OCTOBER-NOVEMBER 1994

TI{EAsrex

AFTA:TALK AFTER?

/'

A6REE FIRST,$

6

.,: /'

THE FIRST I,OOO DAYSOF CA9PERAT'ON, THE As'AN WAY

. Primer on World Trade Blocs

_ . AFTAandTQM' . Is AFIA Viable?

. Information Superhighway

. Extending Product Life CycGs

. Environmental Management in Asia -

MALAYSTA M$8 JoPHIIIPPIN€s PHPSO OOS NGAPORE 5$6 50

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TAIWAN NTS]35.00THAILAND 895.00oTHERS US$5.00

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OCTOBER-NOVEMBER 1994

AFIA: Agree First, Talk After? 8by Professor Mari S. Kondo, AIMFor three years, the ASEAN countries have pushedforward on its trade area. The trick? Toss their hatsin the ring, and worry later.

Primer on World Trade Blocs 20Edited by Kin Gatbonton-LichaucoAFTA is not the only club in town. Twelve othergroups are potential competitorc to ASEAN.

tI.{N.tGUlltUfUT UPD,lTnS

Marketing

(1()l'uR st(fRll)s

by Prolessor Francisco Roman, lr., NMProf. Roman outlines marketing tactics and strategyfor the soft drinks and tobacco industdes.

Financeby Professor Emmanuel Leyco, AIMProf. Leyco presents "suitcase bankers."

Information Technologyby Professor Gaston D. Ortigas,lr,, AIMInfo superhighways like auto superhighways, speedthings up, but they could also get jammed.

BUSINnSS ItHl'�tllw

Countrv UpdatesJ I

by Professor Alejandrino Ferreria, AIMProf. Ferreria sums up events in Korea,Japan, and China.

RDSI.],INC|f

30

3428294350

36

Environmental Managementin the Asia-Pacific Region 45by Professor Etsu Inaba, AIMEnvironment is not just a social responsibility;it's a source of profits. Prof. Inaba wdtes abouther research in this field.

olDtNt()Ns

Professor Vicfor S. Limlingan: AFTA rebuttalProfessor Rene T. Domingo: AITA and TQMProlessor Jesus G. Gallegls, Ir.: Dignity = productionRobert V. Chandran: Poetry in Growth

t}{x)ta RRI rEu

Hans Supiyo: Corporate Folklore

40

if:tl"r^,r-STH. AnA\ MANA.TR A Publcanon ot thc Asian Institute ofManagem€nt and the ld€ration of rhe Asian Institutc otManaSement Alumni Asscbtion.

CopyriAht 1994 by The Asian Manager. All rights re$rvedR€prlAucdon in any mannerinwholeorh part in Englishorothe! langua8es p.ohibited. The Asran Manager, is poblishedbi-monthlvbv the Asinn Inslilute otManageh.nt. Editoialand Advertising Oilice: Asian Instilute ot Management,EUE€nio L6pez Foundation, joseph R McMickhS Campus,l23PassdeRolas ,Makan,Mct roMani la ,Ph i l ipp ins T€ l :(632)892 40 1r'25, 892 04 35-43, Fax: (632) 81792,10. PhoiGgraphs sour.ed byth€ AIM Lib.a.y.Printed by Times P.inters Pre. Ltd.,Sin8aporeThe Asian Manager MITA (P)245l9/9rKDN PP(S) 1076/3/93

Prbll8her Felipe B. Alfonsof,dhoFh{hhr Ricardo A. LimMr|r.gl4 fdhol Kin catbonton'LichaucoAaloclra€ Publtuhc} & Adverilshg Dlrecao.Delia C. Gutierre,

Itlr.cror, Ottrralo|! I Chcrlrrlor Millie C. Fenernercrrah .nd Produaalon Amv G. EsrinhPdll8hlnaf,o.rdReneT Domingo,JesusC.Gall€gos,lr.,VictorS. Limlingan, Ricardo A. Lim, Eduardo A. Morat6,Ashok K. Nath

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THr Asreu Meru,qcer . OcroBER-NovEMBER 1994

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FIA, the ASEANFree Tiade Area, isa much-writtentopic in newspa-pers, yet for most

people AFTA is out-of-sightand out-of-mind, because theissues have been muddled bytechnical doublespeak, poli-tics, and the dynamics ofAsia.In this issue we will attempttounmuddle, and answer somebasic questions on AFTA:What is it all about? How willit work? What are its prob-lems? What will happen next?

The flrst l,(XX) daysoT AFTA

Prof. Mari Kondo writesabout the first 1,000 days ofAFIA. AFIA, the advertisinggoes, is the ASEAN club's an-swer to NAFIA and EU andother clubs around the world.Like NAFTA and the EU,AFTA has had birth pains andimplementation problems. Itseems that in any agreementbetween more than two par-ties, there is bound to be somechaos. In the case of AFIA,however, the member coun-tries have employed theunique Asian st rategy of"Agree First, Talk After," tokeep the ball rolling. Strongoutside forces, however, suchas GATT and APEC/ are caus-ing this ball to tum this wayand that. We must rememberthat AFIA, despite the go-gogrowth of the ASEAN tigercubs, represents only 2Va of lheworld's GDP Can AFIA affordto be clubbish? Yet despite allthe seemingly endless talk,Asian companies are takingthings into their own hands, byforging ahead with "growth

triangles," a uniqueAsian con-coction. Managing Editor KinGatbonton-Lichauco writesabout the different playersaround AFIA, the competingtrade b locs. Prof . ReneDomingo states that TQMmust be in place for an AFIA

6

member to survive competi-tion. Prof. Vic Limlingan, in hisopinion, says everyone has for-gotten the role of Japan inAFIA. You will see interesting,and somet imes opposed,views on AFIA in this month'sThe Asian Manager.

New department:Dlanagement Updates

We introduce a new sectioncalled. Management Updates . Inthis section AIM professors

will summarize the latest intheir specific areas, and givetheir own interpretations of theevents. Their views will befrank and refreshing, andshould keep you abreast ofthe la test in managing inAsia. Prof. Frankie Romancases the contrasting market-ing strategies of Coke andPepsi, Prof. Noel Leyco ex-plains the mechanics of de-r ivat ives, and Prof . T i tosOrtigas writes about the in-formation superhighway.

Buslness revlev andCountr)' Updat€s

Prof. Andy Ferreria sum-marizes the China, Korea, andJapan experiences in CountryUpdates, and Prof, Jess

Gallegos and Bob Chandrangive us their regular monthlyopinion columns. We also wel-come contributing writer MrHans Supiyo, Senior Editor ofSWA Sembada, a widely-readbusiness magazine in Indone-sia. Hans gives us a Book Re-aiera on management folklore.

[esearch from AslaWe are also showcasing

curent research atAIM, in Re-search lrcm Asla. In this issue

Prof. Etsulnaba talk abouthercollaborative research in envi-ronmental management. Prof .Inaba surveys the best prac-tices of Asian corporations inmobilizing their people to im-plement "clean" programs,Asian companies are integraFing environmental programsinto their strategies and poli-cies, not merely for compli-ance, butas a natural extensionof the tenets of TQM; betterwaste management, better pro-ductivity, better competitive-NCSS.

Readerb commentsWe took a critical look at

The Asian Manager itself. \Nerecently asked a sample of1,500 readers to comment on

the magazine. We werepleased with the enthusiasticand candid responses. Thankyou for your help. We plan toask for your opinion on man-agement trends, through moresuryeys and wite-in letters.

Do write more letters to us.We value your comments andsuggestions. Remember theAIM case room? In that roomyou could critique and brain-storm and exchange ideasfreely. By sending your lettento us, you will ljeat The AsianManager as a continuation ofyour AIM experience. In fact,we could use writers like your-selves, our AIM alumni andfriends. We will print your let-ters, and if you want to ex-pound on an interesting ideaor experience, wdte it up inlonger form. Send us yourdiskor paper draft, and we will tryto fit it into the next Tfte ,4stdr1Mnnager . We would behonored i f you readersadopted this magazine as yourown "baby," and shared youropinions with other readers.

Many thanks toWe want to thank Prof.

Michael Hamlin, Editor-in-Chief, and Kin Catbonton-Lichauco, Managing Editor, fortheir excellent work in bring-ing The Asian Mnnager to thestatus it has today. Mike andKin have left us to pursue otherinterests. Good luck, and morepower to them.

We also thank Mr AshokNath, Publisher of the AFIAMonitor, for his tremendoushelp in shaping Tfte Asrirn Mar-agef.

F inal ly , in the spi r i t o fKaizen, we will continue toseek improvement until we getit right for all you readers. Butwe won't stop there: If andwhen we do delight and sur-prise you, we will probablyhave to improve again. Thankyou again for your help andcontinued suppo .

Ocroarn-Novrvsrn 1994 . THE AshN MANAGER

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AFIA:AGREE FIRST,TALKAFTER?

The first 1,000 doyt of cooperation,the Asian u)ay

By Pnorrsson Maru KoNoo

dnys haae passed since the ASEAN Free T?ade Area (AFTA)

formed in early 1992.lt rDns envisioned to enhnnce the competitiaenesswrongso

early in the gameT Does ASEAN really need AFTA? What else should happm forAFTAto incrmse the competitiaeness of ASEAN industryT Does ftwragement needto hnoe an "AFTA-mind" to get ahead in the regionT

THE T'ONMATION OF AI'TA

At the Fourth ASEAN Leaders' Summit in Singa-pore in January of 1992, the region's heads of govern-ment agreed to launch AFIA. They signed the Singa-pore Declaration and the Framework Agreement onEnhancing ASEAN Economic Cooperation whereASEAN economic ministers signed an Agre€ment onthe Common Effective-Preferential Thriff Scheme.

The concept of AFIA is simple; ASEAN membercountries Brunei Darussalam, Indonesia, Malaysia, ihePhilippines, Singapore, and Thailand will reduce inha-regional tariffs on all manufachrred items, includingcapital goods and processed agricultural products, andremove non-tariff barriers over a l5-year period begin-ning 1993. By the year 2008, the ASEAN manufachrr-ing market will virtually be a free market, with remain-ing tariffs in the 0 to sEa ra\ge.

Three key developmentsBefore one can grasp the full significance of AFTA

to the region and map out future directions, one must

understand three key developments:. The General agreement on Tariffs and Trade GATT

as well as APEC and other hade forums.. The emerging market economies in China as well

as in Vietnam, and India.o The inihal success of Growth Trianeles in the re

gion and inha-ASEAN investment.

Let's take a look at each development.

GATT and llFf,CWe should first recall why ASEAN initiated AFIA.

While ASEAN economies have been rapidly growingsince the early 80s, thg absolute value of such growth isstil l snall. The region's collective GDP in 1992amounted to less than 2% of world GDP. and was onlvslightly higher than Aushalia's. BuIASEAN has a largerpopulation, about 6% of the world's total, or 320 mil-lion people. With the creation of a free trade area,ASEAN countries hope to gain more global hade andinvestment, in particular, and increased competitive-ness, in general.

Ocrossn -NowMBm 1994 . THr Asr,cN MANA.csn

AFIA has ueflted a marketol320 millianpeopli

ASEAN economies are not homogeneous. For ex-ample, the variance in the region's 1992 average GDPper capita ofUS$1,156 ranges frorn US$650 for Indone-sia to Singapore's US$16,080. The creation of a free hadearea such as AFIA in such diverse economies is a com-plex task. However, the members agreed to do so andone of the chief reasons had to do with the GATT situ-ation prevailing at that time.

When ASEAN ceated AFTA, the GATT UruguayRound seemed to go nowhere. Until December 1993,theworld's major economic players were so enmeshedin trade disputes that the Uruguay Round was in seri-ous danger of collapse. Had it indeed collapsed, thosemost adversely affected would have been small coun-tries with strong export-oriented policies, such asASEAN membernations. The threat ofa breakdown inGAIT and in the global trading system encouragedsuch export-oriented countries to form their own re-gional economic groups. For ASEAN, it was AFIA.

ForhJnately, the world trading system remained in-tact. The Uruguay Round, signed on April 15, 1994 inMarrekesh, Morocco, provides a framework for the lib-eralization of global trade. Ironically, however, if im-plemented as planned, GATT rules for global hadeandthe tariff reductions will render the tariff concessionsthat AFIA has been offering somewhat superfluous.

Another major development in world hadedirectlyhas to do with how the Asia Pacific Economic Coop-eration forum is shaping up. The US Clinton Adminis-tration is putting more emphasis on Asia, and APEC isfastbecoming the major platform for hade and invest-ment talks for ASEAN.

With APEC headed the way it is, AFTA is in realdanger of becoming marginalized. At the same timeASEAN nations are wary of the potential dominanceof APEC by the US, Japan, and China.

Emerging Market DeonomlesAnother major reason why ASEAN leaders found

urgenry in establishing AFIA is the emergence of China

THr Asnu M,qxecrn . Ocrorln-NovrNfilr 1994

as a ma]or economrc powerEven before AFIA was established, China

had already been attracting more foreign directinvestments compared to ASEAN. The princi-pal motive of AFIA was to create a market of320 million people, draw foreign investments,and compete on a more level playing field withChina.

China's economic potential - and thereforeits competitiveness now with ASEAN - hasbecome even more pronounced in the last twoyears. Vietnam has also been luring foreign di-rect investments away from ASEAN. Moreover,ASEAN counhies now acknowledge the emer-gence of South Asia as a competitor for foreigndirect investment. India, with its growing mid-dle class now exceeding 100 million, has its owncapacity to become a major economic power.

Both AFIA and ASEAN, face the risk of being edgedout by China, Vietnam and India.

Growth Thiangles andIntra.ASEAN InYestment

One development that fed the region's confidenceto establish AFIA was the success of the trianele ofSin-gapore-Johore-Batam, despite the short history of co-operation within the three nodes. Singapore's strengthin technology and financial services, combined withIndonesia's and Malaysia's relativelycheap labor and resources, made the tri-angle a microcosm of AFIA.

The announcement ofAFIA, togetherwith the successful growth tdangles, kin-dled the idea of other growth hiangles inASEAN. In addition to the Singapore-

Johore-Batam configuration, at least twomore growth tdangles are emerging. Oneis the "Northem Triangle," covering In-donesia'sAceh and North Sumatra prov-inces, the Malaysian states of Kedah,Perlis, Perak and Penang, and the fivesouthern Thai provinces of Narathiwat,Pattani, Yala, Satun and Songkhla; theEast ASEAN Growth Area, which con-nects East Malaysia, Indonesia's NorthSulawesi province, and the cities of Davaoand General Santos in the Philippines.

NAFTA:lhllc IirsLAgree Interin the Westernstyle, just asAgrce FirstoTalk AtterqS ASEAN'Speculiar style...

Significantly, these development efforts are largelyled by the private sectors of ASEAN countries invest-ing wi th in the region.

A1'Tl: AGRID FIRST, TAI,I( A1'TItR?

ImplementingAFIA, however, has not been as easyas conceph.ralizing it. Some who follow the ASEAN'simplementation process have come up with a newmeaning for AFIA-"Agree First, Talk After." They seeASEAN counhies as rushed into making a political

decisions, with little planning and public debate, the"Agree First" as the first part of the agenda. The politi-cal and technical problems in implementation were leftto be resolved later, the "Talk After" as the second part.The Singapore Summit outlines only the basic points,and matters relating to implementation were left to betackled and documented after the agreement.

This is opposite of the North American Free TradeAgreernent. NAFIA s mechanics and details alone con-stituted a thousand pages and preceeded the agree-ment. Some observers note that NAFIA s Talk First,Agree Later is the westem style, just as "Agree First,Talk After" is ASEAN's peculiar style of pushing a dif-ficult agenda forward.

We first look at key principles of AFIA, which theBovernment, agreed to, and then examine what has sofar transpired.

(a) Common Xflccilve Prelenentlal Tnrlfl(CDPI):

Agree trlrst.-The main mechanism to operationalize AFIA is the

Common Effective Preferential Tariff (CEPD Scheme.Under CEPT, the tariff rates imposed by member coun-tries will be reduced to a uniform range of rates. Theresulting lower tariffs will directly apply to productsmanufactured in ASEAN.

Iblk AltcrWhen ASEAN decided to go for CEPI, the problem

of consistency with the past cooperation programsarose. For example, under the ASEAN Industry JointVenture (AIJV), a product can enter ihe participatingcountries with a 90% margin of preference, i.e. 707o ofthe prevailing tariff. The benefit to that an enterprisefrom such an arrangement could be much higher thanthe benefits than reduced tariffs in the earlv vears of

10

CEPT will bring. The ASI N countries, there-fore, in their "Talk After," ecided to honor allexisting AIJV commitmer . New AIJVs how-ever are subject to the new'JEPT rules.

(b) Pnoduci Coverage: manrlaeturedgoods only.

Agree llrst.-All manufacturing products, including capi-

tal goods and processed agricultural products,and goods outside the haditional definition ofagricultural products, are included in the CEPTScheme.

Agricultural products are defined as:. agricultural raw materials,o processed products classified underChap-

ters 1 to 24 of the Harmonized System Code,. agricultural raw materials and unprocessed

products in related HS headings, andr products which underwent simple processing

wiih minimal change in form from the original.

lhlk AfterThe interpretation of "simple processing" for agi-

cultural products, however, varies ftom country tocountry. In the process of firming up the list of prod-ucts for tariff reduction under CEPI, some memberssubmitted a lineup that included more agriculturalproducts than the others.

In addition, there is serious talk (after) among mem-ber countries of including Services and Flesh Agricul-tural Products in the AFIA scheme. If this happens,AFIA would becomes a full-fledged free trade area,rather than the cuffent anangement where only manu-factured goods are covered. As of August 1994, the

' ASEAN countries were still only talking about this pos-sibility.

