha t vouproactivelv seek out change. If you donot change your environment, it wil lchange you. Which would you prefer tobe: the hammer or the nail? The ChangeMindset also means that you see changeasa long-term process rather than a short-term event. [t is not the ]00 meter dash;it is a marathon.

INTIMACY. Consumers are increas-

Low eostlabor is an

beeause

rrc.ngurages.

ingly more educated, more sophisticated,and more demanding. We will see therates of new product proliferation accel-erate. Consumer choice will multiply andbrand lovalty will be more fragile. Themore intimatelv you know and under-:tand vour client, the greater the possi-bility ofanticipating theirneeds and find-ing superior wavs to meet them. Youmust love your customers, and this mustbe a long,-term relationship, not ju5t afleeting romance. Qualitv managementmust be rooted in achieving customer sdt-isfaction. Rather than TQM we shouldlabel our efforts CFQM, Customer Fo-cused Quality Management. And CFQMshould not be just a program, but a phi-losophy, and notjusta philosophy, butanobsession, which is an essential ingredi-ent to all intimate love relationships.

INNOVATION. Creating new waysto satisfy custome$, manufacture, distrib-ute, finance, organize, and motivate $'illbe Lev to 5uccess. We are not talkingabout tinkering with the latest fad, butrather pervasive and profound renewal.Inno\ ation produce: productivity gain5,

which are essential to cost competitive-ness, thatin turn isvital to producing con-sumer value. The broadening of con-sumer preferences means that f i l l ingniches will increasingly be the name ofthe game. Differentiation will be the com-petitive driver and creativitv will be at apremium. This will place new demandson the way companies are organized.

I N TE R FUN CTI ONA L ITY. Thegrowing complexitv of the business en-vironmentmeans that real business prob-Iems seldom will come to us as neat pack-ages corresponding to traditional mana-gerial functions such as finance, produc-tion, marketing, or organization. Wemust viet{ and structure our organiza-tions as business svstems that approachproblems through functionallv integratedactions. We need to create organizationsu'ithout functional ftontiers. Traditionalfunctional strucfures tend to clogcommu-nication channels, create bureaucratrcbarriers, and foster turf battles. Theseforces isolate rather than integrate com-pany personnel. Speed and flexibility areIost, yet these are vitally important to con-front the demands of a volatile envrron-ment. Competitiveness requires cross-functional collaboration. The era of the"Rambo," macho manager who does itallalone is gone.

INCLUSION. lradition,tl organiza-tional structures and relationships havetended to be hierarchical. Such verticalstrucfures provide orderlinessbut thev donot necessarily foster creativity or rapidresponsiveness to a changing environ-ment. Managers are distanced from theaction by organizational layers, and in-formation loss inevitably occurs as itwinds its way up and down the bureau-cratic stairway. There is growing recog-nition that those closest to an activity arethe most knowledgeable about it andthereforeought to be active decision-mak-ers rather than passive receivers oforders.Flatter organizations and more meaning-ful participation indecision processes willfoster greater creativity, innovation, andagility. The new psychological needs ofmanagers for intrinsic job satisfactionmay also be better met in these ways.More enlightened companies arealso rec-ognizing that one of the kev underusedmanagement resources ale women whohave been overlooked due to culturally-bases gender biases. Including women

THE AsrAN MANACER . Aucusr-SEpTEMBER 1995

fully into the top management ranks willlikely raise the average managerial IQ.

Many of the group oriented processesin some Asian companies have capturedthese inclusion benefits as well as thosefrom interfunctional integration. On theother hand, some traditional corporatecultures that have been authoritarian orpaternalistic may encounter difficulties.Authoritarian cultures may have createdgreater discipline and efficiency that wereimportant to early stages of industrial!zation. Analogously, paternalistic cul-tures may have organizations and opera-tions in unstable environments. How-ever, in the dynamic environment of the21st century loyalty and compliance maybe less important attributes than innova-tion, independent thinking, and adapt-ability. Many companies must engage inser ious in t rospect ion to determinewhether what were their traditional corecultural competencies have become corerigidities in facing the new challenges ofa dramatically changing environment.

INTERNATIONALIZATION. Theleading companies in developing coun-tries not only realize the imperative ofgoing international; they are already do-ing it. The adoption of an internationali-zation strategy inescapably dictateschanges in organizational structure andadministrative systems. There is nostandard blueprint for these changes, butthey will generally be disruptive.

Staffing will be a key challenge: thewinners in the 21st century will be thosewho can most effectively manage cross-cultural diversity. One must recognizethat cultural differences exist but not au-tomatically accept all the differences. Thechallenge in a multi-cultural organizationis to create a corporate culture that capi-talizes on those cultural attributes andpractices that strengthen company capa-bilities and reduces those that detract.Many companies have demonstrated thecapacity to create such distinctive "cul-

tural space" in their overseas operationsby optimumly mixing the coexisting cul-fures. Such an attainment. however. is noteasy; it requires great cultural sensitivity,conscious planning, and intensive cross-cultural training of employees.

There has been considerable debate inrecent years about whether Asian or West-ern management techniques with theirdifferent cultural roots were superior. I

30

suggest that for the global firms of the 21stcentury th is is an outdated debate."Which is better?" is not the relevantquestion. The task is to create the opti-mum mix. Cross-cultural blending of bestpractices is the new name of the game.And the manager of the future will bemulticultural and multilingual and excep-tionally talented at managing cross-cul-tural human chemistry.

The firm of the future must create itsself-image. When you will pass from con-sidering yourself a Filipino or Malaysiancompany with international operationsand consider yourself an ASEAN entity?Even further, when will you shed yourASEAN identity and become a global en-terprise with operations throughout theworld? These are not semantic differ-ences; they represent profound transfor-mations. Only the bold will be capableof such a journey of change. The timidwill remain in the minor leagues.

INTERRELATIONSHIPS. Joint ven-tures and strategic all iances betweenfirms from different countries will con-tinue tobe the dominant modalityinAsia.Such relationships, whether abroad or athome, can capture complementaries andgenerate synergies, but joint ventures arenot easy to manage. Many fail or fall shortof the partners' original expectations.

The following are some guidelines forcreating successful joint ventures or stra-tegic alliances:

* Carefully assess complementarity.If there is no true operating or resourcesynergy as well as congmency of values

between you and your potential partner,stop before you start. Broken engage-ments are less painful and costly thansubsequent divorces.

* Identify potential conflict points.Conflicts are inevitable and they are bet-ter managed by spotting them ahead oftime and discussing how they should behandled if they arise.

* Make clear rules and transparenttransactions. Suspicion is the cancer ofcollaboration. Clarity and transparencyis the antidote.

* Be flexible and fair. You cannot planfor everything. Don't be trapped intocounter productive rigidity by your origi-nal agreement. Expect the unexpectedand be willing to solve problems in anequitable manner. Review and revise thearrangements if necessary.

* Communicate, communicate, com-municate. Infrequent and imperfect in-formation create misunderstandings thatcan grow into crises. The vacuum of si-lence is often filled with misassumptions.

* Know when to exit. As the pokerplayer said, "you've got to know whento hold'em, and know when to fold."

foint ventures can outlive their useful-NCSS.

Finally, the company must recognizeand manage an increasingly intricate webof interrelationships with governmentand other stakeholders, such as commu-nity groups in its operations areas andNGOs concerned with its actions. Thecorporate accountability equation willbecome more complex.

Inertia

Intimacy

Innovation

Interfunctionality

lnclurion

Internationalization

Interrelationships

Information

lgnorance

lntegrity

: Upset the status quo: Be close to your customer: Be creative and f i l l niches: Teamwork!: Flatten the organization: Think beyond ASEANCommunicate3!Use the info superhighwayCreate a learning organizationBe a responsible corporate citizen

Aucusr-SSpTEMBER 1995 . THE AsrAN Meu.q.crn

INFORMATION. We are enteringthe information age. There will not be asingle aspect of business that will go un-touched by the rapid advances in infor-mdtion proces5ing and telecommu nica-tion technologies. Twenty yearsago therewere 50,000 personal computers; todaywe produce 50,000 every day. Comput-ers are central to the needed educationalrevolut ion in developing countr tes.Internet gives usen access to 14,000 databases ranging from CIA to the LondonPublic Library. Our problem is shiftingfrom information scarcity to informationoverload. Computer networks are be-coming the nerye system uniting globalcompanies' far flung operations. Officesare becoming mobile. Have modem, willtravel is the new managerial code. Theparadigm of access and use of informa-tion is being radically altered. The natureof rvork relationships, communication,and control mechanisms are being pro-foundly changed. The traditional inter-mediary function of middle managers isbecoming obsolete. The creation and useof information will be central to attain-ing and retaining competitiveness. Thelesson, in short, is either get on the infor-mation superhighway or get left behind.

IGNORANCE. Managers generallyflee ignorance. Not knowing is uncom-fortable for decision makers. The success-ful manager of the future must discardthis emotional baggage and embrace ig-norance as our ally. Admitting ignoranceis the first,step to discovering knowledge.Instead ofinvesting exceptional energy incovering up our lack of answers, weshould channel that effort toward lean-i.g

Peter Senge relates a story about aformer planning director of planning atShell Oil, who stressed the importanceof this well when he said: "The capacityto learn more rapidly than the competi-tion will be the only sustainable competi-tive advantage." To make your companya learning organization, there are five con-ditions:

(a) Make learning a basic corporatevalue central to your company culfure.The possibility of learning continuallyshould be continually present. He whoknows it all, has much to lear.,.

{b) Accept thd t everyone in the organi-zation can learn and that one can learnfrom everyone. Do not assume that

knowledgeis in accordance with position.What one says is more important thanwho says it.

(c) Learn from oul:ider.. Do not per-mit a "Not-lnvented-Here syndrome."Search out best practices incessantly.Somebody somewhere is always doingsomething better than you, and that rep-resents a learning opportunity.

(d) Managers mustbe active listenerswho value cdticism as a source of growthand receive it without defensivene's.

(e) Learn by doing and accept mrs-takes as part of the learning process.

When you've stopped learning as amanager, then you know its time to re-tue.

INTEGRITY. This is the essence ofleadership, and leadership is what weneed to meet the challenges posed by theprevious nine "l's."

Ineluclinguromenfullyinto topmanagementuill raisethe aueragemanageriqlrQ.

The leader is the pilot who creates thevision for the company's future. Theleader is the keeper of the corporate cul-ture who ensures that the core values arepreserved as a powerful guiding force.The leader is a mentor who developsother leaders. Visionary, value-leeper,and mentor These core leadership iunc-tions cannot be executed successfullywithout the organization's members'trust in the leader derived from their be-lief in the leader's integrity.

