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. Erherging Asian Markets. o Tapping Local Managers' o Learning from Marketing Flops . Identifying Options and Opportunities

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VOL. IX, NO.3 lnternet Address: tam@aim.edu.ph

THEASIANI\4ANAGER

JUNE/IULY 1ee6

oovnn sTonYGrowth Polygons: A Summary

W Professor Mari Kotldo, AIMWhich growth areas in Asia are booming?

MANAGDMDI\N UPDATDS

7th AIM Management Conference on Asia 16by Chanin DonarnnikWhere can we find the right candidates for ovetseasoperations?

Marketing 19by Professor Francisco L. Roman, AIM and Amy. G. Espiritu

Why did certain products fail to attract the market?

trDSEAROHThe Asian Advantage: Global Sirategyin the Asia Pacific Region

by Professor Emanuel V. SorianoWho are the players in market globalization?

Problem Solving and Cultureby Daaid Crookes and Iaor ThomasAre there alternatives to the stereotypesabout Chinese and expatriate managers?

Customer Service:The Ultimate Differentiator 34

by Mnra Fajarrlo, Bobby Gayanelo, Rikinnto Gunadi,Aknsh Mohapatra , and Tricia Soriano (MBM'97 )Whose needs and wants should the industry consider?

z.)

29

Chinese Familv Corporations in Asia (Part II) 39by Prot'essor Francism L. Romnn, atuand Asuncion M. SebastianWhat is the future of Chinese family corporations?

The Use of Management Sciencein the Philippine Air Force

fu &n. Amult'o G. Acedera and Pnlesw Eftol B. Poa, NMHow can aircraft accidents be avoided?

IIANAGEMDNI CODIMI]]\IICATION

Gems of Communicationby Professor Gloria S . Chtn , AIMWhen do we use raill, can, and shall?

OPINION

Entrepreneur's Cornerby Ribert V. Chandran, MBM'74Does business restructuring really leadto empowerment?

44

49

50

&AIMTHE Asr^N MaNACER A Publication ot the Asian hstiture oiManagemot and the Federation of Asian lnstitule ol ManaSe-m.nt Alumni Ase.iations.

C.plri8hl O 1996 bt, .Asi,, Manag./ AIl rights rsrucdReprodu.lion in any nannerinwhol€orin Pariin EnSlish.roth$ lanSua8es p.ohibited The Asian Manageris PUblishedbi fronthlv by the Asian lnstitute oI Mana8ement Editorialand Advcrtising Otfice: Asian lnstitute of Managemenr,Eu8enio i-6pcz Foundation, JosePh R McMickin8 CahPus,l23PaseodeRolas,Cityol Makati,PhiliPPines Tel(632)89240 I I 25, 892 04 35-43j 893 33 41 Fax: (ti2) 81 7 92 'O Photcgraphs sou..ed by thc AIM Lib.a.y.Pnnred by Ti6es PrintersPr€. Lrd.,Singapor.The Asian ManaSer MITA(P) 196/10/95KDN PP(S) r076l3/93ISSN 0116-7790

THE AstAN MANAGER . JUNE-JULY 1996

Publish€r Felipe B. AlfonsoCo-Publisher& tdiior-in-thief Ricardo A. Lim

mrging Hil0r Ma. Teresita Martin-PaloDirfttor. 00enlims & 0ltlhlhn Millie C. FenerD$iS & hid0cli{n (msdlr|l Franco Patriarcalss)firl€ tdilorJudith Angela E. Alpay

nest{dr rnd Pntd!.lion Amy G. Espiritutdyenising Assisl|nt Vanessa M. JabalasCinuhlfun lsshhrl Eden S. CardenasPublishing [o|rd Rene T. Domingo, lesus G. Gallego6,

Jr., Ricardo A. Lim, Victor S. Limlingan, Eduardo A.Morat6, Ashok K. Nath

Ptilip0in.s: D€lia Gutienez, Far (632) 894 4809;Ady Roberro, Fax (632) 895 6973,LudwiS Federi8an, Fax (632) 032-255 1108.

lonE roq: Pamela Choy, Fax (85 2) 834 5980.sin{.poF: Teddy Tan, Fax (65),r40 8760.fndd6fr: Rama Slamer, Fax 162 21) 7992Vn, 7973784.Vj+\if, CDmie N& Fa\ (603) 7175370lndh sui-(mli*trl: Media South Asi. (P) Lld.,Fax 1977 1) 227 3 .

P.listrn: S.l. Salahlddin, Fax (9221)56a2271

Im.: Y.K. Chun, Fax (822) 738 7970,.Frt Tokuji Niinlma, Far (813)3582-9104nrlLnd: Dr. Anthony Shama, Far (66 2) 331 9303I Dlled lirgdm: Bnan TaPlin Ass6at6,Far (0442) 246 034f||e: Staphan€ de R6musat, Far (33 1) 39 89 63 41.

iov issues back, rvelistecl some eleterminants of pr0sperit\ ' l

thc number ol nel c.rrs onlhe ro.rd, thc shinint'ss otsiropping bags in nralls, eic.I h,rvc non cliscolere.ianotirer irrclic,rtor of r,rmpantconsLUncnsnt, ltence,prosperit\ ' : Home TVshopplnr. N4anila TV oifersthis throuth ,ri le,,rst f i\ ! 'el ifferent "rhopping"

ch,rrne.ls. Ont channcl, i l 'rc"Skv Shoy'," is cl'r'oicd tir"infomtrcials" ivhich plugsundr! ltcms: \ltcuumcleaners, r 'niraclc stainrernovers, rluit-smokjngrlevicts, goli c1ubs, ttxrlborc's, t 'rt 'rcise nr,rchines.Lik(' i t or not, these info-mercials are lrecomirtg mtrrt 'pt 'n asn c in :ell int prorl-uc ts . I : , r i fo r , r r r hourobscn ing just u hat market-ing technrclut's thesc' sel)crsuse:

Talk show format:l)roclucts are usuallr pitchetiirr a stuclio uith a merlium-sizccl aucljence, l ikt, Oprah orLcitt 'rnran.

-fhe talk shol

hosts art ' l ik,rble,rnrl attractive. fhe chattv hostsiegitimizc t)rc fritntl l incss ofthc protlucts. \Vc arc led krbeliclt,rn unbiast'd ",rueli

encd' oohs ,rncl ,r,rhs forever\ tr., l turc of thc "Big

Creen Clcan lvlachint'," al11r.utl-pltrPosc !icuunrcltaner th,rt prorl ises io sr.rckanv stain fronr .rnv flxrr,s()t.r, or c.1rpet.

Multi-use: The "N{iracle-

Scven" stain renrover is goi)dnot onlt, ior cle.rning vourshirt stains, for er.rmplt, but,r1so vour cltututt's, vout c,tr,anrl \trur siilt rir'art', furo.Products must ha!e multiplenses. Thct convince vou th,rtif vou c1o not buv theprodr.lct, \ur mitht comeacross that Yerv situati0n,anrl regret not ha\ ing\lir.rcle'St'r't'n.

-l

Technical testimonial:Tht' "i 'hasc Out" rluit 'smoking elevicr boa:ts ols tud ics f ro rn the i l l us t r ious

Johns Hopk lns U n i le r ! i t lih,rt proi r the protluct'st f f i cao . "Cr r l n ico t inc bvt1 ' l anc l nor io r rs gascs b t9-{'1. Smokr as nlrch ,rn,.lict l l t ss guiltr '1"

Public f igure: L)n the"A l re n" s , rn r l n t r lgeshou ( , rqolf club "gu,rr.rrteetl" hr gctrlulfcrs out oi s,rnd tr.rps)Jcrrr I ' ,rtr:,,r trrrmcr I '(,;\Ch,rmpion, pitchrs thcprocluct, letit imizint tht'prorluct furthtr. I i t irtmanuf,rcturt ' ls c,rrr 't,rfforrl,rprotcssion,rl cntlorscnrent,thcV u5c . . .

So-called public f igure:C)r tht, "H,rnclvkit" toolborsho l , a hos t r l i l l co r l r :onscrr'en \\ ' i th a capti(Jn:Cra is l l r , r rne t t . \ou , nho theht'11 i: ( 'nrg Burnctt? D()fsn'tnr.rttr.r. Bcc,iusc his n.lmc isonsctccrr, fhis nrt,rns hc'sfamous, :tupiel. Then, t irf inally mrlt lrur htart thert'l s thc . . .

Common man/woman:Thev n i l l f. ick sonrc honclvlookjnE icllrru or solnt

Fnou Th Dnrron

ln ncgotr,rtLnc t.rctlcs,r!,r"nibbL'," if lou tlorr't buvthr procluct, then r'ou just

mieht bitc... it thc sellt 'rtosses in ,r cookl,ook, or tmrfrcc krl i\ c5, or ,rn e\tr,r tuLreoi p,rstf It d()('\11't m.rtteriha t these, rd ! i on \ cos t . lfr,rcti(nr of thc r(,nl produat.Thr:r 'gtt rrru t() f in,l l l \ buv n51L l ( l p ro t juc t L rv k ) \s jng in . ltokcll 2i Lent b(rnLr5.

Last-minute price: Theshon s ncvct ltttt l t ion priccuntil thf l, ist po!siblenromtnt. Tht'r,,rsk the"\\hilt \ ould VoLl pav"question, t lrop thc "That's

not .rl l" nibble, betort 'f in,rl lvr'\posjng thc bottonr l i11e.

I{estern l ifestyle:Ii i l ipino:, 1ikt, manv Asi.tns,r\? nt to t 'nrul,rte l\!stt 'rnli lcst!les. Thf sftt ing ot thc"l 'res:ure I 'r 'r l t 'ct ' t ookcrinfornercial js in an Alnt'r i-c,r n kitchen: beautifui, big,i lell cqurppt'rl. It dtrcsn'tnr,rl ler ihnt \ '()ur kitchcrllooks ntrthing l ik! \\ 'hnt's onT\'; irru :ee vourse.lf h.r ' irrgth,rt kitchen,,1nrl thisproduct i: n mu\t-hd\ c tocourpletc ihat t lream. ;\t thc5,rnrI t jnre, tht' shirl s artsprinkled tl i th nrinorit it 'ssuch ,rs i\siarr: anrl .{frican-,\nrrricans io achier cpolit ical c0rrf abl('!s.

Docs it i trrk? \ts. Thc

l.riccs ,r rt ' ,rcttt,r i lr re,rson-ablr, gii en thc hassle-trr:tn,rture ol thf shr)pl'r ing. Aprtrfcsst,l Ish,rl l not n,rmt'h,rs boughf tr.n prorlu( ts,either rl ircct irorr TV or"insprrcd" bv it. I hrrn oltnrl TV ir ith uri "LJne Fot.-\ l l ' unir u-sal renlote control,rnd tolrl ,r\\ ' ,rv In\' "Ski

Alr,rr ' ' ' m.rchurt. lt onlV I\\ ' fr( ' i l \\ '()ul.ttt, ihcn I cottLlbur that "clt ' ,rr ' ,rgc" push-Lrl. brasslL'rc...

I l r o l l i i . / . v L I D , r 1 , ' r , 1 r , . 1 1 , r j , i\1! r , r l f r r r , r i i ( , r ,J | i r , r j i r , I IL,1r l , r ' i i r 'I f i ' ' r J r , l l l l J . r i t l L i , r r l r l r r r , r r i , i

1996 . Tr rE .,\srA\ \4,\\ '\(;FR

PRoFESSOR RICARDo A. LI]vl

Rampant consuriierism, hence,prosperity : Hom't TV sh opping

hotr:eu i[t, ,rn.] nr,rkc thL'nlust' lhc prorluct. l-o, tht'st '

Ireople nral look clulnsr', butheholrl...thev c.rn actuallr,Lrse lhe proriuctl .\n,.1 sar; "l

loi t thisl ' It thi 'colnln()nnran can rr:e anrl krt r t l ' tc

Protlrrct, thr,n \\ 'e can, hx).Prey on human weak-

nesses: f|t,:hrrn r prcl otroLr r fo ib le : such. r : ovcrca t -in*, slLrpy.i1a5.5, laziness,,rr. linst.rnt gri it i l ic,lt ion. \ l()st ot,i11, tho prr:r 'on our r:ui1t.Thc "SLi Au,rr" eri 'rciscm,ichincs, tur tr,rnrple, n i11' 'burn ar'.1' ,r l l fatl" rnrl n i l lstoir ' ,rn,rl ne,rtir: \ iru buvthc proeluct,rnrl clcar lrutconscience. Nou i ou c,tnboast h) fricnds th.t \1)Lrbought an crcrcist'r. \ iru p.ttti t in Iour ck rsc t , , rnd . . . ther t , i tn' i l l lorever st,rr ', ncvt'r to bt'Lrserl.

"What would you pay:"T() pro\'c r 'arnestness, thestl lers ivi l l ask, "i lhat rr ' i l lvou pav hrr this proclltci?",rnd thcn proclrrct', in arr,l oicomprrati\ e proctlcts th,l ir\ ' i l l inevitablv c()si r 'n0re .Ther. u i l l then clt ' l i i tr the

"That's not all:" Knotln

Jr \ L-Jr r \

BY PRoFESSoR MART KoNDo

Growth Polygons: A Summary

i Southern ehha GrowihIblangle: Conrnon nootr

The Southem China growth area iscomposed of Hong Kong, Macau, Taipei,China, and four special economic zonesin South China: Shenzhen, Zhuhai, andShantou in Guangdong, and Xamen in

, Fuiian. The growth triangle was estab-lished during the mid-1980s as a reactionto the changing economic climate withinthe rcgion.

Each specific province located at thePead River Delta growth area has somefactror endowmmts comolementarv to thefactor endowments of bther territones.Hong Kong, Macau, and Taipei possessthe financial resources, technology, mana-gerial capability, and rnarketing skills.Hong Kong is abundant in enhepr€neurs,excellent infrastructure, comrnunicationfacilities, and electric supply systems.

Taiwan capital is readily available due to.its huge hade surpluses. China has manyinvestors with the financial resources toinvest in high-growth areas.

Guangdong and Fujian have man-power and land. They are rich in naturalresources and are near markeb or corpo-rate bases. Fqthermore, the centra.l gov-ernment invested substantial arnountsover the past two decades to transform

these special economiczones into a haven for in-vestors,

Special rights andprivileges wer€ given toGuangdong and Fujian in1979 to athact foreign in-vestors to the area: taxconcessions, lowering ofland usefee,land exploi-tation fees and roadtolls, and lower chargesfor wateq, eleclricity, andtelephone service. Thelocal governntent ofGuarydmg ard fuiianalsomade simplified investorprocedures and require-mengi.

Among the partici-

5

Four SEZs were established. Three of the SEZswere established inGuangdong: Shantou,Shenzhen, and Zhuhai,while the fourth SEZ wasestablished in the prov-ince of Fujian at Xamen.These four special eco-nomic zones were chosendue to thek proximity tothe capital abundanteconoinies of Hong Kongand Taiwan. Most of theChinese in Taiwan andHong Kong can tracetheir ancestral origins tothese provinces in south-ern China.

THE ASIAN MANAGER T JwT.Jwv 196

pants of this growth area, Hong Kong andGuangdong province within the PearlRiver Delta enioy the longest interaction.Hong Kong investors were athacted toGuargdong's special economic zones andinvested mainly in labor intmsive export-oriented manuf acturing industries.

Most of ihe industries in these specialeconomic zones are in labor-intensive andlight industries: toy companies, plasticproducts, elechical appliances, hardware,and machinery. lnvestors from HongKong and Macau with small and mediumenterprises employ an average of 500workers. Most of the products in this areaare for export to other countries due togovemment restrictions in marketing theproducts in the domestic markel Finishedor semi-finished products are shipped

square kilometers. Due to the proximityof Fulian to Taiwan, most investors rnXamen are Thiwanese. Light indusmesaccount for more than 507o of the totalindushial output value of Xamen. Dueto the rapid developnent of Xiamen,certain infrastructural improvementshave to be constructed in order to accom-modate the demands of economic devel-opment. Several projects have been ini-tiated in Xiamen: construction of lournew deepwater berths, a bridge or hrn-nel to connect Xiamen to the mainland,and a motorway linking Fuzhou,Xiamen, and Zhongzhou. Facilities arealso being improved with the electrifica-tion of Ying-Xa and installation of a dig-ital telephone exchange and a microwavetelecomrnunicahon system.

ment and container rental and rcpair.Many factors conhibuted to the suc-

cess of the South China growth hiangle.First of all, the comrnon cultural,back-ground of the mernbers contributed tothe establishment of the growth triangle.A large proportion of the Hong Kongpopulation trace their roots to the prov-ince of Guangdong. The sirnilarity in lan-guage and cultural practices enhancedunderstanding among players.

Another contributing factor to the suc-cess of the gronth triangle is the govern-ment support that each territory extmdedto the proFct. Through the initiative of thePeople s Republic of China to implementthe open door policy, many foreign inves-tors were athacted to invest in the areawhich hastened the development of infra-structue and led to the overall growth.

To ensure the continued growth andfurther expansion of the southern Chinagrowth area, certain issues must be ad-dressed by participating members:

First, the dwindling supply of qualityor skilled labor. There is a surplus of eightmillion laborers in Guangdong provrncealone. Most of these laborers are unskilledand unfamiliar with technical details ofproduction. At present, the Pearl RiverDelta area is going into heavy and hightechnology industries, increasing the de-mand for skilled laborers. Policies must beirnplemented to athact skilled workersinto these industries and to encouragecompanies to conduct haining progralnsto address the problen of dwindling sup-ply of skilled laborers.

Second, there is a need for coordina-tion among participating members as thesouthem China growth arca continues toexpand to other municipalities within thePearl River Delta. Members of the south-ern China growth area must coordinatetheir industrial policies so as to simplifybusiness transactions and other proce-dures in the gronth area.

Coordination in the development ofthe infrastructure in the area must a.lsotake place to ensure that no duplicationof projects will occur. Regular trarsactionsrrust also be conducted by the membersof the $owth triantle to ensue that thenew infrastructure being establishedwould complement the programs of thecompanies and would be serviceable to allthe indushies.

IUNE{ULY 1995 . THr AsrAN MANAGER

back to their base like Hong Kong orMacau where final touches will be irnple-mented depending on the tastes and pief-erences of the export markets. The mar-keting of the product is done from themother base of the cornpany outside thespecial economic zones.

Guangzhou, the capital city ofGuangdong and Shenzhen, is veeringaway from manufacturing and otherlatior-intensive industries. It is insteadgearing towards becoming a center forwholesalers and retailers. It is also com-peting with other cities to become a ma-jor service hub.

In Zhongshary more than 1,000 jointventures have been announced. Most ofthe industries in these joint ventures spe-cialize in footwear, garments, elechoniccomponents, and other light industries.

Xiamen is the special econonic zonein the province of Fujian, covering 131

6

Policymakers in China see the impor-tance of well-developed inhastructurefacilities. China has igreed to create ahigh level-coordinating group with HongKong to hasten infrastructure develop-ment in the Pearl Rivgr Delta. This highlevel coordinating group will coordinatethe use of air space by the new airportsin Shenzher; Hong Kong, Macau andZhuhai, sheamline and improve bordercheckpoints, and solve problems con-cerning the proposed new cross-borderrail links.

Aioint venture has been identified byChina and Hong Kong to hansport rail-way lreight containers between thecolony and Zhmgzhou. A comprehm-sive range of services will be providedby the ioint venture of Kowloon CantonRailway Corporation and China RailwayContainer Transport Center. The servicesincludes trucking, storaSe, transship-

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Thc SIJORI Gro$'th Triangleslli-teeh and Hi-grou,th

One o f thc A :EAN gror r th t r rang le -that is looked upon as a successful modelo l ( (L ,nomic c (npcra l ion in lhe re$ i , ,n I : 'the SIJORI growth triangle. The SIJORIgrouth t r iang lc i r c , rmpo.cd o f S inAa.pore, the Malavsian state ofJohot and theRiau islands in lndonesia, all locatedalong a strategic route: the Straits of Ma-lacca.

Singapore is an independent islands ta te rv i ih an ar t . r o f 626 squarekilometers. It is situated beh\een thc ti\'oo thcr p ro l inc t r o f Johor and R iau . ( inFa

pore has a dvnamic economy and is n'ellestablished as a premier trading pori inthe region.

Johor is ihe. fourth largest statc of Ma-Iavsia just above Singapore, with a landJre , r o f i8 .qo l rquarc l i lomeler r . lohor i .ferti le and crops are plantcd all vt 'ar

boasts of a large market base: Indoresianand Malavsian markets. Fourth, SIJORIoffers lon'er production costs. Finallr ' ,well-built infrastructure makes relocationless problematic.

Sir vears afttr the creation ot SlJOlll,Iohor . rn . l thc r r l . r r rJs o f R i , r r r ' t i l l r ' n jo runparalleled gronth. Manv industneshave relocated toJohor: tcxti lcs, clcctron-ics, rubber proclucts, foocl, and n'qrdproducts. For ihe last three vears, sonL.30,000 jobs have been created annuall\rjohor continucs io havc ambitious plansfor thc future. It hopes b increase thenumber of industrial estates from l-l tn21 in the next f ive vears. Johor is attract-ing oiher investors, tspeciallv chemical.trtd rnet.rl, .rnd cle, trrrnic. indu:tric:.

Johor puts a prcmium on icchnologtrIts policvm.rkers believe that technokrgvwill spelJ the difference in the develop-mcnt of tht' pror,incc anci of thc grorvth

ties ,rnd senices are being providecl bvt l re i . l ,1nd . . c r t - , r l InS mor { 1 , ,b ' ,P lo r tunr -ties for its people. The Salim Group, lVahCh.1ng Inlernational, ancl Keppel Csrps-ration are dran ing up plans for tht con-structiol of ,rlvorlcl class resori u' ith conr-plctc facil i t ies and services.

Batam is improving its infr. lstructurcbv erpanding its airporl and port to acL , ,n l t , ,L l , t tL h rgg . r . t i r c r , r i l , r r rJ .h iP . .

ts , ' th B in t . r l r . r r rJ Bu l . r r r i . l , rnL I . , r reer r jo ring a developing agro-busine'ss industr\,r rh i .h i : t t t rn t t tE i t t t r ' . t n ' , ' r , ' r e . r 'n mi ractivifv in tirt.st islands. Somc inclustricslh r i r i r r6 in l l re i - l . r r rJ . , t r t - h ' , f , r , l \ rnF .orchicl cultir 'ation, crocodile, and poultrvlarmlng.

The success of SIJORI nav bc attrib-utccl to scleral factors: l--irst, political lvill.The governnents of Singaport, lvlalav-sia, ancl Indonesia displavecl high lcvclsof polit ical commitnrent to the develop-ment of the grou th bianglt. Thtv sup-poricd ihe undcrtakings of clilferent in-vestors rvith conrplementarv govcrnmentpolicies.

Seconcl, the success of tht' grorvth tri-anglc is thc complcmentarv factor endo$.ments of each participating region. lohorhas large tracts of available land, skil ledancl semi'skil led labot and plrvsical in-frastructure, Singaporc has sophisticatedf inanc ia l mark t t ing and:en ice indus-tries, excellent supporting inf rastructureand highly skil led human capital. Riauhas land and manpower.