(c) lhrlf, f,cductlon Programs.

Agtee Tlmt.-To prevent any abuse of the CEPT scheme, such as

some countries failing to reduce their tariffs to reason-able levels, the members agreed that only products witha 20% tariff threshold are subject to CEPT concessions.

Thereafter, two programs for the tariff reductionwere set: the Fast Track Program and the Normal Trackversion. The irnplementation date set for both was Janu-ary 'l,'1993.

o The Fast Track Program is applicable to 15 prod-uct groups: vegetable oils, chemicals, fertilizer, rubberproducts, pulp and paper, copper cathodes, gems andjewelry wooden and rattan furniture, cement, pharma-ceuticals, plastics, leather producis, textiles, ceramicsand glass products, and electronics. In this group,

i. ) tariffs at 207o and below will be reduced to 0-5%within seven years, by 1 January 2000.

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PROGRAMS

FAST?RACK

General Formrla 0l GEPT Taritf Reduction Schedute

NORMALTFACK

Year Jan. 1,199i) 1994 1995Pedod {y6lr.) 1 2

Sourc€: Tn€ r'€lA Monitor

ii) tariffs above 20% will be reduced to 0-5% within10 years, or by 1 January 2003.

. The Normal Track Program is applicable to allother product groups.

i) All tariffs with applicable ASEAN rates of 20% andbelow will be reduced to G5% within 10 years, by 1 Janu-ary 2003.

ii) Tariffs above 20% will be reduced in two stages:hrst, to 20Vo within five to eight years (by 1 January2001); and subsequently to 0-5% in seven years accord-ing to an agreed schedule ending on 1 January 2008. inorder to promote the commonality of tariff rates in sub-sequent years, ASEAN countries will reduce the tariffrates in three phases according to the following tirneschedule:

Year 2003Year 2005Year 2ffi7

ffi*)'*|+m;bm;;+ffi;t

other requirements such as mles of origin complicateadministraiion of the CEPT scheme. The ASEAN Cham-ber of Commerce and Industry (CCI) has adopted a pro-posal to accelerate the harmonization of tariff codes,with prioity to be given to products enioying high vol-ume of intra-ASEAN hade and those that fall underthe fast-track group of 15 product classifications.

Despite the delays, ASEAN countries are not mov-ing back the ending dates of implementation. As of endAugust 1994, the target end of CEPT tariff reductionremains the year 2008. Morc importantl, ASEAN coun-tries are likely to accelerate the CEPI-AFIA prograrnfrom 15 years to 10 years.

(d) f,xcluslons and hcGptlons:

AgFec I'lrct ..There are General Exceptions, Permanent Exclu-

sions and Ternporary Exclusions in the Scheme:General Exceptions are products excluded for na-

tional security, for the protection of humary animal orplant life and health, or for the protection of articles ofartistic, historic and archaeological value.

Permanent Exclusions are agricultural products.Temporary Exclusions are sensitive products that

members are not yet ready to include in the CEPTscheme. These products are subject to a waiver of anyCEPT concession; i.e., they are not subject to CEPT tar-if{ concession in other ASEAN countries. The temDo-rary exclusion is alldwed a maximum of eight yeirs(i.e. 31 December 2000), and items still excluded fromCEPT by that time will be reviewed with a view to fi-nally including this in the Scheme.

lhlk AftorThe temporary-exclusion list preoccupied the

ASEAN members the most. Because the agreement was

1996 1997 1998 1999 m z)01 20V2 2003 2001t 2m5 2@6 2@7 2oO83 4 5 6 7 8 9 1 0 1 1 1 2 1 3 1 4 1 5

15%107o0-5%

llnlk AltorAFTA was not implemented on the target date of

January 1, 1993 as most member countries missed thedeadline for subrnission of the list of products fol in-clusion and exclusion in CEPT. After repeated exten-sions of the deadline, the final lists were approved atthe ASEAN Economic Ministers Meeting in Singapore,in October 1993. The mernber countdes agreed to re-implement AFTA to January 1, 1994. Generally, eachASEAN country took the necessary steps to legalize andstari CEPT by the beginning of this year By the ihirdquartet however, implementation has been largely dis-organized. The major stumbling block lies at the cus-toms level.

One major issue at the customs level is that the tariffcodes of ASEAN courtries are not harmonized. Thismakes it difficult for each country's custom bureau toapply th€ right tariff on the dght product. Moreove4,

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on Thai Internationalwill be reflected €Tnsi

passed without much domestic discussion, the exclu-sion lisi nahrrally became the stage for impassioneddebates in each country. Counhies with large domesticmarkets such as Indonesia, Philippines, and Thailandfound it difficult coming up with a limited temporary-exclusions as domestic manufacturers lobbied for ex-clusion.

To compound the problem, these exclusion lists, aswell as the country-specific CEPT schedules, were pre-pared without consulting other members. When the fi-nal CEPT list was available for privaie scrutiny in No-vember 1993, it was a sirnple compilation of schedulesof each ASEAN country. Needless to say, the tariff re-duction schedule of each country was different from thatof the rest, and another round of debates within the pri-vate sector erupted.

(e) f,ules ol Orlgln

Agree Tlmt .-The local content requirement is 40%. This can be

achieved in a single country or on ASEAN cumulativebasis. In other words the aggregate ASEAN content ofthe final product should be at least 40% for the productto be eligible for the reduced CEPT dates. In general,the final manufacturing process of the manufacturemust be performed within the exporting ASEAN mem-ber countries,

The full value of imported materials, parts, or pro-duce-not just the ASEAN content of such imports-should be considered in the computation of aggregateASEAN content, which should be a minimum 40% ofthe imported component. This means there is no back-ward reduction to obtain a "net" aggregate cumulativeASEAN content value.

Thl[ llficrThe ASEAN countries have been in constant discus-

sion on how to compute rules of origin. This computa-

tion mechanism is important, because 40% can meanless or more, depending on how this is computed. Theamount of discussion on the rules of oriein is under-standable, ther being a key component thit detenninesthe nature of the free trade area-whether the area willbe a protectionjst or an open one.

The high local-content requirement is a double-edged sword. On the one hand it is bound to attractinvestments to the region so that companies can takeadvantage of CEPT. If, however, the supporting or re-Iated industries remain weak, then this requirement willwork the other way too as companies may find it notworthwhile to manufacture in ASEAN. However, lowlocal content will lead to the trade deflection. For ex-ample, if AFIA did not have a local content require-ment, goods from non-member countries could easilyenter the free trade area through Singapore, where im-ports are duty-free, and then move on to, say lndone-sia, where high tariff rates would normally be imposed.In this case, tariff protection for Indonesia becomesmeaningless.

The minimum 40% requirement is lower than theASEAN Preferential Trading Arrangement, 507o, buthigher than the 357, rate this same document appliesin special cases. Some Groups in to the textile sector,especially those using fabrics not made by any of theASEAN members, fear that they can not meet the 40%rule. They lobbied hard so that ASEAN introduced spe-cial rules for their respective industries. A method rec-ommended is a substantial transformation approach,under which inputs substantially hansformed withinASEAN be considered to fulfill the rules of origin re-quremenr.

Despite the frequent talk on rules of origin, the com-putation mechanism so far remains the same, andASEAN leaders will probably stay in this talk-aftermode for some time. The ASEAN CCI is neverthelesscalling for a review of the CEPT mechanism and a con-sideration of alternative schemes.

land Ar6a (l,000 sq km)Popularion (million)GDP ($ billion)GNP ($ billion)GDP Gmwth (%)Per Capita GDP ($)Unemployment (%)Inflation (o/dExpons ($ billion) :lmporb ($ billion)Foreign Dsbi ($ billion)Foroign Resorvo€ ($ billion)

tNoo1919

187.61 1 61 1 16.4

6203.0s.22926701 0

MAL330'17.8

42408.6

23455.64S34371 5t 0

THAI514

56.9/ c7S

13092.25.82838271 8

Sourc€: Frim6r on World Trad€ Bloca

14 Ocrosrn -No"Tlrgrn 1994 . THr Asnr Merecen

Taiff coiles of ASEAN countriesare not haftrronized.(Neptune Oient Lines)

(f ) lon-lariff Barriers:

lgree first ....TheASEAN mcmbers havedecided to remove Non-

tariff Llarriers, includin!! Quantitativc Ilestrictions, F'or-eign Exchangc llestrictions, and other Non-tariff Barri-ers.

Ouantitative Ilestdctions Quantitative restrictions(c1uotas, l iccnses, etc.) on products under the CEPTSche'mc u'i l l be eliminated if the exporting country en-jovs CEPT concessions on these products from the im-porling countrv

F.rreicn i-rch.:rrrge l le5trrclions Foreisn er,hans.erestl ici ions on ofpayments and the repatriation of suchpavments rvil l be reJaxed.

Other Non-tariff Barriers (NTBs) Other non-tariffbarricrs rvil l be eliminated on a gradual basis rvithinfive vears of the applicabilitv of CEI'�T concessions ontheir products.

Tirlk ,lflerThe issue of non-tariff barriers is cssentially unex-

plored, n it l .r the ASEAN officials tackling mostlv tar-iff-related matters.

Thcir stance appears to be a consistent, "Anyrvav

rve have at least five years." However, removal of non-tariff barriers is a real challenge for ASEAN.

Identifving and removing of nonlariff barriers isnot a shaightforward exercise, because NTBs are usu-allv hiddel. Companies enjoying non{ariff barriers willpr()bablv trv to kecp this from the government's knowl-cdge. And even if these NTBs are idcntif ied, assessingtheir impact on trade and subsequent resolutions bvtlre countrics will require patient negotiations. To fa-cilitate the removal of NTBs, the ASEAN CCI is pro-posing to identifv industry-specific NTBs that could beeliminattd through regional industrv clubs.

Trr Asr,rr M,rr,rcrt r . Oi ronrt Nor rrtnrn 1994

T||n ..At'TA-tf tNrD" 01'PRIViITE Ir-TERPRISI.

A recall of the kev features of AFIA andhon'this evolved into "Agree First, Talk Af-ter" can leacl outsiders to the impression thatASEAN is not serious about AFfA. The truthis that all the member counties remain sen-ous about AFIA, convincecl that it is vital tothe region's competit iveness.

WhileASEAN officials are p)aving a gameof "Agree First, Talk Aftet" the announcementof AFIA certainly changed the mindset andfocus of the private sector throughout the re-gion. Not', more enterp ses and individualsare paying increased attention to the prospectof ASEAN countries as trading partners andinvestment sites. Once the general course ofaction i{as determined, the private sector im-

mediately set out in hot pursuit. Intra-ASEAN invest-ments have been rising fast, and the trend is especiallvsignificant this year.

Sampling of reeQnt invoslmenls. hrdonesian timber tvcoon Prajogo Pangestu's

Barito Pacific, the country's largest listed company, tookover the loss-incurring Malavsian companv, Construc-lion and Supplies Holding (CASH). This deal createdone of the worl, l , ' largest t imber-based empire:

. I lenong of Malaysia and the state-owned Rakvatin lndonesia l.rave set up a M$100 million venture capi-tal companv Malindo Ventura Nusantara, to invest inmed rum-size industries in Indoneiia.

. Malalrsia's Robert Kuok and Indonesia's richestman, Liem Sioe Liong, are forming alliances. Thev re-centlv merged their sugar interestsin Indonesia and planto invest more than US$l billion on seven sugar proiectsin Sumatra.

. May Bank, Maiavsia's largest bank, is expected toenter into a joint venture with Nusa Bank in Jakarta by

vear's end.. Maiaysia's national car maker Proton has a joint

venture to assemble and sell Proton Saga cars in thePhilippines.

. B ig Ma lays ian compan ies such as Renong,Westmont, Ekran, and Hong Leong areworking on vari-ous infrastructure projects such as hotels in the Philip-pines.

. Singapore's government-controlled Keppel groupi. norr' lhe Phrlippine. largest .hip-repair companv.

. Metro Pacific, rvhich is controlled by Indonesia'sSalim group through the Hong Kong-based First Pacific,is emerging as a major player in the Philippines.

. Singapore Telecom is putting US$1 billion into ajoint venture with Ayala Corporation to install tel-ephones as well as digital transmission and cellularphone netrvorks in the Philippines.

1 5

r The Indonesian company Citra Lamtoro GungPasada will start building a US$32.2 million extensionto the South Luzon tollway in the Philippines. lt is alsoinvolved in a joint venture rvith a state-owned Philip-pine enterprise to build a US$632.6 million elevatedhighwav traversing Manila.

r Thailand's Bangkok Bank, ASEAN's Iargest bank,has taken steps to set up a branch in Manila, the firstundera new law liberalizing entry offoreignbanks intothe Philippines.

. The Philippine's giantSan Mifiuel Corp. has takena 49% equity in the brewery Delta Djakarta, maker ofAnker beer.

. In Thailand, Singapore was the top foreign inves-tor in the Bangkok stock market last year and the thirdlargest in terms of direct investment.

At least 100 joint ventures began betrveen ASEANcompanies in the last 12 months. These developmentsillustrate that ASEAN is on track to further strengthen-ing AFIA. There are three main reasons for this:

1. ASEAN's pdvate sector is pushing governmentfor faster integration. Business people are thrilled b1'the prospects in emerginfi growth triangles, and wantfurther deregulation so thev can operate more freelvn'ithin the region.

2. ASEAN, more than ever befnre, continuouslvneeds the power ofa solid voice at the negotiation floorof the World Trade Organization and APEC.

Although the world trade order did not collapse,new agendas have surfaced. ASEAN's rapid grorth isbased on cost competitiveness of their labor hr the newWorld Trade Organization, some westem countdeswant the new CATT agreement to link trade with work-ers' dghts. Of course, ASEAN opposed such a move,concerned that if that campaign for the inclusion of the"social clause" succeeds, wages in the region and otherdeveloping economies will rise and eventuallv erode

the cost advantages ASEAN now enjovsThe same thins is true in the APEC forum. ASEAN

countries are anxious to reinforce their grouping, whichallows them to gain more leverage by speaking with aunited voice.

3. ASEAN's competition for foreign direct invest-ment ftom the outside is getting fierce. In the words ofSingapore's Foreign Minister, "The emergence of China,Vietnam and India is diverting investments away fromASEAN. To overcome this and remain competitive, thesix-nation grouping must press ahead with economiccooperation through its free trade area" - and in timeexpand this to a 450 million people market to includeVietnam, Myanmar, Cambodia and Laos.

l(;u\D.t l 'oft .l ('()tttDl)'t 't 't 't l l l ,tt 'T.lAFTA has been criticized as "a little too little and a

little bit too late." ASEAN has to respond to this cdti-cism bv transforming AFIA into something "more andfaster" As ofAugust, several measures were being con-sidered to make AFIA more effective. Some of the fol-lowing agenda might soon take effect:

A€coleration of Thrlff Reduetion ScheduleThe members of CATT agreed to cut tariffs on

manufactured goods by one-third over a l0-year pe-riod. The AFIA time ftame should be shortened be-cause it is too long, compared with GATT's. ASEANcountries are mulling the possibility ofaccelerating theCEPT tariffreduction schedule. The NormalTrack Pro-gram could be abbreviated to seyen to 10 vears, fromthe original 10 to 15 vears, {'hile the Fast Track Pro-gram mav be reduced to five to seven years, from thecurrent timetable of seven to '10

vears. This time.ASfAN members realize the imperaiive of ironing outall the details in the proposed acceleration before em-barking on the proposal. Senior ASEAN Economic Of

PFOGRAMS Poslile Geaeral Formlla sf CEPT Taillf fiedoctlon Scdubinhe of Aocolordls[

tu-*---l ?| (Yr 2ooo) | .

FASTTiAC

NOMTALTRACK

1{D4 t905 19{16 1997 1998 19€S 2000 2001 2W 2009 2004 2005 rs8 2ff.7 rC001 2 3 1 5 6 7 I 9 1 0 1 1 1 2 l 3 1 l . 1 5

Year Jan. l,1993Peiiod {y|9.}

1 6 Oc:ro8rn -Novrvarn 1994 . Trrr Asrel MlN,rctr

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ficials are to submit their respective proposals on howto accelerate the CEPT during the 26th ASEAN Eco-nomic Ministers Meeting in Chang Mai, Thailand inSeptember 1994.

Incluslon of Dxeluded ScctorsThe inclusion of unprocessed agricultural products

and services, both of which are in the permanent exclu-sion list under the original CEPT-AFIA plan, is underserious study. Also, members are discussing the feasi-bility of moving the scheduled end of the temporaryexclusion list forward from the year 2001 to 1998. IfASEAN can adopt these two measures, then the scopeof AFIA becomes much wider - and enhances its com-pehtrveness.

Unprocessed Agricultural Products; Flesh agricul-ture products are excluded from CEPT. However, thismay no longer be appropriate because both GATT andNAFIA allow cuts in tariffs on farm goods over spe-cific time frames. Indonesia is taking the initiative ofincluding non-processed agricultural products underCEPT. Agriculture will continuously be negotiated atthe proposed World Trade Organization. Observers havenoted that if ASEAN continues to ignore this sector intheir regional free trade plan, it might be jeopardizingits own bid to become a leader in farm hade negotia-tions at the World Trade Organization.

Services: The inclusion of the service sector in theGATT-UR is clear indication of the sector's inoeasedimpo ance in global trading. Indeed, it makes moresense that ASEAN's trade liberalization scheme coveras well the free movement of labor, and factors of pro-duction and know-how. The Philippines is tasked wiihstudying the Framework of Cooperation in the ServiceS€ctor for the Senior Economic Official Meetine. Thiswill be discussed in the September AEM meeti-ng, lfeverything goes smoothly, the Framework will be approved at the ASEAN leaders Summit next year

f,x'panded AI'IAAnother way to make AFIA more athactive is to link

this to other regions or countries. Some members havealready expressed interest in such expansion.