You are all leaders. You walk in thecorridors of power. The first is the risk ofabuse. The acid test of leadership is theability to exercise power responsibly.John D. Rockefeller said that "Every

privilege implies a responsibility; everyopportunity an obligation; every posses-

sion a duty." The second risk of power rsforgetting those without power To dothis is to fail the basic ethic of busrnessleadership, which is to contribute to thewelfbeing of societv Our duties as lead-els extend beyond the corporate doors.Today and even moreso in the future, thepower and respon\ ib i l r tv of busines.leaders is and will be greater than everbefore. And this represents anexceptionalchallenge. To face up to those challengeswe will have to wrestle with inescapabledilemmas and to make hard decr:ion:.It may also mean to venturing into un-charted terrain where few have traveledbefore.

As you go forth on this demandingand exciting journey into the 21st century,fear not the less travelled road, forget notthe forgotten ones, and fulfill the moralimperative of true leadership. It must beso if we, as citizens of the world, are torealize the fullness of our humanitv

Bibliography:

l.For a full elaboration of the Enr iron-mental Analysis Framework see Manag-ins in Developine Countries, I. Austin,The Free Press, MacMillan Publishing,New York, 1990.

2.James E. Austrn. \ i lgun Colgur andHelen Shapiro, " Emerging Markefs: TheRising Role of Portt'olio Intttstments,"Harvard Business School Working Paper494-053,1994.

3. Jack CIen, "An InLroduction to fheMlcrostructure of Emerging Markef s," lnternational Finance Corporation DiscussionPaper 24,1994.

4.David D. Hale, "St,ck Mnrkets in theNew World Order," Columbia lournal ofWorld Business, Vol. XXIX, Number 2,Summer 1994.

5. Dennis A. Rondin elli, "Thailand's Ex-ptrnding Markets for Entiroumental Technolagy and Serrices: Opporfunities for U.S.Trade nnd Inaestmenf," Tournal of AsianBusiness; Vol. 10, Number 1, 1994.

6. K.T. Arasu, "U.5. Eyes B ging AsinnMarkrt for Enaironmental Technology ," lg!f:nal of Commerce, September 23, 1993.

7. Peter M. Senge. The Fifth Discipline.New York: Doubleday, 1990.

Dr lancs A st1t1is tl1. Chai l\ldt af Challnnn Ptuf6sorship, Hdnrord Utli|ersil| Cndunt,, Scll,ol of Bustness Admi islratton.

31THE AshN MANAGER. AUGUST-SEPTEMBER 1995

IGIzIN, ;:i

. . t -\ l t t

B\ lRoFt5)oR Rl \ f T. Dovt\( ,o

meeting the sales target. Mysales people cannot afford tospend (rvaste) tjme on qualitvimpr,,\ ement proiect.: thev ar(bcltcr otl .r l l inE and lrving t,.rhit or e\ceed their sales quota. '

Production manager-"Wehave a tight production sched-ule to follol'. Actuallv u'e arebchind scltedule. lVe have notime for qualitv programs. Wehar.e b rush deliveries...."

Finance manager- "We arebusv balancing the budget andmanaging the tight cash florvs.

Quality? Thafs for the produc-tion and marketing people. Wehar.e no iime for that, $'e have

to cut cost."Other managers rvould sholr'

similar indifferencc to qualitv Thev allseem to think that qualitv is an additionalburden to their normal work, and thevrvould do it if thev have the timc and peo-pl, to.pare rferi 'r. Marleting ntan.tg,-ers u'ill ai\\ avs run after sales cluotas, pro-cluction managcrs after production sched-ules, and finance managers aiter thebudget. Thev rvill never stop this hre-fightnlg and \r'ill thereiore have no timeto do an)'thing elsc, much less quahtvTher r ' i l l . r l rn . rv ' u -e IhL*c " lep , i t ima le '

Linking Quality toPerformance Appraisals

ne of the biggest sium-blingblocks to the suc-cessful implementa-

t ion oi Totai Qualitv Manage-ment (TQM) is management'sfailure to integrate the compa-nv's qualitv mission and goalsinto corporaie policies. For in-stance most middle managersarc indifferent to TQM simplvbecause qualitv

. is not a Key Result Area(KRA)

. is not a Management bvObjective (MBO) iarget

. is not pari of their per-fo rmance eva lua t ion or ap-praisal.

If middle managers behave thisrlav, then thev are not to blame. Topmanagement cannot expect qualitv tohappen if it is introduced arrd promotedonly through speeches, slogans, andseminars. Unless quality is deploveclclearly into corporate policies, especiallylho.r' th,rt,t[fe( t,,ne'. p.rv and prom,'t i,,rt.then the manager's behavior rvil l notchange. Qualitv rvil l remain a vision. Ifmiddle management is not supportive ofTQM, then it cannot provide the neces-sarv leadership to the supervisorv andrank-and-file levels. Including qualitv as

32

UNLESS QUALITY ISDEPLOYED CLEARLY

INTO CORPORATEPOLICIES. ESPECIALLYTHOSE THAT AFFECT

ONE'S PAY ANDPROMOTION,

THEN THE MANAGERS'BEHAVIOR WILLNOT CHANGE.

oneofthemanv KRAs ofa manager mavnot be enough to change behar,ior. Toomanv KRAs means no KRA at all. Fortotal quality conpanies, clualitv should bethe first KRA, second to none, ahead oiprofits, market share, sales, production,and costs.

When asked io undertake, support, orpar t i c ipa te in qua l i t y improvementprojects, the tvpical response and attitudcof n.dddle managers are:

Marketing manager "We.rrc busv

Aucusr-SEprEMBEIt 1995 . THE AsIAN MANAGER

excuses not to do any improvementlronically, what they all missed is the

fact that quality will reduce if not elimi-nate most of the problems and firefightingin the course of their normalwork. Qual-ity is the solution to their problems, andnot a hindrance to their work. Qualityleading to improvementin customer serv-ice will make it much easier for market-ing to increase sales and market share.Quality that cuts lead times, wastes, un-necessary inventories, rework, and in-spection will increase productivity andhelp production boost its output andcut delays. Quality improvementwill cut the cost ofquality - the costof not doing the right things rightthe first time -up to 20% of sales.These significant savings throughquality will surely aid the financemanager balance his budget andmaintain the financial health of thecompany.

While it is difficult in theory todispute the favorable effects ofqualitv on any corporate activittin practice, it is hard, though notimpossible, to convince experienced middle managers that qual-ity can be the panacea for almostall their problems and firefightingnightmares. Corect beliefs and attitudesmay take time to develop among manag-ers. especially among those with erperi-ence. To dccelerdte the TQV process, itmay be necessary and practical to justmodify manager's behaviors, regardlessof their current attitudes-right or wrong-about quality. This behavior modifica-tion is done by integrating quality goalsinto their KRAs and/or annual perform-ance appraisals.

YK. Shetty in "The Human Side ofQuality" * cited illustrative approaches toJinLing quality with performance apprais-als in four major corporations:

r"Quality targets are part of Ford'sexecuhve compensation plan:40% to 657oofthebonuses for Ford managers isbasedon their contribution to quality, while only20% is based on their contribution to prof-its."

."lBM's monthly measures of inter-nal and extemalcustomer satisfaction arethe basis for a large share of incentivecompensation, erpecial ly for :enior man-agement."

."McDonald's regularly measures its

stores' qualitt service, cleanliness, andvalue to determine a large portion of thestore managers' compensation. Failure tomeet McDonald's standards can result infiring or loss of the franchise."

. "At Chryslet a manager n'ho failsto meet quality goals for one week mustsubmit a w tten explanation. ThoseWhomiss quality goals for a month are calledbefore a highJevel executive committee."

Common among these measures arethe adverse consequences of failure tomeet quality goals on the part of the man-

ager . These four compan ies haveachieved significant quality improvementand dramat ic bus iness tu rnaroundthrough their thorough no-nonsense qual-ity programs. The message of these poli-cies is that managers should take qualityvery seriouslyand make itan integral partof their work. Note that quality is nolonger an appeal nor a battle cry. It hasbecome the rule of the game called execu-tive survival. Disobedience or non-quafitv act' and decision: - both commissionand omission - is simplv punishable

Managers take very seriously theirperlormance appraisal and whatever goesinto it. Unfortunately, traditional itemsin performance appraisals do not indicatenor encourage the manager's contribu-tion to quality or service improvement.Achieving sales, production, or costs tar-gets does not mean that quality goalshave been achieved. In most cases, theseare mutually exclusive goals or havecause-effecl relationships in one d irection.High quality eventually leads to highsales, high productivit, low costs, andhigh profits. But high sales, high produc-

tivitr low costs, and high profits do notnecessarily come from or lead to highquality or quality improvement efforts ofthe manager. There are very few qualityimprovement activities that do not leadto higher sales and lower costs. But thereare numerous activities thatlead to highersale. and lower co.ts by compromisingquality and customer service. To name afew:

. pushing products to customers tomeet sales quota

. sellinginferior or substandard prod-ucts due to material substitution to cut

costs. reducing manpower that

results in poor customer service,longer waiting times, uncaringand demoralized emplovees.

Other general attitudes in-cluded in tvpical performance ap-praisals l ike leadership, team-$'ork, creativity, and responsive-ness are too gross or lnaccurate asindicators of quality behavior andwork.. Unless these attitudes areredefined to include a customer-focus and quality-orientation,they mav fail in motivating man-agers to embark on qualitv and

servlce rmProvement proglams.

Quality should be measured separatefrom and in addition to financial andattitudinal indicators. Failure in qualityand customer service cannot be compen-sated by superior sales or profit perform-ance. Rewarding sales performance inspite of bad service that accompanied itis courting disasterand is counterproduc-tive. It sends the wrong signals to themanager. Such bad service will be re-peated and eventually result in more lostcustomers and lost sales in the future.

By linking quality to the managers'performance appraisals and KRAs, theywill ult imately develop the desirableworking habit of putting quality in theirwork whether i l is sell ing. producing,and administering. Doing things right thefirst time should become second naturc.

*\ational lroductivity Review {Spring1989)

Prof. RetE.? T. Donli,tgo is a fll-tottt p/ofessor atlhc Asiln Instihte of Mnnnget enl (AIM) and theholLler of lh? Sinl. Dnthv Chlrir for M1n lacturitry. He tench.s op.lat i|1s mnnn{ement, total qual-ity inanngentc l, scrl,ic. dtlii ettl,a d latlagtmcnlo1 lorlna t to t1 s! st e nls.

ACHIEVING SALEs,PRODUCTION, ORCOSTS TARGETSDOES NOT MEAN

THAT AUALITYGOALS HAVE

BEEN ACHIEVED.

THE AsrAN MANACER . AucusT-SEpTEMBER 1995 33

BY PROFESSOR FRANCISCO L. ROMAN, TR.