Third, gmgraphical proximitv. Thedr : t . rn . c h r t \ \ e ( 'n * r t i , t f ' , r t ' , l n (1 loh i , r i .onlv 1.2 kilomete.rs and ihc islancls otBahm and Bitan are an hour's ferrv ridefronr Singapore.

While SIJORI is successful, the'gor-ernments of thc three countries ha\,e tocontinuallv .rdclrcss thc nrulti-faceted intcrnal issues that corrtinue to appear. Like-rvise, tlre three go!errrments haYt to atl-dress external thrcats. l-ht'v mr,rst look atr r h . r l r ' i l r c ra r , ' r r I l t ln . ln I l ! ' rn th ( r (A ionoffcr to foreign investors. The SIJORIgrorvth irianglc has a bt ofthings at stake,th ( \ e r \ l ( , r . r , ' f \ h jch i . lo . inA i t j repu-tation as tltre of the best models of eco-nomic cooperation in thc rcgion.

BtUP-n.{ST lsll,ll Grorr th:,lrea Opening I'p Air and StlaLanes l'irst

The Brunei-lncloncsi,r-Malavsia-Phil-

JL\rE-JLLY 1996 . THE Asr^\ MANAa;ER

Growth Polygons

tvGKOa{G

IMT/NGT

round in its many plantations.The province of Riau has several is-

lands: Batam, Bintan, Bulan and othersmall islands r.r'ithin thc archipelago ofInclonesia. The islands have abundantidle land, natural resources, and manporver.

SUORI is attracli! e to foreign inves-tors becausc ofseveral factors: First, rulesand regulations on foreign trade and in-\e : tment5 in the par t i c ip , r t ing rcA ion .cntnplemeni one dnLrther. Inre.h'r. .uf-

fer less delavs and bureaucratic red tape.fu . , rnd , p , t r l i c ipa t ing count r r r^ o f i c r a t -tractive incentive packages. Third, SIJORI

o

Free marketProximity/cultureEconomic stages

tr ianglc in gcncral. To concrctizc this belief, the state government has approvc'dthe development of the lohor Technol-ogv Park.

The islands of Riau have bcncfitcdfrom the creation ot SIJORL The differ-ent islancls of l l iau have rapicllv trans-formtd into industrial centtrs and tourr \ t de \ t rn , l t i , ,n .p t . l r , ,m mcre id le , tg r i -cultural lands. Due to economic der,elop-ment, Batam island has erperienced arapid increase in population grorvth from6,000 to l20,00tJ people.

lour ism i r lh r i r ing . H, r tc ] . . re . r , r t . ,golf courses, restaurants ancl other facili

ippines EastASEAN Crowth Area (BIMP-

EACA) rvas established during the Inau-gural Ministcrial Meeting in Davao, Phil-ippir.res on March 24, 199.1. lnitiated bythe President of the Philippines, Fidel V.Ramos as a counterpart to other groirthareas in the region, BIMP-EACA is composed of several provinces: East and WestKalimantan and North Sulan esi in Indonesia;Sab.rh, Sararvak and Labuan in Ma-Iaysia, Bmnei Darussalam, and Minclanaoand Palawan in the Phil ippines.

The grorvth area covers 695,000 sq.km. and has a total population of 28 mil-l lon.

It aims to take advantage of differcntfactor endon,ments of the region i.r fos-ter the growth of hade, tourism, and in-vestment. It aims to facilitate the move-ment ofpcople, goods and services; sharein i ra . t ruc tu re ta ( i l i t i e . ; and pr , ,m l l le industrial complementation.

Participants of the BIMP-EACA arecurrentlv cxploring numcrous and variedareas of cooperaiion. Four areas of coop-cration have becn idcntified for immedi-ate attention and implementation: thecxpansion of air and sca linkages, expan-sion of transport and shipping facil i t ies,joint development of the tourism indus-trv, and the expansion of thc cooperationon fisheries.

Othcr arcas of cooperation that havelike$'ise been identil ied bv the different\,vorkrng groups are:* cncrgy+ lorestry* agro-industry* people mobilitv* telecommunications* human resource clevelopment* construction and construction materiais- r.rJrital formnti()n ,rrrJ financial sen icc:' enr irL'nmental prolection dnJ m,rn,rAr-ment

S ince the fo rmat ion o f the BIMP-EACA, participants have signed a Memo-randum of Undershrnding on Air Link-dFe\ I , r ( r l r t l l ]F land ing r igh t . 1 , ' Jg . jgnated airl ines. Air l inkages already existbetrveen DaVao and Manado, Zamboangaand Labuan, and Cebu and KotaKinabalu. More frequent flights are alsoplying the Brunei, Sararvak, and Sabahroutes. hr Julv 1995, Brunei u,as grantedlanding rights to four areas in the l)hil ip-pines.

Ne$' sea routes have been opened up

THL AsrAN MANACER . JUNE-JI-LY 1996

Mekong Basin

r Energy

r Ernerging rnarkets

r Minuses- no inlrastructure- no business support- h:storical distrust

betrvecn Sanclakarr and Zamboanga, anclCeneral Santos and Bitung (lndonesia).

Nen' sea routes are being proposed be-t rveen Dayao C i tv (Ph i l ipp ines) andBitung, and betrveen Davao City andMuara (Brurrei). Travel tax on visitorstravell ing from the Phil ippines to theBIMP-EACA region have likewise beenlifted.

Most ofthe rvorking groups have heldat least trvo or three meetings to discusstheir action agenda. Some agreementsthat have been reached at the level ofrvorking groups relativc to thc EACA areas follows:

* acceleration of free trade in theBIMP-EACA on selcctccl f isl.rcry prod-uctsj

* harmonization of policies, rules, andregulations on forestry;

' e . tab l i -hmen l l f ; jo in l Var i t imeTra in ing Center Net rvork in theBIMP-EACA;

* nesoti,rt iL'n o[ new 'en rce agree-nents with member countries to ensurefhat the frequency ancl capacity r.r'ill beavailable to facil i tate the movement oftourists to and *,ithin the region;

* se t t ing up o f a B IMP-EACAfund for development and comnercial

PurPoses; and* reduction or elimination of cross-

borcler regulations on tariffs, trade, andaccess to market on construction and con-struction materials.

As of October 31, 1995, a total of 52.35billion worth ofjoint venture agreementswere signed bv themembers ofthe EACAbusiness communit,v. The signing tookplace during the BIMP-EACA FourthSenior OtTicials' and Ministers' Meetingheld at Bandar Seri Beg.rnan in Bnrnei

1.3 M190 M

sqkm.people-

Darnrsa lam. lThe io in t \ (n tu re , t8 rcc-rnents exclude the $279 mill ion rvorth ofin\.estments that have poured in to thearea since its opening in March 1994.)

a)me of the joint ventures and invest-ments announced since March 1994 include:

* a 520 mili ion joint venture be-tween Sararvak Economic DevelopmentCorporation of Malaysia and Nova VistaManagcment and Development Corpora-tion of the Phil ippines to establish a co-conut processing factorv in SouthernMindanao;

- | , - " - D . . - . . 1 - h a r i

Manaclo of lndonesia and South StarTelecom of the Philippines to cany out ajo in l r tudv on comnlun icn l ion .v r tem. ,de \ rgn . t l r s ta l ld t ion and r ( 'mmi55 ion ingfor marine, ait and lancl applications.committing an investment of S15 million;

* R.D. Fishing Industrv of the Phil-ippines and PTAsa Engineering Pertama

Jakarta oflndonesia have jointiv investeda total of $8 million for the constructionof a hotel in Ceneral Santos Cit)', Davao.Irhilippines;

* a joint shipping service by PTPr ima Comex indo o f Indones ia andSouthern Ship Handlers lnc. of the PhiflpPlnes;

* a joint telecommunications invest-ment by Marbel Telephone Svstem Inc. ofthe Philippines and Sun Moon Star ofTai-$'an; and

* a joint venture by Agro Hope SdnBhd, a subsidiarv of Shalimar Develop-ment Sdn Bh,-l anLl I'T Bohinda: fermaiof Indonesia to develop an 16,000 hectareoil palm plantation in Kaiimantan, Indo-nesia.

A private sector counterpart of theBIMP-EACA government sector has been

formed. This private sector counterpartis called the EAGA Business Council. It isin the process of establishing a full-timesecretariat to assist in promoting eco-nomic activities of the EAGA.

BIMP-EACAis off to a good start. Dif-ferent govemments of participating coun-tries can help in the fast development otthe growth area by providing the neces-sary inftastructure, right incentives, andinvestment climate for the pdvate sectorMeanwhile, the private sector will be ableto contdbute much in accelerating thepace of industrialization of the growtharea by taking advantage of the varrousincentives offered by the participating

SOvernments.

The f ndonesla-Mala; sia.Thai-land Grr|rlth Tliangle:Infrastrueture and Tburlsm

The newest growth tiangle in theASEAN reeion is the Indonesia-Malaysia-Thailand growth t -angle, or the North ASEANgrowth area. The terito es in-cluded are North Sumaha andthe Special Territory of Aceh inIndonesia; the northemstates ofKedah, Perak, Penang andPerlis in Peninsular Malaysia;and the southern provinces ofSatun, Songkhla, Yala,Narath iwat , and Pat tani inThailand.

The total population of theseareas amount to 21 million andthe total area growth is 200,000square kilometers.

The Asian DevelopmentBank (ADB) conducted a yearlong study upon the request of the gov-ernments of Indonesia, Malaysia, andThailand about the feasibility ofa growthtriangle among the three countries. Ini-tial findings of the study reveal strongcomplementarities among participatingareas of the growth triangle. The studylisted five p odty sectors where the threecountdes can initiate cooperation: trade,investment and labor mobility, agricufture and fisheries, indushy and energv,and tourism.

The formation of the North ASEANgrowth hiangle is expected to bring com-plementing benefits to the participatingprovinces. The fast development of thegrowth triangle is needed to further boost

10

intra-ASEAN trade and investment. Thesuccessful economic integration of theseprovinces is expected to result to aborderless network of production proc-esses.

The three countries have agreed tojointly promote certain industries andeconomic activit ies. Among the agree-ments are:

' ioint promotion of the tourism indus-try within the participating provinces;

+ promotion of agro-processing andfruit cultivation industries;

* relocation of labor-intensive sectorsof the electronics industry from Penang(Malaysia) to southern Thailand andnorthern Sumatra (lndonesia)i

* construction of rubberwood process-ing mills in southern Thailand; and

* development of export-oriented ln-dustdal estates in northern Sumatra andsouthern Thailand.

A total of $15-$20 billion over a ten-year period will be required to financethe high and medium prioritv develop-ment proiects of the growth triangle. Thefunding of the numerous projects andprograms will have to be sourced fromboth the public and pdvate sector

The private sector is expected to ben-efit from the investments cominginto theNorth ASEAN growth triangle. The pri-vatesector can finance many proiects, es-pecially in infrastructure. The creation ofthe North ASEAN growth triangle is ex-pected to create opporhtnities for trade,investment, finance, and labor move-ment, supported by government policiesand programs. As the growth t angle

becomes more established, high economicgrotth will be experienced in these ar-eas which n'ould enhance the purchas-ing power of the population and enlargethe market for goods and services.

Several issues and programs need at-tention under the different sectors oftrade, investment, and labor mobility, ac-cording to the ADB. There is a need tomobilize financial resources to financectoss-border investments. Several inter-naiional der elopment agencies and pri.vate investment groups have pledged atotal amou nt of $J0-950 mill ion. Two rpe-cial economic zones (SPEZs) need to bee s t a b l i . h e d . O n e i : a l o n g t h e l h , r i -Malaysian border; the other zone inte-grates northem Sumatra with the north-ern states of Malaysia. Investment andtrade initiatives are needed in southernThailand and northern Malaysia.

A number of Memoranda of Under-standing (MOU)for the invest-ment projects were signed inPenang in December 1994. Atotal of$1.3bil l ion were signedby companies during the meet-ing for different investmentand infrastructure projectswi th in the Nor th ASEANgrowth area. Industries beingestablished in the growth areainc lude expor t p rocess ingzones in southern Thailand,factories in northern Sumatra,and haulage services in north-ern Malaysia.

Several projects have beenidentif ied since the PenangMOUs. One of these projects isthe proposed construction of a

land bridge linking Penang and Songkhlain Thailand. The protect estimated to cost$2 billion, includes a road, a rail link, acrude oil pipeline and a gas pipeline. EastWest Bridge Corporation (EWBC), amember of Malaysia's Sikap Group, wasreported to have a stake in all four con-sortra.

A proposal to the Thai governmentoutlines a plan to construct a power plantat Satu n, couth Thailand. The consortiumconsists of Sikap Project ManagementServices of Malaysia, Shinawatra CroupofThailand, and PT Bukaka Teknik Utaraof Indonesia.

Another joint venture in the North{SEAN grorn th area i. BT Engineering

JUNE-JULY 1996 . THE AsrAN MANACER

Table 1GATT Trad6 Rounds

Y.a. SubJecb Cov.red l{o. of CounHes

1947 Gen.v. Tarlfi310i19Ann.cy Ta.lfi31951 Torquay Te.lfr!1956 Goneve Tarltr31960 Gonova Tarfffi1901 (Dlllon Round)'10&a Gencv. Ta.lfrr .nd Antl-Dumplng1957 K.nn6dy Round lloaluras1973 Gonovr lertlt . non.tariffl9T9lokyoRound tramowoakagoehonta1166 G.n.ve Tsrltr3, non-t dff rulgs,1993 U.ugu.y Round ssrvics!, lPC, dlrputo

€tc.

2313382G26

62

102

124126

&urc.: world Tl!& Ors..Lnb..l995

Sdn Bhd, a subsidiary ofPerak State DevelopmentCorpora t ion , and C i t raMuda of lndonesia. Thejointventure deals with themanuf acture of agriculhrralmotorcycles at Ipoh in Ma-laysia's Perak state.

. Itrne rccommendatlon

in the January 1994 Minis- I

terial Meeting was the es- Itablishment of a regionalTV broadcasting station. Aconsortium has submittedits application to the gov-ernments ofthe three coun-tries. Included in the con-sortium are Shinawatra

Southern China SEZs

I Entrepreneurs, capital flowsProximlty/AffinityPrivate sector effortFlying geese model

68,ffi0sqkm.119 M people

c ip le . Any favorab letreatment extended toone trading partner mustbe extended to all othertrading partners of thatcountry This is to ensurethat non-discriminationwould take place andthat the conditions fortrade would not be influ-enced by other non-eco-nomic facto$. This is alsoto ensure that trade lib-eralization will be imple-mented in a speedymannerand thattheben-eficial effects would bedistributed to all the

Group, Medan Mas Sdn Bhd, PTMedanmas And-alas, PT Indomatha IntiMedia, and a Japanese cornpany, Nissholwai-NHK Itec.

The success of the North ASEANgrowth triangle relies on the concertedeffort: of bolh the governmcnl and pri-vate sector. The governments of the threelountrie\ have to ldle the lead in the im-mediate construction of important infta-strucfures and facilities in order to atrr.rcrthe investors to the region.

GAIT-WTOThe General Agreement on Tariffs and

Trade (CATT) is a contract among 123member government5 Jclail inS the prin-ciples, methods, and procedures by whichtrade is conducted bv member economies.

GATT was formally established in

January 1948 after World War II to boosttrade liberalization. It was also estab-lished to addre:s thH i\sue o[ prote( t ion-ist measures which had been in placesince the 1930s. Tariff negotiations wereconducted among 23 founding GATTmembers in 1946, These original23 GATTmember economies were among the 50rvhich agreed to draft a charter for an In-temational Trade Organization (ITO). TheInternational Trade Organization is a spe-cialized agency that would fall under theUnited Nations. The purpose of the Char-ter was to institutionalize and systema-tize the processes of world trade. lt alsocontained rules relating to employment,commodity agreement5, restrictive busi-ness practices, international investment,and services.

The fundamental objective of GATT

TliE ASIAN MANAGER . JUNE-JULY i996

is to stabilize and systematize the man-ner by which trade is conducted all overthe world. lt seeks to create an environ-ment where international trade rules arewell-defined and implementable.

The methods and procedures bywhich GATT operates may be divided infour ways:

First, GATT operates as a binding listof trade concessions granted bv each con-tractlng party.

Second, CATT operates as a set ofmultilaterally agreed principles provid-ing the rules by which trade in goods willbe conducted.

Third, GAfi operates as a forum fortrade negotiations in which internationaltrade is liberalized and made more pre-dictable, either through the reduction oftrade barriers in national harkets orthrough the reinforcement and e\ten5ionof GATT rules.

Last, GATT operates as an interna-tional forum in which governments canresolve trade disputes with other GATT. ^h r ra . t ino nr r t ipq

Tl.rewhole document of the CATI canbe divided into two parts: the CeneralAgreement itself, which is made up of38 articles, and several documents enu-merating thebasic obligations of the con-tracting parties, different codes or rulesof conduct for a number of non-tariff ar-eas, procedures for amendments of Arti-cles, and the new code of conduct andprinciples of trade with least developedcountries.

The articles of the GATT are based onsome basic and general principles:

1) Most favored nation (MFN) prin-

member states.The CATT does have some exemp-

tions to the implementation of this rulewhich apply primarily to custom unionsand free-trade area. The GATT gives lee-way for waivers to be granted for prefer-ential treatment for developing countriesunder the section of Generalized Systernof Preferences.

2) National Treatment. GATT pa iesmust accord the same heatment to bothimported and domestic goods. Any re-striction, tax, or rule implemented for onetype of good must also be followed forother types of goods.

3) Protection through tariffs. Underthe GATI quantitative quotas or restric-tions are generally prohibited. Protectionby means of tariff must be implementedat the border Once the goods get into thecountry, additional tariffs can no longerbe implemented unless applicable to do-mestic goods also.

4) stable basis for trade. To ensurethat trade will be conducted in a system-atic and predictable mannet contractingparties of the GATT submits a list of itstariffrates which is tied to a specific level.Members cannot increase their tariffs be-yond that specified level. Member econo-mies can renegotiate submitted tariff lev-els although the GATT discourages anyincrease in the previous tariff rates sub-mitted. The penalty of increasing tariffrates without consulting the other mem-bers or trading partners will result towithdrawal of equivalent tariff conces-sions from the other trdding partners.

Changes or improvements of rulesand procedures under the GATT are dis-

1 1

cussed and debated upon during traderounds. The GATT has been subjected todiscussion and scrutiny bv eight traderounds. Trade rounds are important be-cause they allow member economies torenegotiate and increase their advan-tages over a wide range of issues. Fur-thermore, trade rounds provide a forumto make the gran t ing o l concess ionseasier without coming under fire fromdomestic players since this is under theconsultation of the majoritv The traderounds also give developing countries achance to influence the multilateral sys-tem (See Table 1).

Most of the early trade rounds ofGATT dealt with the issue of reductionof tariffs for a broad range of goods. Thesixth trade round called Kennedy Roundincluded a CAT I Anti-Dumping Agree-ment. The next round, was more compre-hensivebecauseitdiscussed otherissues.Non-tariff measures and frameworkagreements were discussed during theTokyo Round in 1979.

The latest and most comprehensive ofthe GATT trade rounds is the UruguayRound. Tt accomplished much by ad-dressing a varietv of crucial trade issuesincluding the extension of the trading

tiations. Second, it provided a more unr-fied and comprehensive framework forkade with the establishment of the WorldTrade Organization (WTO).

The WTO was formally established onJanuary 1, 1995. It is the legal and insti-tutional foundation of the multilateraltrading system. lt provides principal con-tractual obligation which determine howgovernments frame and implement do-mestic trade legislation and regulatrons.It is also a platform through which traderelations among counhies evolve throughcollective debate, negotiation, and adju-dication, (WTO Documents, 1995).

The provisions of the WTO are morecomprehensive than the CATT. Otherthan the provisions found in the originalGATT document, the WTO documentcontains other rclevant provisions relatedto the MFN and nat ional t reatmentclauses. Examples of WTO provisions are:

1) Trade-related Aspects of Intelli-gence Property Rights (TRIPS). Thisclause contains, with some exemptions,MFN and n, r t ional t re , t tment requi re-ments related with the provision of intel-Iectual property protection by WTOmembers.

2) Ceneral Agreement on Trade in

can last for more than ten years.A fundamental principle of the WTO

is to ensure a predictable and easy accessto markets. To encourage trade, invest-ment, job creation and low prices in themarket, governments must provide inves-tors and businesspeople an environmentthat is predictable and stable. The multi-lateral trading system is an attempt bvdifferent governments to organize andsystematize the process of market access.

The WTO is also committed to pro-mote fair competition. The different pro-visions on non-discrimination were for-m u l a t e d t u e n r u r e t h a I t h e p l a v i n gground for all the players would be thesame. The clauses on dumping and sub-sidies rvere also fbrmulated to discour-age disc mination.

Other principles that the WTO seeksto encourage are development and eco-nomic reform. Most of the mernbers ofthe WTO are devebping countries andcountries in the process of transition fromnon-market systems. The WTO is com-mitted to the fast and stable developmentof these countries. A ministerial decisionhad granted special provisions to thesecountries such as additional flexibilitv inimplementing WTO agreements ani ac-celeration in the implemenl,rt ion of mar-ket access concessions affecting goods ofexport interest.

APECAsia-Pacific Economic Cooperation

(APEC)is a grouping of i8 countries witha resolve to strengthen economic tlesamongthemselves. Itsmembersare:Aus-t ra l ia . lndonec i , r . lapua New Lu inea.Brune i Daru 'sa lam. Japan. Ph i l ipprne . .Canada, Korea. Singapore. Chile. Valay-sia. Chinese Taipei. China. Verico. Thai-land, Hong Kong, Ner,, ' Zealand, andUnited States of America

APEC is guided by two fundamentalprinciples:

Fir:t. i t gives importance to the prin-ciple of .mutual benefit for all membereconomies concerned. It takes into ac-count the different level. o[ economicdevelopment of member economies andthe differences oftheir socio-political sys-tems. Likewise, APEC gives due impor-tance to the separate needs of developedand developing economies.

Second. A IEC member r have. ign i -fied their commitment to open dialogue

JUNE-JULY'1996 . THE AsrAN MANAGER

system into several new areas namelytrade in services and on the issue ofintel-lectual propertv

The Uruguay Round has two maioraccomplishments: First, it expandedtrade by reducing trade barriers, refiningtrade rules and putting more areas underthe coverage of multilateral trade nego-

1 2

Services (GATS). This clause requiresmembers to offer MFN treatment to seru-ices and service suppliers to other mem-bers. However, it permits some exemp-tions to this rule to be determined andinitially declared by the member states.Afterfive years, theexemptions that weredeclared will be reviewed . No exemphons

flcunE rAVERAGE CEP'T trAITS 1992.2@3

25

m

z,- 1 0 l + r n n t i I

| -.-rndmsia

I' I

-{- Maratsia I

| --X- Phlippin$ |

| -.- sin8ryon II

--+- rh"ir!"d II - ASEAN I

5

0lyn 1J'3 rt94 rvrs rrx gn l9t tytt M mt m2

, Ye.rS{|TIIqASEAN S.crdrrbi

and consensus-building according equalrespect for the viervs of all pa*icipants.