Australia-New ZealandAustralia and New Zealand have registered their

interest in linking up with AFIA in the framework of atie-up between AFIA and the Australia-New ZealandComrnon Economic Relations grouping. On ASEAN'spart, it has been reported that members are seriouslyconsidering extending their trade links to include Aus-halia and New Zealand.

NAFTASingapore has proposed a link between AFIA and

the NAFIA or at least a linkage between NAFIA andindividual ASEAN economies that are ready for a tie-up. Singapore sees this as a possible step towards the

eventual emergence of an Asia-Pacific free trade area.The linkage of AFTA and NAFIA was formally dis-cussed at the ASEAN-US dialogue in Brunei last year,and the U.S. will fund a study for implications toASEAN,

South KoreaSouth Korea wants to link up with the AFIA, though

this is mainly in the form of South Korean companiesstepping up their participation in the economic growthtriangles of the region. Ties between South Korea andASEAN have increased over the past five years. Eachrepresents the other's fourth largest trading partner,with the volume of two-way trade rising more than 2,5times. About 25% of Korca's overseas investments.moreover, go to the region.

Vietnam, etc.So far there has been no consensus within ASEAN

on such linkages. There are also differing interpretationsamong the six ASEAN members on how such linkagesshould be worked out. It is likely that AFIA will beIinked with other economies sooner or later However,the most plausible scenario is that AFIA willexpand toinclude Vietnam, Laos, Cambodia and Myanmar, form-ing the "ASEAN{0." This year, the group invited Viet-nam to progress from obseruer status to full member-ship. However, achral incorporation will take at leastseveral years.

ConcluslonThe implementation of the ASEAN Free Trade Area

has been slow because of the "Agree First, Talk After"process. However there has been a major positive ef-fect. AFTA has cultivated the "AFIA-mind" in theASEAN business sector Inha-ASEAN investment andgrowth triangles are prospering. The private sector isnow pushing govemment for more liberalization. Mean-while, developments in the GATT-LIR and A?EC, as wellas the emergence of China, Vietnam and India, areprompting the ASEAN to make AFIA more effective.The group is considering both the acceleration of AFIAmechanisms and expansion of its scope. Also, AFTA maybe linked with other regions.

Although several vital points on AFTA were threshedout after ("talked about after") the member countries'approval of the agreement, it is progressing. This is be-cause AFIA promises each member country the ben-efits of regional competitiveness. Continued growth ofa collective economy that accounts for 2% of the world'sGDP demands that the region further push AFIA to-ward its goal of competitiveness.

Prof. Kondo has been inaolued with the uarious proiects re-Inted t0 AFTA, including UNDP, Asia Foundation, MITI,ASEAN Senior Economic fficials, US-AID, PITO-P, In-stitute of DeTJelopment Economics , and PCCS .

Ocrosrn -NovrNanrr 1994 . THr Asrlru M.qruecrnl8

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II\ITRODUCTION

Freer international trade is generally accepted as thebest route to higher living standards, because of thetenet that competition will increase quality and lowerthe cost of goods. To a large extent, the fuhrre of to-day's global marketplace depends upon the success ofefforts to remove restrictions on trade among nations.

The first tentative steps towards stemmirig the tideof protectionism that swept the industrialized worldduring the depression of the 1930s were taken by theUnited Naiions. Under the auspices of the LIN, theGeneral Agreement on Tariffs and Trade (GAfi) wasestablished in Geneva on October 30, 1947. Twenty-three countries signed the agreement, in 5 January 1948.

GATT is a multilateral trade agreement whichstrives for the abolition of quotas and the reduction oftariffs and duties among rnernber nations. It also s'etsgeneral rules, a "code of commercial poliry" by whichmember nations agree, on the basis of "reciprocity andmutual advantage" to "negotiate a substantial reduc-tion in customs tariffs" and other impediments to hade,and to eliminate discriminatory practices in intema-tional hade.

Today GATT has more than 100 members. Agree-ments reached by the developed countries are automati-cally extended to imports from developing countriesunder the most favored nation (MFN) clause. Underthis clause, a GATT member extends to its partner coun-hy any reduction of import duties that it may later grantto imports coming from another country.

The recently completed GATT talks, known as the

PRIMERONWORLD

TR\DE BLOCSThere are myre than a dozen trade blocs

in the Tnorld todnyEorto sy Krr,r GlrsoNroN LrcHeuco

Uruguay Round, protect, patents and copyrights, andliberalizes worldwide trade in services, garments, semi-conductors, telecommunicationsand agriculturalprod-ucts. The Uruguay Round started in 1986, and endedin 1994.

Even though the Uruguay Round has been com-pleted, there is continuing concern in many countriesthat protectionism may rear its ugly head once again,and force countries to engage in trade wars.

. Thc Bmcrgenee of lhade BlocsWhile GATT worked towards multilateral tariff re-

ductions, there has been a parallel growth of tradingparinerships in various parts of the world. As a result,there are more than a dozen trade blocs in ihe worldtoday. Since 1990, these blocs have tried to widen theirmembership and have tried to enhance cooperationamong their members.

Tnu j1loProa co0tMuNITY (jc)

An integrated EC has 344 rnillion people and anannual GNP of US$6 trillion, about 25% of the world'sGNP

DO Obleetlves and CoverageUnder the Treaty of Rome in 1957, the six members

of the European Coal and Steel Comrnunity (ECSC) -France, West Germany, Italy, Belgium, Luxembourg,and The Netherlands - became the original signato-des to the European Economic Community (EEC).

Ocronrn -Novrlrnm 1994 . Tur Asrnrv M.qrulcsn20

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Great Britain,lreland, and Denmark joined in 1973, fol-Iowed by Greece, Porhrgal, and Spain by 1980.

The EC aims to remove trade barriers amone itsmember nations, establish a single commercial pJicytowards non-member countries, coordinate transpor-tation systems, agricultural policies and general eco-nomic policies, remove public and private restrictionson free competition, and assure the mobility of labor,capital and entrepreneurship.

DC Implementlng MechanlsmsThe community set up four freedoms for the citi-

zens of Europe: the free movement of labor, the freemovement of goods, the free movement of services, andthe free movement of caoital.

They created three institutions to ensure thesefreedoms; the European Commission, a kind of civilservice; the European parliament to provide a demo-cratic focus for the organization and a check on theCommission; and the European Court ofJustice, wherenational governments could be charged if they brokethe.treaty or failed to make progress in turning it intorealrry

European leaders then left it to this mechanism to

bring about the economic growth necessary to rebuildEurope, hoping that the economic and social interde-pendence such affluence would create would make aretum to war impossible.

DCt The ldea of a Slngle MarketThe 12-member EC decided to fully integrate its

market in 1993. The intention is to take down all tradebarriers in goods, capital and services, creating a Euro-pean single market and super-economy.

XC Industrles Scheduled for Speelal Atten-tlon

The EC has targeted specific industries as "special,"

strategic investments to be nurtured and encouraged:microelectronics, biotechnologt matedal sciences, tel-ecommunications, civil aviation, robots and machinetools, computers and software. Europe turned towardsindushies and economies characterized bv hieh-tech-nology and high value-added.

DC Dfreets on ASf,ANSome experts fear that the EC will develop into a

"Fortress Europe" and that its members will erect strict

Land Aroa (1,0@ sq km)Popula{on.(million)GDP ($ billion)GNP ($ billion)GDP GroMh (%)Pef Capila GDP ($)Ulsmploymont (%)lnfletion (%)Expons ($ billion)lmports ($ billion)Foreign Dabt ($ blllion)Foroign Rosorvss ($ billion)

Land Ar6a (1,m0 sq km)Populadon (million)GDP ($ billion)GNP ($ billion)GDP Growth (%)Per Capita GOP ($)Un€mploym€nt (oi6)Inflation e/o)Erpois ($ billion)lmpods ($ billion)Foreign Dsbt ($ billion)Forobn Re6€rvos (g billion)

G.Britain Greece244 132

57.4 10.11018 701018 70-2.1 0.5

17744 69786.3 8.54.5 18.2185 I210 22429 394 9 5

Portugel Spain92 505

10.6 3959 52759 5222.7 3

5577 135085.0 '17.3

'| 1.3 5.516 5926 9418 12021 61

Belgium31

9.82012001 . 8

2f/.278.83.5

1 1 8120106m

lrsland70

3.5

1 51 . 7

480 t17.83.12421

;

D€nmad(/tg5.21311251 . 2

2541710.62.43632

=

Italv30157.1

1 1 5 01127

1.420158

9.96.1

16918324572

Franco544

57.11 1941 1 1 8

't.0

209299.43.1

217252142

Luxemb'g

0 . 49

3.1223tt8

1.43.4

9334na

Gormany357

64.115741585

245526.34.2

403390&463

Nethed'ds42

15.12912902.1

193034.64.913412691ae

Source: Primer on World Trode Blocs

22Ocrorrr -Novsuaer 1994 . THE AsrAN MANAGER

barriers against the outside world while turning in-ward. Others disagree, saying that a tightly-knit EC willbenefit ASEAN.

On the plus side ASEAN may benefit from a singleEuropean market, because ASEAN exporters will nolonger have to tailor their products to suit the require-ments of 12 different buyers, and that the single mar-ket will therefore make it easier for them to achieveeconomies of scale. The flow of official developmentassistance from the EC to ASEAN may increase as themarket grows.

On the minus side, private investment flows toASEAN may decrease. Most p vate investors from theEC will probably turn inward and invest in the lessdeveloped or smaller EC member countries to take ad-vantage of intra-EC hade. Or they may invest in East-ern Europe. It is possible that the US and Japan willdivert some of their investments to the EC.

Over half of ASEAN's tradewith the EC is in manu-factured goods, but food and agricultural raw materialexports remain significant. Exports ofhandbags, travelgoods, garments, footwear, plastic articles and toys ac-count for more than 25% of the total. All told, most thinlthai ASEAN will be worse off with a stronser EC.

(}THDN DI]NOPDAN BI,OICS

The European Tree lhade llcsoclatlon(ErTA)

EFIA was created by the Stockholm Convention andsigned by Ausiria, Finland,lceland, Norway, Liechten-stein, Sweden and Switzerland. EFIA seeks to removebarriers to trade in industrial goods arnong its membercountries, but each nation maintains its owr commer-cial policy towards countries outside the group.

DFTA Oblectlves and CoverogeThe Stobkholm Convention committed EFTA's

members to a schedule of tariff reductions and quotaliberalization for industrial goods. It also included es-cape provisions if the burden imposed on the domesticeconomies of individual members was too great.

EFIA established a system for determining thecountry of origin of goods, to prevent non-EFIA prod-ucts from being shipped to the EFIA country with thelowest external tariffs, and then rerouted to other EFIAcountries with higher extemal tariffs. Britain, Denmarkand Portugal have since left EFIA to toin the EC.

The Xuropean Xoonomlc Area (DDA)The EC and EFIA have agreed to merge into an ex-

panded EEA. Once the EEA becomes a reality, it willenlarge the EC market to 32 million additional Europe-ans. As a result, the EEA would be the most imPortantintegrated economic area in the world, comprising 19countries and 380 million citizens, a market with anannual GNP of US$7.1 trillion.

Tsr AsreN Maucsn . OcroBER-NovEMBER 1994

Ef,Ab Stx Obleetlvm. Fre€ movement of goods in Europe. Customs du-

ties on indushial products and all other obstacles totrade in goods will be elininated. Any quantitative re-shictions and measures having equivalent effects willbe scrapped, rules of origin will be improved, and thelabel "EEA Origin" will be introduced. There will be aremoval of technical barriers to trade, sirnplification ofborder controls and of procedures goveming trade ingoods, creation of a common market in Public procure-ment, and implementation of simplified procedures fortrade in processed agricultural products.

. Fr€e movement of persons. There will be no dis-crimination on grounds of nationality regarding em-ployment , remuneration or other working conditions.Citizens of the EEA countries will be free to move, seekand hold employment anywhere in the EEA, and pur-sue activities as self-employed persons anywhere in theEEA.

. Freedom of establishment. Nationals of any EEAcountry will have the ght to s€t up businesses, agen-cies, and branches.

. Free movement of services. EEA guarantees thefreedom to provide services on a non-discriminatorybasis. For financial services, the principle of "single li-censing" will apply to credit institutions and the prin-ciple of "home country conhol" will make the homecountry responsible for supervising the activities in theEEA. A separate provision includes securities hadin&insurance, telecommunications. and audio-visual andinformation services.

Provisions on transport are based on the principlesof reciprocal and mutual access to the market for thecontracting parties, more liberalization of transPortservices on a mulhlateral basis, and harmonization oftechnical provisions and working conditions. All modesof transport - inland, maritime, and air - are cov-ered.

. Free movement of capital. The agreement providesa comprehensive and non-discriminatory frameworkfor capital hansfers, cross border investments (directand indirect), loans, etc. It provides for the abolitionnot only of exchange conhols directly affecting capitaltransfers, but also of indirect obstacles.

Provisions are still being negotiated for the removalof barriers in agriculhrre and fisheries through bilat-eral agreements. Additionally. EEA aims to foster in-tensified cooperation in areas such as envitonment,education, social affairs, and research and developrnent.

T||T NOnlI A.MDNICAN I'NEN TNADEAGNDDMDI\II(NAI'IA)

NAFIA is a trade pact of the United States, Canada,and Mexico. NAFIA oeated a unified market of 368million consurners, with a total GNP of US$6.5 hillionannuallv about 28% of the world's GNB and an aver'

23

age per capita income of USS1Z700.

NAFTA Obteatlves and CoverageNAFIA originates from the U.S.{anada Free Trade

Agreement of 1989. As a result, about 80% of the goodsand services haded between the U.S. and Canada arenow fre€ from tadff duties. NAFIA airns to eliminatebarriers to hade and investment among the three coun-tries. Its objectives are to stimulate economic growih,reduce unemplol'rnent, increase industrial efficiencythrough vertical integration and economies of scale,promote foreign direct investment, and resolve thechronic balance-of-payments problems within thegrouP.

The accord covers trade in goods, energy and serv-ices, investment, intellectual properry dumping, gov-emment procuement, dispute setdement, and environ-mental matters. For some goods, tariff removal will beimmediate, while removals of tariffs on sensitive itemswill be phased in. There is uniform customs regulationand adminishation, clearer technical and health stand-ards for goods, and a more liberal investment environ-ment,

NAFIA Df,eats on Asf,ANNorth American integration may adversely effect

the growth prospects of ASEAN. The entry of Mexico,a developing country, raises concerns for three reasons:First, Mexico's exports to the U.S. and Canada have acomparative advantage, based on the zero tariff regirne,over similar exDorts from ASEAN.

Second, in tire long run, the production structure ofMexico could itself be altered by foreign investment

posing a new competitive challenge io the ASEAN andother countries is Asia-Pacific.

Third, some of the massive investm€nt Rows intoMexico will be at the expense of ASEAN and otherAsian courtries. Koreary Taiwanese, Japanese and HongKong companies may likewise invest in Mexico for ex-port io the U.S.

Asian investors may very well put their money intoMexican chemical compounds, veneer, textiles andclothing, leather, iron and steel, footwear, raw sugaI,peholeum products and some machinery items.

OTIDN TBAI)D A]\ID ECONO]IIICGNOUPINGS

There are more trade blocs. Some are active, othersmoribund. Others are shll hade blocs in name only.

Latln Amerlca fbee lhade Assoclatlon(L{r'ra)

LAFIA was created by the Treaty of Montevideo inFebruary 1960 for ihe liberalization of trade amongmembers and the development of a Latin Americancommon market. Eleven courtries - Argentina, Bo-livia, Brazii, Chile, Cblombia, Ecuador, Mexico, Para-guay, Peru, Uruguay, and Venezuela - composeLAFIA's membership.

IIIFTA ObleatlvesThe LAFIA charter reduces tariffs and other trade

restrictions over 12 years. A common lisi of productsto be exempt from tariffs was to be negotiated every

Ocrosrr -No!Tr,{nrn 1994 o THs Asr*l Meuecm24

Characteristics and Stages of Economic Integration

Ermrnationor lraoebamers

Removal ol allre$nctcn cngooos anoseNrces

Free

of laborservrc€s

HarmonizaUon Uniiiedot frscal and liscalandmonelary monetGrypolicy pDlicy

1 , Prelerential TradngAgreemefi

2. Free Tfade Areas

3. Customs Union

/

4. Cornmon Mad<et

5. Monetary Unicn

6. Economic Union

impose higher lmplse h ghertariffs ard grant lariffs and grantlower quotas lower quotasrMependenny ndependentlyoi each other of each other

rrnpose rmposeconTnon commontrade bame6 trade baniersas a group as a Eoup

lmDose

lrade bariersas a group

lrnposecommonlraoe Damelsas a gao!.lp

So{rri: Pdri€r o.r $bdd trrdo Ebcg

three vears. Provision rvas also macle for a special )istgranting more favorable ierms to le'ss developed mem-ber countries.

Tarifi reductions within thc group, however, did notmove along on scht.dule, and ihe second stage of thecommon list rvas not successfullr,negotiated in 1967.

The Protocol of Caracas in 1969 movecl the datt forthe achievement ofa free trade area forward to i980. InN'lav 1969, Chile, Columbia, Ecuador, Peru and Boliviaorganized themsclvcs rvithin LAFTA as tht Andeangroup, or Andtan Common Markct. Chilc n jthdren'

from this pact in 1976.LAFTA tht'n agrec'd to creatc anothcr organiTation

that rvould better,rcconrmod.rte the differing rates ofeconomic development ,tmong its rnembers. A nen'treatv was signed in August 1980, replacing LAFTAlv i th thc La t in Anrer ican ln tegra t ion Assoc ia t ion(LAIA). The member countrits of LAIA are the sameas those of LAFTA.