Green Marketing forDeveloping Countries?

ne of the more pleasant aspectsof market ing in developingcountries is the abilitv to foresee

the future. That is, one can look at the de-veloped countries, particularly in NorthAmerica and even frequently enough inEurope, for marketing innovations, manyol which have become standard [are inthese counlries, but rr hich might offer acompany a marlet ed8e, however tranri-tory. These once-and-futu re-innovalionstake many forms- new concepts as wellas new prbducts and product extensions,new media and promotion themes, some-times new channels of distribution. Onecan then evaluate the success factors ofthat item in the developed country andgauge whether said item will fare well inone's home (developing) country.

One such item is the concept of greenmarketing or environmentally-friendlymarketing, not onlv through the designand manufactureof the products,but alsoin the promotionand delivery ofthe serv-ices and advertising themes. This articlewill focus on the latter aspect, that is, onthe company's efforts to improve its im-age among consume$ bv acquiring thecachet of green marketing.

Two important caveats to the readerare in order First, this article assumes thatfirms that carry products or advertise-ments bearing the green label do indeedlive up to their word. This is a heroic as-

sumption, because firms in developedcountries are by no means clean-green.For instance, in England, the Bovemmentis cracking down on misleading eco-la-belling. False claims by manufacturerstha t p roduc ts a re env i ronmenta l l yfriendly because they do not contain aspecific ingredient are to be prosecutedunder the 1986 Trades Descdption Act.

International Recycl ing Symbol

Second, this article will not delve intothe ethics of green marketing, itself a con-tentious issue. For instance, Body ShopInternational, owned by Anita and Gor-don Roddick, built a global image on itsclaim to sell natural, environmentallyfriendly cosmetics.

However , the Frank l in Research andDevelopment Corporation, an Ameri-can ethical-investments fund, had re-portedly sold its Body Shop shares. lt

sa id i t was concerned tha t the Rod-d icks ' record in g reenery fa i led tomatch its claims. Crit ics complain thatBody Shop's policy of not sell ing itsproducts that have been tested on ani-mals in the previous five years is lessrigorous than some of its competitors,and that its trade, not aid, scheme ofsourc ing f rom ind igenous peop le ac-counts fo r less sa les than i t c la ims. Ina 65-page doss ie r d ispu t ing these a l le -ga t ions , Body Shop c la ims to havebeen the victim of an obsessive cam-pa ign o f v i l i f i ca t ion by Jon Ent ine , anAmerican journalist. lStorm in a Bub-ble Bath,fhe Economist, September 3,1994)

Incidentally, the above incident withBody Shop implies that green marketersare likely to be judged by higher stand-ards than ordinary firms.

Green marketing is one such conceptand product category that beckons fromthe time tunnel of the developed coun-tries, Green products have been aroundthere for a decade; many multinationalcompanies have already carried suchproducts to developing countdes, partlydue to the mandate ftom corporate head-quarters and not necessarilv because con-sumers were sufficiently environmen-tally-conscious. For example, 3M devotes15% of its US$ I B R & D budget to envr-

AUGUST-SEPTEMBER 1995 . THE ASIAN MANACER

ronmentally related research; further-more, recycled products promise productsavings, depending in part on the cost sys-tem being utilized. Indeed,

The IPol lut ion Prevent ion Pays] pro-gram has also been extended to 3Mp l a n t s w o r l d w i d e , e v e n i n r e g i o n swhere ecological issues are far lessprominent . In 1992, fo r example , adozen employees a t the company 'sfactory in Mani la came up with the ideaof making toi let-bowl brushes from theleftover plast ic f ibers used in makingScotch-Bri te cleaning cloths. ( l t Real lyCan Pay To Clean Up Your Act, by KevinKel ly, Business Week, Nov. 7, 1994)

A few domestic firms in developingcountries have also experimented withthe use of a green image as a tool to dis-tinguish one's products from one's com-pet i tors. Cement is the 36-year oldPHINMA (Philippine Investment Man-agement Consultants Inc.) Group 's corebusiness, and it has spent heavily on pol-Iution control equipment; its decision totake the lead in environmental manage-ment in the industry is giving it a greenimage which may differentiate it from itscompetitors. So it seems appropriate toask the question which is the title of thisarticle.

Before answering the question, how-evet first take note that the green mar-keting concept (and products) follows aIong line of once-and-future-innovations.Memorial plots and condominiums wereonce culturally unacceptable in manydeveloping countries whose families oncehad clear and fixed ideas of what consti-tuted a burial ground and a dwellingplace. If one were old enough, one mightremember a time when Coca-Cola was unavailable at the local supermarket; for thatmatter, one might still remember whensupermarkets did not exist in Asia as achannel of distribution.

The use of expiry dates on productsthat are perishable-milk and freshlybaked goods-and dates of manufacturefor those not so perishable- sugar andsugar-free substitutes-has made thetransition from an exclusive marketinggimmick to a virtual necessity and com-monplace for many consumer foods. Willgreen marketing go the same way?

One issue for the marketers in the de-

veloping country is whether the greenmarketing concept will be a fad or a fact.To answer that question, look back to thefuture, circa1,993,

Reports of the death of Green Market-ing in Amer ica are decidedly prema-ture. Envi ronmental adver t is ing as aspecia l ty may be on the wane in someconsumer product companies, but themovement has not d ied. On the con-t r a r y , i t i s r a p i d l y b e i n g m a i n -s t reamed . . . We see env i ronmen ta lmarket ing and adver t is ing enter ing anew phase-The Thi rd Wave. . . TheFirst Wave started more than five yearsago, t r iggered by a seemingly endlesss t r e a m o f a p o c a l y p t i c h e a d l i n e s . . .Ear ly ef for ts to capi ta l ize on the r is ingt ide of publ ic opin ion were of ten hast-i l y imp lemen ted and i l l - conce i ved . . .T h u s s t a r t e d t h e S e c o n d W a v elwherel companies wai ted unt i l leg is-l a to rs and regu la to rs passed l aws ,def ined terms and formulated guide-l ines. The Thi rd Wave. . , wi l l be char-ac te r i zed by an emphas i s on sub -stance over s ty le and by the marr iageof envi ronmental benef i ts wi th t radi -tional performance benefits...Dressingup ads wi th images of eagles and t reeswi l l no longerwoo an envi ronmental lysophist icated audience. , . For instance,peop le have a lways wan ted moremi les f rom thei r cars and t rucks. Thefact that a car may last longer a lso af -fects a host of envi ronmental issuesranging f rom landf i l ls to resource con-servat ion. The envi ronmental issuesare a lmost secondary in the custom-er 's mind, but they re inforce pr imaryneeds and wants. (Green market ingAwash in Third Wave, bV Robert Rehak,Advertising Age, November 22, 19931

Or take the case of energy conserva-tion ads placed by utilities, which avoidplant expansion, thus eliminating poten-tial environmental problems, and savingmoney for the ratepayers. The main ap-peal is saving money, and environmen-tal saving complements the performancebenefit. This third wave makes commonsensei after all the consumer buys a barof soap to wash hands, not to save theplanet,

Whether fad or fact, the marketersmust take immediate advantage of this

seeming opportunity; they may also see itgo through a similar cycle or waves. Themain difference is that green marketing asfact will eventually require ALL productsto carry the label or ALL firms to carry theimage, thus losing any impact from dif-ferentiation. So the more important ques-tion is whether green marketing will sig-nificantly influence buying behavior in itsfavor.

The answer will probably vary bycountry-culture, values, income levels,sophistication, etc.-and by product pes-ticide-free fruits might sway a consumetbut does the consumer understand or carewhat a green TV set or computer monitorreally means? However, one can peerthrough the future by evaluating what oth-ers in developed countries have said anddone about this concept.

Anecdotal evidence seems favorable.Paints represe\t50-70% of household haz-ardous waste in America and probably

The eonsumerbuys a barof soap towash hands,not to sauethe planet.

reside in every basement, The Massachu-setts-based Green Paint Company recyclesold paints and puts them back on the shelfand not in rivers or landfills. The Oregon-based Diego Shoe firm's products comefrom recycled trash such as old tires, trimfrom wetsuits and diapers, polystyrenecups, coffee filters, etc. The company usesno leather because of the toxic chemicalsused in tanning, and to conserve wildlife.Wellman, Inc.'s Ecospun product lines offleece outerweat jersey T-shirts, pile fab-rics, webbings, knits, etc., are all madewith a new fiber using 100% recycled plas-tic bottles.

All the above efforts are aimed at thegreen consumer. Who is he or she? Onecan easily divide the market into realgreens and real browns at either extreme,with the bulk in the middle as "maybe"

or "wannabe" greens. However, a 1,991

THr AsreN MeNecEn .Aucusr-SEpTEMBER 1995 35

True-BlueGreens

Percent of U.SAdultPopulation 11%

Median Education Above Average

Median Income $2,000

Willingness to paymore forGreen Products Above Average

study of green consumers identified fivespecific segments, based on environmen-tally friendly purchasing behavior for bio-degradable items and recycled products,and for making charitable contribuiionsto environmental causes.

The above classification may assistmarketers to create a similar distributionof consumers in developing counhies, forinstance, in urban cent-ers. The"Greenbacks" and the "Sprouts" are theswing segments. The former are willingto pay more for environmentally-friendlyproducts, but are unwilling to sacrificeconvenience or time. The Sprouts areswayable, budding environmentalists,but are uncertain about possible tradeoffsbetween environmental protection andperformance benefits. For both segments,consumer education is a must.

Education is also important to dealwith two negative perceptions of greenmarketing. On the one hand, consumersmay pay more for environmentallyfriendly products; on the other hand, a1992 study showed that consumers per-ceive virgin products to be of higher qual-ity than recycled products. Furthermore,disbelief is the first reaction by consum-ers in both developed and developingcountries towards company "green

claims." Consumers are more likely tohave images of the past firmly im-planted- of an industry selling leadedgasoline that causes brain damage in in-fants (in Thailand), of large cement com-

36

Sprouts Grousers

26% 24%

prove cost-effective. Aslong as claims ar€ specific,limited to facts, and un-conhoversial (rememberthe Benneton ads), envi-ronmental advertisingcan both educate and sellthe product. And corpo-rations can educate them-selves as well;McDonald's teamed upwith the EnvironmentalDefense Fund to reducewaste in packaging andgained both savings andan enhanced credibility asa Sreen comPany

In terms of new chan-nels, direct marketingand especially catalogm a i l i n g , a r e a l o n g

GreenbackGreens

il%

High

31,5m

Ba sicBrowns

28%

High Average

Exhibit 1

Source: 5.h Adv.nced ManagEmdt Jouml

panies blanketing communities in graydust (inlndonesia), or of firms selling bot-tled natural mineral water with ingredi-ents more dangerous than the supposedlycontaminated piped-water (in the Philip-pines). All told, marketers must stil lbridge the gap between expressions ofconcern and achral purchases,

The discussion above leads to a pre-scdption to use premium pricing withcaution. Instead, research is needed to es-tablish a psychological price- which"seems right" or fair to the consumer, forparticular products. Moreover, recycledproducts may not be able to shake theperception of poor quality, and firms mayhave to use low prices in order to gainshare of market (and to depend on econo-mies of scale and TQM to derive theirprofits).