Specific objectives of APEC includethe promotion of freeand open trade andinvestment in theAsia-Pacific bv 20'10 forindustrialized economies and bv 2020 fordeveloping economies. APEC aims to re-duce barrier" h' trade in goods.:ervite',and investment among member econo-mies in a manner consistent with CATTprinciples. [t seeks to sustain growth anddevelopment of the region by encourag-ing economic interdependence among itsmembers.

APEC has accomplished much in itsseven years ofexistence. On the two Min-isterial Meetings, the members draftedthe framework of common interests andconcerns. The first meeting at Canberra,Australia centered on defining the role ofASEAN countries in the overall develop-ment of APEC. On the second meeting,participants employed a global thanrather regional approach. Developmentsin other parts of the world especially inthe European region were placed underdiscussion. The second ministerial meet-ing at Singapore adopted the APEC dec-Iaration on the Uruguay Round. Issuessuch as the need of technology transferand importanceofbridginq theeconomicdisparities in theAsia-Pacific region weregiven much emphasis.

The important achievement of thethird ministerial meeting la'as the adop-tion of the Seoul APEC Declaration. TheDeclaration contains significant princr-ples, objectives and functions of APEC.The adoption of this Declaration formallyestablished APEC. Itafforded APEC witha well-deiined international pe$onalityand provided a firm foundation for fu-ture APEC initiatives. An important ac-complishment of the Seoul ministerialmeeting was the inclusion of three mem-ber economies namelv People's RepublicofChina, Hong Kong, and ChineseTaipei.Other achievements of the meeting werethe adoption of Declaration on the Uru-guay Round and the expansion of thervork program to include the areas oftr,rnsporta tion, touri5m and fisherie..

The issues discussed during the fourthministerial meeting were the regional eco-nomic trends, the Uruguay Round, tradeliberalization in the region, the APECwork program, and future areas of par-ticipation. The need for a support mecha-

THE ASIAN MANACER . JUNE-JUW i996

nism for APEC was acted upon with theapproval of a $2,000,t)00 budget for thenewly established APEC Secretariat. An-other body, the Eminent Persons Croup(EPG), rvas established to provide a vrsion for trade in Asia-Pacific and to helpin the identification of fundamental issuesconcerning APEC.

The first report of the EminentPersonsGroup (EPG) was discussed du ng thefifth APEC Ministerial meeting. It con-tained the assessment of their positionand outlook oftheAPEC region. The EPCdrafted a long term vision for open trade,proposed a program of initiatives in lourareas: regional and global trade liberali-zation, trade facilitation programs, tech-nical cooperation, dnd institu tiondlizdtion of APEC that would implement thevision. Some of the propositions in thefirst EPG report include the adoption ofspecific Declarations and Ministerial

free and open trade and investment in theAsia-Pacific, for completion by year 2010for industrialized economies and 2020 fordeveloping economies;

. the expansion and acceleration ofAPEC's trade and investnent facilitationprograms, and;

. the development of human andnatural resources to ensure sustainablegrowth, equitable development, reduc-tion of economic disparit ies, and rm-provement of economic and social well-being of the people of the Asia-Pacificregion.

The most recent APEC EconomicLeaden meeting was held in Osaka, Ja-pan in November lqq5. Each of the Eco-nomic Leaders brought a package of rm-tial actions. These init iatives include theacceleration of tariff reductions, earlyimplementation of the WTO agreements,and pursuance of deregulation. Thev

Statements. The first EPC report also rec-ommended the admission of Mexico andPapua New Cuinea to APEC. A recom-mendation to admit Chile in 1994 waslikewise submitted. Aside from these, theEPG report suggested that considerationof new members be deferred for the nextthree vears.

The APEC meeting at Bogor adoptedthe major provisions of the Declarationof Common Resolve, such as:

. the strengthening of open multilat-eral systems bv accelerating the imple-menlation of thc Lruguay Round. agree-ments, working for the deepening andbroadening of the Uruguav Round out-come.,rnd continuing the proce.. oI uni-lateral trade and investment liberaliza-tion;

. the adoption of a long term goal of

have also taken action to harmonize andenhance the efficiency of customs proce-dures.

The major achievement of the Osakameeting is the presentation of the ActionAgenda. This Action Agenda is the tem-plate for futureAPEC initiatives and pro-grams. The Osaka Action Agenda is gov-erned by general principles of mutual re-spect and equalitv mutual benefit anda\5i\tance, constructi\ e dnd genuine part-nership and consensus building.

The Osaka Action Agenda identifiedaction programs in specific areas:* Human Resources Development* Energy* Industrial Science and Technologv* Transportation* Small and Medium Enterprises* Tourism

Figure 2

Formula for 4oolo ASEAN Content

Value ot importednon-ASEAN materialsparts or produce

Value of undeterminedorigin of materials = N xparts or produce

= 60o/0

Freight-On-Board (FOB) Price

13

* Telecommunications and Informatron* Trade and Investment Data

Marinc Resour.ee ConscrvationTFade Pr{rmotion AgriculturalTechnologly tr'isheries

The OsakaAction Agenda outlined itsstratefiy concerning its goal of reducingtariffs. Collective action by APEC mem-bers includes development of a compu-terized ddtabase network dnd rdentit ic,l 't ion of industries in which the progres-sive reduction of tariffs will create themost impact.

Non-tariff measures will likewise bealleviated by progressively reducing ex-port subsidies until these areabolished, and cancelling un-justif iable export prohibi-tions and restdctions. Indus-tries wherein the positive re-duction of non-tariff meas-ures will have the most im-pact should also be identifiedby the pafticipants.

The Osaka Action Agen-da also included the issue ofIiberalization ofhade in serv-ices. It proposed to progres-sively reduce restrictions onmarket access for trade inservices and provide MFNtreatment and national treat-ment for trade in services.

Some APEC member eco-nomies have already imple-mented steps to liberalize unilateral trade.Forexample Australia has reduced tariffsat 15% or 10% in four stages that by 1996,most ofits industries wil l have tariffratesbetween 07c-5%. Average tariffs in lndo-nesia have also fallen from 27 V" to 207a in1993. In May 1995, average tariffs in In-donesia were brought to as low as 15%and a time-bound schedule of tariff reduc-tions had also been announced. Othermember economies are following thetrend on tariff reduction.

Trade in services has been increasingamong the member economies. The an-nual growth of traded services from

1l980

to 1993 was nearly at 8% compared with5c for trade in merchandise. fhe servicesector has also been attracting foreign direct investment (FDI). As FDI increases,the transactions (oncerning the provisionof long-distance services including the

7 4

movement of skilled personnel also ex-pand. Many member economies of theAPEC region have engaged in the produc-tion and trade of commerciai rervic*.The US i. the lartest e\porter ol service5followed by Japan, Hong Kong, Singa-pore, Canada, and Korea. Likewise, theUS is the largest importer of commercialservices followed bv Japan, Canada, Ko-rea and Hong Kong.

FDI continues to come in rapidly tothe region. The biggest investors are Ja-pan and the US. This inflow of FDI hasplaved a big part in cont buting to theregion's dynamism.

EachAPEC economy is in the processof developing its respective action plans

which will contain specific and concretedetails of how they will implement andconcretize the Osaka Action Agenda.These action programs are expected to besubmitted during the 8th APEC Ministe-ridl Meeting to be held in the Phil ippinesin November 1996.

Af'IAASEAN has made many attempts in

establishing economic cooperation withinthe association but none became success-ful. However, due to the succession ofseveral globdl events, ASEAN saw the im-portance ofestablishing some form of eco-nomic cooperation, the latest attempt ofwhich is the ASEAN Free Trade Area(AFIA). These events include the forma-tion of the NAFIA and the EC and theemergence of new marketc such as Chinaand Vietnam. Other factors include the

need to globalize production networksdue to the growing interdependence ofcountdes as far as resources were con-cerned.

AFTA was formalized in the 4thASEAN Summit in Singapore in January1992. During this summit, two documentswere s igned by the ASFAN EconomicMinisters (AEM): the Singapore Declara-tion, and the other one was the Frame-work Agreement on the Common Effec-tive Preferential Tariff Scheme (CEPT).

The founding members of AFIA areBrunei, Indonesia, Malavsia, Philippines,Singapore, and Thailand. Recently, Viet-nam was accepted as a member of theASEAN and subsequently ot AFTA.

AFTA is based on theprinciple of l iberal protec-tionism where there will beftee trade between the mem-bers of the trade bloc. Theprinciples of AFIA are em-bodied in three differentdocuments:

Singapore Declartt ion of1992

This declaration containsthe details concerning politi-cal and secu ty cooperation,directions in ASEAN eco-nomic cooperation, externalrelations, fu nctional coopera-tion, and restructuring ofASEAN institutions.

Framework Agreement on hthancingASEAN Ec ono nic Co op er ation

Thts frameu ork dBreement conlainsthe principle: for slrengthening economiccooperation between member states. Fur-lhermore, this document defines the prin-ciples and areas of economic cooperationand acknowledges the importance of sub-regional economic arrangements, e\tra-ASEAN economic cooperation, and sec-tor participation. It also identif ies themonitoring, review, and arbitration bodyfor provisions in the agreement.

Agreement on the Cotntnon Effectil,eP ref etenti al Tariff (CEPT)

Scheme for the AFTAThis document provides the differ-

ent mechanisms of AFIA. The generalprovisions of the agreement, product cov-

JUN:-JULY 1996 . THE ASIAN MANAGER

Table 2Accelerated Tariff Reduction Schedule

Old TimetableNormal TaackTariffs >20 perc€nt 20 percent by 2001

1 5 percent by 200310 percent by 20070-5 percent by 2007

Tariffs <20 percent 15 p€rcent by 20031 0 percent by 20050-5 percent by 2007

Faat TrackTarifs >20 percent 0-5 perc€nt by 2003

Tariffs <20 p€rcent 0-5 perc€nt by 2000

Source: ASEAN Secretariat

Accel€rated Timetable

20 p€rc€nl by 19980-5 percent by 2003

0-5 percent by 2000

G5 p€rcent by 2000

0-5 percont by 1998

erage, schedule of tariff reduction, quan-titative restrictions and non-tariff barri-ers, foreign exchange restrictions, otherareas of cooperation, maintenance of con-cessions. emergency measures, institu-tional arrangements, consultations, andgeneral exceptions are also defined in thisdocument.

The mechanism used to implementAFIA is the Common Effective Preferen-tial Tariff (CEPT) scheme which is a co-operative arrangement among theASEAN member states to reduce regionaltariffs from 5Va to jVo and remove non-tariff barriers over a 1s-year pedod start-ing in 1993. The goods that are includedin this scheme are all manufactured prod-ucts and processed agricultural goods.Figure 1 presents the average CEPT ratesfor each member country for the periods1992 - 2003 (See Figure 1).

There are three instances when prod-ucts may be excluded from the conditionsset under CEPT. The goods that may beexcluded under the category of generalexceptions concem products that arerelated to the protection of national se-curity, morals, human, animal or plantlife, and protection of aticles with artis-tic, histodcal or archaeological value.

The second classification of exclusionsis only temporary and is subiect to re-view after eight years. This list includesproducts that are considered smsitive andthat need more time for developrnent andinnovation in order to stand competitionfrom products of other member econo-mies,

The third classification concernsunprocessd agricultural products. Theseare defined as agricultural raw materialsand products which have undergone sirn-ple processing with minimal change inform from other original products.

To qualify for CEPI, a product mustfulfill the 407" ASEAN content require-ment. The local content rule can be takenin the context of contents coming fromone individual ASEAN country or con-tents coming ftom various ASEAN coun-tries. Figure 2 shows the formula for com-puting the 40zo ASEAN content require-ment (See Figure 2).

There are 15 commodity groups un-der the fast-track program. Products thathave tariffs above 20% rnust be reducedto207oby 1998 andthen gradually to 0%-5V" by year 2000. Meanwhile, for prod-

THE ASIAN MANAGER . TUNEJULY 1996

ucts with a tariff rate of 20% or below, tar-iff must be reduced to 0 - 57" by 1998.

Under the normal track program, thetariff of specified products will be reducedto 0%-570 wiihin a period of 7 to 10 yearsbeginning 1993. Products with tariff ratesabove 20% must be reduced to 20% byyear 2000 while products with tariff ratesof 20% or below rnust go down to 0%-5%by 2003.

Many significant changes have beeninhoduced to the AFIA document. First,the original timetable was accelerated toten years instead of 15 years, i.e., AFIAis expected to be fully implemented byyear 2003 than the original target date ofyear 2008. The irnplication of this is thatby year 2000, 90% of tariff lines includedin the CEPT will have tariff rates of 5% oreven less. In the new timetable, both thefast and normal track schedules were ac-celerated. Table 2 presents the acceleratedtariff reduction schedule (See Table 2).

Another change that was imple-mented concerns the inclusion ofunprocessed agricultural productsunderthe CEPT scheme. Ii is expected that by1996 nearly 1,358 tariff lines representing68% ofall unprocessed agdcultural itemswould have been included in the CEPTscheme.

During its 7th meeting in Indonesia,the AFIA Council approved the transferofproducts from the temporary exclusionlist (TEL) oftheCEPT to the inclusion list.The AFIA Council approved that prod-ucts under the temDoraw exclusion listwi l l be in tegrated in f ive equalinstallments from January 1995 untilJanuary 2000. A total of 682 tariff hneswere transferred from the TEL into the in-clusion list such as inorganic and organicchemicals and plastics which are consid-ered among the fastest growing tradedcommodities within the ASEAN region.

The AFIA Council has started discus-sion conceming the elimination of non-tariff barriers (NTBs) in ASEAN. Thedeadline of November 1995 was issuedby the AFTA Council concerning theschedule ofreduction of priority baniers.The AFTA Council observed that mostNTBs affecting inha-ASEAN trade weretechnical standards and customs sur-charges.

The inclusion of services in AFTA hasalso been forwarded during the Septem-ber 1994 AEM and a Framework Agree-

ment on Cooperation in Services is un-der formulation. New areas of coopera-tion are also being studied such as finan-cial services. Other issues under seriousconsideration are the formulation of aFramework Agreement on IntellectualProperty Rights and an ASEAN Patentand Trademark System.

Some progress have been achieved innon-border measures of facilitation. Theseincludes harmonization of tariff nomen-clatures in ASEAN at the €ight- digit levelby 1997. The need for harmonization ofcommon custom procedures, import andexport procedures and other commonprocedures has also been recognized. Theelimination of non-tariff barriers relatedwith technical standards is likewise be-ing given attention by the ASEAN Con-mittee on Standards and Quality.

Vietnam's membership to AFIA wasapproved in July 1995. With Vietnam's en-try AFIA becomes a market of 400 mil-Iion consumers with immense purchas-ing capability. Vietnam started imple-menting the conditions set under theCEPT in January 1996, three years de-layed compared with other membereconomies. Other countries suchas Cam-bodia, Laos, and Burma are expected toioin in the near fuhrre

The AFIA document has undergonemajor changes in a span of four years.Many factors have contributed to its evo-lution such as the Uruguay Round nego-tiations, ratification of WTO, develop-ments in APEC, and other economic ac-tivities in the region and in the world.

The AFTA Council and AFIA mem-ber economies must continue to dedicateitself in facing the remaining issues con-fronting AFIA. AFIA is considered as anoutward-looking bloc because it pays at-tention to the majority of its members andthere has been no increase in margins oforeference for non-members. AFIA re-mains faithful to the principles ofGATT.

Prcf. Mai Kondo has bem muolued wilh lhe uvriou,prciects related to AFTA, including UNDP, Asia Foun-dqtion, MITI, IETRO, ASEAN Senior Economic Offi-cials, US AID, PITO'P,lnstiLule of Dewlopmenl Eco-flomics. afld PCCI. lnlernet: nari@aim.edu.uh

15

7ru AIM MNlcnnrnntrCororunsncn oN AsIA

Cross' Cultural Management:Dusit Thani's l{ay of life

Chl iu Dlnlr\t ik i5 Ch rntu Ltl f lu' BLttrtloi lhc ltttt;f i j �ctlrLi: if i tut ! DtLsrt'fhtuti CnuLy,(crripirrsli AC. Tlf rr.rlr lsi l i()rr r)l t ik'af/lIrutl old holcl thain kuucluLLrl l l tL"l ltLri holtlqrott1t iu fln uttt txtltt)uLil l /r1flf l , l i . l /tS rl6-l lr)irrs i[ l l ] l cortnfrit 's r( ioss lrrr '0l)r ', lrrIrrrr-icns,,rrtrl .Sr)lrl lrcdsl ., lslrr. l)ottrtr 'rttt i /.,

\ , i l , / 1 . , , / ; , i , . " , " I I r t l I l L r t i \ - | l ' , , t , , t i , ' t

Dri:i l Hrth'ls & /i 'soiis fol l/rr '1rrt:/ 1.3 yr'at's,

\ t , l ' , , ' t t t . t , t . . t \ ' L t l , r / n r I I . , , / ' , , r / - ; , i / .

l l ' r 'rrr.rrr 'd / l is Mts,4 ir()r ' l l loih)ir [|r i i '(1.s/iv.

ur length of expcricncL'in the intcrnatiural nr.rrket 63 hotcls inl7 c()untriL.s-r, rges from five k)

sir vcars. lVe,rccluired our first non l-haihntel in \orth,\rrcrica in 19E9. \{c'con-sider oursch'es as a neu inrlustrv plaver.Nluch of u,h.rt u e arc goirrg through isneu, ,r ltarning process for us. Bl tht' t 'ncloi 1997, ue shoulel havt' our opcrihonsin 25 countries, a big jump trom u hen u cstart€'d our business in Thailancl.

l l ' e l r , ' l L l r r r J r r . r n i - , r . c r \ i r L l n L i l t . -trr '. \\ ie arc,t peoprle both customcr,rrdst.rff-inclustr\ ' . Dt',r l ing rvith peoplc,honevcr, nake: the sen ice lttuch tnoreconrplicaterl. \\ 'c art ' not procluciug nt',ts-L r r . th l , 1 ' r ,u l r r t l . . l l t , ' , ' \ l \ { i t r , l r t . tn i -diff icult kr urnint,rin not just fronr one

BY CI IA\ I \ DONA\A\ IKClh,rimran, Dusit Th.tni Cirou;r

conntrv k) anothcl, brrt evt,n from onchotcl to,rnother in the s.ule countr\r

Of tht' lE,i)(lt l l .rtople workine forDrrsit worlclrvielc,^10',i conre lrorn Thai-l, rcl ,rnd 6iJ'.1 are fortigncrs. Of th,rt total,. lmosi half arc non-Asian. l!hilc tgcare representccl in l7 ctruutrics, the bulkof our oper.rt ions is in Thailancl, ivhererlc hayc ll0 hott ls, ,r rd iu Ciemanri rvht'rcne hale l() hotels. \{e ha\,t ' .rbout 6ll ' ' i ol()ur opcrat()ns 1n jr. lst two c()untries. Butit is not easr,. Th,ri land .rnd (lcrnant'are

l \ , , ' . l r i l , r L n l r u l l u r , \ , \ \ r . r r ( , ' l l , i i i i ( l -clrt sc,rles.

Thais art 'e,rsV going, : intplt ' , and un-, r t q , l n r . / L \ l \ \ , l , l r J t l r r l o r l r t , . l r ' r r '

ptopJe n.oulcl have prolrlcrns u'ith the

The best way

to manage

different

eultures

is to find

Th,ris. ltc,rre palient. (\\ 'L'!\ 'crc iorced tole.rrn p;rtiencc bcc,ruse of our trafftc rnBangkok.) But ihe Clermans trre the opposiic. Thev mav bc thc most structured,l l r \ ' r l l r ' . t . r ' l l . L r \ ' . r l i \ c , . t I t . l t l t I I n , , r [ - r ' r i

ous people in Europc.U n . t l l i l r ! . I r r i l l , r l r r , t r r r t n t t n t h c r i -

$hen n't \\ crc ncgothting to buv comp,rnies from (icrman oltners. All cl iscus-sions h,rd tri be in Fnglish. !\t dit l not undcrsi,rnd German and the Cerm.rns diclnot unrlcrst,uel l-h,ri, so ue dccicled tomctt in l,ondon. On orrc sidc, rve h.rd.-rl lthc Th.ris, including our consultatrts. Onthe othcr sidt, lt 'had thc (lcrnans. lntht, nrit idie u ere English lan vers rcprc-scnting cach sicle fnrm ti lo l,uv l irms.

\\hen the (,t'rrr,rns p'ftrposeci somc-th in t , tha t r l c cou ld no t nccept , $ 'elaughed. Inste,rtl of bcing :enous, tvct,rlktcl ,rmong ourselves antl l,rughecl. The{ , L r t r 1 , r h . , r ' r l t h , ' , t l t , . r i t . r r t . l . r r i ' r r ' . L r ious. Al cert,rir l poinis, $ e did not kno\\ 'l hat rv,rs goin$ on. This situ,rt ion \\ 'ent. , r r l , , r . r l n r , , - l l \ \ , , \ \ ( e l - . O r r l r l h c F n g -lish and tht Thais lar.rghecl; ihe Cermanswt're serious unti l thc last da\'.

Tht vt'rv compieritv of cross culturalissues takcs iorever to unclcrst,rnd. \,\ie, , r , , r . t t f i , r r l l r , - f , c n J l l r n ! \ \ r r r r v i l l B

JLr\F.JuL\ 1996 . TIJF] AsrA\ NlAN^(lEIt

local people.

about our differences. We instead try tomale these differences a non-issue in ourcompanies. Maybe other companies can-not ignore what is going on but we antici-pated that if we became too anxious, wewould only end up with more problems.

No matterwhat country, what city weare in, our priority is the Dusit way of life:our organizational principles, the qualityofourhotels and restaurants, our day-to-day operations, our staff development,and our training programs. Whether weare in Thailand, Germany, South America,Brazil, South Africa, or ihe Middle East,the principles behind what we do andwhat we stand for should remain con-stant. We make sure that we share com-mon goals with our people. Nothingcould be worse than a confused objectiveand a confused team of executives.

ln my first six months in Germany aschairman of Dusit, I thought the Germanswere not much different from the Thais.With the Thais, you could have a drinkafter work and discuss issues. The Ger-mans, on the other hand, would ratherknow what I wanted to do and theywould go out and do it.lt took some timebefore I saw that our communication pat-tems and processes were different.

There are many different ways toreach our target. It will be more difficultif we insist on a "headquarters' mental-ity." We need management teams whocan make on-the-spot decisions. It is im-portant that we establish clear parametenfor the whole hotel company.

In the past few years, we have beenhiring the best people we can find in dif-ferent countries. The advantages? Theyhave the experience, they know the coun-try well, they know the people in thecountry well. We trust them to run ourbusiness. When we opened in Indonesia,we found a good local manager. In Eu-rope, we did the same ihing. The best wayto manage different cultures is to find lo-cal managers. They are the experts in theirte[itodes,

We encourage cross-training Pro-grams, assigning managers to differenthotels to gain management experience inas many countdes as possible. We are try-ing to push the people out of their ownland, not iust Thais but also Germans,Russians, Italians, everyone. We want tomake sure they are flexible enough to man-age hotels in other countries.