The neu' organization however, also failed to takeoff. Cooperation Latin America, at present, remains asseries of preferential trading agreements based on bi-la te ra l t raJe . i r rdu- r r ia l . anJ l l l l , tnc r . t l agrcement . .

The South lslan Pr.eferentlal Thadr.,lgreement (S.{PTf)

SAPTA w'as organized in 1993 by Bangladesh, In-d ia , Pak is tan , Sr i Lanka, Bhutan , Nepa l and thcVa ld i re . . Togcrh( r rh ( \ reprerenr J g roup ing , ' r L l ibillion people $ ith US$379 billion CNP, and a percapita

income of onlv U55329. The treatr, calls for members toimport commoditics irom one. ..rnother u ith 10'i iesstariff than those imposed on gcxrcls fron non-me.mbers.

()'I'||til| (;nol tDI\(;s. The Economic Coopcration Organization (ECO)

compostd of Turker,, Iran, Pakishn, ancl sct'cn othernations, mostlv from Central Asia. It has 313 mill ionpeople, has U55887 bil l ion in CNP, ancl US$2,E3.1 in pcrcapita income.

. The Commonrvealth of Inclependent States (CIS)

is composcd of turmer Soviet republics, has of 277mii-l ion peoplt ', US$l. '12 tri l l io:r in CNP, and US$5,118 inper caplta lncome.

. TheAndean pact is composed of f iye Latin Ameri-can countries all of rvhom are members of LAFTA. Ithas 93 mill ion people, USS10,{ bil l ion in GNP, andl ( ( l I l , l i n 6 D / r r ^ i f l n . , . m -

. The CulfCooperation Council (CCC) is conposedof six Middle Eastern countries - Bahrain, Kun'ait,Oman, Qatar, Saudi -A.rabia and the United Arab Emir-ates. It is relativelv small, $' ith 22 mill ion pe'ople', buthas US$ 141 bil l ion in CNP, and US$116,113 in per capitaincomc. rhr' hi!:he.r oi ;nr gruupinpl.

Manv of these potential groupings or blocs, howcve.r,are still in their infancv in terms of organization.

Kut CAfbtutt'tnrLichnuco ucerpletl iront Pnrrren or l'\'onroTrror Brrx -q lrrlr l islrarl bv Tht Aftn Matiif0r,1993.

Octorrtr -\orltrsln 1]994 . Trrr Asrrr Nlrlec;rn26

-

BETTER, BRIGHTERPLACE F(lR BUSIIIIESSTO MEET ITS CUSTOMERS.

".q|ti.

f,t

I'j;l .a

Your official PLDT 1993-1994Metro Manila directories feature these innovations:

r New look, better formatr Clearer, sharper-looking adsr Separate sections for government, business

and residential subscribers

r Complete Zip Code of the Philippinesr Expanded Fax Directory Section

FFI' OIRECTORIES PHILIPPINE5 CORPORATION

I a t T,pfrntt.f,r t'y'U y;rcvpgoz.L1AJ '--- Haad Otllco: 2322 Plaong Tlmo Ext., Mrkatl, M.tro Mlnlhlrb FF T!1. Nos. 81s'3826. 818-0742 Flx No. (53) (2) 813-4343

Cobu Ottlca: Gellardo Bldg., ccn. ilrxllom Av.nr, C.bu CliyT.l. No.7.31-{1 Fu No.032-224943

#

he short answer tothe question posedin the t i t le of th ispiece is: Not in itspresent form! The

long answer is embodied inthis article.

AFTA or the ASEAN FreeTrade Association is an eco-nomic grouping which seeks tohasten the economic develop-ment of its member countriesthrough the use of two eco-nomi r n r in r in lpc

l. Deonomies of ScaleEconomic development is

arrived atmorequickly if firmscan specialize and achieveeconomies of scale. Under afree trade association, suchconditions are made possibleby the creationof a single largemarket out of several distinctand small markets, i.e., themerging of the small and dis-tinct steel markets of Brunei,Indonesia, Malaysia, Philip-pines, Singapore and Thailandinto one ASEAN steel market.This is done through the re-moval or the lowering oftradebarriers among the associa-tion's member countries.

l. External ThadeBarriers

Thebenefits ofa single sub-stantial market must, however,redound primarily to thebusi-ness firms of the membercountries. The worst situationwould be for the ASEAN coun-tries to put in all the effortwhile an outsider reaps thebenefits. Thus, trade barriersmust be erected around themember countries to preventsuch an occurrence. The pres-ence of trade baniers providesfurther impehrs for economicintegration as products withinthe association will enjoy aprice advantage over productssubjected to tariff duties fromnon-member countdes.

However, economic princi-ples must still be translated

28

into economic reality. Thus inconsidering the viability ofAFIA, we must consider notonly its economic viabilitv butalso the organizational mecha-nisms which are intended topromote AFIA.

Our view is that AFTA isnot viable in its present formon economic as well as organi-zational grounds.

The late Philippine busi-nessman David SyCip onceused a colorful analogy to ex-

ber who is fated to serve as thegroup's economic lynchpin. Inthe EEC, this lynchpin wasCermany; in NAFfA s case, itis the Uni ted States ofAmerica. ASEAN does nothave such an economiclynchpin as the population ofits two most developed nations- Malaysia and Singapore -are much too small to carry thelargerASEAN countries.

Civen these factors,Malays ian Pr ime Min is ter

European Free Trade Associa-tion or EFIA. Few now recallthat in response to the EEC, thenon-EEC European countriessuch as Sweden and Austriaformed their orvn trade asso-ciation, EFIA. This associationlostout to EEC n'hen the EFTAmember countries opted tojoin the EEC.

Observers have also notedthat the EEC edged out EFIAprimarily because it was bet-ter organized. The EEC ap-pointed a leader and estab-lished a bureaucracy whicheventuallv served the interestof EEC as a rvhole. Thus atpresent, the EEC has a presi-dent in the person of JacquesDelors, former French PrimeMinis ter , whi le ASEAN iswithout a president or titularhead. And while the EEC hasthe Brussels-based EEC Com-mission with erecutive pon'ersEEC-wide, ASEAN merely hasa paper ASEAN Secretariatbased in Jakarta with simplecoordination powers ASEAN-wrde.

In summary then. we sub-mit that AFTA can be viableonly if it takes the followingsteps: if it enters into a strate-gic alliance with Japan; trans-forms the ASEAN Secretariatinto an ASEAN Commissionbased in Bandar Seri Begawanin Brunei; creates the positionof an ASEAN president; and,names Lee Kuan Yew as thefirst ASEAN President.

,,ASfANt

Itroblent is thdtif.is. coll;roscd0f sr.r lr.trfrrcrs,fiw of tfiontb t l i t t , t ' i nntirri St .trt.Iont' ()i trhorrtbc/irtcs iltrr'r loi'e."

[ ) 1 1 ; 1 , / - S y 1 1 ; ,

plain ASEAN's lack of eco-nomic integration. He said,"ASEAN's problem is that it iscomposed of six partners, fiveof whom believe in marriageand one of whom believes infree love." By this, he meantthat for so long as Singaporebelieves in free trade and hasimposed little or no tariffs ongoods imported from non-ASEAN counhies, the two eco-nomic principles enunciatedabove can not apply.

Neod for DeonomicLynchpins

Moreovet economists haveattributed the experience of theEuropean Economic Commu-nity (EEC) as well as the NorthAmerican Free Tiade Associa-tion's (NAFTA) bright pros-pects to the presenceofa mem-

Mahathir, the most economi-cally perceptive of theASEANleaders, has proposed the in-clusion of Japan either into alargerAsia Pacific Trade Asso-ciation or into a strategic eco-nomic alliance with ASEAN.Such a combination would en-hance the region's economiccotnpetitiveness by transfer-ring the low technology indus-tries from Japan to ASEAN aswell as by marketing ASEAN-manufactured productsthrough Japanese kading com-panies; and, most importantly,bv allowing Japan to be thegroup's economic lynchpin.

Such economic vision can-not also be attained given thepresent or8anizational struc-ture of ASEAN. Organization-ally, ASEAN resembles theEEC's unsuccessful rival, the

a strategic

Octoarn-Not lMsln 1994 . I al A>rer Meret rr

lr,l's programmedtariff-cutting process alms to lncreasehade florvs and freehade among esrex

countries. With more andcheaper goods available to theASEAN consumel the argu-ment goes, AFIA will lead tomore economic prosperity forevervone in the region.

There is , however , oneblind spot in this scenario:qualiry Will AFIAimprove thequalitv of ASEAN goods?

Economic prosperity doesnot happen with the availabil-ity of more varied, cheapergoods if these are mediocre,second-class, substandard ordefective. In other words, ifAFTA promises more of thesamegoods to theASEAN con-sumer, then it can enhanceonly trade statistics and bal-ance of trade figures. This mayexcite bureaucrats, but not theconsumer.

ASEAN exporters will notbe motivated to improve qual-ity because the regional mar-ket has largely the same tastesand expectations as their do-mestic markets. Many compa-nies will simply export exist-ing domestic production withlittle or no modification, saveperhaps for a deceiving "ex-

port quality" label. Under thisscenario, nobody improves,and nobody wins-not the lo-cal company, not the exporter,not the consumer. Lowerprices may be an illusion. Ifquality isa casualty of the pricewar, the consumer suffers.

Tolal Quality llanage-menr (TQDI)

Only a few enlightenedcompanies pract ic ing tota lqualitV management (TQM)will escape this vicious cvcle.As a reaction to AFfA's morecompetitive environment, theTQM company will accelerateimprovement of product qual-ity, processes, and people. lt

will use quality as a competi-tive weapon to defend (anddelight) its local market, and toattack (and attract) the ASEANexport market.

The secret oftheTQM com-pany is that bv improvingquality, it drastically cuts thecosts of correcting mistakes,which could account for asmuch as 30% of manufacturingcosts. Cost cutting and com-petitive pricing are just happyconsequences of "doing" qual-

is a process standard, not aproduct standard, and so itcannot standardize productquality. ISO 9000 does not de-fine what is a safe electric fan,a road-worthycar, a high-qual-itv cement, or pure mineralrvater ISO9000 does notdefinethe acceptable defect rates forbatches of goods.

Furthermore, although ISO9000 is a process standard, itfocuses on the presence or ab-sence of documentation, qual-

ASEAN manuJacturerc to cooperate, produce ASEAN prod-ucts of high qualitv and exportthem to world-class marketslike Japan and Europe, therebyexposing themselves to world-d;<c .^mnpHt^ r<

A survev of Japanese con-sumers indicates that theirnumber-one anxiety over knit-wear imports from ASEAN isthat they are "not appropriateasgifts." So one definitebench-mark, and compliment, betterthan ISO 9000 certification toind ica te tha t a p roduc t i s"world-class" is if it can be ex-ported to Japan and used forgift-giving.

ASEAN needs competitionto produce with world-classquality. Catering exclusively tothe ASEAN market wil l notcreate sufficient pressure.

A good model of coopera-tion is the Airbus planes pro-duced by a consortium of Eu-ropean countries. The Airbusis now a world-class plane thatcompetes with the Americanplanes that once dominatedthe market. The car comple-mentation scheme designed toproduce the ASEAN car is to-tallv different. Its objective isto cut costs for the sake ofJapa-nese multinationals. and notnecessarily to improve quality.Moreover, it is mainly gearedfor the ASEAN market, andnot forexport outside ASEAN.

Removing tariff barriersalone wil l not mean an im-provement in the quality ofASEAN goods. Neither will es-tablishing qualitv standardslead to improvement if stand-ards are confusing or set toolow.

AFTA should focus notonly on free trade but also on"qualitv" kade, insideand out-side the region. It should en-courage companies in the re-gion to adopt TQM as a newcorporate philosophv to en-hance corporate, national, andregional competitiveness.

ity. They are not the pdmary ity systems, and procedures. [tmanagement objectives of does not endorse any particu-TQM companies. lar qualitycontrol system, con-

The winning formula is trol charts, school of thought,"improve qualitv > cut or corporate culture. Itsimplycosts." Reversing the process, as checks to see that you are re-most ASEAN companies would cording and monitoring whatdo, is the typical Western knee- you are doing for quality andjerk reaction to increased com- if you are using this feedbackpetition. Their formula; "cut to improve vour process andcosts -> cut oualitv". customer seNice.

This means, for example,that two cement companies inthe same or different ASEANcountries could have totallydifferent quality control sys-tems, standards, and formulae,yet both be ISO 9000-ce ified.

Compeaing throughquallty

Thebest way for ASEAN toimprove quality is not throughAFIAorregional trade, but for

tso gfifoThe ASEAN Consultative

Committee for Standards andQualitv endorsed ISO 9000guidelines for ASEAN manu-facturers producing for AFTA.The spirit behind the dccisionwas comrnendable, butwhether it will achieve its ob-jective of standardizing ASEANproducts is another matter

In the first place, ISO 9000

THE A5rAN MA\AGER . OCroBIR-No\EMBER 199i1

Soft Drinks , Cigarettes,Discount Clothing, and Liquor

Bv Pnorrsson FneNCFCo L. RoueN, Tn.

TIID COI,A WABST PART???

Pepsi and Coke have been at odds forso long- over a century - that they haveseemingly defied the notion of a productlife cycle (PLC), that is, growth, followedbya maturation and saturation point. Thetwo companies utilize entirely differentstrategies to sustain growth.

551)oes Pepsl llave Tbo llanyProducts?tt

Laura Zinn asks this question,in an article in Brsness Week. Pepsiconsumers have grown accustomedto Pepsi's penchant for experi-ments. And Pepsi has worked hardat its hendy image; recall the cur-rent "Choice ofa New Generation"advertising theme, with MichaelJackson as the one-time star of astar-shrdded series ofads. Remem-ber Pepsi Lighl a low-sugar, lemon-flavored cola? Or its test marketingin North America of Pepsi A.M., asa possible substitute for the mom-ing jolt of caffeine? Crystal Pepsi isthe latest (one year old) aitempt atproduct extension to defy the PLC.

Presumably, someone at PepsiHQ thought that a new marketniche might exist for cola drinkerswho might associate "crystal clear"with health, purity, and "uncola"

characteristics. Bul according toZinn, " They got the wrong one,baby. Wrong taste. Wrong packag-ing and advertising, too." The arti-

30

SOFT DBIIII( TARIGT'S SHARElvorld c.lndrLd.on drtnk

Indu.try by thw

u3 c.rio6.r.d rlrlnt m.dnl

cle further suggests that Crystal Pep'si's pe-culiar formulation of cola with "hints ofcinnamon, ginger, and pepper" created an"uncola" flavor that tumed off the mar-ket it might have sought. "ln its firsi yeatCrystal Pepsi won just 1.1% of the fi8 bil-lion U.S. soft-drink market - only halfwhat Pepsi had predicted. "

But Pepsi is nothing if not persistent,and has the deep pockets to be tenacious.The unforhrnate cola will be relaunchedas "Crystal, from the makers of

Pepsi...Crystal will be rcincamatedas a citrus cola," representing thelatest effort to make inroads onqh'it- '-,1 q-----l I^

And lhe Secret of Coca-Oolat Success ls-.

On the other hand,Asian Busi-ness Industry Editor NealMcGrath in the January 1994 arti-cle entitled " Si'rup-Makers BoldStrategy" poses the followingquestion: What would happen issomeone got hold of Coca{ola'ssecret recipe and published it?Surely, it would spell the end ofCoca{ola's command of the glo-bal soft-drink market as slews ofcheap and close imitations floodedthe market. Right? McGrath an-swers his own question:

Wrong. A recently releasedbiography of the beverage in-cluded a Coke recipe, but so farCoke is going as strong as everThe secret of Coca-Cola's

October -November 1994 o The Asian Manaeer

success . . . l i es in a s t ra tegywhich has established thecompany so firmlv in theminds of the world'sconsum-ers tha t no mere copvcatcould hope to displace it...Thekey ingred ien t in Coke 'srec ipe fo r success ismarke t ing . . . "Our overa l lstrategy remains the same: Tomake sure the consumer can'not escape Coca-Cola," saysRobert Goizueta, Chairmanand CEO of the Atlanta-basedCoca-Cola CompanvThe other kev success factor

is the distribution network, bot-tlers who are pdmarily inde-pendent franchisees, but whorece ive subs tan t ia l suppor tfrom Coke HQ in all areas, such as qualitvcontrol, advertising materials, subsidizedpromotion e\pense., [indncing, etc.

Coke's own answer to the PLC is toreach out to more people. "We are just be-ginning to reach the 95% of the world'spopulation that lives outside the US,Coizueta savs. "Today, lourl top lb mar-kets account for 807e of our volume, butcoveronly 207o ofthe world's population."

Coke and Pepsi have already capturedan estimated 1.9 bill ion people marketbetween them, with Coke well in the lead.That leaves 3.5billion people up for grabs,with developing countfies such as Indiaand China as the key growth areas.

Pepsi seems focused on a product ex-tension approach, while Coke is countingon taking its core product to as many mar-kets as soon as possible . Which way areyou taking your business?

OI,II TRICI(S l.ONOI,D INIIUSTNIDS

[emember Marlboro Frlday?Tobacco is an industry older than soft-

drinks. [n April 1993, on "Marlboro Friday," Philip Morris slashed the price ofMarlboro. bv 40 cents per pacl to regainmarket share. Once again, Laura Zinn&'r i tes, in "The Smoke Clears AtMarlboro" that it became the biggest mar-keting story of 1993 a symbol of thevulnerability o[ big brand: in the pri.e-conscious, value-minded '90s. But it's nowclear that as a market-share gambit, the

...and they have an untap@market of 3.5 billion people

pr ice cu t t ing maneuver u ,o rked.Marlboro's share of the S47 bil l ion U.S.cigarette market, which fell 20'tr beforeMarlboro Fridav, has rebounded to 25%higher than it has been since 1989.