Green marketing opportunities there-fore have to be disaggregated not only byconsumers and by price, but also by prod-uct. As the exhibit suggests, advertise-ments to buy recycled cans, bottles, orpaper/ are already well-received byAmerican consumers, but the latter arenot r€ady to cut-down on their driving,for example, in order to reduce pollution.The exhibit suggests potential opportu-nities- for chemical-free fruits, and po-tential pitfalls- for companies with areputation forpolluting. Once again, con-sumer education is essential, and possi-ble costly in the short term.

On the other hand, ecoJabelling can

High BelowAverage BelowAverage

32,000 24,9m 24,000

Low Extremely Low

standing success in developed coun-tries. Catalog selling is becoming morepopular in developing countr ies as in-f rast ructu re improves, And cata logcompanies in Amer ica have had arough time. After Earth Day in April1990. these firms were accused of sucheco-crimes as kill ing trees for paper,polluting rivers with inks and chokinglandf i l ls wi th packing mater ia ls andunsolicited junk mail. (Does lt Pay ToBe Green? by Melissa Dowling, CatalogAge, October 1994)

Since their veryexistence was in jeop-ardy, these companies had to respond bymailing smarter. After all, whether acatalog is printed on recycled or virginpaper, it still represents paper waste. SoFrench lace cataloger Rue de France of-fen gift certificates to customers who no-tify them of duplicate mailings...andquickly honors any customer requests tobe taken off its list. Iibid., p. 110.lSeventhGeneration defies conventional wisdomthat more mailings mean more sales byofferingits customers the option of receiv-ing one catalog each season (four in to-tal) in lieu of the often repetitive productofferings that appear in monthly catalogs.Other firms are shifting from paper to theelectronic highway, via online serucesand CD-ROMs.

To conclude this article, let two acad-emicians have the last word. JacquelynOttman advocates green marketing as a

Aucusr-SEpTEMBER 1995 . THE AsrAN MANAGER

Doing the Right ThingMost Americans are already on the recycling bandwagon,

but few have cut back on their driving.(percent of adults by frequency of selected envircnmental behaviors on a scale of I to 7,

with I for never and 7 for very frequently)

NEVER

Recycle cans,bottles, or paper

Buy recycled products

packaged products

Avoid companiesthat pollute

Avoid fruits dueto chemicals

Vote based onenvircnment

Cut back on diving

Noter Don't know respon36 were excluded irom the cal.ulation3.Sou..e: Amen.an Denographis 04 /92, Cambridte Resear.h IntehatioMl, r99t

Exhibit 2

VERY

necesslry

Ottman's book is built on the theme ofinev i tab i l i ty : the inev i tab i l i ty of theemerging force in the form of environ-menta l ly conscious consumers, andthe inevitabilitv of failure that awaitscorporations that do not respond tothis new force. lEaswar lyer, Book Re-viewsl

Ottman suggests three aspects whereconsumer values have gone through afundamental shift and therefore under-score the theme of inevitability. Accord-ing to her, consumer values have shiftedfrom quantity to quality, from short tolong term, and from me to we. Marketersin developing countries might want tohack these three values among their con-sumers to see if green marketing has be-come inevitable for their firms and prod-ucts. Still on the same theme, she also be-lieves that the concept of sustainable de-velopment has made green marketinginevitable; note that sustainable develop-

ment is also a theme ofdeveloping coun-tries.

Ottman's book offers specific advice.For example, children can influenceadult consumers, because they are morelikely to heed ads to save the environ-ment for one's children, than by an ab-stract call to save the environment for thefuhrre. However, she also presents a di-lemma:

When it comes right down to it, theterm green consumer is an oxymoron.Consuming uses up valuable natura lresources and consumes waste. (GreenMa rketi ng: Chal I enges a n d Opportu n i-ties for the New Marketing Age, byJacquelyn Ottman, 1993. NTC BusinessBooks)

Walter Coddington echoes currentpractice,, for example, in product design,by recommending specific benefits, tocounter the nondisposable problem andto promote pollution prevention ratherthan to address broad issues of wasre

management; and in product positioning,he recommends piggybacking envrron-mental claims on top of the product'sunique selling proposition- to comple-ment the lattet not to be the lead theme.However, his book does emphasize abroader theme, which will serve to con-clude this article:

Environmental marketing is not simplyabout inc reas ing sa les by co lo r ing aproduct or products green. Environ-mental marketing is about much morethsn that. Seen most broadly, it entailsfa r reach ing changes in a t t i tude-about the role of the environment incorporate management practices andproduct planning, and also about therole of the marketer in environmentalmanagement. (Ervi ro n me nta I Ma rket-ingi Positive Strategies for Reachingthe Green Consumer, by Walter Cod-dington, 1992, McGraw-Hill)

Ptof. Fnncisco L. Roftan, I/. is the Director of theAIM Policy Forun anA ifs Systen Conrytitive-ness Desk.

THE ASIAN MANAGER .AUCUST.SEPIEMBER 1995

BY PRoFESSoR GEORGE H.TAN

Elliott Waves andFibonacci Numbers

Editor's Note: Prof . George Tannnd Errol Perez are trading in-teresting salaos here. In TAM'sApril- Mau is sue Er r oI wr ot e thatstock vrices follow a randomu)alk, thnt they are indEendent.Not so; says George in this re-prise ot' his February-March ar-ticle on Technical Analysis

he Elliot Wave Theory claims thatthe stock market moves in repeti-tive wavelike patterns. Variations

in the forms of the waves were simply amatter of amplitude and time. The basicpattem is five impulse waves followed bythree corrective waves. A study of theDow Jones Industrial Average since the1920s pointed to fibonacci numbers (1, 1,2, 3, 5, 8,'13, 21, 34, 55...) and ratios 0.382,0.500,0.618, 1, 1.618,...) as the mathemati-cal relationship governing the stock mar-ket. Fibonacci numbers and ratios tend todetermine market tops and bottoms. It

38 Aucusr-SEpTEMBER 1995 . THEASIAN MANAGER

PHISIX INDIX 06t30t95

3250

3000

2750

2500

2250

2000

1750

1500

t250

1000

3250

3000

2754

2500

2254

2000

1750

1500

1250

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II , ' , , , , , , . , ,

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Ghail l: Philippine IndexThe Kobe-Barings-Mexico shocks caused a fibonacci drop in the Phisix of 50% of its entire 1993 gain.

had even showed uncanny accuracy indetermining time periods for market topsor bottoms. Among the many areas wherefibonacci numbers and ratios arose are asfollows:

1. The number of waves in bull cycle(1,5,21,89), in a bear cycle (1,3, 13,55) orin a complete market cycle (2,8,34,144)are all fibonacci numbers;

2. The third impulse wave is usuallyabout 161.870 of the first impulse wave;

3. Succeeding waves in a symmetri-cal triangle during consolidation areabout 61.870 of the previous wave.

4. Corrective waves usually retraceabout 38.29o , 50?a, or 61 .8 70 of the previ-ous impulse move.

5. The average price-eamings ratio of

the US market gyrated from a low of 5xto a high of 21x from 1930s to 1980s.

6. The market crash of 1987 was ex-actly 55 years from a 1932 low, 21 yearsfrom a 1966 market top and 13 vears froma 1974\ow.

So fascinating, yet accurate, are the re-sults of fibonacci applications that theyhave become important tools in analyz-ing markets: stocks, currencies, or com-modities. Fibonacci analysis has becomean integral tool in computerized chartingsoftwares.

As a caveat, the theory is not perfect.As any other system, it could not encom-pass everything that happens. From timeto time, it will be unable to explain somemoves in the market.

ffiotnq*

ffiafrd/rslnvefunrcnneormffiin

M@qnfqrcw, t

,t ilra*,:

THE AsrAN MANAGER . Aucusr-SEpTEMBER 1995

@t ''''pdfrlieB.

39

I

11lul/14t ll tl \

/ \ MI v \t l/ I l - . 8 0

\ . i \ . n . / Y\ / v ' \ / v t /\ i l / v,t, on ij 13 20

PTTRON 06t30t95

2 2 . 4

21, .02 0 . 52 A . 01 9 . 51 9 . 01 8 . 51 8 . 01 7 . 51 7 . Ar 6 . 51 6 . 01 5 . 51 5 . 01 1 . 51 4 , 01 3 . 51 3 . 01 2 . 51 2 . A1 1 . 51 1 . 01 0 . 5

2 2 . 021.52 r . 02 A . a2 0 . 01 9 . 51 9 . 01 8 . 51 8 . 01 7 , 5t 7 . 01 5 , 51 6 . 01 5 . 51 5 . 01 4 . 51 4 . 01 3 . 51 3 . 0t 2 , 5t 2 . 0t i . 31 1 . 0

Ghart 2: PetronThe drop of Petron from 21.60 to 12.80 is 61%(a f ibonacci rat io) of i ts in i t ia l gain from 7.20 to 21.60.

Tlbonsccl tratlos ln thePhlllpplne Stock Market

The 1993 bull market started from alow of 1, 183.50 on December 18, 1992 andpeaked on January Z 1995 at3,308.37. Thisrepresents a rise of 2,124.87 index points.Years 1994 and 1995 tumed out to be thecorrective phase of the 1993 bull run.Dudng this time the market retraced twokey fibonacci targets:38.2Va and 50.0%,before bouncing back. These targets arediscussed below with the attached chart.

The first target was hit on March11,1994 when the market dropped to2,507.33, representing a drop of 801.04points, or 37J% of the entire 1993 run.This bottom was only 10.66 points off the38.270 fibonacci target, representing a de-viation of only 0.5%!The same target wasre-tested when the market hit 2,510.7b on

40

July 15,1994 (forming the haditional dou-ble bottom).

The market succumbed to more sell-ing in 1995 on account of bad news fromKobe, Mexico, Baring's, etc. The stockmarket dropped to a closing low of2,248.39 on March 31. 1995. That marketbottom was exactly 1,062.43 points, or5070 of the 1993 bull move!

Does fibonacci determine the fate ofthe stock market or was it just simple co-incidence?