THE ASIAN MANAGER ' JUNE-JULY 1996

It will be our first time to meet withall our senior management people. Somehave worked for Dusit for a long time sothey must have acquired the Dusitmindset. On the other hand, many havebeen working for other companies be-fore, so they might have fixed their mindsin other ways. The issue is how to maketop management work together

Because of what we have gonethrough, because of growth and expan-sion, because of our lack of experiencein operating in different countries, andbecause of the way we are, whatever wehave been doing in the last six years hasbeen a good learning experience. It willbe usehrl in the future. On the other hand,we may be opening more hotels in othercountdes with entirely different cultures.We know however that, regardless ofcountry and culture, if our managers donot get the work done well and consist-ently in different countdes, we will notsucceed.

If we go around and dictaie to otherDusit managers, say, in Brazil, "From

Thele aleaom'ig pfos

and Gonain every Gultfie,

but dreeedifrelenced

make life moreintelesting.

now on, we have to operate the way wedo in Thailand or in Germany," we willhave problems. The solution is to find thebesi vehicle io get things done, consider-ing Dusit objectives. Everyone's premiseshould always start with Dusit princi-ples. We spend time working with localpeople until they understand. Sometimesthey do not expect us to be around toolong. But, at least, many know that wehave the best interest of Dusit.

Another problem we have is perspec-tive. We look up to the western world forsolutions to situations in the third world.

It is hard to exnect the reverse-someonefrom the third world going to the firstworld to develop it.

Questions and Answera

Q: You have a chain spread out in 17countries. How do you standardize yourservices across the entire chain? Is theresome kind of centralized training pro-gram or recruitment process?

Donavanik We had a major discussion onthis issue many years back-whether ornot we would like to be like our col-leagues, mostly big American companies.Being like them means having volumes ofthick, detailed operations manuals. Wedecided aeainst it because we felt it wouldbe difficuli even if we hired people to pro-duce the books. We knew they wouldnever be used. There is also no way for usto monitor how each hotel manager willapply the instructions.

Right now we are in the process of re-vising a simple standards booklet on whatour hotel should be. For example, opera-tors should answer the phone within thefirst three rings. These standards set theminimum but they should not limit hotelmanagers; they may achrally go beyondthese standards.

Our hotels in d ifferent countries main-tain their individual uniqueness. Eachhotel has its own character. We do notwanttobewhattheindustrycallsacookiecutter--{verywhere you go, you see thesame standards, the same rooms, the samerestaurants. We do not want that "same-

ness" in our companies. We would ratherthat when you go to our-hotels in differ-ent locations, you experience differentthings. We leave room for the local peopleto feature certain qualities of the hostcountry

We cannot solve local problems with amanual.lf we have problems in a particu-lar hotel, we will just replace the generalmanager who is responsible for success-ful operations. It is much simpler We saveoverhead for calls to the head office andthe like.

Q: Since you bought the Kempinski ho-tel chain, did you feel like the Japanesewhen they bought Rockefeller Center,like someone who owns something butis not exactly in control? How did you

77

in you. they will

Glosoly widr you.

establish conhol? How did you make surethat they know that you are the boss?

Donavanik: Every major acquisition isrisky. But there is more to risk as you tryto develop thecompanyasan insider Ourdecision was not bad. But it is much moredifficult now than I expected althoughmany of them have extended support andcooperation.

After six months, the whole manage-ment team retired and gave me the op-portuniiy to bdng in a new team who un-derstands what I want to do in Dusit. Eve-

ry.thing went smoothly afterwards.I know the Germans reasonably bet-

ter now and I enioy working with them.Once they are aware of our e\pectations,they move and get things done. Ai first, Ihad difficulty understanding them be-cause they were not as open as the Thais.On the other hand, in my negotiationswith an Italian company, I found Italianswould open up yet I did not know whatihey wanted. There are some pros andcons in every culture but these differencesmake life more interesting.

Most staff and executives, if theyknow that you work hard, that you carefor them, and that you have their best in-terest in mind, will follow you. The Ger-mans are good at that. I even have moreproblems with the Thais because, they arenot shaightforward. They detour-some-times left, sometimes right-before theyoroceed.

As long as they know what you standfor and they believe in you, they listen andwork closely with you.

Q: What kind of people do you hire sothat they can contribute to Dusit obiec-tives, considering that you arc part of theservice sector and have overseas opera-tions?

Donavanik: We are restructudng suchthat we will have few people lefi in thehead office. Our main concern now is tohire top executives: country managers,general managers, area managers. Therest is up to local management teams.

I will not tell the country manager ofRussia how to hire waitersi it is not myrole. Since we are in the hotel business,we need to look for people who can workwith people and who can get things doneby working through people. We will not

1 8

hire executives who cannot work wellwith people. These people will not last inDusit.

Donavanik In Thailand, 65% of our sen-ior executives are Thai. They are good atdealing with people.

We have problems, though, with ouroveneas operations because we lack ex-perience. We are in the process of address-ing that concem. It is difficult, however,to assign Thai managers overseas. Theyare quite comfortable in Thailand. Filipi-nos would be more willing to go overseasthan the Thais.

Q: Considering cross-cultural issues, doyou strictly apply Dusitprinciples or doyou adopt to the local culture?

As long asdrey knowwhat you

$tand for andthey belieue

Iistcn and wor*

Donavanik: We are referrins ?o two ar-eas of concem here. We would rather keepDusit principles across different coun-tries. What we change is how we dothings to reach our goals-how to getthings donelargely dependson local con-ditions. Cetain things that apply in Thai-land may not work in Germany but itdoes not mean that we lower our stand-ards from country to country. We try tolive by and continue to improve Dusitprinciples.

Q: Each company has a unique charac-ter. Considering thatyou have differentapproaches depending on culture andcountry, what is your unique identity?Or are your policies more flexible?

Donavanik: Frankly, I am not yet sureabout our unioue identitv

We have mainly Thai companies, dif-ferent hotels in Southeast Asia, good ho-tels in Europe, and the oldest hotel man-agement company in the world in Ger-many.

Three to four months ago, we ap-pointed an American image brandingdesign company to study Dusit. They aresupposed to look at what we have, whowe are, and how to reposition our com-panies for the fuhrre. Pmple will see somechanges in a while. I do not know yetwhat the final pichrre will be. My prefer-ence is to manage Dusit with the best ofboth worlds.

Q: How do you maintain an interna-tional image? What are your short-termand long-term corporate objectives andstrategies? Do you apply top-down ap-proach or empowerment for your localmanagers in your decision-making?

Donavanik We have standards whichevery hotel manager should follow. Lo-cal managers are empowered to assume"ownership" of their respective hotels.Theyhavea free hand as long as they sub-scribe to the minimum.

We are preparing a smaller volume ofour standards manual. It will be a set ofclear and simple instructions on opera-tions, guest relations, etc.

One thing we have been unable to dowell is to make all hotels cooperate withone another. We are beginning to but weneed to do more. I hope we can workmore closely together in the future.

Many of our hotels do not carry thename Dusit. Our hotel in lstanbul, for in-stance, is called Shirang Palace, a 500-yearold palace from the Ottoman Empire. Ourhotel in St. Petersburg-the recentJamesBond movie was filmed there-is calledGrand Hotel Europe.

Some people ask me whether or not Iwant to have one of the biggest hotel com-panies. I do not think so; I do not want tothink that far yet. Maybe, it is one of myproblems also. We would like to be a ho-tel company with successful hotels. Wedo not go for numbers.

I hired some people and split the com-pany in two divisions: luxury and mid-price hotel companies. The idea is to haveindependent operations but with central-ized marketing, reservations, and iorntt r r ih ind hr^or )me

JUNE-JULY 1996 ' THE ASIAN MANAGER

By PRoFEssoR FRANcrsco L. RoMAN, IR.AND AMY G. ESPIRTru

Iilhat Can Go Wrong?

hree years ago, a BusinessWee,t cover story (August 16,1993),on marketing "Flops," by

Christopher Power, Kathleen Kerwing,Ronald Grover, Keith Alexander andRobert Hoff discussed why too manyproducts fail and how to do better. Theirticle was important enough for me toclip and file.

However, it was not urgent enough forme to think much of; after all. the Asia-Pacific century was dawning-lndonesiawas booming; Singapore was practicallya developed nation; China was the dar-ling of foreign investors; even the Philip-pines was erperiencing continued, p6si-tive, real growth. Old markets werebooming, especially in the Philippines,and new markets were opening, espe-cially in China.

What Causcs Tlops?Three years later, ihe region is still

growing but so are the number of mar-keting failures. Many project and prod-

THE ASIAN MANAGER ' JUNE-JULY 1996

uci failures might be attributed to factorsexternal to the marketing frrnction, suchas changes in government regulations (orthe "rules of the game"), or diqgreementsamong joint venture partners. Unfortu-nately, many more flops are due to themarketing rnanager's hubis. For example,the notion of more than one billion con-sumers in China blinds the marketer tothe realities of low income and ourchas-

, irn8 Power, PoorolsmDunon ano log6ncs,inadequate media inhastructure, differ-ences in tastes and Dreferences betweenChinese and "Westem" consumers forgoods and services.

The time seems appropriate to resur-rect the article and to update the topic, toserve as a word of caution to marketingmanagers. Note that the examples areprirnarily from the West; we Asians seemto be rehcent about our flops. The articlestarts with the following example (p. 34):

Egg rolls lor dinner: What a greatidea! Not measly little appetizer egg

rolls, mind you...big, moaty rolls thata consumer would happily oat as amain course. The egg roll offensivewould complsment another idea, theFresh and Lite line of low-tat frozenChinese entrees.,,ethnic cuisine wassoaring in popularity; so were frozenmeals, What could go wrong?

As it happened, the eggs rolls werc not"microwaveable," because the rolls became soggy. The large-size entrees re-quired 30 minutes to heat (in an ordinaryoven). Fresh and Lite also flopped (p. 34):

'h Sounded more like a feminine-hygiene product "says Linda Krakows-ky, an ad executive who worked on thecampaign. "And it was hard to say itwas fresh anyway because it was fro-zen,"

Loccons loarnedSounds obvious-but not until two

years later Lessons learned: (l) Hubris;

19

Marke l ing mdndSers began to be l ievetheir own propaganda about the productand were interested in making the prod-uct work rather than analyzing whetheror not it would indeed work. (2) Poorproduct testing and consumer research.The need to be first in the market pre-(luded e\tensive training. (3) Reinforcingfailure instead of success: The Fresh andLiteline apparently had its own problemswhich the egg rolls merely compounded.

Con'umer marleting is an unforgiv-ing field. Competition for limited storeshelf space accelerates product matuity,as in the egg roll case, and rapid changesin technology can kil l promising new-comers, as in the Osborne portable com-puter. Recall the Ford Edsel (with esti-mated losses at $250 mill ion). which waslaunched decades ago despite poor inr-tial results, and the RCA videodiskplayer (losses at $500 mill ion), whichmay have been a bit ahead of its time.

Ford and RCA are in good company:IBM's PC Jr. had an awkward keyboard,a slow microprocessor, an initially highpr ice and a la te launch. S teve Jobs . v i -sionary founder of Apple, failed withNeXT Inc., with the sleek, black desktopcomputer which failed to win customersover, because customers "know whatthey want and what they don't want" (p.

36):

...they did not want Job's opticaldrive instead ofthe usual f loppy drive.The new feature made it difticult toswitch work trom a PC to NeXT... Stu-dents tound it too expensive, even af-ter discounts. Engineers preferreddesktop woikstations...

Not that Apple has fared any betterunderJohn Sculley. The Newton MessagePad was launched with the charismaticSculley promoting it through a multi-miflion dollar ad budget. The productis nowknown as the "Newton Bomb" and"Sculley's Folly." The important lessons,according to Adrrerflsirg Age , August 16issue (p. 20):

Business before pleasure: Wirelesspersonal communicators, like PCs andpagers beforethem, must prove them-selvesfirst as business productivity de-vices before they can ever becomemass consumer products. Alas, New-

)n

ton looked like it wanted to be a con-sumer product trom Day 1.

Get a vision checkup: Mr. Sculley,caught up in his vision of the future,overpromised and over-promoted. Noproduct could have lived up to thatb i l l ing.

Build the product before thebrand A brand name may sell soda;it isnt enough to selltechnology. Thefirst companyto come up with a killer-wi re less personal com m un icatorbacked by strong marketing standsthe best chance to lead the category.

Software se/ls: Hardware is irrel-evant without the software. Applepushed NeMon hard before the soft-ware was on the market, a sure-fireway to fall. Note that Jobs and NeXTfell into the same trap.

Read the handwriting on the waltManage expectations. Clearly, New-ton's coolest feature was the abilityto convert handwriting to type. Un-fortunately, it didnt work. (The latestversions work better.) Apple's exe-cutives...were unable to manage thestorm of criticism...

But the most important New-tonian market ing lesson may be:Don't give up on a good thing: lndus-try estimates foresee 88.3 millionusers...by 1998 and as many as 167.4million subscribers by 2003.

llsbrie ean

H[ e new

Industry-Wide tr'lopsMoving on to the highest of the high-

tech markets, take a close look at thebiotechnology industry borne out of thegeneration-old gene-splicing revolution.The example is noteworthy only becauseit takes a lot of effort to develop an indus-try-wide flop. According to Brisiness Week

(September 26, 1994, "Biotech") p. 84:

...the industry has ballooned to wellover 1,000 publ ic or pr ivatecompanies...Yet no one has cured can-cer or produced a bioengineer miracleof loaves and fishes for a hungry thirdworld. The industry is stil l peddlingdreams...Ibut] the technology hasn'tworked, and the likelihood of successis lower.

ln the first example the La Choy cor-poration, which launched the egg rolls,was initiallv successful in gauging cu'-tomer needs. Earlv success may haveblinded them; more lo the point. their e\-ecutives stated that (on hindsight) theylacked the market clout to "make the prod-ucts succeed," unlike Disney, for example,which has the name, financial tesources,distribution, and evervthing else thatcomes under "clout." Unfortunately, it alsohad hubris: Disney executives believedthat the Disney name and proven formulafor theme parks could overcorne researchfindings that EuroDisney might have along pavback period, to put it politely, be-cause of many "cultural" factors, to put itall vaguely.

La Choy and Disnev and Jobs andSculley in part, justified bv-passing mar-let re'earch on the basis of getting theproduct to the mar let as:n i f t ly as possi -ble-the "first move/' advantage. But touse another clichd from Knrzerr and TotalQualitv Management (TQM), it is evenmore important to get quality and pricing"right the first time"-even if it meansdelaying the product launch. Ceneral Mo-tors Cadillac Allante had the right idea-a coupe rvith the aura of Euro-style to cap-ture voung rich professionals lured awayby BMW and Mercedes Benz. Unfortu-nately (p. 36),

...the car, with its 170 horsepowerengine, was underpowered comparedwith foreign rivals. The body, hand-crafted at the Pininfarina workshop inTurin, ltaly, was attractive, but not es-pecially distinctive or well made. Theroof leaked, and squeaks and windnoise marred the luxury-car hush...Oneexecutive who worked on the Allantelater says that Cadillac couldn't bringitself to delay the launch.

JUNE-JULY 1996 . THE ASIAN MANAGER

produG{

lffih.

For the record, CM and Cadillac, withiheirresources, tried hard. The final Allanteu,as an ultra snooth, high performanceluxurv coupe, rviih 295 horsepower ,rndelectronically controlled transn.ission. Butthe price rose from thc original $5'1,700 to

$61,675 and the markei had become clisil-Iusionecl and confused; getting it right tookfive vears and came bo latc.

D r v h e e r r r , t - . t r e l a t i r c f l , ' P i nAmerica, i,r'here it probablv has onlv 2'iof thc cntire markei, cicspite massive pro-motions. The lesson is.r corollarv to theAllante case of not conlusing vour custoners and that is io explain the prttciuctn'cll enough b thc market. Cot'rsumcrsrvii lonlv spcnd less than halfa minute nl

a skrrc or bar to choose a beer. Drv beerrvas supposed to haye a "clearcr t inish,"bu l t r l e rp l . r i r l i np , lh . l t ( , t d (u - t t , tner ln

30 seconds or less (p. 38):

. . .As marke t ing consu l tan t JackTrout puts it, "Nobody can figure outwhat the hell dry beer is. The oppositeof wet beer? lt has never been ex-plained." And it probably never wil l be.

I{ one tries to balance clichds, considerihe adagc: "Knou ' thv channe l . " TheHuffy Corporation, knorvn in the tradcfor its excellent rluality bicvclcs, dicl rtshomework in consumer research to de-velopCross Sport, a model combining thefeatures of a sturdv mountairr bike andthe lhin frame of a race-bikc, to target theadult market ai a price 15'.4 over the a\'erage Huffv bike airned at thc vouth mar-ke t . Unfor tunate lv , Cross Spor t rvasshipped through mass retailers, such asK-Mart and Toys 'R' Us, instead of to thcspecialtv bike shops uith store repre-sent.rtives n'ho coulcl reassure thc older,more fragile adult buvcrs about the mod-

el's features, safetv proper use, etc. Ontheother hanci, "Do not sell a product iustbecause you have something nerr topump through the sales channel vou halealreadv rnasterctl."

BlC, famous for iisball-point pens andlater its razors and lighters, and porver-tu l rn i t - t rdJ i t i , ' nJ l ch . rnnc l . . the .u l t r -market and drugstore chains, flopped inits attempt to sell perfume (l)arfum BIC)through that channel (p.38):

Adds Mark A. Laracy, president ofParfums de Couer Ltd., in Darden, Con-

Tr {EASIA\ MAN, \GFR . JUNr_JLI \ . 1996

Gonsumer

marketing

is an

unforgiving

field.

Gompetition

for limited

store ehelf

spaGe

aecelefates

produet

matudty.,.

necticut, which does about $70 mill iona year by mass-marketing knockoffs olpricey scents: "Fragrance is an emo-tionalsellto women. Butthe BIC pack-

age was not feminine, lt looked like acigarette l ighter."

t ren l i rm: t \ i th , r l i nn cL I ' t , 'm( ra ,n -entation, l 'hich ought b know better,have the i r shar t 'o f f lops . Nerv Cokecaused a rtvolutiolr among "old" Cokelovalists rviro firmlv believccl in the su-perioritv.rnd unchangeable taste of theircola; Pepsi, on the other hand, already hada reputation for experimentinS-$'lthlcp . i - l i te { , r l .n rnn f ]a rored dr ( t Pcp. i ) ,and Crvstal Pepsi (no color), and fbppedbacllv rvith I'�tpsi-AM, your cafleine pick'me-up substitute at breakfast time. A dec-ade after New Coke made the markctingscene, Pepsi and "Classic" Coke are sti l lbattling it out, \,\'ith no significant contri-bution from ihc Ngv Coke.

Specifie to Gcneral DxamplesMoving on from the specific examples

to the general trend (p. 35):

Chicago consultants Kuczmarskiand Associates studied the successrates ol 11,000 new products launchedby 77 manufacturing service and con-su mer p roduc ts compan ies . Theyfound that only a little morethan half-56o/o-of all products that actually get

launched are sti l l on the market f iveyears later. Other studies peg the...success rate...closer to 650/o. Compa-nies had to cook up 13 new product

ideas before they came up with a win-ner, according to Kuczmanski...a BoozAllen & Hamilton study shows thatsome 46% of all new-product develop-ment costs go to lailures.

In a more recent s tudv by LvnnDornblaster of Nc\v Product Nervs (Amc

ricrtu DutLtgrnphics, February 1995, p. 8)r"About 20,000 products were introducedin 199.1 . . .About 857 w i l l eventua l l yfail...But manv marketers and CEOs con-tinue to trust their own bcst judgment

ovcr research."Note that anv fact()rv thai produced

defec ts a t a ra te o f 50c l wou ld shutdown. Clearlv, in marketing, the unex-plored area for TQM is to improve thesuccess rate/decrease the failure rate,and improve both salcs and profits. Theother . id t o f the argumcnt i s th , r t a fe r -[r,ct re.trrd m,lv me.]n l\ ' .t opportuni

t ies and tha t fa i lu re mav u l t imate lycontribute to succcss, through contin-ucd exper iments , as in the no t - too-stickv glue that 3M transformed intothe mega-successful Posi-lt notes. Thenrar le t ing i - .u t . then. i s lo d l te rminehr \ \ r In - \ omp, r | l v m, r r le t ing " ln t r , i -

p reneursh ip" and innovat ion , com-bined with thc judicious use of corpo-rate resources, cross-functional team-rvork, and an involved customet canrc,.l uce L'oth R&D time anJ proJuct fail-ures. This formulation of the issues em-phasizes thai marketing sometimes hue

bo closelv to the clich6 of "f inding outthe cus tomer 's need and f i l l i ng i t "n l r i le fo rg ,e t t ing lhc coro l la rv , tdage o t"doing what you are best at."

To .rlvoid l'lopsMarketing flops can damage a com-

21

panv's reputation, specificallv for indus-trial products, rvhere felr, kev customersaccount for a significant portion of sales;for consunrer products, the key clientsmightbe the large distributors (\.vholesale

or retail). Sn/rs E Mnrktt'rn;4 Mntngt:tnurf(January 1994) offcrs this advict (p.74):

. Be upfront and clear nhen explaining a companv's siiuation to customers...

r Communicate quicklv. Do not leivour competitors be the fint to break badne$'s to vour clients.

. Listen. Clients...rvil l also rvant achance to air their concerns.

. Do not overpromisc... lt danagcscredibilitv more and teaches the custunerLhat h r ' , . rn t pu t f r i th rn r , r h r l lhe repre-sentatives sav

. Keep the comrnun ica t ion l rncsopcn...Keep clients informecl about your

proSrcss.

SuggeslionsEnough mav have been saicl alreaelv

.rbout flops rvhich can cliscouragt market-ers. Thc lessons suggested in ihis updatemav offer sorne consolriion.

For further information, consult the

lot!n1dl 0l Pft)durt Lutoi,afiLut Msungtnttttf (if

it's still around as of this rvriting-rvhoknorvs?) lts editor (in 1993) noted that(p.39):

...the companies that lead their in-dus t r ies in p ro f i tab i l i t y and sa lesgroMh get 49olo of their revenues from

products developed in the past f iveyears. The least successtul get only1'l% of sales from new products.

Another source is the Nen i 'roductsShorvcasc and Learning Ccntcr in Ithaca,New \irrk, run bl l lobert N/cNlath, ai . r r n t e r ( r , l 5 a t r - l ' a l r r , ' l i r , t ' . e L u t i t r ' .tlhose "sltou room" cont.rins some ii0,00l)flops.

f r r r , r l l r the nr t i r l c g<1\ \ ' - , ' u nJ . r ( l \ i r rrn visual forn, rn the carkxrn chart, u hichhas been revisecl in thi5 up(l. ite.