. Phil ip Morris is now using tf icksother than pricer It recently rolled out theMarlboro Countrv Store, featuring West-ern wear boots, cowboy hats, beltbuck-les, cotton slacks, denim shirts, and leathervests and jackets, all stencilecl with theMarlboro brand logo.

. It is considering roll-1,our-own ciga-rettes for the US market, not just to evokethe "Old West" image, but because loosetobacco and rolling paper are taxed at alower rate than the finished cigarettes.

. It is studying the feasibility of sell-ing cigarettes loose in a carton, in order tocut the price bv roughlv 60 cents.

. It is developing Marlboro Express, ac igare t te 15 mi l l imeters shor te r andcheaper than the conventional one, 85millimeter cigarette, to cater to smokerswho must "take quick smoking breakswhile at work".

. Another campaign involved sendingemptv Varlboro pacl: in erchanqe iorfreemerchandise from as special Marlborocatalog. "For 130 packs, for instance, smok-ers could get a Weber charcoal grill."

That's a lot of tactics.

AND THD WINNDRIN JAPAN IS... PRICD

Japanese customers, on the other hand,are accustomed to pav high prices and

tend to associate high price with "qual-

ity." It is all the more surprising to readin Asia$'eek, that...

...Customers u'ho used io fre-quent designer boutiques have beenf lock ing to the . . .men 's d iscountstore... a block from thc Cinza's mainshopping street...r,r 'hich boasts notoniv the world's priciest real estate,but manv of its most fashionable andexpensive shops...for racks of suits,most under $300, about half the costin a mainline store. A discount storc,ou,ned bv retailerAovana Coro nowsells a fif ih of thc 10 mill ion suitsbought in Japan every vear.

The recession and the bursting oitheJapanese "bubble economy" has ledto belt-t ightening. But Aovama correctly points out that "...thc buslness

suitis the salaryman's uniform...lt's ridicu-lous to have spend a month's salarv to buvone.

The unsecn sldr. of JapanThe average Asian looks at Japan and

sees free-spending tourists and "rvorld-

class" corporations; the unseen side ofJa-pan is an overrvorked and (relaiivelv) un-derpaid middle-class.

. Takashivama and Mitsukoshi, two ofCinza t prir ev departmcnt :tores no\r' ot-fer suits priced under $'100.

$unvsv: Pnrcr/0uAurY RATnOn a scal€ ol O lo 1 0, the pric€/q$liry rstio of dofrestlc

product€ is...comper€d b toreign comp€tjtoG

UEEr-zo37.@

6.55

6.'A

nElGlt-_6.36Eil_s.esrftai|ENtiE_ 5.57rilllElitlE__ s.oofillifnI- s.s?

EGEEn_5.3e

MililllGlltr- +ozFFl TH1IFFL r.

n6EE tr_ a.oo-__

THr Asral Maxecrn . OcroRER-NovEMEER 1994

Soure The Wodd C@p€r,nwMs F.pon r 9s{, p. s | 3

31

. There are whole areas ofSeibu s hugelkebuluro outlet given over to bargains.

r On anothernote, Denny's familv res-taurants, an inexpensive fast food chainin America, is thriving in Japan.

Aoyama is using the same strategy toexpand to Taiwan, Hong Kong and rntoShanghai.

One last lesson:Many re ta i le rs were shocked

when the tycoon opened his (Ginza)

store (in lgq2) iust ds the rece'sionwas gathering steam. But the inau-guration tumed into a public-relationsma5terstroke. \ew5paperi dnd televi-sion had a field day over the thou-sands of salarymen who showed upfor the grand opening, which featuredsuits selling for as little as $20. SaysAoyama, "You don't succeed by do-ing what others do."

Japan i5 n!,t lodth to imitdte it5 foreigncompetitors. The Japanese automobile in-dustry has been hit by a rising yen and adeclining "quality gap" between its carsand Det ro i t ' s . Accord ing to Lar ryArmstrong and Hiromi Uchida ("Detroit,

Check Your Rearview Mirror," BW 6/6/94) To boost sales, the Japanese are:

o increasing cash incentives, sellingmore cars at low margins to daily rentalfleets

. adding extra-value packages, and

. fielding stripped-down models inorder to advertise sticker prices.

The article suggests that Japanese arestaging a comeback. In the first fourmonths of 1994, sales of Japanese carsclimbed 167", to reverse a two-year slidein U.S. market share.

The Japane*e of cou rse continue to in-vest in new products, such as high mar-gin sports-uti l i tv vehicles, areas longdominated b) Dctroit. The qualitv e.lg,estill gives Japanese cars higher resale val-ues, which in turn allows for lower leaseprices.

AI,CHOI,IC I,DSSONS

Lest one think fhat low pice is thenorm, turn to the liquor industrv whichis older than the tobacco industry, andwhich faces many similar problems -

healthconcerns, legislation, regulation,and taxation. Once more with Laura Zinn,joined by Julia Flinn in "Absolut Pande-

32

monium" (BW 11l22l93):The industry 's Big Three

(Seagram, International Distillers, andGuinness)...share an unshakable faithin the big, pricey brand. Sure, value-conscious consumers are abandoningpremium-priced line of tobacco, food,and household products. But the spiritcompanies continue to get a dispro-portionate chunk of profits from ahandful of high-end labels.

For example, high-end labels likeChivas and Martell make up 14% of salesof Seagram but turn in 59% of the profits.And in case of "carrying coals to Newcas-tle," lDV setup an office in Moscow, which"...is now selling 650,000 cases to Amerr-can-made Smirnoff to Russians, at about$8 a half-litter bottle, 2sr" more lhan inNew York."

Smvw: Qllunor[morl 6 scele ot O lo 10, qGlily of lito in )eur coudry

b.,, c!rnp6|6d F your comp€titor counfies

- -

EEf--?"rEu-6.07IlEEEfoeI_5.74@E!il-1.s3r'lli!!l!'tr_ +.zr

EMEEEfl- c'+rUEE[- 4.3sq:lTlrlll- 4.32llli?illEFlltr- 4.14lllittr- s.2s

Sourla: The wbrld CoflE€dliv€n€Ee Repon 1904, p, 600

wlI]{T IS IT ALI, A"BOUT?

To wrap up the tidbits, bear in mindthat mass-marketing where pricing shat-egy counts, either up or down-is stillalive and well in Asia, because the mid-dle-class is thriving, and because Asiancountries arebig in numbers. For instance,India is a developing country and its mid-dle class make up only 25% of the popula-tion. That percentage translates to almost250 million people, equivalent to the en-tire population of the United States. AsZoher Abdoolcarim, Economics Edrtor atAsian Business, reports in the March 4,1994 article entitled "Middle Class, TopDollar":

Sustained economic growth raisesper capita incomes. People have moremoney to spend. Much of this moneyflows back into the local economy,which grows further and creates evengreater individual wealth. Sound fa-miliar? Its the wheel of fortune roll-i n e t h r o u e h m a n v A s i a ncountries...This cycle of prosperity isspark ing. . . the r ise of the middleclass...ln a recent report, Hong Kong'sCrosby Securities predicted: "coun-

tries in the region are experiencing arapid consumer boom which is likelyto gather even greater momentum rnthe next five to 10 years."

Ceneral izat ions should be takenwith skepticism. But the growing Asianmiddle c la:s is nowhere near matura-tion or saturation, and opportunitiesexist at both ends of the price spectrum.Low pr ices can bui ld mass-marketshare. Indofoods controls the lndone-s ian noodle market . But in KualaLumpur "...vou see... premium coffee,freeze-dried coffee, even instant cap-puccino." Marks & Spencer and Sogosell side-by-side with Dutch hypermar-ket discounter Makro in Taiwan, Thai-l a n d . V a l a y s i a . a n d I n d o n e s i a ."Makro's pile-'em-high-and-sell-'em-cheap strategy has hit a chord with evenaffluent Asians." It always helps to keepabreast of new ideas; but it doesn't hurtto see if old ideas can give new life to a

Prlf. fran(iirc L. Ronnn. lr. spetializes initerrutional bttsiness , tLtith a sub-specializn-tion in agribusiness exporfs.

4EIID:nlnF--

Ffirlll':!:E--

October -November 1994 o The Asian Manaser

Suitcase Banking in Asiahe opening of Asian financialmarkets to the world has intro-duced a new breed of intema-tional "suitcase bankers," whoare rushing to ASEAN and In-

dian cities, and using Hong Kong as theirbase to focus especially on China deals.Morgan Stanley and Goldrnan Sachs saythey want to Bive clients in the region aglobal expertise rather than justcompartmentalized people in local offices.Morgan Stanley's Hongkong office rslargely independent from the New Yorkheadquarters in making decis ions.Goldman Sachs, on the other hand, con-trols small offices in Seoul, Taipei, Bang-kok and Bombay frorn New York.Goldman also teams up with local banksin target counhies to make deals.

The suitcase bankers bring in badlyneeded capital and technology to Asia.The region's capital needs soared morethan 20%, to $50 billion in 1993, accordingto the ADB. Asian debt issuers can nowtap on the US and the European capitalmarkets. Last year, the US company Enronbuilt a power plant in Subic Bay,Olongapo, under the Philippine build-op-erate-transfer (BOT) program. Enron is-sued a $105 million dollar note to financeits building, and established a Philippine-based company, with a local bank and alocal investment house owning 35% of theacuon,

Local comrnercial bankers, on the otherhand, are uneasy about foreign banks en-croaching into their markets. Actually,local banks have a competitive edge,through their local knowledge and previ-ous banking relationships. One could con-clude that Asians would orefer to deal firstwith like Asian bankeis, then foreignbanks next. The intemational banks, how-ever, can bring in new capital, tested prod-ucts and technology, and perhaps betterpricing than any of the local banl<s.

34

By Pnorrsson EuvaNurL A. Lrvco

How will local banks meet the newchallenge? They may go into consortiawith other banks to improve their opera-tions and products. Through competition,customers are the ultimate winners. Com-petition to underwrite proiects could re-sult in lower loan rates for corporations.Competition for depositors could lead tohigher yields for the saving public.

Prlclng Derlvailvesls trard To Do

Derivatives such as interest-onlycollateralized mortgage obligations, andbonds with yields that move in reverse ofinterest rates. are iust two of many inno-vative products that hedge against finan-

Locsl capital mark€ts are nova.€ €quallyaccessible to domgstic and lor€ign

comDanies on a scale ot 0 to I 0

Inflation, interest rate fluctuations, andincreasing interdependence of economieshave made derivative products attractiveinvestments. For examplg importers fromAsian countries are sensitive to exchangerate fluctuations. When Thailand's cur-rency depreciates, forexample, it will costThai irnporters more to purchase theirmaterials. Importers can protect theireamings by buying a forward contract.For example, a Thai importer can limit itsrisk by buying a forward contract to buyUS dollars at 25 Baht to $US 1, "locking

in" a set rate. If the exchange rate deval-ues to 26 or 27 Baht to a dollar, the im-porter limits its exposure to the conhactrate. Ifthe Baht appreciates to 24.50 or 24,

theThai imDorterloses the premiumfor buying the hedge and potentialcurrency gains, but at least assuresitself of predictable cash flows.

A company in the US may issuea US dollar note out of London with

Nav, ZaalandHon! Kong

u.K.u,s.

Au.tr.lleSlng6po.€

CanadaJap!n

s.21 a sterling cunency swap feature, toa-fl neoge rrserr agarnsr curency move-8.63 ments. A company may swap its8le variable interest obligations with a

:j: fixed interest rateobligation, ro pre-;; determine its interest costs. Mean-

while, investors in these instruments€76 can hold offsettins contracts that6.65;;; benefit from both falling and rising6.ts interest rates-a so{alled "spread."

5.8s Through this, the investor's risk is''{6 limited to the differencebetween the3'31

two contracts. These instrumentsSo-.ce The Wodd Cmpernimess Floood 19q4, p.4cr9 are linked to the performance of the

underlying assets such as interestrat'es, cunencies, and commodities.

cial risk. Compared to traditional finan- For derivatives that are actively tradedcial instruments, however, pricing deriva- New York, London, and Tokyo, pricing istives can vary from dealer to dealer, with no problem. But for those not haded, par-great differences. taditional securities are ticularly with the emerging currencies andpriced according to latest market activi- other securities of ASEAN, benchmarkties. In cases of illiquidity in certain de- prices may be hard to find, because thererivatives, it could be anybody's guess. is no formal clearing system that collects

Phlllpplne! -Indl. III

Th.llend -uatayeta I

Indone.le -Telw.n IKorga -

Ocrorn -Nol,rMsrr 1994 . Tur Asnru M,rtlacm

information, or existing market-makersin those derivatives.

Upsurge In Mutual Tundsln Asia?

Mutual funds, or unit trusts, aregaining ground inASEAN. Hongkonghad a seven-fold increase in net newretail investments, pushing total unittrust investments to $25.4 bill ion lastyear. While other Asian countries er-ercised tight regulations over the saleof funds, Singapore and Taiwan had robust growth, with assets increasing 657oto $39 billion, and 155% to $7.1 billion,respectively, in 1993. Observers at-tribute this shong growth to the risingAsian middle class and the ercellentperformance of Asian capital markets dur-ine the last half of 1993. The lacklusteroe"rformance of European and Americanmarkets also tdggered the rush of institu-tional investors to Asia.

Through mutual funds, small investorsare able to get shares in many companiesthat are otherwise inaccessible to thosewith little investible funds. Howevet unittrusts may not immediately catch on withAsians, due to cultural and "stage ofgrowth" factors. Asians generally preferto make investments on their own. WhileAmericans and Europeans will go foryieldsand technical trends from namelessportfolios ofcompanies, Asians will investin known, single comPanies. Asians onthe average will have less disposable in-come for investing, relative to their West-em counterparts. Finally, mutual fundsin the US and Europe are driven by insti-tutional investors such as pension fundsand insurance companies, which are notas numerous in the Asian region.

Wf,ll Street lhemorsrSobrlety Now.

The US Federal Reserve increasedshort term interest rates this yeat and sentjitters to themarket. This hit the bond andequity markets, particularly bond inves-tors and highly-leveraged funds Many,howevet welcome the shakeout as ahealthy "pause that refreshes." Thosewho did well despite the correction at-tribute their success to sound analysis ofcompany track records, a better under-standing of economic fundamentals, anda strategy of investing long-term.

In the early eighties investors jumped

into the market when highly-leveragedinvestments were scoring high yields.

Junk bonds collapsed in the nineties, andburned these investors. When interestrates were low last year, asset managerstded to boost yields by using derivativespegged on interest rate movements, as-suming that interest rates would remainlow. When interest rates rose, their deriva-tive values plunged and they took anotherbeatine.

Reiently, the Philippines listed thePetron shares in the market at P9, or $US0.35, a share. On the first day of trading,share pdces went up to P21, then P24 ($US

0.90) a share. Are FiliPino investors specu-latine? Itseems not. Petron is a solid blue-chipiompany. It was the first stock issuewith wide public participation, like Sin-gapore Telecom's lastyear' Itwas govern-ment-owned, then privatized with theSaudi Arabian giant Aramco. Investorsconsidered Petron's dominant marketshare, historical profitability, and the valueadded of Aramco. The public was famil-iar with Pehon, which has a widenetworkof gasoline stations. Analysts considerPetron, at P 24lshare, a good buy, with a22 P-E ratio, compared to other bluechips'average of 24 to 26 P-E.

Sf,ANGHAI frrtrre GlobalTlnanclal Oenter

Shanghai's 15V" GDP Erowth rate in1993 surpassed China 's overa l l 13%growth. Shanghai's stock exchange grewto $28 billion in total assets, from only 12comDanies listed in 1990, to 112 A-sharelistinss for nationals and 23 B-share list-ings ior foreign investors. Twenty-eight

foreign banks now operate in the cit,and another 20 have pending aPPIica-tion papers. When the central govern-ment allowed the renminbi, China'scurrenct to trade, they designatedShanghai as the location of a comPutertrading system. This ensured Shang-hai's main role in rnajor financial trans-actions. Will Shanghai will take busi-ness away from Hongkong? Observ-ers think Shanghai does not yet havethe necessary infrastructure to rivalHongkong.

The missing "infrastructure" is amatter of scale. While telecommunica-tions and financial services are alreadyin place in Shanghai, they pale by com-parison to Hong Kong's. These services

must keep up with the influx of more mul-tinationals. The next step would be to some-how linl this infrastructure with the maiorfinancial and transportation hubs of the re-gion-Tokyo, Hong Kong, and Singapore,and improve its port facilities. Finally, mul-tinationals hate to live out of suitcases.While Shanghai may have all the hotel ca-pacity, businessmen who are there for thelong run will want more permanent quar-ters. Shanghai must offer more acceptablehousing and living services.

Sources: Busiress Wee k, Asian Business, Glo-bal Ina estor, Asia, Inc.

Prof. Emmanuel A. Leyco specializes in pub-Iic policy analysis, public t'inance, health care

t'inance , and international development issues.He is th( current Diretlor of lhe Masters inDeztelopment Mnnngement deyee program.