Fibonacci ratios can also be found inretracing Petron shares. From an IPOprice of P7.20 per share, the stock tradedat a closing high of P 21.50 on November2, 1994. It later dropped with the generalmarket and hit a closing low of P 12.80on January 24, 1995. From IPO to peakprice was a gainofP 14.40. From the peak

price to the low closing price was a lossof P 8.80. The ratio of P 8.80 loss to the P14.40 gain is...guess what...61.1%, a hairoff Fibonacci's predicted 61.8701 Unbe-lievable? True?

Surely, more fibonacci ratios and num-bers will keep popping out. You will iden-tify them as the market reveals them.However, finding them before pricemoves and using them prolitably is theeternal challenge.

Prof. George H. Tan the American Express BafikFollndotiofi Prcfessor of Fifiancial MnnaSement. Hejoined the facult! il1 1985 after grad ating with anMBM degrec (uith distrnclion). He leaches Finan-cial Accounlins, Mandgeriql Accountiflg and Con-trol Systefis, afid Fi ance andTechnical Analysis,an electioe in the MBMprogram.

Aucusr-SEpTEMBER 1995 . THE AsrAN MANAGER

BY PROFESSOR MARIANO S. LAGMAN

I-I-TinaSmaluobShopCo*pury

J consulted for a smalljob shop manu-

I facturing company three years ago,Iand got an opportunity to try outsome of theJapanese manufacturing tech-niques such as J-l-T and 5-S. To the ex-tent it was practical I asked for and wasgiven some line authority to implementthem,

The company sells architectural prod-ucts such as folding doors, operable par-titions, wardrobe doors, office partitions,etc. The company is the industry leaderin its field. lts workforce is 25 personsand operates one shift per day,

Most of the companies that have im-plemented J-l-T are large companies likeToyota, Nippon Denso, Kia, etc. Onemight wonder whether small companiesin the Philippines who operate in a jobshop environment could use itat all. Whyso? The bargaining power with suppli-ers of small companies is much, muchIess, especially when dealing with largecompanies. Few suppliers are willing todeliver in small lots with frequency dueto traffic problems, high set-up costs, andorder processing costs.

In the company we tded a two-prongapproach. We tried J-l-T purchasing aswell as J-l-T production in the job shopenvironment where each sales order isreally one of a kind for the following rea-sons:

. There is hardly any standardization

in ceiling heights and widths of roomshprp in thp Phi l inninpc

. Numerous types of finishes, colors,and wall coverings are available, andcater to the different tastes of customers.

. Panel widths on folding doors can

Jnst-in-timeean be done insmall joh shopeompanrcs,and thefinaneialimpaets areequctllytmpresstue.

range from 4" to 10", and operable wallsrange in width from 0.5 m to 1.2 m andheights ftom 1.8 m to 4.5 m

The following major materials areused in the manufacture of folding doorsand operable walls:

. paints and wall coverings

r plywood and lumber. extruded aluminum sections. metal rails and other steel fabricated

componentsWhat did we do? We went into single

sourcing of paints, plywood and lumberby doing the following:

. looked at total purchases per yearof each item for the last two years. Anymaterials we purchased > P50,000/yearwas a likely candidate.

. assessed the quality capability ofeach supplier by talking to the users, andvisited the supplier's facility. We looked.at their production and quality controlpractices, their laboratories, as well astheir technical service capabilities.

. spoke to their sales managers (orhigher) and made and of commitmentson quality, service, on-time delivery shortIead times, payment terms, exclusivity,etc. in exchange for being our sole sup-plier for their products. Prices were thelast topic for discussion. We also toldthem that we would not tolerate kick-backs both internally and externally asthese increased prices and affected qual-iry

. debugged and simplified the wholepurchasing, delivery billing and paymentsystem. We also asked that the plant beallowed to order supplies directly with-out coursing the purchases thru Makatin" rh :< ino a f f i rp

THE ASIAN MANAGER . AUCUST- SEPTEMBER 1995

. reviewed and discussed annuallyimprovements for pdce reduction: rehrrn-able containers, simplified packaging andlabelling, new trends, etc. With plywoodand lumber, where the previous arrange-ment was for us to inspect the plywoodat the supplier's warehouse, they nowdelivered to us and we inspected ran-domly while unloading.

A large supplier of aluminum wasespecially troublesome. We bought tendifferent sections which wereused in dif-fering dimensions and proportions. Thesections had different weights/meter, andlead time was 30-45 days. Worse, wewere also trying to order more efficientsizes to minimizescrap. The supplier alsowanted a minimum order of 300 kilo-grams for each section. For light and slowmoving items, this lead to extreme over-stock conditions. We were able to con-vince the supplier to allow us to order aminimum total of 300 kg. This allowedus to order the sections in the DroDortionsused; we avoided dislocation oi inven-tory, the carrying too much of one sec-tion and not enoush ofanother. As far aslead times were concerned, we could notget any concessions. We instead ap-proached this on the customer side, wherewe asked for deliverydate concessions sothat on large orders we could order theexact dimensions (minimum scrap).

What did we do about stock levels?We brute-forced and finessed this. Ini-tially we cut all stock levels in half, thenwe startsd relating them with historicalusage. Finally we cut stock levels to theequivalent of less than one week's worthof supplies. Paint was especially gratify-ing as we could now get deliveries twoto three times a week. The exception wasaluminum, where we used the equiva-lentofone large salesorder, or the equiva-Ient of twenty panels, as the average or-der size. We had to do this as anothercompany objective was 9570 on time de-livery. (see fig.1)

The results on inventory reductionover four years were impressive. Wewere able to reduce inventory by 55V"while sales grew by 43Vo. Inventoryhrrnover increased by 322%.

The production side was another mat-ter because of order sizes, machine set-uD times. and minimum workforce. Theproducts were all for internal use in of-fices, training rooms, schools, private

A)

homes, restaurants (function rooms), andcondominiums. Our oart of the businesslaggeo Denlno consrucnon oI tne nouseor building from one month to eighteenmonths. Forecasts were not possible asproduct mix and volume were completelyunpredictable. Moreover order sizescould run from P5,000 to P1.5 M andmonthly sales from P1 M to P3 M.

By the very nature of job shop, J-l-Thad to be practiced. Any extra componentcould not be used for another order be-cause of size, color and tlpe of finish andother unique characteristics. Workers ofthe production manager were makingexha components to allow for mistakesand scrap in subsequent operations. Thiswas easy to corect by just putting a stopto thepractice. People became more care-ful and more conscious ofquality in theirrespective processing areas. Of coursethere were some instances when we hadto go back to the initial component manu-

Figure 1 : Results

Salos {000)Invantory l(Xro)Turnover (S/l)

l qq , l

125803407

3.7

facture stage when mistakes were indeedcommitted in later stages. But this prob-lem went away over time.

Aparticular problem area was plasticextrusion because of set-uo times. Twonours were neeoeo to neat-uP ano an-other hour to clean up at the end of therun. A color or die change also requireda downtime of one hour. The best wecould do here was to bunch the orderstogether and ran them together; if therewas exha time we iust ran as close to thestandard size (8') as possible. This cre-ated some inventory One altemative wasto speed up the heat-up stage by install-ing larger heaters, but this increased ourelectriciiy bill in terms of dernand chargepenalty. We would have had to increaseour contracted demand by 4570, result-ing in an increase in fixed demandcharges. We had just completed a projecton improving our power factor and wehad consistentlv attained a 10070 pf. We

were not about to sacrifice this. Our al-ternative was still better than the previ-ous experience of running several dayson one size and color and holding a muchlarger component inventory and for alonger period. Our estimate is that wereduced inventory at least threefold

The areas we could still improve onby practicing Jl-T to the extreme werequality and scrap reduction in componentand internally fabricated parts. Our ap-proach here was to assemble a prototypepanel and check the fit and function ofeach component. Once we knew theywere perfect, we started manufacturingthe components and then brought themall to an assembly station. We also madesure no extra components were producedas these would be scrapped. Except forthe painting department, which was notautomated. ( and which is also the bottle-neck area) you will now hardly find anywork-in-process inventorv.

1992

104712499

4.2

l q a ? 1994

12674 180151624 1519

7.8 1 ' � t .9

AII of this inventory reduction can beconfirmed by the amount of space we lib-erated. We added some equipment andwe improved the plant layout. There isstill plenty of idle space.

We realized almost the same resultsas Japanese J-l-T practitioners, especiallyin the areas of quality. The lesson welearned is that it can be done in small jobshop companies with some compromises,and the financial impacts are equally im-pressive. What does it take to implement?Patienc€ and stick-to-itiveness in the faceof adversity and past practices. A nag-ging question is: Is this J-l-T, or is this

tust better management?

Prcf. Mariaflo S.IAgfian is the Program Direclor ofthe Master in Managemenl Prcgram. He also taltghtMatetials ManaSemenl as an eleclipe in lhe l stilute'sMaster in B siness Management pfo\ram os uell asOpenlions ManaSemenl and Managemenl af SetuieOryfttiofts ifl the Erecttil)e DeL'elopmeflt Pragrams.

AUGUST-SEPTEMBER 1995 . THE ASIAN MANAGER

hroughout our formalt ra in ing, we weretaught to think, often

unconsciously, that manage-ment was mostly "culture-

f ree. " "Achiev ing agreedupon desired goals efficiently,working effectively throughothers" was the universalmanagement value. When itcame to Human Behavior inOrganizations, Administra-tive Practices, or ManagingPeople in Organizations, eve-ryone agreed that "cultural

differences have to be consid-ered." But the values, princi-ples, and practices developedin the industrialized West-from Frederick Taylor to EltonMayo to American Manage-ment Association Communi-cations (AMACOM) publica-tions-were the undisputedbenchmarks for excellence inmost of the other subjects.

But even before businessglobalized, people alreadyknew the need to help manag-ers who were born and raisedin one culture improve theirperformance when working inanother country with peoplefrom other culture. Studieshave shown that many expa-triatemanagers failed as chiefsofoperations overseas, as highas 40% in a 1981 study. Yetthese managers performedvery well in the home coun-try. They failed apparentlybe-cause oftheir inability to workwithin the culture of the hostcountry.

Globalization had para-doxical effects. lt helped cre-ate what Kenichi Ohmaecalled the "borderless world"where business activities takeplace wherever and wheneverthey prove profitable. And ita lso brought about an in-creased sense of nationalismand group uniqueness (race,religion, very strong tradi-tions) in many cases. It is no$'critical for managers to learnto manage well in different

cultural contexts, sometimeschanging their points of refer-ences and mindsets as thevmove from one room to an-other in the same building.

Anthropologis ts Clydeand Florence Kluckholn oncewrote: "All men are alike.Some men are more alike thanothers. No two men are thesame." While the sentencesseem contradictory, theKluckholns were expressing

cultural level, we see the truthof the Kluckholns' second sen-tence.