Ptof . f r r , t t isco L. Ror t , , , / r r ' i / r f l r r . r i i r i f l ) r1Ln, , Lr l l / r f . ,1/M f , t r rL/ l , r ' r , r r l , rn1rnlr i , r , / l r . ! , r r r r f , , f l l

AlttU C. Esl'tl"iht t' rirf R.nnr,ir ,r,i llo,ljr,i/l,rl1tr ' r r r r { , t / l r t , . ,1. r , r r r , !1, r r , r ! , r rJ i i ' l , r , l r i r l f ianrrr f , l r f / r

llest and RetestSeparate the initally curiousfrom the permanently loyal

Do the Post-MortemWhether fabulous or f lop,

learn and assess

Consult Your CustomersThe engineering departmentdoesn' t have al l the answers

Set MilestonesMomentum for oroduct

developed is not inevitableor unstoppable

Set Realistic GoalsNot Optimistic Targets

Oua nt i f iable and unmeetablesales targets can ki l l the

new orod uct

Work TogetherA new product requires

participation from the start tocreate "ownership" by everyone

J uNt, j Lr r y 1996 . l Hf. Asr^\ MA\A(;ER

How to Do Better

22

Bv Dn. Et',t-c]vurl V. Soruar,lo

The Asian Advantage:Glohal Stnatery

in theAsia-Pacific Region

For more than a year ou, C.eorge S. Yip( Anderson Mantgement School, UCLA),Mari Kondo ( NM), tnyself , and others haoebeen working on a bnk lor publication byHaroard Business School Press with the samctitle as this article. tNe would like to share madudnce with TAM readers some practicalidus lrom the work that has bem done so far.

sia is the new investment mag-net of the world, as shown inTable 1. This is the consensus

among intemational managers and business experts.

The region is a growth arca over a sus-tained period of 15 years. Table 2 showsthat domestic savings have been high. Thedismal performance of the Philippines

THE A$AN MANAGER . JUNE-JULY 1996

was caused primarily by conditions un-der the dictatorship which thankfirlly arenow matters of the past.

Asia is a huge and young market. Al-though per capita GDPs of some coun-tries are relatively low some countnes0ike China and India) have rniddle-level-income populations which are larger thanmanv develooed countries in NorthAmerica and Europe (See Table 3).

As shrdied by Professor Mari Kondo,growth polygons are spearheading dy-namic growth in the area (See Figure 1).These growih polygons are cooperativeefforts among governments and the pri-vate sector to eliminate barriers and en-courage joint development of resources.Growth polygons will lead to two

"Growth Corridors" from Korea to Indo-nesia (See Figure 2). This growth corridorwill be based on a system of "economies

scale" with "economies of networks" (SeeFigure 3). This area will be thobbing witha dynamism, unique to Asia, character-ized by diversity, abundancg and flexibil-ity, as summarized in Figure 4. Nurtur-ing the.emergence of the Asian growthcorridor are forces in the intemationalscene whose time has come: GATT, APEC,AFIA.

A trhinoworL on GlobalStratogY

The rcal global ptodncf. A real globalproduct has a large standardized core anda customized periphery to adiust to rc-

Priority

Region

0 t o 1

Very I.ow

> l toz > 2 t o 3 >3to4

Very High

Own CountryDeveloping Asia

Westem EuropeCentral & Eastem

EuropeLatin America

Japan

Africa

gional or local markets (SeeFigure 6). Examples areCoca{ola, Sony, MercedesBenz, Kodak, Nestl6,Toyota, McDon-ald'g IBM,Pepsi-Cola, Honda,Panasonic, Kleen-ex, Ford,among others based on ashrdy of 5,000 consumersin the U.S., Europe, andJa-pan by Landor Associates.

Shift to global segmm-fation. This is refen€d to byother experts as doing busi-ness in a borderless world(See Figure 7). Although na-tional sovereign boundariespersist, global organiza-tions have formulated stlat-egy as though thee bound-aries do not exist and whatis real are large global seg-ments and small nationalrucnes.

Some MNCs haae inteflational op-erations yet lack global strategy. t4hen

an MNC is internationalized, it enjoys amulti-country presence. Global strategyrequires that the value chain be coordi-nated and integrated, as symbolized bythe arows connecting various countriesin Figure 8. Figure 9 illustrates this con-cem relative to Philips and some Japanesecompanies.

Value adding actioifies. MNCs varyas to location, coordination, and integra-tion of activities. The range is from a "fr.rlly

multilocal" set-up (See Figure 10) to thatwhich is "fully global" (See Figure 11).

AClobal organization has lour mainaspects : otganizational structure, man-agement processes, people, and culhrre.(See Figure 12).

IINCs and Globa| Strategyln Asla

Using the foregoing framework onstrategy, here are some initial findingsfrom Komoknart Visudtibhan (Ihailand),Albert Widiaia (lndonesia), Mari Kondo,myself, and George Yip.

ln ThallandThailand is an excellent market for

MNCs. Opportunities, constraints, anddegree of success varydependingon his-todcal association, t1'pe of industry, localand global competitive structure, and

)4

Table IInvestment Priorities

By Region

Source: Arthur Andersen: Survey of 260 Intemational Managersand Business Experts as quoltr,dby me Economisr, March 9, 1996.

shategic as well as political views of thegovemment. Japanese MNCs have beensuccessful in Thailand and dominate cer-tain industries, such as automobiles andconsumer electronics.

In the branded food and consumerpackaging industries, MNCs performwell by setting up local production andadapting marketing strategy. Althoughcompetition from local companies is in-tense, MNCs are ableto maintain successby capitalizing on brand names. TheThais put hear.y emphasis on status and

image. In a relatively hightechnology industry, suchas computers, MNCshave successfully usedThailand as a productionand exportbase. When anindustry is viewed by thegovemment as strategrc,such as automobiles andte lecommunica t ions,MNCs often resort to analliance strategy with lo-cal companies. In these in-dustries, MNCs are in-creasingly observed toemploy a regional strat-egy. In some instances,such as telecommunica-tion services, Thailand isused as a regional hub.

MNCS that seek Thai-land as a potential marketwould find Thailand

open for global marketing approaches.MNCs that intend to useThailand as partof their production logistics will find that,in the short run, the country offers a goodexport platform to newly emergingeconomies-Laos, Cambodia, Vietnam-in SoutheastAsia. In the long run, indus-tries with a high percentage of labor costmay find Thailand less competitive andIess attractive.

Foreign MNCs will better exploitThailand's potential by integrating tech-nology transfer and human resource de-

JTINE-JULY 1996 ' THE ASIAN MANAGER

velopment with their corporate shategies.There are substantial advantages toMNCs io move quickly into this rapidlygrowing regional center. However, asshown by the experiences of U.S. auto-mobile makers, persistence regardingchanges in govemment policy, especiallythose considered shategic, is necessary

In lndoneslaIndonesia's government is heavily in-

volved in regulating business, both offi-cially and unofficially. Individual mem-bers of government and the military areextensively involved in business. Thegovernment has made great shides in re-cent years to liberalize the economy. Themajor reason for the upsurge carne fromgovernment policies-foreign exchangepolicy was directed to give incentives fornon-oil exports by gradual depreciationof the exchange rate since 1987. Foreignexchange is now completely free; exces-sive bureaucracy relative to exports andimports has been gradually reduced; andprotection of domestic infant industriesis also gradually being phased out.

Trade policies have been improved.Tariffs have steadily gone down. Theoverall average has gone down; high tar-iff items (e.9., auiomobiles) will be re-duced; tariffs on chemical and metalproducts will also go down; and tariffs

on such items as paper, cooking oil, woodproducts, tiles, ceramics, and glasswarehave been eliminated.

Foreign direct investrnents have beenliberalized consistently since ten yearsago to promote export-oriented invest-ments, relax requirements for equity par-ticipation by the Indonesians, extend theperiod for divestiture, shorten the list ofbusiness sectors closed to foreign invest-ment, encourage foreign participation inthe domestic capital market, and give in-centives for investments in East Indone-sia.

In May 1994, the most substantial lib-eralization (Regulation No. 20) allowed1007o foreign ownership by individualsor business organizations, except in infra-struchrre and agri-business; allowed for-eign majority conhol; allowed joint ven-tures in inftastructure investment (e.9.seaports, airports, etc.); and eliminatingthe minimum requirement on capital in-vestment. Thus, govemment drivers havecreated an environment favorable to

Country

PakistanIndiaSri LankaBangladeshMyanmarThailandCambodiaVietnamLaosHong KongTaiwanNorth KoreaSouth KoreaJapanMalaysiaSingaporePhilipinesIndonesia

Populationl994(M)

126.3913.6

l 8 . l1 1 7 . 845.658.710.072.54.75.8

2 t . l23-544.6

t24.819.52.8

66.2189.9

GDP Per Capita,us$

2,210|,2903,1501,350751*6,8701,250x1,010*1,760*23,08013,022*3,026*10,5402r,3s08,6102t,4302,8003,690

% of Populationunder 25,1995 (est.)

oz. I

54.149.260.95 7 . 148.961.457 .363.033.8

48.1

31.25 6 . 137.458.353.8

Figure 1Growth Polygons in Asia

TUMEN DELTA

SEA OF JAPAN

SOUTHERNaiwan CHINA

Phllippines

Sourca: Prof. Marl Kondo, AIM

THE AslAN MANAGER . TUNE{ULY 1996

Figure 2Asian Growth Corridor

Japan

Northeast AsiaCorridor

Southeast Asia

Malaysia

Singapore

Source: Prof. Mari Kondo. AIM

MNCs.

In the PhlllpplnesMarket globalization drivers are

favorable to MNCs. Customer needs aresimilar to that anywhere in Asia and thewestem world, excep for a few vital com-modities. The country is a suitable areafor global/regional channels although notas ideal as Hong Kong and Singapore.Marketing approaches are readily trans-ferable, except for adaptations in local ad-vertising, because the country is one ofthe top four English-speakingcountries in the world.

On the other hand, innova-tion is not an ar€a of str€ngth.Low personai incorne prevailsand the domestic market is aniddle-level market. Globaland regional customers operatewithin a few industry sectors.

Cost globalization driversoperate favorably in the Phil-ippines. Economies of scale arepossible in some key indushies(ef., deiergenb). Ther€ are alsosignificant sources ofefficiencies (land, energy,abundant technical skills, easein adopting new technology).Ingistics is still a problem butsolutions are underway. Coun-try costs are competitive al-though this is not true in sev-

eral consumer items. The country exceptin agri-business, is a technology-import-ing country. Global standards are readilyaccepted.

Govemment globalization drivers arealso favorable. Trade policies support theemergmce of a market econorny in all ofAsia. Rules on foreign direct investmenthave become rnore hospitable and thistrend will continue. ExceDt for nationaldeferse related indushies, government en-courages the private sector (local and for-eign) to be the "engine" for development.

Technology hansfer needs befter facilita-tion. Tax policies are comparable with therest of Southeast Asia. The country s anactive participant in hade blocs. Privatiza-tion of busines is an established poliry

Competitive globalization driversmake the country hospitable to MNCs.The Philippines is certainly strategic tocertain industries. In every key industry,foreign competitors are operating in thecounrry.

The appropriate strategy for the Phil-ippines depends on the industry and thecompany. Participation in the Philippinemarket is profitable in many industries.The market is larger than many countriesin Asia and Europe. Market presence is im-portant to MNCs. Most global prnductswill find a market in the country. All glo-bal brands have a presence in the country.

Toyota has successfully produced amotor vehicle for local, ASEAN, and Af-rican adaptation. Otherwise, local adap-tation are not necessary for a broad rangeof products. For consumer products,whole value chain may be located in thePhilippines which cannot b€ said of heavyindustries because support industries andservices are non€xistent. Global market-.ing approaches may be used. Only minoradaptation are needed in advertising. Lo-cal competitors versus global brand arealmost non-existent (except perhapsJollibee versus McDonald's). Most com-petitors are in a ioint venture with MNCs.

Effective management processes are

Figure 3Economies of Scale to Economies of Network

-o*-ro \

*

\\

*

I7

------+ to ---->

to

t '------ *KSource: Prof. Mari Kondo. Ali,l

t

JUNE-JULY 19 . THE ASIAN MANAGER

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Figure 7National to Global Segmentation

Nalional SegnentsLarge Global Segmentand Smaller National Niches

Source: Dr S. Yip

Et t-.1 E.t E.t Fll o l o l o l l o l l ol u l i u l l u l u l l u ll N l + l t l l + l N l + N l + l N ll r l . - l r l - - l r l+ r l+ r 1l R l R l l R l l R l R l

l ' l ' l l ' l l ' l ' lB,t E_J f.l [_] El

Figure 8Total Global Sirategy

'1. DeYelop coreBusines8 Strategy

2. Internationalize theStraregy

3. Globaliz€the Strategy

Sourcer Dr. George S. Yip

Figure 9Some Japanese Companies and the Philips Approach

PHITIPSFMGMENTEDMUI.TILOCALSTMTEGY

ffiffiffi

f f i f f i

JAPANESEINTEGMTEDGLOBALSTRATEGY

Sourcer Dr. George S. Yp

Figure 10Full MultilocalValue Chain

Source: Dr George S. Yip

Counlry Activilies

o [ - f -E-E-E-E-E-EEIE ->E-> E, E- E- E- EE+E ->E+ E- E- E- E- EE->E'E) E- E- E- E- EE'E +E' E- E- E- E- E

E'E +E-> E- E- E- E- E

Figure 11Full GlobalValue Chain

Countrv Activities1. R&D

A 1 | 2- Desisn-- 3- Purcirasrng

B l2l 4. Manufacturing-1rrc 1 3 1

D 4 l__\._

E 1 5-r-F r l

\-c l 7 lH r_l

s-ilarketing&Selling7-Distribution8-Service

Source: Dr. Georoe S.

Figure 12Global Organization

. Glob.l stsiLgyinlonnaton 3Fbms

. Cro63aoonf y coodinalion

. Globel 3H6gic planning

. Global bud!.Iing

. Glo{tl parfoflnaaconviaw 8nd coiDensalion

. C.ntsali:.d glotel eulho.it' llo irtlmalonel dlvilion' Sbfig blBinel3 dlnol5ion

' Use offo.dgn n€lion.ls' ltulli{ounby €ttoo. Foq(rnt llavsl' SbLmanb and aalions of

. Glob.l ld€rdttt

. Comnilnont towoildr{id. (v.dom.slic)enp(,ymanr

.Intadap6nrhnce

{v..olonony}of

Source: Dr

THE AsrAN MANAGER . JUNE-JULY 1996 27

Figure 4Asla's Dynamism

Diversity. Ethnic Groups. Culture

Development

Flex ib i l i ty. Practical Solut ions. Capacity To Absorb

Foreign Technologyor Culture

. Flexible Public-PrivateSector Relat ionshios

Abundance. Human R€sources. Urbanization. Natural Resources

Source: Prof. Mari Kondo. AIM

readily accepted. Management talent isabundant. World class management train-ing programs are available and the coun-try serues as a regional training center formanagement with many trainees comingfrom overseas. As a society, the Filipinosare open to whatever is the best in othercultures.

ConclusionsPerhaps the most interesting conclu-

sion is the strong role played by the typeof industry and thecompetitive structureof the foreign industry. In Asia, foreignMNCs have prospered rapidly in indus-t es that sell easily affordable productsthat are not viewed by government asstrategic. Concentration on the global in-dustrygives MNCs strong bargaining po-sitions relative to national authodties andpartners.

In contra5t, VNCs have fared less inindustries viewed as strategic by nationalgovemments. In fragmented global in-dustries, national governments have beenable to set their own terms and extractconcessions, particularly technologytransfet from the weaker industry play-ers.

The above conclusions are illustratedin China. [n the case ofsoftdrinks, MNCshave prospered rapidly in an industrythat sells easily affordable products andthat is not viewed by governmenl as stra-tegic. The duopoly nature of the globalindustry has given two MNCs strong bar-gaining positions relative to Chinese au-thorities and partners. Other consumerpackaged goods companies, such asProcter and Gamble and Unilever, havealso been successful in China.

In contrast, the automotive industryis viewed as strategic by the government,and the global induskyis fngmented intoabout 20 major players. Thus, China hasbeen able to set its own terms and extractconcessions (e.9., technology transfer)from the weaker industry players. In thepelroleum industry. even more strategicas a natural resource, the governmenthasseverel) restricted foreign participation,even at the expense of insufficient produc-tion and supply. Success, in terms ofChi-na's own development, has come in lessstrategic, lower technology sectors, Iikeconsumer goods.

Dt. Efiafluel V, Soiallo is the SCV Fotltldtltion Prc-

f.sso/ of Managtmenl . Ittt.tnel: noels@ain .etltl.ph

28

Figure 5

Source: AdoDted from Prof. Mari Kondo. AIM

Figure 6The Global Product

Customized Periphery

LargeStandardized

Core

Source: Dr George S. Vp

JUNE-JULY 1996 . THE ASIAN MANAGER

BY DAVrD CRooKEs ANDIvon Tnorr.res

Problem Solvingand Culture

Exploring Some Stereotypes

J n Hong Kong, some stereot)?es about

I managers and problem solving are:Ir "Private sector marulge$ are moreinnovative than public sector managers."

. "Managers in the civil service areconformist and rule-bound in their ap-proach to problems."

. "Chinese managers are less creativethan their expatriate colleagues."

Was there any reasonable basis forsuch assertions? This paper discussespossible bases for stereotypes, resultsfrom empirical research, and implicationsin cross cultural management environ-ments.

Today's global business envitonmentis complex and turbulent, especially inHong Kong where the pace of change issiaggering. There are many opportunitiesfor new goods and services as well as direthreats for companies to respond quicklyand creatively to the changes aroundthem. Arguably then, managers in theprivate business sector are likely to be

THE ASIAN MANAGEp T IUNE-JuTv 1996

innovative in their approach to problemsituations. Creative inventiveness hasbecome a requirement of business andcareer survival.

That civil service managers, or bu-reaucrats, are cautious and governed byrules and precedent finds justification inbureaucratic theory)The need for princi-pled, legal, and impartial, and consistentapproaches to problems and decisionsgives rise to bureaucratic struchrres andsystems. Laws, policies, rules, and prec-edent files provide the context of publicmanagement and bureaucratic culture.Furthermore, the fragmentation of deci-sion making power and the checks andbalances of bureaucratic conhol limit pos-sibilities for creative response.2

Other aspects of bureaucacy arguablypush civil service managers to conform-ist and low-risk problem solving and de-cisions. One is with the structure of budg-ets and programmes, Resoulces arelargely committed to ongoing public serv-

ice programmes and management deci-sions are about marginal adjustmentsrather than bold choices among alterna'tives. This reality leads to an "incremen-

talist" mindset in making judgments.3The reward and promotion system alsoshapes bureaucrats to rule conformityand risk averse behavior. Promotions goto those who do not make mistakes anddo not buck the system. Bureaucraciesmay attract and select personalities whocan fit into this particular culture. Dur-ing a long career and gradual advance-ment,.managers are shaped toward lowrisk and cautious behavior.a

Managers from public qnd private sec-tors, therefore, are expected to demon-strate differences in approaches to prob-lem solving.

The Stereotype"Hong Kong Chinese managers are

less creative than their expatdate col-leagues," stereotype is possible based on

national cultures and the psychologv ofthe Chincse.

Culture is seen as a collective pro-gr ;mming o f the mind wh ich condt t ionrpeople to see, think, and behave in cer-tain wayr. Thir give. rise to a modal per-sonalitv rvhich is characteristic of thatculture. Even the most casual observerwill attest to the differences between, say,the ltalians and the English, and the Es-kimos and the Chinese.

Comparing \alional CulturosCultures may be examined on four

dimensions:'Power Distance-the degree to which

members of a societv accept the dght otothe$ to exert authoritv over them.

Uncertain Avoidance the degree towhich a society develops plans and svs-temswhich attempt to reduce unccrtainty.

Individuality versus Collectivism-the degree to rvhich membcrs of a societydefine their identity on self or in relationto a social unit, like family, clan, or tribe.

the British and Hong Kong cultures lieon indices of power distance and indi-viduality. People in a large power dis-tance culture are more likely to acceptdefinitions and meanings handed downhierarchically as well as being cautiousabout how they present their own ideasand proposals upward. In contrast, par-ticipants in small power Distance cul-tures are more likelv to reject or at leastquestion superior's views and defrnr-tions. When coupled with high individu-alism, this is likely to produce a "Jack isas good as his master" attitudewhcrc theequa) r'alue ofone's own thoughts, ideas,and interpretations willbe asserted. Lorvindividualism coupled with large powerdistance is likely geared toward defer-ence, giving and maintaining face, pleas-ing others, and maintaining harmonv

Civer.r these differences in culture, itwill not be unreasonable to posit thatthere will be differences of approach toproblem solving between Hong KongChinese and erpatriate managers.

Two other aspects of Chinese culturewhich maintain social harmony are faceand shame. Face is particularly importantto the Chine'e. Coupled with shame is apowerful force to control :ocia] behaviorChinese managers are likely motivated notto lose face themselves or to cause others,particularly theirsuperiors, to lose face. Inhierarchical relations, giving face to supe-riors is a prime concern and otherwtseknown as "shoe shining" the boss. Agree-ing lvith the bosses' ideas and not men-tioning one's or^/n are clear manifestationsof this orientation. Shame will be felt whena Chinese manager breaks social norms ofrole behavior and anticipates social judg-

ment, especially by superiors. This con-t ra . ts w i lh cont ro l by gu i l t , common inWestem cultures, which refers to the feel-ings generated by breaking a set of inter-nalized moral standards.

St ruc tura l harmony is ach ievedthrough management of key relationships.In Confucianism, they are identified in WuLun, or the duties and obligations of hier-archical social relations. As these pointsrelate b formal organizational relations,they imply:

. Superiors can expectrespect and obe-dience from subordinates but equally mustcare for and protect them.

. Role positions are cleat tole occu-pants must stay in role, and rule behavtori\ go\.crnr'd hv Lr dnd other 'ocial pre.crip-tions.

Confucian teachings place high valueon social control, harmonv, and respect forauthoritv. These forces appear to be po$-erful, shaping Chinesc managers' socialbehavior Thev rvould be unlikelv to riskbeing labelled radical, daft, deviant, oreven out of order. All this implies a con-servative stance tou'ard risk taking andinnovation in problem solving.

Evidcnce of behavioral dispositionsarising within the Chinese culture is to befound in research on the Chinese psychol-ogv. Thi' ha. alro.hed light on their per-sonality traits and behavior. In brief, eth-nic Chinese people are typicallv other-centered; they search for harmony, andpre fer to avo id conf l i c t . Persona l i t yorientations are tou'ard submissiveness,introversion, and conformity.3 Given theseobservations, it may be reasonable to ex-pect that Chinese managers would preferless innovative approaches to problemsolving, not challenge assumptions, and

JUNE.JULY 1996 . THE ASIAN MANAGER

Table 1

Element BitainPower Distance SmallUncertainty Avoidance WeaklndividualiiyCollectivism HighlndividualityFeminismMasculinism HighMasculine

Feminism versus Masculinism-thede8ree to rr 'hich a \oclelv.lrc\\cs "[emi-

nine" values, such as caring for othen,.upporting thc needy. pror iding for mino ties or disadvantaged groups against"masculine" values, such as providing forself, being aggressively concerned withone's own welfare, no erpre.' ion of c,tr-ing for the weak and the needy, etc.

Using these factors, it is interesting tonote the difference between Hong Kongand British cultures. We use Britain as abenchmark for discussion of "expatriate"

culture. (Tn redlitv, e\patriate manager\in Hong Kong come from many Euro-pean, North American, and Antipodeancultures. Hofstede's research shows theditTcrcnces between Hong Kong culturesas shown in Table l.