Phlllpplne3Hong Kong - llt9.9

Mrleysla - 107.3

Indon6ta -I 142.2

Theiland -Tahan I

Singepo.e INew Zealend -

India IAualrelle I

Korea IJaPan I

U.K. Icanada I

u.s. I

97.882-365.562.63it.032.025.124.620.615.17-O

so!rce: The wor d ComD€tilivenes Reporl 1 994 p 41 6

PErcentage change, 1 993

THE AsrAN MANAGER . OcroBER-NovEMBER 1994 35

' MeNeclMENt Upoaln: INronunnoN TECHNoLocy

The Information SuperhighwayBr Pnor. C,rsror D.Onrrr;,rs, Jn.

ConnntLnicntilns itr a trctu,lrk tlre allsllutelVincornpntible utitlt n strict, llarlclinl hiernrclry.

hat i s the in i ( ) rn ra t ionsLrpcrhigh-u ai ? Thc closes t th ins \ \ ' t ' havc to asuperhighn'av is INTUI-NI:l f0r thc moIncnt.

Accorcling t0 thc book, "The I\TERNET Companxru," INTEITNET is...

. . . , r loosr 'amale , r l o l thous , rnds o f. r ' n l l \ l r l H r n c l \ r , r l ' r ! . r , h i n F . n I l l r , ' n - . , 1people,rl l ovtr tht rrrrrLl.-forlat it is being rrseel br,all sorts ol people erlucalors,l ibrarians, hobbvists, ancl Lrusincss pti iplcI \ ' r . r \ . r f l r l \ , , j l U r f , . - \ . l r r r n t , . , r n n ] l r n t -caiing u ith e,rch othcr, to acccssing lalu-. tb ic i t t t , ' r r l ] . r t r , .n rn ( l r t - - . ,u r . c - . . . In r , r i : in ,discolcring a ir.hole svstern of highl,ivsand high speed c0nnr'ctors that cut hoursofi t our commuiing i imt. C)r a l ibrarv thatvor-r could usc. anvtime ol t lte nigltt or dat,rt i ih acrc.s ot books,tnrl resources,tntluniimitetl brorlsing. Or,rn all nirht, nonsbp block partv rlrth a corncr tablc ot kin-rlrccl souls rvho ttelcotnt \()Lrr presen(eanr.trne. lournalists ust' tht I\TER\ETio covL'r t()pics from corrputer business k)currcni i.\ ' !.nts, ar'rd sonlc eYelt cotrdr-lctin tcrl ir.\\ 's r. icctronica l lt. \ l t cl ical rt -

searchers shart inform,rtion rrrr cl rseases...Doc tors t r . rnsmi t r rav o r C. \T sc . rnimagt s...Sturl ents travt.l the INTER\ETIt.,rrninc about other culturcs,rncl intpror -

ing thcir research....Llusincss people con-i,rct cllcnts.lnd .lccept or.lcrs ovL.r thc net-rvork . .

36

Hisl0r.r of l\ ' l 'DR\D']( lne c , rn an . r log iz r . thL ' in fo rnr , r t lo r l

- r r ; , r l t i - i t i r . r r 1 , 1 1 - 1 ' - , . 1 , , , * - , ' \ 1 1 , 1 1 -

c.r'-. interstate hichu,rr' :r 'stenr. iJack in thei(ls, President Fi:t 'nhower fonstnrftfd a

i, ltttsiLrtl netrrork of hich\\ 'ar':, for USborrbers to l, lnel on in c,rse their runl,rlsl ere tlr 'strovt'cl. INThIIN FT bclr,rn lts l i tc. r - . j ' J r - , , - L ( f \ c r c n . , D r 1 ' , r r 1 1 1 1 . r , 1 t , , , , , , ,A1t.{l ' \ET, . 'b,rckrloor" nt't l 'ork. ln tl 'rc. \ ' l t t ' l ' t . l I l \ t ' r ' r ' \ t I t , r t , . r I r , . , t t r t t r t t t t i

catir)n! post wa: t irstrovr'rl in,r ntrclc,rrrlar, ARAPNfi I coirlc] f i l l in, irr mror rne

(ESSO Malaysia links to its USA parcnt)

sirrt. \\ 'a\ th,lt ph\'sic.l l highu,rvs coulciscrle its,rlternate Lrntlrng .rreas.

Thus I\TERNET .rclopiecl the name,"lnforuration Supcrhlghn ar'" Both highn,rr,s phvsic,rl or lnformation :hare thesnnr(, ch,rractcrisiics. Lloth ir ' trc dcfcnsc-oricnttd programs that took a n hole nenlifc on thtirol|n. Both l11\'oi!e conrleciing1r'r,rjor cit ir.s, or nocles, n ith smaller citv/rrotle's through ieeder roads. In both high-\\.rYs onc could get fror]r poini A to B bV. t , l t t , r . r r r l ro r r l r ' . , ' r t t l l t r , -c i , ' t r t ( \ \ \L r !blockcd, bv alir.rnatL. route.s. Both high

II bypasses the limitations of schedules, geography,an d o rgan i zatiofi al bound aies.

Ot r ru r i - \L , r r r t r r r r 199-1 . l t t r Ar rc ' . \1 r r . r r rL r

Couraq Snnvens SpeN Tus DtsreNcsBErwgEx Tooev's REALtrns

AND Touonnow's OPPoRTLTNTTIES.

/Als/Ec o M P A aACCREIIIIED SYSIEiIS EI{GII{EER

E1- - l

E iE_

TTMIEffiffitl

coop.qs€wcr. .ft'rt d..l8ncd lu.t to .cwG ncaworkt. Thcy'rcdcdgnc{ ao ,cwG brt.lnc'' - .nd lo hclp you turn icchnologyln yq|. favour.

At Comp.q, f,c rmdcrlLnd hos nctworklng Lnp.c{r youabu.ln6a. la .Ifaclr your ablllty !o *rvc your cirlaom€r!. Tokccp your workcB producalvc. To control youa co3lt. To bccompctldYG.

so, ln cvcry compaq scwcr, ttc'v. bullt ln edvanccd c.pablll-tlcr not only lo cffectlvcly mcca your clrrcnl obrccllvca andbudgct icqu|.r cmcn.! b alro lo opcn ahc r.y ao aclrlcvlnSyour long-acrrn brr3l'ras 8oalr atrd nccdr.

Hcrc'r why you c.rr lnrtt your daaa lo comP.q

Cornpaq Autbotized Dealer

llioital ProJA'C'E'FFCFATIEI

(tc. .hc y...., c|pabr. p'tc6.a. h|v. coc L.o.rbt a., rclc Lt 8rra.d ahcl &rr-h.ndILf crpebllltld r|.l lf,c..Gty.rd p'o..dlor.a.b.lc|F of(Lc |ntoVmr.$.,D.?dg. ?rb too|-b ploo.(rlot ctbrrb.hbd r. b otttdr.| b6.ddoo.raEdft.ro opcr, lndliry-.t r&.d opc"dLa .Ftcnt, yoo. .6tdt h66

rtr..r. il|o rh. .uo of L. lndtuUu.l p..9,

rrc'E crlfco.t provldlos 'trr ?. b.[d. | .hc mr a.ooltr.h.ldvcruppdr ry...o 6r r.fv.tt bolb o! rf,c |tdl.r't .r.!d.rd Phrftrt!.I{6,a, h.r rhb ch.. of GEf,In. bc.o b..t d ty P|olnd rhd.tt.oou.rcrou, o. boovi.lv..

COMPAQ SBVBII A.RE AUIIT VTIII.f1EqBUIfi TO TIELP YOU STAY COMPETITIVEMANAGEAITLITY TO STAY UP 4NI' IUNNINGINTEIIIGENT SUB9YSTIMII FOT ACCUNACY A}III AVAII.AITUTYSI'PFORT TIIAT WOIYT I.ET YOU DO\'N

4/F Equitable Bank Bldg. Il, Ortigas Ave., Greenhills San Juan, Metro ManilaTels.:722 4560 , 721 0658. Fax: 602941 '786 268

ir',rvs are todav ubiquitous and rvell-trav-cllccl bv its users. Physical highwavsre lo lu t iona l i zed Amer ican indus t rv .\\'hcn oncc railroads dominated transpor-t,.rtion, highwavs, created a whole newculiure of car ownership. This signalledtht end of the railroads, and rransformedthe automobile industrv into a powerfuleconomic force. In much the same way, theinformation superhighway has empow-crcd its users to communicate faster andhetter, and ha. translormed lhc com-putcr industry itself into a pol.erfuleconomic force, and has underminedheretof ore traditional communica-tions media such as TV and radiobroadcasting.

Fralrrcs of thc InfoSupenhighu,ay

Al l a user needs t0 ge t in toINTERNET is a personal computer,modem, and a regular telephone linet t r d ia l in to the ne twor l . A t the r imple.t Jer el a u:er can \\ rite mer\dge\lo o thcr u5cr5 w i th in ln te rne t . A t ;more (omple\ level user\ can accescon l ine da labases on lega l , commer .cial, r,r 'eather, travel, and new\ infor-nralion. Some "les'er" highways'ucLas CompuServe and Prodigv providernlormrlion for a subscription pius in-rormation ralue-based fees, but oth-ers provide information for free.iNTERNETand other "nets" pror ide\ o f t ! \ . r r e t o h e l p v o u n a v i g a t vthrough the m,rzc, some better thdrothers.

Ben.rflls of the InfoSuperhighs'ay

"Communications in a network areabsolutely incompatible with a strict, pa-rochial hierarchy," says Hellene Runtagh,CEO, CE lnformation Services. The infosuperhighway is the boon of people-em-powermenl adherents. It superchargessocial networks within and without theorgauization by bypassing the limitationsof 'chedules, ge,.rgraphy and organiza-tional boundaries. It not onlv speeds updelivery but also allows people to shareand process the same information simul-taneou.lv and interaclivelv for mission-critical tasks.

\4.r nv orpl,rni./atrons are discoveringthatthey can now spend more oftheir timecreating new products and services, and

38

deal personally with their customers andfellow workers.

Pilfalls of the InfoSuperhighs'ay

You have onlv to look at Bangkok's andManila's rush hour traffic jams to app.rre-ciate rvhat this global highway can quicklybecome. [n Iulv thi. l ear TNTERNFT i\ asjammed solid by users wanting to see thecomet explode on Jupitet causing longhours of delays on the system. Yes, you

Inlormation tednology...b novis tully exploitedby I local ] companies, on a scale of 0 to 10.

fact, the US government, under the initia-tive of Vice President Al Core, is trying toredefine its role in the superhighway. TheUS government mav just take over thissystem when it gets out of hand.

Superhighual': Manageriallmplieations

The InformationAge is here to stay. Inthe past decade, the information productand service providers have found them-ielves increasingl) closer to user: who, in

turn, have made satisfying them ahighly risky and exciting business.As product life cycles shorten andcosts fall, many have fallenalong theway, few survive and even fewerprosper , through sheer s ingle-mindedness, prudent acquisitionsand alliances, aggressive marketing,and megadollar research and devel-opment. As old and new playerscontinue to create demand and fillunsatisfied needs, the market growsand with it the need to manage in-formation and information technol-ogy resources wisely.

Is it iust another technologythen that must be mastered and putto prudent use? Yes and no. Yes, it isanother resource that must be man-

' aged. No, because it builds on itspredecessor technologies such as theplow, the wheel, iron, computers,and telecommunications. "The oldways of harnessing the beast won'twork."

So far so good, eh? An unex-pected phenomenon also has been ob-served: that network relationships aretransactional, and not social. Informalcommunications do skyrocket, mundanetasks are left to the technology, people arebetter informed and in a collaborative stateof mind.

All these constitute a solid foundationfor exercising the managerialskills neededin an empowered organization. Skills suchar menloring. aligning 'taff around a vj-sion, and nurturing relationships requirehuman contact, so the manager must stillbe at the center of a web of relationships.How does a manager deal with informa-tionoverload? First, accept thefactthat it'shere to stay. Then, prioritize your personaland organizational objectives. Finally,choose what to use, what not to use, andhow to use what you've got.

Hongu.s

SingaporNew

AustrellTriwa

u.KClnad

$dry!lJapa

ThrilanKore

lndo rElPhilipplr|c

Itldl

7.1S7.ttg6.966.91

- 6.it5

- 6.38

- 6.07

- 6.0aE 5.85E 5.78- 5jf2

- 4.8sI ils:t

r 4.18I 3.54

Sourco: The Wodd Compeltiven€ss Reporl 1994, p. fO3

can even access obseruatory pictures onINTERNET. But what next? Junk mailersarealready deluging unwilling users withproduct pitches. As someone said, "lnfor-

r4ation is the enemy ofboth literature andintelligence," and "The global cacophonywill in fact be garbage at the speed ofl ight."

Contrary to popular belief, INTERNETis not run by a big corporation. lnstead iti ' a lotr.e and informal, albeit large, organi-zatien of users, linked only by a hiero-glyphic language and theircomputers. Asthe INTERNET membership grows, how-ever, there will be all sorts of difficult is-sues' to address, such as computer secu-rity, 'ownership of data, and governanceof tfe system. INTERNET may collapseunderthe sheerdemands of its users, with-out a strong, central controlling body. In

OcroBER-NovENTBER 1994 . Tlr Asr,\N MANACER

ls "Star Tlektt loehnologysllll a transporter beam away?

The computer industry players arepushing the envelope of known processesand material technology to getus on to theinformation hightay at desktop prices.

To power the lowly PC, silicon chipswill reach 500 Mhz by the year2002. Intel'sPentium is at 100 Mhz, Digital's Alpha isat 190 Mhz, and IBM/Motorola's POWEIIPC chips can hit 400 Mhz by 2000. Lasersand fiber optics will deliver "floods ofdigitized video and sound." ParallelProcessing is the computer architec-ture to put these super chips to workin delivering all this information, atgreaterspeeds. Storage technologiesare pushing the ability to store and de-liver continuous data strcams (suchas video and sound). For now the fa-miliar disk will be the workhorsewhile storage on CDs and semicon-ductors continues to be improved.While obi€ct technology continues tosearch for the true open system, it isalreadybeing viewed as a pivotalstepin achieving effective control of com-plex information networks. For theindividual desktops, it promises a"transparent" way to handle multi-media information. Speech recognition may soon replace the keyboardfor most users.

day, you can buy five laptops, with 200megabytes ofhard diskeach and completeWindows software, and running at 100times the speed of that original IBM PC.Of course, within six months, all of thesenew laptops vou just bought will be out-of-date.

It will get worse before it gets betterTake heart. What you've got now is prob-ably not yet fully utilized so it will servevou well for some time. Ever mindful ofcorporate users' investment pavback con-

Comput€r lilgracy is generally lo$rihighamoog employees, ofl a scale ol0lo 10

7.337.096.59

6.386,156.(B5.855.74

- 5.5e

- 5'48

- 5.4ir

I 1.67

- 4.36

I 3.4r

Solrce: The Wodd Conp€ttv€neas Feport 19s4, p. m3

cerns, software and hardware producersa r e g e l t i n g b e l l e r , i t e n s u r i n gupgradability of their products. Compu-ter manufacturers are also getting betterat developing "life cycle extenders" suchas add-on cards and companion chips.

Just to keep us all excited, however,manufacturers are making a lot of notseabout their new products. Let's take a peekat what some familiar industrvplayers aredoing:

. "Big Blue," IBM, is reorganizingaround the client-server market as well aspushing into consumer markets for mul-timedia; mobile computers and onlineservices. For the Iattet it has allied withSears Roebucl to run Prodigy ServiceCorp . t t has jo ined w i th App le andMotorola to produce the Power PC Chip,and an operating svstem to rival the Intel-

-----E

Microsoft combination.. Apple is confident because of its

multimedia and communications erperi-ence and continues to draw adherents andbuild new alliances with the players andusers. Novell, Lotus with the popular"groupware" Lotus Notes-and Intel areworking with AT&T to develop an elec-tronic information exchange service.

. Intel is working to put a videoconferencing Pentium PC on theconsumershelves and is working with telecommu-

nications firms to write PC videoconf erencing standards. It continuesto work with Microsoft, this time indeveloping standards for PC pro-grams that work with telecommu-nications gear. It is rvorking withcable-TV providers to let the PC tapcable-TV inputs.

. Bill Gates's Microsoft Corpo-ration wants to put a computer eve-rywhere you go, for everything youdo. For erample, i t is developingmultimedia programs Ior the home,video servers for the home TV, anonJine service, reworking WindowsNT, creating a satellite network.lt islicensing electronic art, linking PCsto other office machines and eveninvesting in Biotechnologies. Gates's

' co-founder Paul Allen is investingin even more companies that giveon-line services, and interconnectionservices.

So, if you've got a 486 PC orhigher, a MAC, or a worktation at

your desk, never fear You've got the basicvehicle for the superhighway. There are lotsof software, accessories, and add-ons toturbo charge your vehicle.

Have a good trip! See you on the high-way!

References: ,4<rn Week, flrl r, Asinn Bu< p,r

Prof. Gaston D. Ortigns,lt. is the Pepsi ColnProfessor ofBusiness Manag(mtnt. He teachesTQM, Operations tnd lnfonnntion Ttchnol-ogy and is consfnnfly Direcfor olfhe Mnstersin Btrsittss Manngenent Progt1m.

Sir€[po|!HorE Xong

,,|prnT!lwan

flou Ztd! du,s.

AudrullrKollr

Itrhy!hPtIhplnr!

u.Kftnrd!

Ihaibt|dlndo||cch

hdiaAnd how does one get help in navi-

gating through this global web ofphysical and virtual networks that ispromised? With software robots, elec-honic biogenetics. Artificial Life researchis trying to produce an e-mail softbot whichwill spot pattems in the way you screenyoure-mail, and, say, putmemos from yourboss on top of your to-do list. Other "intel-

ligent agents" can routinely scan the net-works for the information you normallyneed or for more direct searches while yougo about your normal business. Intelligentand benign forms ofthe dreaded virus yousay? We certainly hope not.