Culture is a frameworkthat helps us make sense ofan increasingly complicatedworld. Our culture gives us amodel of how the world sup-posedlv works and how lifeshould be lived. It consists alsoo f va lues and norms, andspecifies the behaviors thatgive expression to these values

ing classes (socio-economic,

political, and religious) haveensured the relative stabilityof cultures.

Japan is the exemplar ofcultural stabil itv It is a con-servative culture, but openenough to adopt forms whichhelp it became stronger. Chi-nese culture is another strongculture, thus, the perceiveddifference of the ethnic Chi-nese even in countries wheremanv Chinese migrants havesettled. Manv of the lslamicstates-several of them mon-archies-enjoyed much stabil-ity unti l the entry of radicalthought with resulting revolts.Islam is seen as a very con-servative and binding theo-logical-cultural f orm whichallol 's very l itt le deviationand no palpable opposition.

Culture embraces the con-cepts of ethics and morality-whatwe judge as good orbad,right or u'rong, true or false,fair or unfait and other simi-lar dualties. Our cultures con-dition us in the wav we per-ceive the objective world andhon' l{e ought to respond toit. It affects how we valuewhat we value,how we be-have in a given context, howwe go about achieving whatwe rvant to achieve. It stronglyinfluences $'hat we strive toachieve.

There are values that seemthe same all over the world. lna 1973 survey of various eth-nic groups in the U.S. (f ig.l),

J. Rokeach identified two setsof values professed by thesevarious ethnic groups . Thereare terminal values, valuesthat describe an ideal state ofbeing or of life. And there areinstrumental values, valuesthat should help us achievethe terminal values. While hisresearch design nas criticized,there seems intuitive validityin the results.

There is surprising agree-ment that these values are im-

what we know about our spe-cies.

At the most basic level, asanimal species Homo sapiens,we are all alike in almost allphysiologic functions-ourreproductive systems havingthe most obvious difference.This past decade has revealedeven more possible genderdifferences in brain structureand biochemistrv Differentgeograph ies and c l imateshave accounted for differentfamilies within our species togrow very different physicaltraits. More dramatically, wedeveloped different culturaland linguistic characteristics.Hence, on a geographic and

and norms. An overwhelmingmajority of societies sharethese beliefs and thev passthese, consciously and uncon-sciouslv to the next generationthrough the process social sci-entists call "socialization."

Cultures are not static, yetmany remain very s tab le .They mav experience no radi-cal changes o1'er many centu-ries. The lack of radical newknowledge, the resulting in-cremental technical and tech-no log ica l changes exper i -enced, diff iculties in travel,poor international communi-cations and the resulting fewintercultural exchanges, andthe vested interests of the rul-

)ANToNro G. topszmerrt Cnmmunicalion

C,tmeo Free Fress; 1994

THE ASIAN MANAGER . AUGUST-SEPTEMBER 1995 43

a cornfodable lifean excit ing l i fea sense of accomplishmenta w0n0 at peacea world of beautyequalityiamily securitysocialrecoqnit ionwrsd0m

The eighteen teminalvalues are as followsl

Balinese. The NorthSuma-trans can beasblunt as some ur-ban Americans Ihave dealt with.

C , , l r l r o n r n -

vides a backdrop, acontext that shong-Iy influences a per-son's behavior Itseffects, clearly per-vasrve, are not ln-evitable. Each mem-ber of a culture ex-hibits these effectsdifferently. Apersonadjusts his behavioroften in anticipationof what he believesis expected of himby the people he isinteracting with at

society. Management con-structively addresses the de-mands of the environmentwithin which it must operate.It crafts management practicesthat reflect the values pro-fessed by its people to achievegoals considered supremelyworthy by the society.

Where management can-not clearly incorporate the keyvalues of a people and theirculture-this often happens inAsia among American andEuropean companies-it, atleast, does not openly professnot practice values that clashwith those of great importanceto the "locals," which hasgotten many managerc in hotwater with their head offices.The convention of gift givingand gift taking is a commonproblem area.

To achieve this good amesh, excellent managers de-pend on effective communica-tions. Indeed, strategic leader-ship depends on effectivecommunlcanons to ensure ex-cellent results. Communica-tions is used extensively inmanagement. [n fact, excellentmanagement has for a majorcharacteristic, excellent com-munication (fig.2).

Looking at the major func-tions of the manager in thisdiagram, one sees just howcentral superior communica-tion skills are toexcellent man-agement. Terms like define,clarify, link clearly, motivate,energize, be transparent, beconsistent, systematize, makemeaningful, and ensureall re-quirea high degree of commu-nicative competence.

Excel lent managementstads with crystallizing andarticulating a vision of the fu-ture and the corporation's roleand position in that future. Incrafting a vision, excellentmanagers consult with keycorporate stakeholders whomust buy that vision. Theiractive support is necessary if

the company is to act success-fu l l y in un ison towardsachieving the vision. The vi-sion is followed by a missionstatement-what the com-pany intends to do, for whom,why, and how. This is usuallysupported by statements ofkey philosophies and valuesabout life and man's relation-ship to his fellows, and themeaning of work and serviceto man.

The leader and key stake-holders-people in the com-pany, customers, suppliers,community leaders, et. al-together craft a strategy ofachieving the desired results.This involves the careful de-sign of work structures, withfunctions clearly understoodand accepted by all con-cerned, to ensure that the or-ganization achieves its goalswith minimum resources andmaximum satisfaction to eve-ryone involved. The leadermakes sure that everyone iscompetent in his assignedtask, isjustly compensated fordoing his work as specified,rewarded when he performsexcellently, and developed toassure future growth.

In all this, effective com-munication is key. We need toclearly describe the desiredend states; lay out the plan forachieving this desired endstate; and state the reasonswhy people should work hardto bring about the desired endsrate .

The simplicity of the mo-del hides real life implemen-tation difficulties. There havebeen more cross-cultural man-agement failures than suc-cesses. Looking at these cases,we begin to see some of themore plausible explanationsfor the failures and the suc-cesses-all involving sociocul-

In all these, culture and thevalues it contains play a cru-cial role. For the manner in

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Figure 1

portant in the different cul-tures.lt seems that at the mostbasic level of being a biologi-cal species, as well as at thehighest levels where "we ap-proach the angels," all menseem alike.

However, discussed moredeeply, it becomes apparentthat different cultures and dif-ferent people within thesecul-tures value these catagoriesdifferently. They are evokedby different stimuli under dif-ferent cjrcumstances andacted out differently by differ-ent people. Take social har-mony, for example. It featuresin the lists of North Ameri-cans, Europeans, Africans,and Asians. But for the Japa-nese and theJavanese of Indo-nesia, harmony is the mostim-portant value; the Japanesehave enshrined it as the firstprinciple in their constitution.I t i s less impor tan t to theAmericans and the British forwhom franknessand raw hon-esty seem more impo antbe-cause they make for higherefficiency. My experience inIndonesia is thatit is really the

Javanese who value social har-mony the most, followed bythe Madwanese and the

44

the moment within a specificcontext.

People ultimately workout comfortable modus oper-andi with different individu-als and groups for the manydifferent roles they play. Buteven those people who havelearned not to rely solely onstereotypical behaviors andexpectations dictated by cul-ture still start with these stere-otypes. But all people, includ-ing managers, who excel indealing with others learn tochang e tack as new factsabout the situation and thepeople they are dealing withemerge.

Some frameworksMost management theore-

ticians see excellent enterpriseperformance as the result ofthe confluence of excellentmanagement, which includesthe ability to handle peopleeffechvely, and conducive en-vironmental forces. Excellentmanagement in this view ischaracterized as being moti-vated by a philosophy and aset of attitudes towards itsvarious stakeholders that in-corporate stakeholder valuesas well as those of the larger

AUGUST-SEPTEMBER 1995 . THE ASIAN MANAGER

which the vision, mission, val-ues, philosophies, goals, shat-egt and operating systemsand structurcs is setis dictatedby business imperatives in in-teraction with the cultural ru-bric. We must understandthese relationships when weattempt to transplant manage-rial practices from one coun-try and culture to another.

St€reotyp€sMost people p lay safe

when first touchingbase witha different culture by readingup on what they should ormight expect when dealingwith people from differentcountdes. Mostly, they get alist ofstereotypes ofthe differ-ent nations. On the surfacemany of these stereotypes willhelp during the first encoun-ters. But in most countriesnow, people are sufficientlyvaried and becoming more so.Note, however, that we "na-

tives" often unconsciouslysurrender to the stereotypingand act out what might be ex-pected of us by foreigners wedeal with.

In training programs andconferences in Europe and theU.S., we often found ourselvesbehaving ,as our hosts mightexpect us Asians to behave-polite, quiet, and reserved,even docile-in order not toconfuse our European orAmerican hosts. We observedthat because of their expecta-tions, they had prepared wellto match the behavior theyex-pected us to exhibit. In manyinstances, when we demon-strated more spontaneousbehavior and began to openlyand directly question, and en-gaged our codiscussants inspirited, frank and blunt de-bates, hosts, who were less ex-posed to emerging Asia, werevisibly shocked.

Some commented that wewere "not typical Asians."Most simply mumbled the

conclus ion among them-selves. But there were evenmore negative stereotypes ofAsians among the "open, can-did, and direct" modern, in-dustrialized Caucasians.

"Asians are inscrutable,""Asians have made a high artof vagueness and equivoca-tion," "Asians are lazy,"Asians are superstitious,""Asianshave no sense of time,precision, or concept of plan-ning." These are some of thecompla ints we hear non-Asian, and Westernized Asianmanagers make, working inAsia with Asians. In Westerneyes and values, much of ourbehavior will indeed seem asthey described. But we Asianshave our complaints of West-erners as well.

WeAsians often make thefollowing complaints: "Ame-

r icans are i r r i ta t ing andpushy," "The Bdtish are toocold and overly concernedwith their concept of goodmanners and right conduct, ""ltalians are too dramatic anduse their hands excessively,""Germans are robots," and"The French heat us like sec-ond-class human beings."

With Asian mindsets, allthis sounds true. But indi-vidual experiences show thatthese generalizations are notonly increasingly untrue, butalso getting in the way ofpro-ductive relationships badlyneeded for successful interna-tional cooperation. Lumpingdiverse peoples and culturesin any region of the world un-der a label, no matter how ini-tially convenient, ultimatelyblocks real understanding.The sociocultural diversitythat exists in the world defies

Asia is not homogenous.Japan, a favored example ofcultural homogeneity, is un-dergoing basic changes thatare making it less and less thethe stereotypical Japan of the

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Figure 2

"How to Do Business in ..."and "How to Deal with the..."series of the popular press.Ninety-five percent of all In-donesians speak in Bahasa In-donesia; over 90 percent ofthem profess the Islamic faith.Therefore there is the veneerof sameness in all the threetime zones of the thirteenthousand islands. But the In-donesia that emerges with fa-miliarity is one that is hard toput into a few simple guide-lines. My Malaysian friendstell me, "We are products ofMalaysian culture," to whichI naughtily ask, "Which one?"Malaysia is multiracial andmulticultural.