The most obvious differences between

30

Comparison of Cultural Elements

Hong KongLargeWeakLow IndividualityHigh Masculine

Chinese CullureChinese culture has manifest rules of

hehar ior rooted in Confucian teachingIt has been argued that the values and

lrescriptrons o[ theqe tpachints drc in-stilled among children in Hong Kong,even if explicit reference is not made toConfucian tenets. This social conditioning process maintains social and struc-tural harmony.

Socral harmony is achicred throughthe key values of ,[er and Li. /en implieshuman heartedness toward others as one\\'ould want to be acted toward. Li doesnot provide explicit rules ofbehavior buti s a b o u t a w a r e n e ' s o f a p p r o p r t a t ebehavior in any situation. Li serves tostructure and maintain relations and or-der in hierarchies.i

stay within the governing rules andnorms of the workplace.

From the literature on culhrre and psy-chology, there may be some bases for theview that Chinese managers tend towardsconservative and cautious approaches inproblem solving.

The neseareh llypothesesHaving broadly established some ba-

sis for the stereotypes, the following nullhypotheses are tested;

HOI: There is no difference in prob-lem solving behavior preferences be-tween expatriate and Chinese managersin the pdvate sector

HO2: There is no difference in prob-lem solving behavior preferences be-tween Chinese and expatriate managersin the civil service.

HO3: There is no difference in prob-lem solving behavior preferences be-tween pdvate sector Chinese and civilservice Chinese managers.

HO4: There is no difference in prob-lem solving behavior preferences be-tween private sector expatriate and civilservice expatriate managers.

HO5: Generally, there is no differencein problem solving behavior preferencesbetween Chinese and expatriate manag-e$.

HO6: Generally, there is no differencein problern solving behavior preferencesbetwe€n private sector and civil servicemanagers.

The [esearch SarnpleThe authors sought to combine the

cultural and organizational dimensions inone study. A sample of 160 managers wasdrawn equally from Hong Kong ethmcChinese and expatriates working in HongKong. The sample was also equally di-yided into those working in the civil serv-ice and those working in private organi-zations.

The f,ecearch InstrumentThe research instrument used was the

Kirton Adaptation dimensions in onestudy. This 32-item inventory places re-spondents along a scale of preference foradaptive or innovative approaches inproblem solving and decision making.The scale ranges from 32 at the adaptiveend io 160 at the innovative end.

The KAI is based on original research

THE AsrAN MANA6ER . JUNE-JuLv 1996

Table 2

Categories

Chinese Private(N=40)

Expatdate Pdvate(N=40)

Chinese Civil Service(N=40)

Expatriate(N=40)

All Chinese Managers

All Expatriate Managers

All Private Managers

All CivilServiceManagers (N=80)

bv Michael Krton and orovides a reliableand valid guide to style or behavioralpreferences in approaches to problemsolving.' It is necessary to understandthe language of the KAI and findingsfrom some other research in which KAIwas used.

KAI BaekglroundThe adaptation-innovation theory

(KAI) is concerned with the differencesin thinking style preferences of individu-als, with particular emphasis on creahv-ity, problem solving, and decision mak-ing. Every person is within a tontinuum,ranging from highly adaptive to highlyinnovative depending on his score on theKAI inventory The extremes may be de-scribed as follows:

Adaptors produce sufficient ideasbased on existing definitions of the prob-lem and likely solutions. They look atthese likely solutions in detail and pro-ceed within the established policies, rules,and practices of their organization. Adaptors prefer to change by refining existingsolutions to the problem.

Innovators are more likely to recon-struct the problem, separating it from theaccepted definitions and frameworks,generate many ideas, and develop unu-sual solutions. They are more concemedwith "doing things differently'' and "do-

ing things better," and go beyondworkolace rules and norms.

KAI Scores Summary

Maximum

133

The extremes demonstrate two differ-ent styles of thinking. The adaptive solu-tion is based on what many people in theorganization already know and makes theidea more acceptable. In tum, the adap-tor becomes the originator of the idea-more acceptable to the "establishment."

The failure of an idea is less damag-ing to the adaptor than to the innovatotsince any incorrect assumptions uponwhich the ideas were based were sharedwith colleagues and other influential peo-ple in the company. In contrast, the ideasof the innovator may be more shonglyresisted and their originator treated withcaunon.

It is important to note that the termsadaptor and innovator are neither norma-tive nor pejorative; they are simply de-scriptive of different styles.

Other Beseareh Uslng l(AlMuch of Kirton's earlier work concen-

trated on the descriDtion and classifica-tion of the two styles. Later research gaveattention to how the styles were distrib-uted for identification of paftems.ro Thatresearch tended to look at two types ofdistribution of adaptors and innovators:

. In different cultures-Research inthe West (Britain, Canada, USA, and NewZealand) produced similar results . l4llrcna sample of managers in Singapore andMalaysia was rated, their mean scoreswere compatible with those of their west-

133

J I

enr counte.rparts.r Bnt studies of samplesin Iran and Intlia rvere shorvn to be moreadaptir,e, shou'ing there mav be culturaldiffercnces in the KAI norms.

. ln different organizations-As coun-t r i , . ' . l t . t t r ' \ t t l tu r . r l t l , , rm. , ' ' J . ' , ' rB . rn i -zations which can bc tr,tn stronger shapers of stvle. Large org.rnizations havc irtendency k) enconraS;c burcaucracv ancladaptation b recluce risk. Bureaucraticstructure exerts pressure on its otficials tobe methodical, prudtnt, and disciplined.l h rse arc , lua l i t i c . lh , r t . le f r r r , th r ' . rL lap-tor \\'ho ma)' be reasonablv expecteci k)gravitate to.1n organization \\'l.fch tavors(and rt ' l 'ards) such behavior. This idearvas seen to be supportecl bv a Singaporcstudv n'hich showcd that a sample ofmidd le rankr ls c iv i l servants rver t 'stronglv adaptor inclined.

ResullsResearch rcsults arc prcstnted in Ta

bles 2. Tht' 160 KAI inventories \ ,ere proc-essed using the Z-test. This lest cyaluatcsthe differences betrveen sets of independ-ent arithmeiic means. Thepurpose of tht'test is to evaluate those differences as be-ing either significant or rron-signific.rnt,to prove or disprovc a hypothesis. Thehvpothcse. r rc re te . teJ a t i ' l e re lo i . i t -nificance. We reject a hvpothcsis wht'nZr I qh or f roh . rb i l i t v {F- \ , r luer . U .d i .It mav be observed that:

L E\F.rtri.r lq pri\,rt( -ector In(tn,)Fer\har,t a significantlv higher mean score(' l04.475) than Chinese pri\,ate sectorm.rn{itcr- 197.d7;t. Thcref.rre. rrc rere.'t

Table 3

f l0l; there is a difference.2. Chinesecivil service managcrs have

a significantlv lon'er mean scorc (93.350)

th . rn . r r i l . r ' r \ i , c r ' \ l , r l r i , r l i m, rndF,er \(1U9.700). Thercforc, rve reject H02; thereis a difference.

3. Chinese private sector nanagers dirhar,e a highcr nein scorc (97.875) thant h c i r ( . l r i n e . e . i r i l . e r r i r v ( r , l l e a ! : u c \(93.350). Holr,ever, the diflerenct is notstatisticallv significant. Therefore, ive ac-cept HO3; there is no difference.

-1 . Erpa t r i , r t r ' . r \ l l . \ ' r \ i i e n rdn( i$er -halt 'a higher mean score (109.700) thantheir private sector counterparts (104..175).

But the results are not statistically signifi-cant; therefore lve accept HO.{.

5. Chinese managers generallv (com-

bint.d cir, i l strr, ict and pri\,ate sectorscores) .rre less innor,ative (95.613) thanexpatriate nranagers ( 107.08tJ). Theref ore,n e reject HO5; there is a cliffcrcncc.

6. l\rhen Chinese ancl expatriate scoresivere combined bv sector, thev producctlme, rn - [h , ] ( \ r r ( ( lo -c : L i r i l n r . rnaqer .{ l0 | 52 i l . rnd pr r \a te .cc r , , r m. rnJg l r \t l r t l . 175) . jh . r . ' . l r l l c r , n . r . r , r re n , ' t \ t . lt isticallv significant, therefore i lc acccptHO6; thcrc is no cliffcrcnce.

Implit alionsMajor implications from the research

i inJ ing . . par t i cu l . r r l \ f , \ r , \ rc . rn r / , rn \ ,n : inmulticultural or Chincse environmentsare discusse'cl belorr,.. {uareness

There is a need, at lcast, to providestaff \\ ' i ih a\\ 'areness level training onproblem solving. The st.rff should be

alvart horv their own prefererrces manrfest as be havior and hou' thev might leacithem into conflict \\ ith others rvho preferd i f fe ren t approaches. A lso , thc s ta f fshould be alvare of the powt'r of nationalcultures in shaping ihese preferences.Constrlutntlr', tht stall from one cultureneecl to unrlersianrl thL. sL.nsiiivities anclproductivitv in another b hanclle n'ell inierpersonal dvnamics of dvarl, group, ororganizational probltm solving.

. S{.|{'cli(|nKirton has argueti ihat problcm solv-

ing stvlt prtfcrcnccs are enduring, akinto personalrtv tr,rits. Thereforc, \\ 'herc

f . r r t i cu l . l r p roh lL ' tn 'o l r tne brhar i r i .inclicatt'd tor a role, it ivoulcl seem neces-rarv tr) assess this bL.havior when select-ing pcrsonlel. For examp)e, where moraloriginal ancl crL.ativc approaches are re-cluired, such as in a "grct'n ficlcl" siteproje'cts, it rvould be important to have apreponderance of innovators. Similarlri i fa tean is asstmbltd b eltr.elop requrrements to exisiint sen ices, then a bahnct'of adapbrs rvould bt appropriate. Cetiing the person and role fit r ight isalwavsrnr f ( , r r . r n l . r - \1 L l l . r - p roh lcnr r t ' l r i r re r ic.ntation. This obsenation holds for inter-nal recruitn]eni as Nell as intcrnal promo-non or asslgnnlcnt.

. Ttsainin$Bcr , t r rJ , r r r . t re r t , . . t r . l rn l l lq md\ L l ( -

velop clesirecl skil ls in accommodatingcultural and stvlc prctcrences. Thus thebcnefits of differences mav be harncssedfor sound problem soh'ing outcomes.

Training inproblem soh.ing nould beenhanced bv helping people learn theirorvn stvle preference in relation with rn-terprersonal process and creativitv. Fur-ther, people should bL. brought to understand thc r.alue of adaptor and innovaforstvlts, the strengths and n'eakness, andbehavior.rl indicabrs of c,rch. \ot ortlvrvil l such training leacl kr inprovcd intcr-personal rclations and creaiir.e problemsd\,ing, but morc so develop svnergv aspeople learn k) bring out thc best fromone anoiht.r despite their individual pref-crenccs.

We are not arguing here that peopleshould be trainecl hou to fler from oncstvle k) another. While it seems appeal-ing, there is sone rlucstion ,rs t0 \\Jrether

.ILNF Jun'1996 . THE ASIAN M,\N^crFR

Hyphothesis Test Results

Intra Sample Comparisons

Chinese (Private) vs.Expatriate (Private)

Z-Test Score

2.2759

P-Value

0.023

Results

Reject HOl

Chinese (Civil Service) vs

Ex?ahiate (Civil Service) 6.0781 0.001 HOzPrivate (Chinese) vs.

Civil Service (Chinese) 1.9053 0.057 HO3

Private (Expatriate) vs.

Civil Service (Expahi 1.6498 0.099 HO4All Chinese vs All 5.7375 0.001 HO5AII Private vs All Civil Service 0.1591 0.087 Accept HO6

32

or not training can influence style prefer-ence. Some >tudies suggest that traininghas no effect on style.r'� Civen Kirton'sview that sgle is deeply ingrained, likepersonality traits, it appears plausible.

This paper has argued that the stere-otypes about Chinese and expatriate man-agers' preferences in problem solvinghave some bases. We drew from bureau-cratic, cultural, and psychological theoryto establish bases for such stereotypes. Sixhypotheses were established and tested.Support was found for some stereotypesand practical implications discussed.

ln a management and organizationaldevelopment context, the most interest-ing o[ these implications is that of train-ing effects. This area is a promising focusfor further research.

NBFDNXNCDS

r Weber, M. (1947) The Theory of Social AndEconomic Organization Oxford UniversityPress.5imon, HA {1q57, Administratron Behavior:

A Study of Decision Making Process in Ad-ministrative Organizations (2nd Ed) FreePress.r Lindblohm,CE. (1959) "The Science of Mud-dling Through," Public Administration Re-view, Vol. 19 (Spring 1959) pp. 79-88.{ Whyte, WH. (1957) The Organization MancaP.5 Hofstede, G. (1980) Culture's ConsequencesSage Publications.6lbiden.

7 Westwood, RL (Ed) (1992) OrganizationBehavior-Longman South EastAsian Perspec-tives3 Bond, M. (Ed) (1986)The Psychology of TheChinese People Longman.' Kirton, M. (1987) Kirton Adaptation-lnnova-tion Inventory Manual Occupation Resear.hCenter, Hatfield.'t lbidcm." Thomson, D. (1980) "Adaptors and Innova-tors: A Replication Study on Managers in Sin-gapore and Malaysia" Psychological Reports,47, pp.383-397.': Watts, W (1985) Relationship between Spe-cific Skills and Managerial Performance, M.Phil. Thesis, North East Polytechnic.

Dattiil Crookes is a Senior Adrisor 0f The ManasemenlDa)elaflne tce ter,Hong Koni.

Irror momas is a Studies Dirtctor h The Se,ior Slat'fCours., Hong Kong.

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EASE, SPEE FLEXIBITITY

THE AsrAN MANA6ER . JUNE-JuLv 1996

BY MARA FAJARDo, BOBBY GAYANELO,RIKIANTo GUNADI, AKASH MoHAPATRA,

AND TRICIA SoRIANO (MBM,97)UNDER THE supERVIgoN oF PRoF. PURBA RAo

Customer SeruicesThe llltimate Differentiator

anking in the Philippines is growing. Competition is becomingstiffer with the entru of interna-

tional banks. Market forces will thus pushbanks to differentiate themselves fromone another

Service is a maior factor in develop-ing and sustaining a banl<'s position h theindustry. Superior products are notenough; commitment to superior serviceis becoming a must. The bank'smain product is service-notonly being customer-oriented,but more so being customer-driven.

Customer-oriented banksprovide customer satisfactionwithin the bank's objectivesand resources. On the otherhand, customer driven banksprovide products and servicesbeyond customer expectations.

Banks with more brancheshave an advantage over their

34

zlpq.l-j---:\ n

1;96 .5(.5)'r 1oo

5 is percentage of homogenous population.5 is percentage of heterogenous population

competitors. People norrnally preferbanls that are accessible and ionveruenr.

This shrdy identifies the service qual-ity needs of different groups oT custom-ers. It intends to enable banks to providebetter customer service, possibly througheffective market segmentahon.

Multivariate techniques of analysis,namely factor and cluster analyses, wereused to evaluate a sarnole survev of 100

Table 1

MOE

MOE = 9.8V"Where Z = 1.96 at 95% level of confidence

customers and another survey of 30 bankemployees.

The questionnaire (Figure 1) listed 40questions on possible customer needs.Initially, some customer service manag-ers and customers of leading banls wereinterviewed for a pre-test. Their inputswere randomly arranged to ensure thatquestions regarding similar issues did notget sirnilar answers merely due to their

order in the questionnaire.Statements were carefullyworded to minimize any ambi-guities (See Table 1).

. The survey was conductedin two mairr banls along PasayRoad, three major banks inMakati, and one premiere bankalong Ayala Avenue in Manila.

Out of 100 respondents (ac-iual bank customers) on aweekday, 43% had been bank-ing for more than ten years and35% between two io five years.

p -

Y _

TUNEJULY 1996 . THE ASIAN MANACER

The top three bank services are savingsaccounts (92%), current accounts (46%),

and time deposits (35%), primarilyamongthe 20 to 29 (and the 30 to 39) age groupswith a 32"/" share of the responses.

Respondents were either employees(36%), managers or supervisors (17%), orprofessionals (15%) in various companresin Makat i . More than a th i rd havemonthly incomes between P10,000 toP20,999 with the remaininglwo thirdsdist buted between the P10,000 groupand P21,000 and above bracket.

S i \ t y percent o f the to ta l have spe-cial (P75,000 and above) and medium(P10,000 to P44,000) bank investmentsand have average week ly t ran5ac t ionsbetween P5,000 to P40,000, Respondentseither walk to the bank (49%) or use theirown car (407o) to get to the bank.

Thirtv bank employees from differentbranches in Makati were also inter-viewed, The findings may guide bankersin selecting the right package of servicesexpected of them.

Taclor AnalysisWe used factor analysis to.ummarize

the gathered data and explain variablescollectively. Certain cate8ories connectedloose and even intangible customer needsand wants.

The Kaiser Meyer Oklin (KML) meas-ure of sampling adequacy was 0.808.KML is an index for comparing themagnitudes of the observed correlationcoefficients with the magnitudes of thepartial correlation coefficients.

The range of coefficients is normallyinterpreted as follows:

0.90 Marvelous0.800.700.600.50<0.50

MeritoriousMiddlingMediocreMiserableUnacceptablefor factor analysis

Ihe clrrelation matrLr showed the cor-relation between the qu*fions. Question.with high corelations were incorporatedin a common factor. Forexample,Q23 and

Q39 have a high correlation (0.62)and areboth represented by Factor 1.

F0(lor (.\ lmclion wa\ applied. u.ing theprincipal components analysis, henceforming a linear combination ofobserved

THE AsrAN MANAGER . JUNE-JULY 1996

Figure 1

Dear Sir/Madam:We are Master in Business Management studenb of he Asian Institute of ManagefiEnt.We are conducting a survey to determine the kind of service that customers exped fiom abank. We shall be grateful if you r/\ould please answer this que$ionnaire.

Please rate the questions on a scale of 1 to 4.1 - Most important 23 - Very important 4

How important are the following:

1) Courtesy of the security guards.2) Ability of branch manager/officer to

offer advice.3)Appearance and grooming of bank

Dersonnel.4)Accuracy of the transaction process.5) Speed with which transactions are

processed.6) Less waiting time.7) Branch opening on time.8) Branch being open during lunch break.9) Response to telephone queries.10) Branch being open for 24 hrs.'11) Quick processing of loan applications.12) Capability of staff to handle transaction.13) Overall banking experience.14) Flawless teller facilitjes.15) Responsiveness to other complaints.16) Staff ability to solve problem.17) Attitude toward complaints.18)Tactful handling of overdraft cheques.19) Wide range of accounts.20)Availability of other. services, like

collections.21) Availability of safety deposit box.22) Delivery of bank statements23) Friendliness of bank staff.24) Timely mailing of bank statements.25)Accuracy of bank statements.26) Availability of deposiUwithdrawal slips

and pens.27)Availability of cheque books.28) Seating arrangement while waiting.29) Cleanliness.30)Ambience of the branch.31) Parking space.32) Visibility of the building.33) Availability of drinking water.34) Enthusiasm of branch staff to assist

customers.35) Rest room facilities.36) Effort of the staff to explain things.37) Clarity with which the staff explains things.38) Courtesy of the staff.39) Effort of branch staff to understand

customer.40) Accessibility of bfanch manager/officers.

Very importantLeast important

Mostlmportant

Leastlmpodant

3 4

35

variablcs. The first factor accounted forthe largest variation in the sample (337 )rvith an Eigenvalue of 13.3'i i .e., Factor 1e.xplains 13.3'lr of all variations.

VLlritt]r rolatton and qunttinnx rc-duccd the number of variables and fac-tors, respccti\,clv. I lotation changes thepercentage of variation explained bv eachfac tor though the to ta l var ia t ion ex-plainetl does not change and helps in bctter interpretation of factors. The factorsare orthogonal and unrelated rvith oneanother.

fait.rr l, 'aJ ing $ .t. .uflre\\cd ,lt le.\than 0.5. Factor Ioading is a correlationbctreen.r ta,.tt,r.rrd the sland,t rd izcd re-sponse score of a statement.

The number of factors n'as based onthree criteria:

o F i o p n , : 1 , , * i . u r - : t . r t h i n I

. Least 50'l of total variation is ex-plained.

. \risual inspection of the scree plot(Sec Figure 2).

Fir,e factors among 100 bank custom-crs explained 55.3?i of the total variationas l isted:

Factor 1 : Personalized Service3.1. Enthusiasm of branch staff to

ilssist customers39. Effort ofbranch staffto understand

customcr neecls40. Accessibil i tv of branch manager/

officcrs

Factor 2: Accurate Feedback22. Delivcrv of bank siatements2'1. Tirnelv nailing ofbank statements

25. Accuracv of bank statements

Factor 3 : Physical Comfort28. Seating anangement

while waiting29. Cleanliness35. Rest room facilities

Factor 4 : Accessibil i ty8. Branch being open during lunch

break9. Ilesponse to telephone clueries

Factor5 :Qu ickServ ice5. Speed with which transactions

are processed6. Less waiting timcThe five factors derived fiom the re-

sponses of 30 bank emplovees are as fol-lows:

1. Personalized Scrvice23. Friendliness of bank staff34. Enthusiasm of branch staff to

asslst customersro. l- tfort of the.ta[f erplain thing.37. Clarity with rvhich the staff

explains things38. Courtesv of the staff39. Effort of branch staff to

understand vour needs2. Complaint Handling

15. Responsiveness to customercomplaints

17. Attitude to complaintsl8.Tactful handling of or,erdraft

cheques25. Accuracy of bank statements

3. External Services

31. Parkurg space32. Visibilitv of ihe building

.1. Proclucts19. lvide range ot accountsl r r . A \ , l r l . lb r l i t \ o l L , th r r .Hrv r ( r ' - ,

l ike bil l collections5. Bank Tirnings

7 R r r n r l r , ' n m l n o , r n t i m .

8. Branch being open during lunchbreak

Clus lcr , lna l ls isfhe.. ' l tctor .L ortr .erved J. ,t bl-i-

for clustering the cusioncrs inkr differ-ent markct segnents. The factor scorcs toreach respondent arc a \reighted l inearc.rmbrn,rl ion o[ the .id n(la rJ r/( J -.or' . olquestions whrch comprise a factor Thesefactor scorts, holt 'r 'er, are normalizeclra lue . r rh iLh p , \ -p , t l imr t . r t lo l l , ' n u . in ) -averagc factor scores for clusters n'ithouttaking precautions. For large samples, thea\,crage of the standardizecl factor scorervould tend kr be zero. lVe calculated thefactor score for Cluster 6 bv gcncratingrandom numbers and taking ien respond-ents from the cluster.