Aequlsltlon paralysissyndrome?

"By the time I buy it there's somethingbetter and cheaper!" [n 1981 an originalIBM PC with 128K memory, no hard disk,and only VISICALC and WORDSTARcostover$4,000. Ifyou had placed that moneyinstead in a 5% savings account,let itcom-pound for 13 years, and withdrew it to-

THp Aslar Malacrn o OcrosrR-NovrNlsrR 1994 39

A Quick Look toThe North and East

Bv Pnorrsson Ar.rJANDRrNo J. Frnnrrue

Polsed for a Second T[ke-offThis is expected to happen because of

the athactiveness of the home market toforeign investors and exporters taking upthe challenge of the global markets. Theroadblocks of red tape, inadequate infra-structure, and the threat of high inflationare being addressed by Kim Young Sam.In his first 100 days, Kim increased moneysupply, lowered interest rates, expandedfinancial incentives for new factories, andrelaxed restrictions on new buildings.

. This resulted into GDP growth anda resurgence of the manufacfurinS sectotwith exports of steel, cars and electronicgoods leading the way.

r The achievements were however ac-companied by anincrease in inflation thatcan disturb the labor-management peace.

The funrre willsee the taming of pricesand a drive for international competitive-ness, while making the home market at-tractive to foreign investors. Some Koreanfirms are responding by establishing notonly lower cost manufacfuring bases over-seas, but also addressing marketing, R&D,and finance. This indicates a willingnessto grow roots, instead of making a quickbuck.

Governmentt New RoleThe government's effort in trimming

red tape is still considered aslagging behind. Govemmentsays that deregulation is astep-by-step process, as it ad-

iusts to its role as a vision pro-vider. Government will alsoprivatize or rnerge 75 of its 133state funded firms, increasethe R&Dbudget, and focus onelectric cars, computerizedsystems, and bioengineeringtechnology projects,

Even with the pressure toderegulate finance, the gov-emrnent, fearful of an inllux offoreign capital that could sendthe zuon spiraling upwards,will pace the liberalization ata rate that Korea's macro-eco-nomic requirements dictate.

Businessmen in SoutheastAsia may want to look for jointventures with Korean compa-nies, if their competitors are al-ready allied with Japanesecompanies. Govemments in

SOUTII I(OBDA

Koreahas awillingnessto grow roots, instead ofmaking d quickbuck,

Tlrm lland of Klm Young SamWhen Kim Young Sam took office, few

thought that he had the answers to SouthKorea's nagging problems of growing an-tagonism between government and busi-ness, labor unrest, and a flagging exporteconomy. Because of his firm hand in deal-ing with corruption, and his lightening upon sovemment's involvement in businessand financial markets, Kore-ans see promising signs ofstronger economic growth,improved competitiveness,and lasting labor-manage-ment peace.

Economists predict thatthe economy will be growingby 67" to 7%, up from lastyear's 4.7Vo. The strong Yenand the productivity improve-ment of Korean ships, semi-conductors, and automobilesmay result in the country'sfirst curent account surplus inyeaIS.

These are promising signseven if there are tensions withNorth Korea. The roadblocksthat Kim faces are the toolit-tle attention he has given to aNorth Korean threat, and re-calcitrant bureaucrats who re-sist further deregulation ofin-dustries and financial markets.

40

Real GDP pel GapltaGrowth (%l

4.t)6

o,92

wU,S. J.Fn Korc!

of Gomputcr€Penon

Growth in Productionof Gapita! Goods (%)

6.15

4.23

Hu,s,

2.20

0.74

0.19

llumbels ofp81 Pc

[t]'r

I

I o.me

I-I

l|ircct lnvestment Flowslnward

(0/o ot gross fixEd capital tormation)

source lhe woid cmp€liriwn.ss B.pon 1994i pp 239,263. 337 477

Ocroarr -NoveN{arn 1994 . THE AsrAN MANAcER

Southeast Asia may want to woo the in-creased FDIs that Korean companies maysoon be making in the region.

JAPIIN

The lapanese haaea genuine constefiationto anything that threatensitshard-won economicanil social secuity.

Japan is Tar BehlndIn Computer Llteracy

Tokyo University economics professorYutaka Umezawa says that Japan is play-ing catch-up. Thecountry has one-third asmany PCs per capita as the US.Only 10% ofJapanese business peo-ple use them, and only 137o are con-nected to networks, vs.50%-plus inAmerica. Only 107o of all Japanesehomes are wired for cable TV com-pared to 66% of homes in the US.

. The Education Ministry andprefectural governments want tospend US$ 2.6 billion to place22PCsin each primary school and 42 ineach junior high school by 2000.

. MITI has projects to developcomputer interfaces that respondand hurdle the obstacle of thou-sands of Japanese characters.

. The Ministry of Posts & Tel-ecommunication recently droppedgeographic restraints on cable-Tvcompanies.

o The private sector is also mov-ing. Fujitsu and NEC have vowed to linkevery employee with e-mail by 1945.

Are Sogo Shosha llinosaurs?Some quarters are calling Sogo Shosha

lumbering dinosaurs destined for extinc-tion. Doomsayers claim that the giant trad-ing firms have outlived their time and arebloated and uncompetitive in the face ofderegulation.

Itocho Corp. begs to differ. The firm hasjust restructured itself to meet the chal-lenges of the next decade. Itocho's plan isto use its trading expedence to tap newmarkets and to move into hi-tech productsand services.

. lt reduced its number of business

groups from 35 to 21 and cut middle levelmanagers drastically. Rather than firing oroffering early retirement, Itocho shifted itsmanagers to whichever subsidiary or de-partment was in need of a boss.

. lt adopted d strategy of vertically in-tegration, but not put all eggs in one bas-ket. The other baskets would be the crea-tion of brand new business.

Is Japen Changing for Good?Japanese academics have given the

current tumultuous times an importantname-the Heisei Reformation-imply-ing that the country is on the verge of an-^rhar n iv^rr l .h,nop

Business leaders, politicians, andeconomists all suggest that if and whenchange really starts, there will be no stop-ping it. For now, nobody wants to be that

7M million Chinesearenewly michedby

ffi arket oieflt e d ref otms.

first domino. Japan is looking for its ownunique solutions, ratherthan simply mrm-icking the ways of the West.

It is not a question of whether Japan

Economic Measures lorlfimb Fint Hundred Days:

. Increased money supply

. Lower interest rates

. Expanded financial incentives

Results. Greater competitiveness. More attractive home market. Stable market pdces

will change, but a matter of when and howmuch. The apparent indecision so far ispartly the result of stalling for time, andpartly a reflection of the country's genu-ine consternation to anything that threat-ens the Japanese people's hard-won eco-nomic and social security.

One th ing is for sure. When thechanges have been made, Japan won't beany more like the West than it was before.It probably will identify more closely withAsia than it has been in decades. But anychange is a gamble. Aligning more withAsia's booming markets could well turnout to make Japan the strongest economyin the world.

CIIINA

Ad agmcies cannotpush too hard ontheir rccommettdations

Wlrat to Market ThereWell-packaged products sell

well in China. The country has morethan 100 million people who arenewly enriched by market-orientedreforms, and there are eager to buyhigh-quality, trendy products. As aresult, experienced foreign advertis-ing and consulting firms are find-ing themselves in demand. Butmany Chinese firms do not under-stand the function of an ad agency,and often do not trust the agency'srecommendations. Agencies cannotpush too hard on their recommen-dations, since this risks its Chinesecustomer's loss of face and subse-

quent relationships. After time consumingrounds of compromises, some local tirmshave made good progress.

. Dentsu, Young and Rubicam's Chinabusiness doubled each year since theShanghai office opened in 1991.

. Saatchi & Saatchi estimates advertis-ing spending in China grew to US$ 1.93billion in 1993, a 42.5% increase on 1992.Although the opportunities are there, for-eign firms must adapt to Chinese realitiesand culture.

Is Prosperlty Cr.eaiinga Treer Society?

Economic reform and years of doubleConlinued on page 42

Tur AsnN MeNacrn o Ocroern-NovrNlrrn 1994

A Quick Look...Ctntiturtrl fronr Pngt 11

digit grou'th have transformed China'spolit ical and sociall i fe,loosening Bcij ing'siron grip on the country's L2 bil l ion cit i-ZCNS.

. An explosion of information technol-ogy l.ras allou'ed Chincse to link up rviththe world with far machines, telephonelines, satellite dishes, and personal com-puters.

r Market oriented reforms allou,mil-Iions of Chinese to dccide rvhere to rvorkand where b l ive, instead of being tolcl.

r Agrorving localmcdia. aligning rvithregional powcr brokers, is spotl ightingtension bet$,een provincial authorities andBeijing.

. Worlers and pra.Jnt. Jr| bcc('nringmore vocal, and are protesting corruption,Ia1,offs, and taxcs.

To contain the situation, Beijing's lead-ers have adopted a policv of strategrc re-treats. Bv pulling back in certain areas, theleaders hope thev can lin.dt social unrest.The question nou'is, u'i l l thePartytrans-form itself, as did autocratic parties in Taiwan and South Korea? China rvill find itsown soiutions, and chances are thev wil loe pragmanc.

Ref(rence.: Btrrirt, r-Wri l ' . f,"ltrut, AtntlBusirri,ss

Boor REvrEwHals Surryo, Eorron,

SWA Mecrzrrr, Inoorrsr,r

Corporate legends & [ore:The Power of Storytelling asa Management Tool

Peg C. NeuhauserMcGrarv-Hill, Ner'r' York, 199323.1 pages

Sour.. Th. AfTA Nlonit(r, l7 /\uA!d i'r!rl

Prof. Alejandritto I. Fcrrtrin is tk Bnnk ofAtnericn Professor oi Busirttss Mntrrrgotrtut ,ntrd is Associste Dea

ol Dctektpnncnt Mnnnget cnf Pr()grant (DMP). Ht l:,r'�s ittteresl ittthe fieltl of Producflou, Qunntifntitr: Annltl-sis, IlT, nnd Detcloptnutt Mauagtnvnl.

42

or thousands of years, storiesh,rvc been used as a primaryc0mmunication tool to impartcultural values and norms to thepublic. Stores are used to educate

voung pcople, leu,ard them when theypractice the right valucs, and penalizethem if thcy don't. As the author of thisbook says, ivithout the tradition of storv-t r l l i ng , . , rn t cu l tu re . r r he lher i t i s the cu l -trire of a traditional ethnic group or a largecorporation, rvill have a difficult time pro,tecting and preser\.ing thcsc Yalues.

People like storiesLike other communication tools, sto-

rv lc l l ing ha . p , ' ten l i , r l . Pcop le l i l e . to r ies .lor good stories are sources ofinformationrvhich are easilv remembered, and if thevmake scnsc, become more credible.

Indeed, stories can be trvo-faceted. Asa communica t ion too l , rv r i tes Peg C.Neuhauser, "a storv can help vou fulf i l lvorrr mi.\ron with r err g,ootl re.ults, im-prove the morale of vour u'orkers, andsatisfv vour customers." A story can alsobring about dreadful consequences andthereforc destrov its user. "lt all dependson the intention of the storyteller, as wellas on the message he lvants to impart,"continues the authot founder and Presi-de.nt of PCN Associates, a managementancl training consulting companv

Slorytell ing in an organlzatlonMs. Ncuhauser's book ,

"Corporate

Legends and Lore," discusscs the role ofstorvtcll ing in an organizatjon ora corpo-ration, and its abilitv to t'nrich the cultureand improve the env i ronment o f the

workplace. Stories told to workers canhave a positive effect on them, particularlythose n'orkers with a negative or destruc-tive outlook, as far as the future ofthe cor-puration i ' concerned. lf, alter hearing astory, the listener becomes enlightened bythis expe ence, he rvill feel proud, and hisinner tensions released. A negative story,when told and retold, can have dire effectson corporate performance.

Photo and CoffeeMs. Neuhauser presents six types of

positive stories, i l lustrated with actualcases. One type is "Hero Stories." HillArnold, President ofthe Centennial Medi-calCenter (CMC), in Nashville, Tennessee,saw how workers persevered on the con-struction of his hospital, rvorking in coldconditions. After greeting the workers, heasked the project leader ifthe workers hadbeen given hot coffee. "No, Mr. Arnold,"the supervisor answered. Several hourslater, a truck came, bringing coffee for theu,orkers. For everv evening after that,Arnold sent hot coffee with a note: "To

warm you on a cold night." In gratitude,the workers sent a large picture of them-selves to Arnold as a souvenit with thebuilding as a backdrop, and signed bv allthe workers. The photo now hangs onArnolci's wall, and he alwavs tells the storvof the "photo and hot coffee" to visitors.

Storytelling in corporations has twoobjectives:

. To explain principal values (ground-

rng). To shor'r' corporate procedures and

practice (instruction)C,tuliwttd r,n yng ,14

Summary of TradeActivities,1992

Merchandise Exports(US$bil l ion)

T"changc ovcrprevious ycar

Merchandise ImportsUS$ bil l ion

% chanp;e overprevious year

China

73.4

+5.5

82.5

+28.1

i-$l$-i{\,."*-'.'Sj

Octosrn -NovrMrrr 1994 . THE AslAN MA\ACER

he C Alphabet is aspectrum of leader-ship styles, rvherestyles that providemore d igni tv and

self-esteem to people are re-warded with higher produc-trvltv.

Since the start of civiliza-tion, slavery had been used toattain production goals. Fromthe pyramids of Egypt to thecotton fields of the AmericanSouth, its cost-effectiveness re-sulted in an entrenched culturethat took wars to shatter itsroots. Somewhere in the cost-benefit analysis, someone for-got to input the costs of hu-man lives and human rights.Management concepts of hu-man behavior were non-exist-ent; mere t'ishes ofrulers andowners were followed withoutquestion and at all costs.

Wi th tha t cxaggera tedbackdrop on leadership stvle,the G-alphabet leapfrogs intothe 20th century. ln the 1920s,Alfred Sloan of Ceneral Mo-tors formalized the concept oIdecentralization. He organizedGM bv divisions, similar to thestrategic business units of to-day. Increases in productivityresulted, and CM prospered.Still, autonomy belonged onlyto the divisions and not to in-dividuals.

Up to the 1950s, the con-ventional management wis-dom rvas "the assumption ofthe mediocrity of the masses."MIT pro fessor Doug lasMcGregor listed the assump-tion's tenets as ihe individual'sinherent dislike for rvork, adesire to avoid responsibilitv,and the resulting need for peo-ple lo be coerced, controlled,directed, and threatenecl, toincrease productivitv TheoryX u'as born in McGregor's TftcHunnn Sidt ofEnterprisr, a blis-tering attack on the command-and-control view of the world.

McCregor complementedTheory X with his own beliefs,

which he called Theorv Y ltstenets were the polar0ppositcsof Theorv X. With one of hisneu' disciples, David Swansonof Procter & Camble, they de-signed a Theorv Y plant in P& G'sAugusta facilities. Bv themidl960s, the Augusta plantwas about 3091 more produc-t ive than anv otht ' r P & Cplant. Expectati0n of change$'asbuilt into ihe organization,and its people ivere trained toth ink broadly and movequicklv on anv nerv develop-

ments in their business. Asidefrom efficiency, effcctivenessn,as also on the upsrving.

ln 1982, Wi l l iam Ouch icame out with his book Ifti otr1Z, rvhich espoused that in-volved r'r'orkers n'ere thekev toproductivitrr It highlighted or-ganizations that de\,elopednaturallv in the United States,but rvith many charactcristicssimilar to Japanese firms. Thervorld was now rvaking up to a

Japanese svs tem where in -volved rcorkers made a differ-

ence in the organization's suc-cess.

Soon. l f te rwards , manybooks on Total Quality Man-agement surfaced, but thesenere basically rehashes of theTotal Qualitv Control of the

Japanese. TQM was a people-focused management systemthat a imed a t con t inua l in -crease of customer satisfactionat continually lorver real cost.TQM viewecl rvorkers as a keysuccess factor in strategic com-petlhVeness.

Somet ime dur ing the1980s, the $ 'o rd " in t rapre-

neurship" became f ashionable.Managers and employees wereencouraged lo think like entre-preneurs inside a corporatesetting. Product championswere the heroes of numerouswar stodes that transformedcompanies into $'orld-beaters.But the word "intrapreneur-

ship" died a sudden death assoon as the next letter of the CAlphabet came into focus:E forempowerment.

Emporverment is sti l l invogue, vears after its introduc-tion. With an unleashing of thecreative energies of all members

Continued 011 pa&e 41

H I G H

" THrNKAsour If

IG

Lo HUMAN DIGNITY

1920 1950 '1980 1985 1990

YEAR

ThE G ALPHABET

H IGH

c

N

s

LOW

N

LOW

B.C.

OwnershlP

LioeiatlonEmpowerment

IntrapreneurshlpManagement

OualityTotal

Tieory ZTheory Y

Theory XDecenlralizallon

Stavery

Trrr Astl\ M,c\ecrn . OcroBtR-NovF\1BER 1994

Book ReviewContinued t'rom page 42

Jan Carlzon as a story tellerMs. Neuhauser writes about Jan

Carlzon in his book, "Moments of Tiuth,"as an illushation of grounding. For Carlzonand the employees of the ScandinavianAir-line System (SAS), the check-in counter is amoment of truth. How they handle this mo-ment of tmth can either improve or deshoythe SAS reputation. The SAS key value isto provide the best airline service in theworld to the business communiW, whichoften travels by plane.

In the first page of his book, Carlzonstates the core value of SAS in his story. Abusinessman approached the SAS check-in officer and told him that he had left histicket in the hotel. "|ust relax, Mr.Petersen," said the officer, while issuingthe businessman a temporary ticket. Theofficer contacted Mr. Petersen's hotel , re-trieved the ticket, and gave it back to itsowne{, a few minutes before the plane tookoff. "Mr. Petersen, here is youi ticket," asmiling stewardess told him.