In fact,Asia has become sodiverse that many Asians arefinding it difficult to deal withfellow Asians. Many peoplefrom theprimate cities ofAsiacannot assume cultural same-ness in their dealings withtheir more traditional country-men in the rural areas. ManyEuropean nat ions aresocioculturally dive6e; Swit-zerland is a good example.And certainly the UnitedKingdom cannot be said to beculturally homogenous. Thetragedy in what used to beYugoslavia is further testa-ment to these deep diversitiesin Europe. It would be dan-

gerous for any Asian to thinkof Europeans as "all alike."

Many Asians stil l reactsimplistically to Americans.They are stillJohn Waynes (orClint Eastwoods, or BruceWillises) as screaming ma-rines rushing headlong intothe fray without understand-ing the nuances of a situation.

Much has been written forCaucasians and other non-Asians on how to go aboutdoingbusiness with Asians ormanaging Asian employees.We should see it from theother side as well. Again Imake the necessary cau-tions-there will be many ob-servations I will make thatpeople will disagree with. Per-haps these d isagreementsshould be surfaced becausethey will improve our under-standing of our constantlychanging world.

Editort note: ln the ne),iissue Prof.Lopez discusses the sources of dif-ferences between "Western" and"Asian" behaviors.

Prof. Mnrio A.llonit) C. LoFz is thePilipinas Shdl Corporalion Prolessor ofPublic Adnitlislration and AssislantDea hr thc Exectftit]f Dnrelapntnl Pro-gnmfi. His cLrre,rt i, eresls are minagerinl d&)elopment, deteloptnerl mafiogemenl , cfoss-culhtnl management , a tjprciecl dmtlopment nd mat?getnc,tt.

THE ASIAN MANAGER . AUCUST-SEPTEMBER 1995 45

Potrcy

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By PRoFESSoR FRANcrsco L. ROMAN, IR.

Competitiveness,Competition and Consurners

ompetitiveness is one ofthe threecote research issues of the AIMPol icy Forum. The Forum is

studying competitiveness in several con-te\ts not only ds it applie: to firms, in-dustries, and countries, but also in differ-ent economic environments, such as in theforthcoming trading regime of the WTO(World Trade Organization) and AFTA(Asean Free Trade Area), as a key factorto meeting the goal of Philippines 2000,and in rblation to "sub-regions" such asEAGA (EastAsia GrowthArea) and "sub-

s l ruc lu re* " such as erpor t p roce \s ingzones and industrial estates.

This article will not cover the researchon these different contexts. Instead it of-fer( a itarting point by discussing thefoundation on which research and policyanalysis on competit iveness wil l takeplace in the AIM Policy Forum. The arti-cle will use the competitiveness modelsof the Harvard Business School guru, Pro-fessor Michael Portet as a stading pointfor the discussion, primarily because hismodel is probably the most widely dis-seminated in thebusiness world, and pos-sibly most readilv understood by execu-UVES,

Comp€llllvenessCompetitiveness has joined the elite

list of concepts which business executives

4b

and government policy makers have el-evated to the status of motherhood. lnthis brave new world of global interde-pendence, how can anyone be against it?

Competitiveness entered manage-ment jargon and probably reached itsapex through Michael Porter He devotedthree books over a ten-year period to de-veloping and elaborating upon the con-cept of competitiveness through competi-tive advantage, first for the industry(1980), then for the corporation (1985),and finally for the nation (1990).

The term, com pet i t ive advantage,takes aimat the traditional economic pre-scription of comparative advantage. Onesimplifi ed version of comparative advan-tage posits that a country will producefor export those goods which utilize onefactor of production, such as labor orcapital, that that country possesses inabundance relative to the other factor.This version of comparative advantagethus seeks to explain to some extent theexpansion of labor intensive exports suchas garments or wooden furniture, bythose developing countries, such as thePhi l ipp ines or lndonesia. wi th a largepool of underemployed andunderutilized, and therefore abundantand consequently cheap, labor

Porter's prescription for competitive-ness, simplified somewhat, requires a

dynamic interaction of four elements: (1)Rivalry among firms in the industry thatmakes these firms alert and efficient; wrt-ness the Japanese con5umer electronicsindustry. (2) Asophisticated and demand-ing home market that tests the industry'sability to compete in world markets, suchas the con:umers in the ltalian shoe in-dustry. (3) Clusters of related and sup-porting indushies tied to the core prod-uct or business that exchange ideas andprocesses quickly, as in the Taiwanese PCindustry. (4) Last but not least are factorsof production that are es:ential for firmsin the industry to continually upgradetheir products and processes; Porter em-phasizes productivity, particularly in hu-man resource development. For instance,doctorates in theapplied sciences are dis-proportionately present in many Koreanindustries, and advanced degrees are re-garded as essential to competitive success,especially in commercializing researchand development, and in reengineeringproducts to reduce costs and improve per-formance. These four elements presum-ably generate the innovation, productiv-ity, customer-driven quality, and flexibil-ity that are essential to national competi-tiveness within industries.

Nothing amiss so far, apart from theintellectual give-and-take among schol-ars, which fortunately seldom strays be-

AucusT-SEpTEMBER 1995 . THE AsrAN MANAGER

yond academic journals. Unfortunately,once corporate CEOs and policy makerstake competitiveness to heart, severalpotential problems emerge.

First, this definition of competitive-ness implies and creates a zero-sum, win-or-lose, competitive approach. The firm,the industry, the country: all must growfaster than the "average" or the "rest";

competitors build market share at the ex-pense of others.

The traditional concept of compara-tive advantage implies and creates com-plimentary, rather than competitive trade:a labor-surplus country wil l producethose goods best suited to its resources,such as rubber shoes and handicrafts, forexport to a labor-scarce, and probablycapital-rich, countrt which will do thereverse- exporting machines and auto-mobiles. The traditional notion. however.does leave aside the issue of whether acountry might not wish to alter its re-source mix to produce an altogether dif-ferent package of goods and services.

Second, the Porter model seems towork best with global industries witholigopolistic industry structures, such astelecommunications and shipping, for in-stance. These are industries wherein asmall number of large multinational firmsand conglomerates might dominate theirrespective markets. Competitive practicesin such industries might lead to marketconcentration, to the detriment of newfirms with newer or different products

seeking to gain market share against en-trenched leaders.

Conglomerates-those multi-f irm,multi-product enterprises, are in a posi-tion to establish leadership in multiplemarkets, in order to create a dominantnetwork. For example, the Salim andSinar Mas Groups of Indonesia togetherare probably in almost every importantindustry in that country, including food,banking, paper and pulp, cement, auto-mobiles, etc.

Even the United States, with its well-intentioned government intent on open-ing up markets through deregulatorypolicies, may have dramatically restruc-tured the airline industry into a smallclique of megacarriers, groups of airlineswith deep pockets and strong hub-and-spoke networks, tied together by strate-gic alliances to exploit regions that eachalready dominates, which may in turn

dominate the global airline industry.Third, some governments, including

not onlyJapan (HDTV) and France (com-puters)but also Korea (shipping) and thePhilippines (the "sunrise" industries),choose to ignore Porter's laissez-faire rec-ommendations, and translate competi-tiveness into a "pick-the-winner," na-tional-champion strategy, whereby thesegovernments attempt to create a competi-tive industry or company, usually by sub-sidizing start-up costs, or by providingassorted incentives. Unfortunately, eco-nomic history does not suggest that gov-ernments, with the possible exception ofSingapore, display any consistent or sus-tained record at being competitive them-selves, or at building competitive enter-prises. Porter notes that theJapanese MITI(Ministry of Trade and Industry) was notresponsible for the competitive success ofthe now global Japanese automobile in-dustry.

Last, competitiveness becomes an endin itself. For instance, profitabil ity isclearly an essential ingredient to sus-tained growth. But even if corporate com-petitiveness leads to ever increasing prof-its, as in the tobacco industry, the sur-pluses could just as easily result in highersalaries and more dividends, or diversi-fication to other industries, rather than tovalue-adding capital formation in the corebusiness.

Competitiveness also usually trans-lates into an aggressive quest for marketshare, which in turn creates conditions ofmarket dominance. However, this formof competitiveness does not automaticallyIead to profitability: For example, Airbusmay or may not be profitable, given theyears of subsidies and financial assistanceprovided by the governments of the threecountries in the consortium. But Airbusis clearly competitive; it has captured sub-stantial market share worldwide from itsonce-dominant American competitors,such as Boeing and McDonnell Douglas.

CompetitionThe quest for market dominance in

oligopolistic industries appears detrimen-tal to competition. There is clearly a dif-ference and divergence between compe-tition and competitiveness. A monopolist,by definition, can be very competitive interms of market share and profitability.But by definition, it is in an industry

where competition does not exist.Competition itself is difficult to define

in the "real" world. In the economists'world, ttpure" competition implies sev-eral limiting assumptions, such as perfectinformation, insignificant transport costs,no barriers to entry for firms that sellundifferentiated products and which areunable to influence price. Price and quan-tity are the only factors determining thelaws of supply and demand. These limit-ing assumptions do not exist in many glo-bal industries, and oligopolies often en-gage in non-price competit ion, whereadvertising does more than provide in-formation.

Porter addressed comDetition indi-rectly, in his first model which analyzedindustry structure when he referred to theintensity of rivalry among firms as one

The quest formarket dominaneein oligopolistie

industries appearsdetrimental toeompetition

of the five driving forces influencing thecompetitiveness of an industry. However,in his analysis of the airline and drug in-dustries, he notes that the lack of rivalry(or competition) generated profits forboth industries, until deregulation andthe threat of generics "opened up" themup to other rivals. Porter also offers onescenario, which approaches the econo-mists'view of pure competition- thatboth industries ultimately could become"commodity businesses," where morefirms enter the market, thus increasing in-dustry rivalry; these firms end up sellingessentially undifferentiated products, andcompetition is based primarily on price,and competitiveness depends primarilyon driving down costs.