The inder used for clustering u'as thesquarcd Euclidean clistance and thc algo-rithm rvas the agglomt'rativc hierarchicalcluster analvsis. Clusters ivere formcd bvgrouping cases ink) bifig€'r clusters, using complete l inkagc; rvhere the distarrccbct$'ccn trro clusters is calculatcd as thed is tancc bc tween the i r two fa r thcs tpo in r . . t hc re .u l t u i t l te . lu - te r . tn . t l v r i . .l i :. the vertical icicleplotand theaggJom-eration sche.dulc (See Figure 3) led to fivccluster solutions:

o lou' income, high,rspirations. budgct group. middle incomt', demanding. high income, hetlonist. complacent people

Cluslr.r l: Lolf, Incomr'. High.lspiraliors

This clustcr has an averagc'incomcl c v e l u i I ' l t ' r | l \ ' , r n t l r r ' u . r l h l , r . . . r r i r t l 'accounts in the banks. Tht'se responclenlsoften visit ihe bank either bv walking ortaking public transportation. They \?luccluick feeciback, are conrfort-seekcrs, andappreciaie convenienl acccss io the bank.

0luslcr ?: Th(. Budget GroupThis cluster earns an dverage of P5,000

per month ancl ar,ails of savings, check

JUNE-JLL'' 1996 . TIIE A5IAN MAN,\(;EI.t

Figure 2

Factor Scree Plot

G)bo

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l i

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8

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36

Factor Number

l 5 t'7 l9 z l 25 27 29 33 35 39

Figure 3

Stage 1stCluster App€an Next

54

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1 3 5 8 42 3 0 5 03 4 8 64 3 5 6 5

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ing, and tirne deposit accounts from the ucts and services to suit their economic P35,000 is invested in either savings,banks. Like Cluster 1, the respondents status.also visit the bank often, as they aremostly employees receiving their pay Oluster 3: Dllddle lncome,through ATMs. Accuracy and timely llemandhgmailing of bank statements are important This cluster consists of employees effort put in by the bank staf{ to help themto those who rnay be religiously trying to with an average monthly income of with the processing of their hansactions,reconcile their bank records. This cluster P11,000 and visits the bank alnost weeklla quick feedback, and comfort. Cluster 3is interested in a wide range ofbani< prod- The respondents' average deposit of claims that they deserve exha attention

Agglomeration fthedule using Average Linkage (between Groups)

Clust€rs CombinedStage 1stClusler Appears Next

Stage Cluster 1 Cluster 2 Coeffici€nt Cluster 1 Cluster 2 Stag€

ClusteE CombinedStaSe Cluster I Cluster 2 Co€fficient Cluster 1 Cluster 2 Stage

current, or time deposit accounts. Per-sonalized service-friendliness, courtesy,and understanding of the banl staff-istop box expectation. Cluster 3 values the

THE AsrAN MANAGER . T[,r.rEJuLy 1996 37

from the bank staff and consider "pamper-

ing" part of the bank's 'trasic services."

Oluster 4: lligh Ineome/[edonist

This cluster, compdsing of lawyers,senior managers, and supervisors, has anaverage monthly income ofP40,000. Mosthave current and savings account to-gether with a time deposit or a combina-tion of the three. Their main emphdsis ison comfort. Cluster 4 usually go to thebank either by walking or taking their carseven if the banks happen to be within ashort walking distance.

Cluster 5s lligh Income,Demandlng

With an average income of P30,000 thiscluster values personalized service, com-fort, clean surroundings, and ambiance.

Perceptual MapThe perceptual map is a two dimen-

sional map which plots different clustersas per their customer service require-

ments. The factor scores derived from thefactor analysis were averaged for eachcluster Thus the average factor scoreswere found for the three most importantfactors which enabled plotting the differ-ent clusters.

Perceptual Map 1 plots the clustersbased on personalized service and accu-rate feedback. Cluster 4 has a high needfor service and feedback while Cluster 6has a low need for feedback.

Percepiual Map 2 shows the relatron-ship between the need for personalizedservice and physical comfort. Clusters 5and 3 have a high need for both factorswhile Cluster 2 prioritizes accurate feed-back (See Figure 4).

Managerial lmplicallonsand Reeommendations:

Perceptual maps drawn for the differ-ent clusters of respondents against theirrespective factor scores suggest marketsegmentation to accommodate differentcustomer needs and wants. This data isto the banks' advantage if it can follow a

focused strategy and create niches in themar|et. considering the present scenarioof globalization and greater competition.The perceptual maps indicated that 26%ofthe markethad a high need for person-alized service, physical comfort, and ac-curate feedback.

Comparing the responses of the con-sumers and bankers, we find a mismatchbetween what consumers consider impor-tanl and what bankers perceive to be im-portant to consumers.

Consumer surveys bring out factorswhich are often ignored. For instance,comfort-availability of drinking water,seating anangements, restroom facilities,general ambience of the bank, sober at-mo'phere. and proper air-condil ioning-may not be important to bankers.

Al1 banks now offer a wide range ofproducts and services. Bankers still con-sider product line to be more importantthan otherfactors. They fail to realize thatpersonalized service and quality cus-tomer service are the differentiating fac-tors in today's environment to gaina com-petit ive ed8e. Banks have to preemptcomplaints in a proactive manner. Thebankstaffshould reach out to the custom-ers, find out what they need, and antici-pate /deliver customer expectations evenbefore they are expressed.

Mata I ajado hn' n Batlt' h+ tt \(t, nrp dctftc tnHof.l and Restaura tAd tilisLration flofi the Unit'ersity ol the Phil4jpn]t1.'s. Mara cstoblished TheZ$fsCaLe/iq Setfice atd taught Food and Nutntit) at tle Miiatn Ct)llege High SchL)ol Departne t.

Bobby Goyanelo hns a Bachelor olScience degrteit Busirss AdfiinisfmfiL)n from the Unioersity oflhe lhilryfne'. ts,'hhu In; ut rlrd utth chellCrrup.Philippircs and Mead lohtlson Di|)isiotl of BnstolMvers Squibb.

Rikianto G nadi is a gnduate of Chemical En:!i-neeri gfrotn UPN Veterctl Surabaya,lnrlonesia atdhis rL'otked 70ith PT Wic]Len and PT Glun| Do

Akash Mohapatta is a graduate of Eca omics fromSr s/.fl,rl|l ; Cn//..{.. IrJia nnd Llu trcn U'1iup,-sity of DAhi. Aknsh hns u,orked in State Bank ofIali|, Stnck Hold,ls CorFolafiou 0f India, atd ltn-portExport Detr.loptnent Company.

Ti.ia Soiafto has o Bachelol ofScience degree tnCotn e/t, tnijtt in Malketitl:l t'rctn Assu,tptit)nCollege. Ttic ia has lLvrked uith lhe Cotlsufiet Prcducls Dirision of Henkel Philippines Inc. awl wasan accowtt ntanager ol globa! accounts at Denlsu,Yoltng €r' Rltbi tn-Alcantan Aduerlisitg Agency.

.E

EIE

E

€a

F..ior I- Pc.sonalizcd Scr!ice

Pe.ceptuol Map ofFactor I (Perso.alized Servic€) trnd Fa.u 3 (Physical comfo.t)

P c r ! . p r u J l M . p . f F . . k r | & F r c n ' r 2

@

38

Fado. I Personalized Se.vi.c

JUNE-JULY 1996 . THE ASIAN MANAGER

By PROFESSOR FRANcrsco L. ROMAN, JR.AND ASUNCION M. SENESTIAN

Chinese FamilvU

Corporations in Asia(Part II)

side and outside of China, co4ducted byJohn Kao, shows that the Confucian ha-dition persists in Chinese enterprises, Ior

EDTTOR'S NOTE: This is the second in theseries on Family Corporations (famcors) inAsia. The first article dmlt with understand-i g the fnmily in business as a system. Thisartk le louses on Chinese family corporations,their distinct natwe, and trends lor the fu-ture.

T-lor generations, emigrant Chinese

f:{ huri "strutirtled a n"etwork of en-I trepreneurialrelationshipsamongfamilies and clans to lay the foundationsamong businesses across national bor-ders-from real estate to plastic-sandalmakinS to semiconductor manufacturin g.The 51 million overseas Chinese world-wide, including 21 million in Taiwan andsix million in Hong Kong, compose lessthan 10% of the East Asian population butcontrol two-thirds of retail trade in theregion (See Table 1).

A shrdy of 1 50 entrepreneurs both in-

THE ASIAN MANAGER . JTJNE-JULY 1996

instancg in their respect for order, author-ity, and hierarrhy. The enterprise becomesa means to exert control and to achievesecudty in a disordered world. Many"overseas Chinese" have suffered per-sonal hardships-wat political disaster,and loss of country, wealth, home, or afamily member Hardships may explainwhy Chinese family ties are strong; as aconsequence, the judgment of an incom-petent relative in the family business maybe deemed more reliable than that of acompetent stranger.

Chinese famcors tend to be higNy cen-tralized organizations. Decisions aremade only by the farnily members. ln For-mosa Plastics, for example, the owner, to-gether wiih an inner circle composed often professional managers, directs thecompany. These executives work with anadministrative group of 200 managers/who in tum manage a worKorce of 30,000

39

PeoPre.Hardships may also explain why the

Chinese believe ihat "workine to thepoint of exhaustion" is necessarylo wardoff many potential hazards in an unpre-dictable world. According to SimonMurray, who used to run Li Ka-shings'sempire in Hong Kong, Chinese business-men are not drivei so much by greed asby fear and yearning for protection thatmoney gives.'

For example, Li Ka-shing, consideredone of Hong Kong's richest men, startedselling flowers and watch bands when hewas 14 years old. Li had to quit school tosuppori his mother, younger sister, andbrother, upon his father's death. Latel heopened a plastics factory and then in-vested in propety and property develop-ment. In 1979, he acquired a 22.8% stakein Hutchison Wham-poa, a Brifish hong.Now, he has offshore investments inCanada and the United Kingdom.'�

Another e\ample ls Chen Cheng-chung of Taiwan. He delivered newspa-perg worked in a banana-processing fac-tory, and then took a job at Hung GuoConstruction while attendine tradeschool when he was 14 years old. At 22,he established his own advertising firmwith his savings, without giving up hisconstruction iob. Three years later, Chenestablished Hung Fu Construction, spe-

cializing in high-rise residential build-ings, which was publicly listed in 1993with reported assets of NT$4.5 billion.3

Lile-Raft DlanagementChinese famcors follow "life-raft

principles" in managing firms. For rn-stancg they believe that a business en-terprise is created as a familial life raftand that the only people they can trustare the farnily members. Because they be-lieve that obedience to patriarchal au-thority is essential to maintaining coher-ence and direction for the enterprise, fa-thers are often the dominant fizures andact as the sole leader of the lftraft.

The Chinese also believe that self-sac-rifice in the life raft and thriftin thebusr-ness ensure survival. A high, even irra-tional, level of savings is desirable, re-gardless of immediate need. Chinese cor-porations are extremely liquid; conse-quently, they can quickly invest in ven-tures, without seeking external funds.Other "tangible" goods, such as real es-tate, natural resources, and gold bars arepreferable to intangibles, like illiquid se-curities or intellectual property. Becausethey value family relationships, invest-ment decisions are based on kinship orclan affiliations, not on abstract princi-ples. Famcors make investments withinihe familv so that monev stavs within the

family pockets It is not unusual for theChinese to buy their relatives' "dying busi-ness" and seek to revitalize it.

If American companies may be char-acterized as relying on technical skills forcompetitive advantage, perhaps Chinesefamcors in turn focus more on buildingnetworks. Loose enhepreneurial networksbased on trust make business transachonsmucheasier; a handshake can close a deal.Loose networks also allow firms to changedirection quickly.

In Hong Kong, industries makingwigs, flowers, and radios have sprung up,made a profit, and disappeared again.aToday, Chinese famcors are forming alli-ances with other non-Chinese corpora-tions to protect their own business. TheGokongweis in the Philippines are nowinto ioint ventures with the Lopezes, inPCI Bank, for instance. Their networksalso complement the strong hading ori-entation which is their key to assess cus-tomers' needs.

Buy InwChinese famcors also see problems,

particularly economic crises, as invest-ment opportunities. While Filipinos mi-grate abroad during recession, the Chinesetake advantage of this economic situationby buying land, which they consider themost valuable asset, while it is cheap. Theyalso buy family businesses nearing bank-ruptcy or ones that do not survive the tran-sition to professional management.

For example, Henry Sy of SM PrimeHoldings, known for pioneering malls inthe Philippines, stated: "ldhen the econornyis down, I buy land, when ils very verycheap. That's also when you take over thebusiness left by those which went bank-rupt." He built his fust department store(Shoemart) in 1958. During the economi-cally and politically volatile 1980s, hetumed mall magnate when he opened hisfust one in 1985. He now owns four mallsin Manila and one in Cebu Ciry It wasduring the stormy 1980s, too, that Sy qui-etly amassed 87a of his landlords' (theAyalas) company shares.5

Many Chinese famcors diversify with-in their business. For example, JohnGokongwei foresaw the economy's surgeafter the fallofMarcos in 1986. He nade asignificant move into the property sectorby acqiriring a huge tract of land in thethen emerging Ortigas area in 1987. There

JUNE-JULY 1996 . THE ASIAN MANAGER

Population(asa%oftotal

Population(Millions)

Businessoutput Conhibution(as % oftotal toGDPlocal e(onomy) ($ billions)local population)

Hong Kong

Singapore

Taiwan

Malaysia

Thailand

Indonesia

Philippines

Vietnam

Total

9876993210

11

6

2216

o

8

1

1

51

80/ o

956050504020

12062

'255

48809830

697

So!re:Eru; H€lmur S.hunej lead

40

he built a mall, a hotel, and an officetower He teamed up with power distri-bution and media mogul, Eugenio Lopez,to buy control (24%) of Philippine Com-mercial International Banking Corpora-tion (PCI Bank). He also became the larg-est single stockholder (197o) of anotherleading bank, Far East Bank & Trust Com-pany.6 When Cable & Wireless backed outfrom the fledgling Digital Telecornmunr-cations, he grabbed the oppotuniry say-ing "V!'e'rc now the biggest telephone corn-pany and we'll have 200,000 lines operat-ing by next year" He also bought three bigsugar mills from the govemment and wentinto printed circuit-board manufacturing.As a result of the power crisis in 192-1993,he teamed up with Manila Electric. Withhis 20% stake, the Fint Private Power Cor-poration, which built a 600-megawattpower plant, was set up.7

Dvolntion Ib ProlesslonalManagement

One tenet of Confucian philosophyemphasizes adapting one's self to thechanging environment. Thus, Chinesefamcors today are evolving into more pro-fessional organizations. While manyfamcors still choose to limit their size ac-cording to the number of family mernbersinterested in the business, some chooseto expand beyond that limited horrzon.Chinese corporations are no longer lim-ited to small firms; they nowincludecon-glomerates like Salem of Indonesia. In-creasing size creates decentralization andopens opportunities to non-family m€m-bers (NFMs).

Famcors since the end of World WarII are usually composed of the founderor the first generation, the second genera-tion, and the third generation. The firstgeneration are self-made people in their60s or 70s who made it big in the busi-nesg and some of them without collegedegrees even. The second generation, intheill0s or 50s, may be already equippedwith MBAs. The third generation, in theirmid-2Os or 30s, mostly have MBAs and"western" exposure.

For example, at Rustan's, which wasfounded by Filipino Bienvenido Tantoco,Sr and thelateGliceria Tantoco, the thirdgenerat ion now conl inues t radi t ion.Bienvenido "Donnie" Tantoco III, agrandson of the founders, is ExecutiveVice President and General Manager of

THE ASIAN MANAGER . JUNE.JULY 1996

A

B

c relativesor friends

secondor third

Chart 1. Succession Process

Royal Duty Free Shops. He is 28 years old.His cousin, Anthony "Anton" Huang, isVice President of Rustan's Marketing Cor-poration and Executive Vice President ofStores Specialisis, Inc. Both Donnie's fa-ther and Anton's mother are still activelyinvolved in many companies under theRustan umbrella.3 The succession processis outlined in Chart 1, Part A.

Founders usually get their childreninto the business earlier on in their livestfuough apprenticeship and'education inbusiness schools. Arihur V Ty, eldest ofthe five children of Filipino George S. K.Ty, Metrobank Chairman, is the Vice-President for Accounts Management.Arthur epitomizes the marriage betweenan Eastem orientation and a Westem edu-cation (MBA, Columbia University). Hegrew up exposed to the family business.During summer, he worked as a messen-ger when he was ten years old and lateras a clerk in various departments. Aftergraduation, Arthur was employed in asmall investmentbank in Hong Kong be-fore he finally joined Metrobank.'�

But in some cases, the founder's rela-tives and/or friends. rather than his di-rect descendants, are groomed to be suc-cessors. Lance Gokongwei, the son ofJohn Gokongwei, does not expect to as-sume the leadershipofhis father's multi-billion peso businesses when John retires.Instead, Lance's uncle, James, will suc-

ceed John because, as Lance puts it, "The

set-up (fromJohn to James to Lance) wasprobably devised because I need morework experience. There needs to be a pro-gression."ro

Like Lance, Michael and Bong Tan,heirs of Lucio Tan, are not immediatelyexpected to take over from their fatherIn the interim, their uncles and closefriends of their father are the businessadvisers. Lucio Tan's conglomerate in-cludes Fortune Tobacco, Allied Bank, andPR Holdings (Philippine Airlines), amongothersr' (See Chart 1, Part B).

However, the second generationsometimes does not take over the busi-ness, possibly because of lack of interest;other relatives, close friends, or adviserstake over instead. The second generationmay rekindle an jnterest at a later time,or the third generation may take overfrom their grandparents ( See Chart 1, Partc).

Though the pahiarch is still dominant,the business life cycle often coincides withthe life cycle of the second generation,who are in their 40s. At this stage, mem-bers of the second generation try to de-fine themselves, to enter new business,and to be successful to satisfy iheir egos.New venhrres require different skills andsecond generation leaders are more opento consultation and are more willing tohire professional managers.

A receni survey (Tle Emnomist,March9, 1996) in Hong Kong showed that Chi-nese professionals prefer to work forWestern or Japanese managers; most ofthem do not want to work for an organi-zation that will not give them a role incompany strategy. These non-family pro-fessionals feel that respect for authorityand age too often prevent them from criti-cizing "the boss."

Chinese famcors may be more "west-

ern" because of the inJluence of the sec-ond generation's western education andthe entry of the NFM professional man-agers in the business. "Revisionists," likeDavid Li of the Bank of East Asia, say thatpeople should not assume a uniquelyAsian approach io business. Rewardingemployees well or building up a core ofprofessional rnanagers is not westem; itis simply good management.

Mr Ty of Mehobank explains that "ihe

change from the older generation to theyounger one will not be drastic. Con-sciously or not, the hend will be towardsa good blending of the East and theWest.""

Li and Fung, a Hong Kong tradinghouse, is an example of a company thathas combined westem management con-cepts to a Chinese business. The Fungbrothers have replaced cousins who usedto work for them with managers on per-formance-related pay; they also encour-age staff to criticize their superiors. Al-though the company no longer providesjobs for the relatives, it is still run by theFung brothers whose words, in the end,

were law.

Tamlly and Non-TamilyMembers

In AIM, the famcor team has observedthe relationship of non-family members(NFMs) with family members (FMs) andhypothesized that the roles may varythrough generations (See Chart 2). Thekind of NFM1 that an FM1 is most likelyto hire is one who is just as experiencedashe/she is. However, NFM1 knows thatthe firm is FM1's brain child; criticizingthe business therefore means criticizinghis/her "friend." The most that an NFMcan do is to give FM1 pieces of advicewhen the need arises, making him,/herFM1's compatriot. With respect to FM2,NFMl's role is to guide FM2, combininghis practical knowledge, contacts, andnetworks with the latter's higher educa-tion. Thus, NFM1 is like a godfather toFM2. NFM1 is a symbolic surrogate toFM3. FM3 may use NFM1 as a "sound-

ing board" forideas that FM3 may notbeable to discuss directly with FMl becauseof family tradition; also, NFM1 still hasto defer to FM3.

The role of NFM2 is usually to sus-tain th€ business of FM1 especially if noFM of the second generation is interestedor is able to continue the business. ThisNFM2 is usually the superstar-competent and loyal-who will carry on thefounder's (FMl's) dreams, thus makinghim/her the torch bearer of the business.On the other hand, NFM2 is FM2's part-ner since NFM2 works "side by' side" but

not equally with FM2. FM2 is more opento consultation with NFMz than is FM1to NFMI. As regards FM3, NFM2 is likea mentor to him/her Since NFM2 hasgrown old together with the businesswhile FM3 is gaining more expenenceoutside the famco_r, his/her role prima-ri.ly is to teach the young FM3 ins and outsof business and farncor practices.

The NFM3 works for FMl like iust anyordinary employee since helshe hardlyhas any contact with FM1. Thus, NFM3should ally wiih either FM2 or FM3. FM2needs a competent NFM3 to profess-ionalize the business. However, NFM3,being young and ambitious, may not nec-essarily have the loyalty to FMz on a long-term basis, especially if he/sheperceivesthat he/she will not head the famcor.NFM3 is usually the transient type orguest of NFM. However, NFM3 is alsoknown as FM3's associate since he/sheis more like a friend to him/her. They mayestablish better relationships since theymay share the same lifestyle and values.Furthermore, FM3 tends to create mor€contacts to build his/her own distinctnetworks and might be more open to sug-gestions of the NFM3. However, sinceboth are "new" to the business, the pos-sible hansition to "partner" must evolveover hme.

future of TamaorsAccording to Gordon Redding, a busi-

ness professor at the Universiiy of HongKong Chinese family-run businesses rrayprove fundamentally unsiable uponreaching a particular size because com-munication lines break down whenhighly centralized companies grow tothousands of employees scattered acrossdifferent countries.13

Redding also believes that it is highlyimprobable that Chinese family firms willattain such a size because, chances are,they will have been divided along theway, to allow sons and daughters to in-herit.

Another possibility is that famcorsnahrrally break up through takeovers orfamily feuds. Such occurrences preventmany businesses from growing into themu.ltinationals they could otherwise havebecome but, at the same time, give Chi-nese capitalism a chance to regrouparound a new generation of entrepre-neurs.'"

TL'r'rEJuLy 1996 . THE AsrAN MANAGER

Chart 2. Inter-Generational Relationship ofNon.Family Members with Family Members

Non-Family Members

Family

Members

Generation -l

(NFM1)Generation 2

(NFM2)Generation 3(NFM3)

Generation 1(FMI)

Compatriot Torch Bearer Employee

Generation 2(FM2)

Godfather Partner Guest

Generation 3(FM3)

Symbolic Surrogate Mentor Associate

42

In the past, gfltnd or connections, par-ticularly with government, were the chiefasset of many companies. At pres€nt,however, connections are less importantbecause Asian govemments liberalizedtradeand ffi their domestic econornies.The next generation ofleaders, therefore,must develop their own contacts whomight be fellow alumni from Westernbusiness schools rather than cousins andfriends oflong standing.ls Moreover, con-nections count for less in today's globalconsumer markets.

As control of most of the so-called"bamboo network" is passed from its eld-erly founders to the next generation, thequestion arises; Will the new generationsurvive into the next?

An old Chinese proverb states thatwealth does not last beyond three genera-tions. So there are those who posit thatthe coming generation may not be "up tothe job."

Succeeding generations have to con-tend wiih working "in the shadow of alegendary father," so that whatever cau-tion they exercise may appear like timid-ity while whatever dsk-taking ihey ex-hibit may seem like foolishness.l6

As Anton Huang of Rustan's acknowl-edges: "Rustan's, to me, is something ourgrandparents built and gave to us. It isour responsibility to keep it going. Eve-

rything that we have is because of whatour grandparents gave us. It is something

for the third generation to live up to."17

REFERENCES"As Secretive as His Father, the Taipan."

Elisha R. Garcia, Brsiress Worid."Asia's Ruling Families," Asiamoney, Oc-

tober 1994."lnheriting the Bamboo Network." Ihe

Economisf. December 23, 1995-January 5, 1996."The Limits of Family Vali.res." The Econo-

mist, March 9,7996."Mr

John's Son." Margaret Jao4rey, Busi-ness World.

"The Rise of Grandsons." Vladimir S.Bonoan, Businus tNorld.

"Shength in Numbers." Rigoberto Tiglao,Far Edstetn Eclnomic Reaifln, JuIy 21,,199a.

"The Worldwide Web of Chinese Busi-ness." John Kdo, Hqraard Business Reuiew,March-April 1993.

FOOTNOTESL The Limits of Family Vah)es." The Economist,March 9,1996.'� "Asia's Ruling Families," Asi.afloney, Octo-ber 1994.3Julian Baum, "Empire Building" FEER, No-vember 14, 194.4Ibid.'Rigoberto TiSlao, "Strentth in Numbers,"FEER, July 2't , 1994.6 Rigoberto Tiglao, "Work Hard, Get Rich"FEER, November 24, 1994.? Ibid.3 Vladimir S. Bonoan, "The Rise of Grand-sons," Business lNorkl.' Elisha R. Garcia, "As Secretive as His Father,the Taipan," Business World.10 Margaret Jao4rey,

"Mr John's Son," Btrsr-

ess World.rFelicidad V Tan-Co, "ln the Blood," EasiflrssINorld.l'� Garcia, "As Secretive," Business World1: rbid.t4 tbid.t5 tbid.16 tbid.17 Bonoan, "Grandsons," Business Wltld

Asuttcion M, Sebashan is a Researcher al lhe AstanInstitute of Mtfiagetne t.InLer et: ams@aim.edu.ph

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NOVEMBER.[ Basic Management Program (4w)

4 Program for Development21 APEC Business Forum

Legend: d - days

w 'weeks

"Work Hard, Cet fuch. ' Rigoberto Tig,lao,Far Eastern E"ono^ic R oi,., Nou. b"? 2i. i::f ::;"f;;*

t;,ir"^;:i,!:,' '!:,!,:::";:,?,:::,,

lqq4. hankid@oin edu Dh

23JULY4 MBMRegistration starts8 BasicManagement Program (4w)

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26

THE AshN MANAGER r Jr.;ya-Jurv 1996 43

Rnsnmcn

BY CFN. ARNLLFo G. AcEDIRA ANDPRoFESSOR ERROI- B, I )EREZ

The [Jse of Management Seiencein the Philippine Air Foree

Pafi l: Markov Chain Analvsis

his strrdt, eramines tlrc nccdfot a more.rccnratc mcthod ofprcdicting aircraft accidents in

coverri cl isaster rclief, .rnci rehabil itation()perati0r'ts;

J . To con l i r r r re upcr . rJ inq l r l , ' r . : rn . r rn -ten.lnce and pardrescue f ersonnr,l;

5. To rctlucc aircraft accidents/rncrelcnts in the. conriuct oiair operations; and

6. To provide assistancc to thc differ-cn t soc io -L . fon o l r r i c r le le lopnrent , r1a P i r i l i pp inc A i r Forc t 'un i t to h t l1 . r

prr.\ 'L.lrt thcir recllrrence. It also cranr-ines thc nt'r 'cl lor cstatrl ishing.r policvf()r optin'rizing ti le .rl location of air rt 'sources for thc iclcntif iccl activit ies( l ' , r r t I l ) .

Tht follorl ine floiv cliagram surnm,r-rjzes the prrscntat()11 ot lhis article:

ll:r.kgr.orrnrl- l ' r ' : ' r ; l l r H ( i . , , i ' t ( r \ \ i n \ r . . r 1 ' r r -

rnnrv unit ot thL. Irhil ippine. Arr Force commrssioncci k) conduct Lrctical ,rir olcr,r-t iolts irt support of the Ali l ' forcts. Somcof its spccii ic objtcti lcs are:

1. TLr atlain hirh opcralional re.arl inessr,rtL. oi dll supportable,rircraft drplor.cdto clif lerent ,rre,r comm,rntls n.rtionu icle;

L To pcrlorln l i l l l i tcd cl(rse,rir sup-port;

3. To perfLrrnr:earch,rncl rcscll€./ re-

l.l

ffii:'f*h xri[xY,PART I

DataCollection

PART II

Allocation ofResources toSelected Activit ies(DynamicProgramming i

F ind ings

Recommendations(ldentif ication of FLTSafety lmprovementActivit ies

Conclusion

Ju\F-JL ly 1996. THF Asr , \N \ '1 , \N , \C l ,R

projects of the government.To efficiently accomplish its mission,

the Wing operates 78 UH-IH helicoptersfrom 18 tactical advance command postsstrategically located nationwide.

This widely dispersed situation of fly-ing assets and personnel accounts formany diffiulties in logistics, personnel,operations intelligence, and maintenance.Conversely, the Wing's record of flightsafety is affected by the efficacy of itssafety programs based on historicalrecords of accidents arising from combat,training, maintenance, and routine oradministrative fl ights.

While the PAF's Drectorate for Opera-tional Readiness and Flight Safety(DOREFS) keeps hack of PAF's stahrs andstandards of flying safety, its function isbasically investigative in natur€ and itspreventive programs consist mainly ofpubllshing safety bulletirs derived from in-vestigations of previous accidents. Moreoften than not, any trend in the causes ortypes of accident is left for the apprecia-tion of operating units as having beencaused by human error or material failurewith such aggravatinS circumstances asbad weather or fatigue factor.

Consequently, DOREFS is unable toproiect with a certain degree of accuracythe frequency of accidents, and more im-portantly, the t)?e of operations in whichaccidents occur. Neither do operatin8units have any reliable basis for allocat-ing scant resources to appropriate acci-dent prevention activities.

Purpose of The StudyThe main purpose of this study is to

develop a more accu ra te, quantitative, sci-entific method of predicting specific air-craft accidents and to establish an opti-mum policy in the allocation of resourcesfor the abatement of such aircraft acci-dents.

Problem AnalyslsAvailable data, as far as accidents are

concerned, date back to 1971 when PAFacquired UH-l H helicopters. Operationaldata are, however, available only Irom1980 to 1993 when the 205th HW was des-ignated as Helicopter Wing.Observations

The accident and operational data inTable 1 show that no less than two acci-dents per year occured from 1971 to 1992

THE ASIAN MANAGER . JUNE-JULY 1996

with the highest at seven accidents in1987. Accident rates are reflected in oer-centages based on the number of acci-dents per 1,000 flying hours in a year

The total flying time (in hours) com-pleted yearly is also given from 1980 to1993. Contrary to the common notion thatthe number of accidents i-s basically afunction of exposure to the risk involvedin flying, a closer look at the figures showthat there is no one-to-one relationshipbetween the number of accidents and thenumber of hours flown. For instance, fiveaccidents occured in 1980 with 5,885flown hours but flown only three acci-denis with 10469 flown hours in 1986.

Table 1 also shows the type of opera-tions the aircraft involved was engagedin: combat training, maintenance, androutine or administrative flight.

Data also show that familiarity withthe equipment does not guarantee feweraccidents. In fact, there were fewer accr-dents in the earlier yearsftom1971to1974compared u/ith 1987 to 1992. Neither isthe age of the equipment a factor Onlytwo accidents occurred in 1985 when thehelicopters were ten years older than in1975 when four accidents happened.

A closer focus on the accident profile

in 1991 to 1993 is presented in Figure 1.Most of the accidents occurred in Janu-ary February and March leading to thefollowing factors:

* Although the months of January,February, and March normally have thehighest number of flyable days in a year,the total number of hours flown show thatthey are the lowest. This confirms the ear-lier observation of the absence of or lowrelationship between the number of acci-dents and the hours flown. It is, however,a common observation that due to thenumber of holidays dudng these months,crew proficiency and concentration suf-fer the most.

* The flight crew involved in the acci-dents were most probably affected bysuch factors as:

- holiday hang-overs- rotation in deployment loneliness- residual financial and/or family

stress from the Christmas holiday break- non-observance of ihe required 'tot-

tle to throttle" period before flights- deviation from the authorized flight

mission- low proficiency levels after coming

from the holiday break- lack of "hands-on supervision" due

Table l. Ahcraft Accident Profile

Legend:f Combat@noutineIrrainins @ m.int n.n..

ai 0IJ^ l

? , t

L , lo -

t 1

45

to poor commurucauon

nstablishing Probabilltyl|lstrlbutions

A record of weighted average yearlyaccidents is shown in Table 2 which illus-trates the number of times accidents oc-curred from 1980 to 1993. Accepting thesenumbers as typical, we can then use thishistorical record to assign a probability toeach number (of accidents) and therebycompute for the weighted averageyearlyaccidents. Over a period of 14 years, datachow that the er.pected number of acci-dents per year averages at 4.15.

Likewise, using Table 2 as reference,we can draw a probability distributionabout the long-run occurrence of yearlyaccidents, say for the next 14 years (SeeFigure 2).

The Poisson ffistributionSince the situation may be described

by a discrete random vafiable that takeson a non-negat ive in teger (wholenumber), it is characteristically a Poissonprobability distribution. The probabilityofX accidents happening in a Poisson dis-tdbution is calculated using this formula:

p 1 * ; = r . , e .ti

where: P(x) is the probability of x ac-cidents

is the average number of acci-dents per year; and eis2.71828.

From Table 3 and Figure 3, we can an-swer some questions of interest. The to-

Figure ' l . Accident Rate. 1991-1993.

tal value is less than one because the prob-ability that more than seven accidents willoccur in a year exists. If we want to knowthe probability of at least three accidentsoccurring in a year, we can add the prob-abilities of 0, 1,2, and 3 accidents and sub-tract the result from 1:

P(0) = 0.01832P (1\ = 0.07326P (2) = 0.14653P (3) . 0.19537

0.43348P (more than 3) = 1 - 0.43348

= 0.56652

Markov AnalysisAlthough this is probably the first time

that Markov analysis will be utilized inthe prediction of aircraft accidents, the

JUNE-JULY 1996. THE ASIAN MANAGER

MonthsJao feb Mar Arr lilay Jun JUI AUg sep 0d Nov LJ€C

MofAccide cY 91

cY 9i 1

cY 9(ACqoenlRate

cY 91121.156.8 24.5 32.9 n.9 18.5 16.0 20.1 18.1 21.1cY vt 48.4 57.7 25.0 29.7 x.4 31.2 28.3 23.3 21.5 254cY 9i 67.1 31.0 18.5 11.7 11.7 s.8 8.7 6,5 5.9 5.2

T&lFlyngnolB

cY 9' 525.6t759.527ffi.140n.76S1.17238,88727.8t07sl12156.1 8363.6

cY 9' 2073.3346.675S8.07S91.8 7165.0 9641.0cY 9(1488.53220.953S 4 6802.7&512.!A1r4 t 11fi.2 531&t6784.6|n1.5gn.0

Table 2. Weighted Average Yearly Accidents, 1980-1993.

(1) (21Nrof NrofyfsAccidents Nr of Accidents

Occuned

(3)= (2),t14Probability(RelativeFrequency)

0.070.070.140,290.290.070.07

(a)= (1) . (3)WdghtedAverage

0.070.140.421 ,161.450.420.49

1

34

7

11z4+11

14 1.00 4.15

Expected nr of accidents per year 4.15 on the average for 14 yrs.

46

Table 3. Helicopter Accident Occurrences,by Poisson Distribution, 1 980-1 993.

Nr of Accidents01234567

Probability of Occurrences0.018320.073260.146530.195370.156290.104190.05654

0.94587

same advantage gained in utilizing thematrix of hansition probabilities, as ap-plied to the prediction of market sharesfor future periods based on past andpresent behavior, could find acceptabil-ity in the determination of the type ofoperations future accidents will occurgiven also past and pnesent distributionof such aircraft accidents. ln examiningthe probability of accidents occurring ina particular type of flight mission such ascombat, administrative, training andmaintenance, itis thereforebest touse theMarkov analysis. The period consideredis narrowed down from 1990 to 198.3 forobvious reasons of data validiry ease ofcomputation, continuity, and counterchecking with the results of the Poissonprcbabilities (See Table 4).

Hence, if an accident occurs rnl994,there is a 45,2% chance that it will occurduring a combatfhght,34.7%o chance dur-ing an adminishative flight, 20.1 % chanceduring a haining flight, and highly im-probable during a maintenance flight.

The foregoing analysis using theMarkov method is highly simplified andassumes that:

''*'the intensity of combat engagementswhere the helicopte'rs were flown in thepast remains coru;tant which may not beconsistentwith reality. This may however,be offset by providing an adjustment con-stant (k) which maybe reduced fraction-.ally for every year in proportion to thelessening stren$h of the enemy, in spe-cific areas of engagements.

* the sharing scheme in the type ofmissions flown is in reality not equallydistributed. For instance, the advance

THEASTANMANAGER . JUNE:JULY 1996

command posts or even the CompositeAir Support Forces are not authorized toconduct training flights in tha deploy-ment areas. On the other hand, the 210thTactical Helicopter Squadron being theWing's training squadron based inVillarhor Air Base cannot be expected toconduct combat operations This seemingunequality in the flying time allocated forthe four activities of combat, training,maintenance, and adminishative flights

is somehow negated by the fact that thenumhr of accidents is not directly pro-portional to the risk associatd with fly-ing as earlier established.

FlndlngsBased on the foregoing quantitative

analysis/ we are able to establish the fol-lowing:

1. Over al+year period (1980-1993)for which a relatively morecomplete dataarc available, the weighted average yearlyfor aircraft accidents is 4.15. Conversely,it is possible that 4.15 accidents per yearfor the next 14 years are likely to be en-countered by the unit if it continues tofollow ib present operational policies andconditions.

2. Using the Poisson dishibution, thehighest probability of occun€nce is 19.SVofor three accidents to happen. However,the likelihood that more than three up toseven accidents will occur is pegged at56.6Vo.

3. The first order Markov Analysis ofthe situation allows us to predict that ifan accident occurs in the fufure, there is a45.2Vo chance that this will occur duringa combat fhght,34.7Vo chance during an

t Table 4. Probabilities for Accident Occurrences. 1990-93.

TotalYear Accidents Combat Admin Training Maint

1990 6 2t6 3/6 1t6 0/61991 4 . 214 114 1t4 0141992 5 3/5 115 . 115 0/51993 1 0t1 0t1 111 011

Share 16 7116 5/16 4t'16 0116

Using matrix algebra, we can now determine the probability for each type of accident toocdlr in a particular year.

Share of Accidents Types of Accidents Probability

Row 1 x Column 1: Row 1 x Column 2:

.438 x .333 = :146 .438 x .500 = .219

.313 x .500 = .156 .313 x .250 = .O78

.250 x .600 = .150 .250 x .200 = .0500 x 0 = 0 0 x 0 = 0

.3\7

Row 1 x Column 3: Row 1 x Coumn 4:

. 4 3 8 x . 1 6 7 = . 0 7 3 . 4 3 8 x 0 = 0

. 3 1 3 x . 2 5 0 = . 0 7 8 . 3 6 3 x 0 = 0

. 2 5 0 x . 2 0 0 = . 0 5 0 . 2 5 0 x 0 = 00 x { = 0 0 x 0 = 0

r.43s .313. .250. 0t [-*a :ffi .ttl 3l =|4s2 .347 .2o1 o]tjja.

.200 .r\o iJ

The matrix calculation is explained in detail below:

47

administrative flight, and 20.1% chanceinvolving a haining sortie. Chances arenil for any accident to occur during amaintenance test flight.

Further qualitative shrdies revealedthe following results:

1. Aircraft accidents that occurred dur-ing combat involved cases where the pi-lots undertook combat maneuvers notroutinely practiced during haining. Whilepilots are regularly briefed before flightmissions, there are no published tacticsand doctrines that newly assigned air-crew can shrdy and internalize.

2. Another factor ihat is contributoryto combat accidents is the lack of clearcommunications between airborne andground forces particularly with respect to"real time" information on enemy posi-tions and other moving targets.

3. Corollary to the second point, par-ticipation of pilots in combat planning isdeemed critically irnpodant to precludeovercommitments, poor coordination,and violations of the dochine of unity ofcommand. Such a situation mayalso giver ise to loss of superv is ion dur ingmaneuvers as a consequence of the poorstate of HF communications equiprnenton board the 205th HW helicopters andthe lack of compatible ground radio setsat the TACPs.

4. The most probable factors that ad-versely affect flight crew performanceinclude:

- "bottle to throttle" discipline mayhave been breached resulting in generalflight safety complacency;

- family related woes and other psy-chological factors, such as loneliness as-sociated with deploymenl

- financial stress; and- deviation from assigned mission.5. Other contributory factors relate to

overall need to upgrade the avionicsequipment of the helicopters, particularlynavi$ational instruments, to improve ac-curacy in locating destinations and tar-qets,

In view of the foregoing analysis andfindings, it has becone imperative thatthe following concems be immediatelyaddressed:

1. Flight crew proficiency in combatmaneuvers:

48

Figure 2. Probability Distribution tor Number of Accidents Yearly

.22

.20. 1 8

. 1 6

Figure 3. Poisson Probability Distribution ofHelicopter Accident Occurrences, 1980-1 993.

t

. 1 4

. 1 2

. l o

.o8

.06

.o4

.o2

- tactics and doctrines must be pub-lished and distributed; and,

- haining aids, especially simulatorsmust be acquired.

2. Obsolete/discarded communica-tions equipment:

- Equipment must be upgraded forgreater adminishative control; and

- "hands-on supevision" must be im-proved.

3. Flight crew participation in combatplanning/briefing:

- intelligence collection must be en-hanced.

4. Aircraft navigational equipment:- GPS units must be acquired and

their updating accelerated.5. Deployment conditions:- crew per diems and other motiva-

tional items, such as priority in issuanceof allowances must be increased.

- Deployment facilities must be up-graded.

6. Field and depot maintenance capa-bilities:

- tools must be acquired.- expertise haining must be provided.7. Changing deplol.rnent situations.- Op€fational SOPS mustbeupdated. : 1

Amulfu G. Aceden is a DBA Candidote at the De LaSolle Cfiduate School of Business and Economics, ondis cufte ly the Comnanding Genenl ol tlv PhiliryineAit Force.

Prof. Errol B. Percz is a corc laculty deftber of the Mns-ter in Mo/agenunt Pmyam. lntaflet: errol@im.edu.ph

JI'NE-JTJLY 1995. THE ASIAN MANAGER

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ompanies that say itis people whomake the difference

in theh mission statementsare usually the first ones tostart downsizing.

In the boorning 1950s,opportunities were like lowIying apples. Companieswith more people and capitalcaptured most of theseopportunities and grewrapidly. In the 60s, this led toconglomerates. They usedshares to acquire othercompanies. They hired morepeople and paid them wellbecause they were makinggreat retums. Low interestrates and low inflationfuelled these booms.

The Arabs, however,spoiled all the fun. In 1973,they imposed an oil embargoon the west. Oil pricesimmediately quadrupledand thus brought the!'ulnerable west to thenegotiation table.

Then followed thenationalization of all oilcompanies and the steadyincrease of oil prices.Twenty-five percent of theworld's gross domesticproduct is dependent onenergy. Wealth startedpouring into the coffers ofthe Arab countries and thefew who bontrolled it goigreedy beyond measure.

The Shah of Iran, whoignored public sentiments,paid the price of a publicrevolt. The AyatollahKhomeni created the secondoil crisis; prices reached fi6per barrel in 1979. Inflationbecame rampant and theprimb rate reached 18%.

Mammoth companieswhich never knew how tooperate on hyper-inflationreeled under this burden.They fell easy prey to MikeMlken and the junk bondscorporate raiders. Hence, theend of the conglomerates.

As raiders found hiddenassets in the balance sheets(oversubscribed pension

50

funds, undervalued assets)new managers shrmbled oira concepi business restruc-runn8.

If Joe joined the companyat the bottom and in the firstten years reached hispotential and in the last 15years managed to get cost ofliving increases, he would bemaking more than $60,000 ayear. The sarne job could bedone by younger employeesearning $25,000.

Out of 40,000 employees,companies determined theycould replace 10,000 employ-ees and thus save $150million every year ln mostbig companies, pensionplans for those at age 50 was25%; this goes up 25% everyfive years. Invariably, mostof the displaced employeeswere older.

How could corporationdo this without getting suedfor discrirnination? Corpo-rate planners cohed newbusiness terms: rcstructur-ing, empowerment, andreducing corporate layers-all of these to refocusbusiness and to producebetter retums for the stock-holders. Empowerment andpushing the decision makingtowards the lower level has

made middle managersredundant.

Technology did its sharetoo. Computers madecommunications easy.Programs like Excel madecomplex decisions simpler tofi gure out. User-friendlydatabases made dataaccessible to ordinaryemployees. Technology putthe older employees, whowere t)?ically not computerliterate, at a tremendousdisadvantage. Severancepackages were offered atone-month salary for everyyear of service to all employ-ees . Employees were toldthat if the company did notreach the desired headcount,then forced layoffs would gowithout packages. Employ-ees with good prospectsoutside left immediately.Now the problem worsened.Companies had to bringsome good employees backas consultants at double andtriple the salary

Wnll Slreel cheered suchstupidity. When companiesannounced downsizing andreported huge write-offs,their shares achrally wentup. Some companies havebeen going through three tofour rounds of downsizing

since 1992. Morale has beenat its worst and loyalty tocorporations have sunk to anall time low. (Did you know6070 of the downsizedcompanies have yet to reportbefter profits?)

Imagine yourself at 48years old, selling gasoline tothe jobbers. You are making$5Q000 a year. You get laidoff with two years of sever-ance. Unemployment,depression, divorce, andfinancial drain might allfollow

Today in the U$ moreeducated people have fallenbetween the cracks. The jobmarket is full of victims ofdownsizing, a large part ofthem the unemployed seniorpopulation.

For these people, socialsecurity will not be enough.With a growing economy,this looks like a fertileground for new sources offrushations and seeds forrevolutions. Trade deficitsand protectionism may tuminto hade wars, which couldin tum become ugly militaryconfrontations. Yet there in asilver lining: computers.

Today you could replacemiddlemen and reachcustomers through ryber-space. Generally, brokers aregoing to be extinct. Withcheaper computing power,easier and faster commudca-tions, the world becomessmaller. Dishibution costswill plummet making morethings affordable for morepeople. People with uniqueskills will find it easy toreach potential customers.In the past, many of us couldnot make a living with thatbecause it was hard to doniche marketing. Cyberspacewill be the answer We hopewe can manage this revolu-tionbetter l

Mt. Robett U. Chan lrdn b thePresideftt of Chenoil Corryration,U.S.A. Intemet:Rvc@Chmoil.con

JUNE-JULY 1996 . THE ASIAN MANAGER

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