Bear in mind three points from thepreceding discussion: One, competition inessence means the contestability of mar-kets, that is, rivalry. Competitiveness im-plies the ability to keep firms out of the

TnE Asraru MeNecrR . AUGUST-SEpTEMBER 1995 47

C O M P X T I T I O N

market in order to dominate the industryand to reduce competition. Thua both theairline and drug industries in the 1990sare responding to changes via strategic al-liances, in effect, buying market share andcompetitors, instead of fighting ihem.Two, Porter's model is dynamic, involv-ing a process of change-for example,from leader to loser, from low cost pro-ducer to focused differentiator, and so on,and also vice-versa. He thus offers one ex-planation of how industries might reacha state of "pure" competition. A finalnote: Porter himself subscribes to rivalry(or competition) as a means of keepingthe firms in the industry alert, innovative,and efficient; he regards alliances as a"cop-out" of sorts. However, this posihondoes not prevent firms from exploiting the"darkside" of competitiveness, that is, toreduce competition to become competi-hve,

ConsumersIf competitiveness and competition

are not complimentary, and neither guar-antees growth and profitability, the eco-nomic rationale do€s not lie in either mar-ket dominance or profit maximization, foreither the firm or the nation. Consumerwelfare at the national and internationallevel might be the more appropriate goal.For instance, the economists' concept ofcompetition leads to lower prices as more

48

firms enter the market, and lower pricesdo benefit the consumers. On the otherhand, Porter's models of industry andnational competitiveness enhance con-sumer welfare, if not through lowerprices, through rivalry that generatesfaster and easier access to goods and serv-ices, more and better and different prod-ucts, attention to consurner niches whosetastes and needs are not met by massmarketing.

The next three vignettes are examplesfrom the Philippines which serve to dem-onstrate the benefits to consumers ofopening up an industry

The first example is on the air travelindusky. The national air carrier could notsufficiently meet the.expanding travelneeds of an contract labor force seekingemployment overseas, foreign investorsexploring sites, and the usual local andinternational tourists searching for newdestinations. The airline naturally resistedattempts to open up the industry, and thenational government, primarily throughthe Philippine Civil Aeronautics Board,stepped in. An erecutive order by Presi-dent Ramos allowed easier entry forother local and intemational carriers, andthe national airline is a private enterpriseat least in theory as of this writing. Theresult is consumer benefits all around-lower prices on many destinations, moreflights and better services, and more for-

c0ilt P ITt Trvx Nxss

eign exchange from interna-tional visitors and OCWs(overseas contract work-ers). One new airline offersa "pick-up" service from ahotel to the local air termi-nal, to reduce the hasslefrom haffic delays. Anotherairline provides directflights from Menado (Indo-nesia) to Davao (Philip-pines) and vice versa; be-fore that, travelers had to gothrough a circuitousroute-from Davao to Ma-nila to Jakarta to Menado,which was longer and moreexP€nslve.

The second Philippinesituation involves the tel-ecommunications industry.The local monopoly was atone time on the receivingend of the ire of the former

Prime Minister of Singapore, whosehenchant comments are a matter of pub-lic record. That corporation then becamethe target of protest by consumer groups,and the subject of considerable scrutinyftom ihe Philippine govemment. After aseries of persuasive negating, the indus-tryis now anoligopoly, and the erstwhilemonopolist has rapidly discovered themeaning of customer service, as it accel-erates its goal of a "zero-backlog" for tel-ephone lines. Furthermore, the new en-trants are providing a variety of productsand services for both niche and massmarkets. In the cellular communicationssegment of the industry for example,competition is intense, prices havedropped, services have improved, andDroduct feah.rres have increased.

The final case is a more mundane in-dustry, beer, but an impo ant one for itsirnbibers. There once was a virtual mo.nopoly, one company that for over a cen-tury successfully defended its marketagainst.all comers. Incidentally, thatcom-pany long had a reputation as being a"good" monopolist (much like the old"Ma Bell" before the US governmentbroke it up in very competitive "Baby

Bells"); it is still ranked as one of the well-managed Asian conglomerates. In anyevent, the beer drinking public for a longtime had few choices- a pilsen, a darkbeer, and a draft beer. As of this writing,

CONSUMDR

s\s'ITilfi)||PfimrTNris

msr

Aucusr-SEpTEMBER 1995 . THE AshN MANAGER

the indushy is nowa duopoly,but the en-try of the competitor has improved theconsumers' welfare, leaving aside criticalissues of morality and alcohol abuse. Thenew competitor is pdcing its pilsen be-low the market leader, it has introducedseveral brands so that the market has afmost a dozen locally brewedbeers. And imported beer is nowavailable in great vadety in su-permarkets and liquor stores, al-beit at stiff prices.

OoneluslonTo reiterate, the goal of com-

petitiveness is consumer welfare.Market share and profits aremerely the results of satisfying theconsumen.

To sum up, the quest for com-petitiveness may create unwantedside-effects, such as rnarket domi-nance and baniers to both entryand growth. Dominance and bar-riers may result in a loss of con-sumer welfare, either directlythrough high prices, or indirectlythrough insufficient quality orvariety.

To conclude, the policy issueon competitiveness is how to useit to promote consumer welfare.This phenomenon to some extentalready occurs, as corporationstake on the customer-driven ethicof TQM (Total Quality Manage-ment). Or\ the other hand, busi-nesses and their CEOs must be-have normally, that is, to maxi-mize profits and growth for them-selves; and this behavior couldreduce consumer benefits.

So the government plays thecritical role of striking a balancebetween allowing free marketbehavior, in order to promotecompetitiveness, and restrainingany abuse of market power, inorder to promote competition.The government is forced to playboth a passive and an active role,and its bureaucrats must knowwhen and how to interuene.

This is no mean feat. Onepolicy guideline might be selec-tive intervention in an ex-postregulatory function, rather thanpre-emptive strikes. This is of

course easier said than done, and will bethe subject of future policy papers. Butnote that two presumably free-marketand world class economies, Germany andthe United States, still felt compelled toset up a Federal Cartel Office and an An-tihust Dvision in order to monitor restric-

tive business practices and to containmarket dominance. Perhaps the finalword should be that competitiveness hasnot yet reached the unquestioned statusof motherhood.

Prof. Frflncisco L. Ro/in ,Ir i5 the Dircctor ofthc AIMPoli.y Forron a d ils Sltslem Comrytitiuness Desk.

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THE AsrAN MANAGER . Aucusr-SEpTEMBER 1995 49

ost businesses inAsia define effec-tiveness on the job

as the abil itv to solve prob-lems. This definition includesthe decision-making involvedin problem resolution. ln lightof a rapidlv-changing environ-ment that constantlv createsturbulent business scenarios,problems regularlv crop up,and effective problem-solversand dec is ion-makers a reneeded.

Hence, performance ap-praisal svstems are geared to-wards rewarding the excellentproblem solvers and decision-makers. Management schoolsteach left-brain activitv skillsto its students, n'ho later onapplv these skills in businesswhich, in turn, expects anddemands them to do such.Right brain activity happensmostlv due to raw talent orserendipitv

Let's use a timely exam-ple, cyberspace. Cvberspaceencompasses millions of PCshooked up to the Intemet,and millions more connectedby local area networks. Cvber-space also includes cable TV,phones, and the satellites or-biting the earth. All these playa major rolc in the emergingera of the Infb SuperhighwavWhat are some major issues inthis Superhighwav trek?

In the future, buvers andsellers will transact via elec-tronic shopping malls, with-out launching expensive mar-keting campaigns. Further-more, the lntemet wil] mostprobablv bring about a globalmarketplace. Are marketingdepartments and advertisingagencies ready for this? Theadvent of cvberspace and theever-increasing aff ordabil itvo f in fo rmat ion techno logylevel the playing field some-what for both big and smallplayers. ln an environmentwhere agil itv and smallnessequal competit ive flexibil i ty,

50

company srzes may not mat-ter anymore. Are the large cor-porations ready for this? Onthe homefront, are you readyfor your children running tovou for computer assistance oris it the other way around?

Let us answer these ques-tions together with the issr.reof performance appraisal svs-tems rewarding only indi-v iduals wi th excel lent ie f tbrain activities. Problem-solv-ers and decision-makers maybe ready to address these vari-ous cvberspace scenarios, but

In this case, theproactive com-pany 1s rmdy for the change,not merely ,"cndv rgflirsl it.

Be ready for the next para-digm shift in your industry.Anticipate, anticipate, antici-pate. Prepare by having anagile, f lexible, and change-friendly organization. Oncethe paradigm shift arrives,immediately assume the roleof the paradigm pioneer Theninnovate, innovate, innovate.Ride the crest of the wave thatwas caused by someone else,and not just be a dpple that

proven themselves as effectiveproblem-solvers.

For strategic planning ses-sions, make it a point to askthe opinions and ideas ofcom-pany newcomers, since notraditional bottlenecks ham-per their thinking. Anotherapproach is to suggest to thecompany president (who be-moans the lack of ideas fromhis executives) to make lateraltransfers among some depart-ments. If supervised properly,a marketing executive wouldhave fresh ideas about the pro-duction operations and vice-versa. If the suggestion is notoperationally acceptable, askthe president to form cross-functional teams as an altema-tive. The latter option usuallyis more palatable, if not moreeffective.

Finally, continually ques-tion and explore in greaterdetail comments that dampenproactivity, such as "That's notpossible" and "That's againstcompany policy." A simpleright-brain approach is to as-sume that the proposal will beimplemented. Then ask thequestion, "How can we elimi-nate the obstacles and bottle-necks?"

ln summary, the next cen-turv will herald the advent ofnumerous opportunities thatwill most probably be seen asthreats to be resolved by theproblem-solvers. There is onlyone strategic approach: antici-pate, then innovate. SinceMurphy's Law is operationalall the time, the problem-solv-ers will still be needed in thisanticipate-innovate processcycle.

It's about time that compa-nies place added emphasis onproblem avoidance than onlyon the stereotype problem-solving approach.

Prol.lcsusG Gnlletos,lr. is Dean 0flheAst l ltlstihte of Mntntefient, anrl lheSLl.l Migutl Carpomliott Profpssor irr Ir'tennliatnl Fnttrrisc Da'dopne t.

all attempts simply becomereactions. In effect, they areready against changes in theenvlronment.

But was the reaction nec-essary in the f i rs t p lace?Wouldn't a proactive stancebethe better alternative? Onedoes not have to be the para-digm shifter, since one canalso be the paradigm pioneer.VCR technology was inventedby theAmericans, a paradigmshifter, while quartz technol-ogy was invented b) ' theSwiss , another parad igmshifter. But the paradigm pio-neer, Japan, now dominatesboth industries world-wide.Hence, proactivity also meansbeing the pioneer in an indus-try, not necessarily the shifter

w i l l soon be engu l fed bylarger waves.

There may be some para-digm paralyses along the $'ay,and theseironically may comefrom industry leaders them-selves. Keep in mind that theyare not necessadly right all thetime, expertise notwithstand-ing. Remember IBM and Ap-ple?

There may also be bottle-necks within your organiza-tion. Maybe reactive problem-solvers are rewarded, whileproactive problem-avoidersare ignored. It is time to takea closer look at people in yourorganization who rarely en-counter problems, and aretherefore bypassed for promo-t ions s ince they have no t

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