Carlzon tells this story to everyone, asa symbol of values that his corporationputs into practice. When making use of astory that is related to corporate values,you must identify the significant ones touse as the story setting. "No two corpora-tions are exactly the same in the valuesclose to their hearts," writes Neuhauser.

Another objective of storytelling is toteach work regulations and procedures tothe listeners. You can issue corporateguidelines to workers by memo oi direc-tives. To relate stories that contain goodand bad examples of corporate work prac-tices, directly to the workers, is more ef-fective because the stories are easily re-membered and are credible. Stories likethese are more useful than a list of writtenfacts and information.

A story must inspire the listener. Sto-ries, however, can often be reduced topropaganda. If the story is told by a cor-porate manager in authority, the listener'sresponse will probably be neutral. Or ifhe knows the real situation, he may justshake his head. Simply becomes cynical.

Ibm Watson as another storyteller

When Tom Watson ]r., replaced his fa-ther, Tom Watson Sr., as the number one

44

man at IBM, he decided to encourage his Think AbOUt Itpeople to be brave enough to question, and I

not to simply conform to the managemenl Continued t'rom page 43policies of Watson Sr. He stressed this toiris workers many tirne$H;-.litilil of the organ2ation, most of the excellent

story of the phiiosophJ Kt"*;;;; companies have latched on to this philoso-

aboutmanfro*N"*i;i;;.;;#;;;; phy' and the results have more often than

who had continuously;;;*d il;; notbeenhighlysuccesstul'

flock of geese alway; flew to the south ^, Ln1992, Tom Peters wroteLiberati,n

every ye;r; and he ttrought h;rv;;;;il; Management, where he espoused the con-

the geese a service by gi.,7i-ng ;il;;;; cePt that people should not only be em-

his [ond. e, u ..rrrttith;?;;;;; P,owered/ but should also be liberated

tame, too fat, and too lazv to'flv;;iliil; from the clutches of the head office and

essence of the story tr' %;;;;?;;;iil; from bureaucratic entanglements' Peters

geese, but you can never ;;i;in"*;;il showed how liberated trailblazing can re-

igain. Tame geese can;;;;;;;;i";.'. sult in world-class performance in bi' or

With this ltory, Watson]r. ;;ii;;rhi' small organizations' With ideas such as the

IBM needs "wild geeseJ;iliBM,t i;;il; elimination of the head office and middle"we will not tame them.,, rn" lgl\a p.o- managers/ it is not surPrising that few

ple did not believe i^ wrar".;r ia"".'rrir companies have rallied around the con-

challenge to them, to get ih.. ""i ""a r"y cept' But with Peters very much in de-"you are wrong, wutron,;."ur;;il;; mand in the talk circuit' these companies

dangerous jok.]rttnoir.r.p"rr"g,lirrr.u lltt Probably wave the flag of liberation

wou'id later on say: "Lookii;il""i.t"d-j' when the emerging need for a liberated

managers you hav;, wat;;n;;;;;i6 :llut"gy becomes the rule rather than the

braveiy took your challenge." ' - - ' '-r

t"t;PJ:Tr. Ietter of the G Alphabet will

Corporate aulture and folklore have to be O' With technology accelerat-

Corporate folno...u.iufi;;il;;.r ing the need for individual services, the

undersiand corporate ;;l..,.i;il iJJ Zst centurywill mostprobably witness

them how to handle "r;.ud;; *".4;i;_ the growth of one-employee businesses,

ations. sam Keen used th;'c;;p;i;h;;; a world of owners'

ware and software metaphor to describe , The skeptics may say that the above

folklore and the corporation. Trre;;iki;; d-oes not hold true inAsia' well, empow-

is the software, ana tne cor""."ri"^lr ii- erment has already crept in and, whether

hardware. r - -

liberation may succeed or not, the advent"I understand the work culhrre and the of

,ever-cheapening high technology will

corporatemanagement;ti;';;;;;;h"i;- ultimately result in service-oriented

man resource director #rr^.J ,rr.In i" economies' This may happen a couPle of

me in detail," said a miiia ;;;;;;;i; generations from now but it will happen'

swA advertising client company. ,,But, I , what is the lesson here? In the G Al-

just learned abolut the dtff..'*?.;; phabet' there are no pendulum move-

bveryday to me the inrricacies oi;;lt; ments' Leadership styles may continue to

poraie a;tivities. --'-- '/ -- change, but always to a new drumbeat,

As a newcomer/ he now knows who is n.ever to a Previous one' Even the

powerful, who can b" ir";;; ";;:;i: situationalLeadershipmodelof Hershey

i"ugu., the difference b;;;f-;"ltty and Blanchard does not negate this view,

ani informality, and th; .";fli;i;;il since the backward shift to a task behavior

the workers. ,,This is ";r;;;;;,-i: mode from a relationship behavior style

books," he added. ls considered temporary, brought about

Management can use it to improv" only by fleeting situations'

the work"ers' morale, implement man- sinceeffectivenessandefficiencyhave

agement changes, ...# ; ;l;p,i;; continued to rise as human dignity is en-

corporate environmena,-""J airJ.".i- hanced' the march towards total freedom

nat; the impact b.fo..;;;;;g;;;;i from bureaucracy will move on' As new

ter the changes took pia;; ro' -- - "

fJril."i""*Tilxlff,: flJ*L:l;[liTianslation: Emily Cruz, UP Departmenf will continue to result in victory, until theof Linguistics war is finally won by the Owners. l

Ocronrn -NovrMsrn 1994 o Tnr AsrAN MANAGER

Environmental Managementin the Asia Pacific Region

Bv PnoressoR Ersu INera

he United Nations Conferenceon Environment and Development (UNCED) in Rio de Janeiroin June 1991 marked the beginning of an era of concern for the

environment. The conf erence representeda shift from mere awareness of the prob-lems facing the environment, to action bygovernments and private organizations. Inthe Asia-Pacifi c region most governmentsattempted to strengthen toenforcement onenvironmental laws and regulations.ASEAN countries have started campaignsfor consumer involvement the environ-ment. It is possible that regional trade willsoon be subject to non-tariff barriersagainst companies who are environmen-tally "unfriendly." For example, the pur-chase of products that violate environmen-tal guidelines could be banned or re-shicted by some countdes.

This report outlines the responses ofcorporations to environmental issues, andthe steps they have taken in implement-

(p€rcantags of respondenls who had esrabllshedsuch a poricy o. program)

Does your compnny haaeena ironment al p olicies?

It couldbe thekeyto competitiuenessand the long-term

suraiaal ot'the firm.

ing environmental management policiesand practices.

Few eornpanies write downenvlronmental pollcles-.

Written policies and reports to the pub-lic on environment management usuallyindicate a company's commitment to en-vironmental issues. As of 1993, only one-third of the companies in ASEAN pre-pared written policies on the environment.This is substantially lower than otherAsia-Pacific countries, the next lowest be-ing Japan, with about 50%.

..$nd lewer reporttheir pracliee

The figures on environmental per-formance as an item reported to the Boardof Directors are similar Only 207o of thecompanies surveyed publish environmen-tal performance reports to the public. Indeveloped countdes there is a move tomake this a requirement, which would al-most certainly enhance public awareness.

1994

Even without wdtten policies, compa-nies may set specific goals, through theirline managers, to undertake environmen-tally "benign" operations. Lowering en-ergy consumption and reducing emissionsare two major goals, although this variesaccording to industry. Reducing solidwaste and recycling were lower on the listin the ASEAN region. Japan prioritizesenergy reduction, even though the coun-try's energy efficiency is the best in theworld. In general, smaller companies areless concemed with recycling than largerones.

Internatlonal g;uldellnesare not well known

To promote environmentally-soundmanagement, various international or-ganizations and industry associationspublished environmental guidelines andstandards in the early 1970s.

On the whole, these guidelines andstandards were not widely used by the

(psrcenta96 of rcspondonls who pr46r€ l6gulerslal€msnls lor lh€ corDorate board)

0 ro 20 30 40 50 60 70 ao s0 r00

THr AsrAN MANAGER . Ocrosrr-Novrvsm

respondent companies, except for indus-try association guidelines. About 44Vc ofthe total respondents said they used indus-try association guidelines. Some 38% oftherespondents reported that they were con-sidering lhe use of ISO technical environ-mental standards in the future. This maybe due to ISO 9000, which has gainedpopuladty as a way of improving quality,and which could be used as a non-tariffbarrier for export markets.

Many guidelines and standards listedin the survey were unknown to the re-spondents. These include UNEP's Aware-ness and Preparedness for Emergencles atLocal Level (APELL\ program; 627o ol therespondents said they were unaware of theprogram. Other guidelines were also notpopularly used by or known to the re-spondents. On the other hand, interna-tional agreements such as the MontrealProtocol seem to have been more takenmore seriously by companies. A shift fromozone depleting substances (ODS) to en-vironmentally-friendly material has beenobserved in many companies, even in de-veloping countries. This indicates that thepenalties for not following the agreementconvinces many companies to implementits guidelines.

BDST PNACTICES

The research also attempted to iden-tify which aspects of environmental con-cem corporations gave the most attentionto, and which specific management sys-

4b

tems they used in dayio-day activities. Wehoped that this information could revealclues for innovative practices, so that thepractices can be replicated by other com-panies and industries.

Control pollullonWe investigated the extent to which

vanous types ol management practicesaddressed environmental concerns. Manycompanies in the region cited 1) pollutioncontrol, through redesigning or installingnew equipment, and 2) pollution conhol,through improving existing equipment, asmajor approaches to environmental prob-lems. Few companies in ASEAN considerproduct redesign or raw materials chang-

ing as an option, perhaps because the de-sign and R&D for raw materials are not amaior part of their operations.

In Japan" process improvement energyconservation, and recycling are slightlyhigher in priority, while pollution controlthrough new equipment, design change,or materials chanee are close behind.

Taiwan showed a much lower level ofinterest in these areas, compared with theother respondents.

[eeyoleThe forest products sector emphasized

recycling far more than other industries,with 40% saying they recycled large quan-tities. In the Philippines, for example, thereis a shortage of raw materials and virginpulp, as logging has beenbanned inmanyparts of the country Paper producers inthe Philippines use mostly imported, re-cycled paper Interviews with paper pro-ducers revealed that the absence of properinfrastructure to collect used pap€r in thecountry has forced them to depend on im-ported used paper In the past, there wasno problem with the supply of used paper,but with heightened environrnmtal concemin industrialized countries, more and morecompanies have begun to use recycled pa-per. This has raised the price of recycledpaper on the world market.

A large multinational petrochemicalcompany systematized its preparation ofenvironment impact assessments and en-vironment management planning, evalu-ation, and monitoring. A cement industryrespondent said thev used their kiln for

I n use

I eur ro use

IN USE PLAN TO USE

51.72 6.90:to 5.33

34.36 o50 15.38

ASEAN 40_50 5

IN USE PI.AN TO USE

24.11 4r.3429.33

n.27 343615.34 24.92

ASEAN 1 5 32.50

Ocronrn-NovrMsrn 1994 o Tur Asnru MeNectr

incinerating certain types of waste. An-other cement company is considering im-porting solid waste from a developedcountry to use as a heat source for ktlnoperahons.

llave an envlronmentaleudlt system

Environmental auditing systems ofcorporations evaluate practices that pro-mote industrial environmental manage-ment. These might include complyingwith applicable govemment regulations orwith company standards, preventing pol-lution or developing "green" products,monitoring suppliers monitoring, thenumber of liability claims and hacking thenumber of staff receiving environmentaltrainine.

Checking to meet their own company'senvironmental standards 91% of total respondents said yes to this item) and com-plying with Govemment regulations (697o)ar€ most commonly monitored in theenvi-ronmental audit systems. The respondentcomoanies also monitored material conser-vadon (66V"), pollution prevention (64%),and energy conserv anon (627").

Sporadic monitoring of pollution lev-els is often cited as a weakness in ASEAN.Govemment regulatory agencies in tlvocountdes do not have adequate measur-ing equipment, which is too costly.

lllonltor elalmsOn the Asian side of the Pacific, only

one-fourth of the respondents said theychecked the number of liability claims.Almost half said that liability claims werenot aoplicable or not monitored. The situ-ation iiffered in Australia and NorthAmerica. Almost 4570 in Australia andaborst 707o in North America checked li-ability claims. The trend may shift in Ja-pan, where a new Product Liability Lawtakes effect, making the manufacturer ofa product responsible for any possibledamage it may cause. One multinationalpetroleum company checks not only theactual claims, but also possible liabilityclaims. This may be due to the punitivenahrre of claims in the petroleum sector

llonltor suppllersSupplier monitoring is conducted ei-

ther by checking the supplier's environ-mental managernent policies (40% of to-tal respondents) or by giving comments

(3170). This is practiced more by the forestproducts and pehochemical sectors. Whenbuyers are environmentally conscious,they require the supplier's stdct compli-ance to their standards. As buyers canmonitor their supplier's performance bet-ter than government agencies, this modeofmonitoring and "giving comments" canserye as strong pressure to the suppliers.This may therefore be an effective alter-native to govemment regulations.

Led's Philippines, an Americanclothes maker. requires ils suppliers. in-clutling industrial laundry seruice com-panies, to ndhere strictly t0 the elfluentstandards set by Leui's within a specifiedtime period. Non-compliance means nobusiness for the suppliers.

Use llfe-eyele analysisOne-fourth of the respondents re-

ported using the life-cycle analysis (LCA)as an environmental assessment tool forover 20% of their products. Most of theserespondents were from the forest productssector, which comprise 607o of those whouse LCA, Because many forest productcompanies are concerned with life-cyclestages, ftom planting trees to haryestingand processing them, the "cradle-to-

grave" concept can be applied to their op-erations. This does not necessadly mean,however, that management decisions aremade based on "life-cycle analysis." Infact, it seems that many of the respond-ents are unfamiliar with the concept. Also,a meaningful analysis of LCA-requires agreat deal ofdata at different stages of pro-duction, which are unavailable. Little ef-fort has been made to establish such a da-

tabase, eitherby companies or by govern-ments. In North America, Europe, and Ja-pan, industry associations and govern-ments are instrumentdl in supplying rel-evant data so that LCA can be applied inthe decision making process.

T.ACTORS PROMOTINGDNVIBONMDNTALMANAGDDTDNT

To promote environmental manage-ment effectively, we should learn fromtheexperience of the companies the factorsthat tend to promote "environmentally

friendly" behavior in the organization.Conversely, we should avoid factors thattend to hinder environmentally-friendlyefforts.

I(ey executives drlve ehangeOne factor which encourages environ-

mental concem in companiesis key execu-tives'action (70% ofthe respondents gavethis indicators high degree of importance)and establishing environmental units(51%), which are related. In many cases,when key executives get involved in mak-ing the company environmentally con-scious, they give organizational suPportand assign some influential person to aposition in environmental management.The fate of a company's environmentalprogram depends to a large extent on thecreativity of the individuals assigned tolead the program. This suggests that thosecompanies which are not environmen-tally-friendly have only top managementto blame for their lack of concern and ini-tlatlve.

Ii 3

I

0

N.r O€:im lmProw lldrri.l En.tgry ll€cvcl.Equlpir|.rt Chars€ Ptoc..! Cn|ngf, Con.rvrtlon

I ronrn mtenrcr f rusrnlln I .l"p"n

THr AsIeN MeN,ccrn . OcroBER-NovEMBER 1994

Enpocune ol lop managemenlThe question is how to get key execu-

tives to commit to environmental effort.Attending local and intemational confer-ences that focus on the environment oftenhiggers environmentalconsciousness. Forsome companies, community pressureand potential competition seemed to trig-ger key executives' action. Once the keyexecutives publicly announce their com-mitment to protect the environment, out-side groups and the executives' peers keepup the pressure to continue with the ef-forts. Some companies are reluctant tomake their environmental plans public, asthey are still in the process of promoting

environmental awareness within the or-ganizahon.

Aceldents and IneldentsAccidents and other incidents that

damage the environment also seem to trig-ger environmental consciousness. Otherfactors which stimulate environmentalconsciousness are the initiative and en-couragement given by the respondents'parent companies.

At Molorola, an American eledronkscomryny, eoiluntian Uiteria 0f their ex-ecutiaes include " enaironmental leader-ship" as one ofthekey "initiatiues." AIso,the parert company consid.ers employee

int:oluement as an importmt lactor t'or ef-t'ectiae leadership .

Mitsushita Electric Irulustrial of Ia-pan institufed and inplemenled n policyon the enxi ronment , making a l lMatsushita opernti|ns enair,nmentillyconscious and encounging otuseas opern-tions to follow suit.On the Asian side of the Pacific, con-

sumer-related events and legal actionagainst the company were IE! strong fac-tors to provoke environmental manage-ment. In North America, on the otherhand, these factors had much more rm-pact.

FACTORS HINDDNING ENVI.RONMDNTAL MANAGDIUDI\TT

Lack of regulatory enforcement andno pedormance targets

There is no single common factorwhich hinders the incorporation of poli-cies on the environment. The desree ofregulatory enforcement, or consistency ofenforcement, is perceived to have thegreatest impact, with nearly 40% of thetotal respondents rating it as an importanthindering factor Also, where theenviron-mental objective is not a part of the oper-ating performance plan, theimpact is rela-tively high, with 39% of the respondentssaying it impodant.

Other hlndranc"esOther comments referred to the inad-

equacy ofgovernment support to compa-nies' environmental programs. The factthat high tariffs are levied on the importa-tion of new pollution control equipmenthinders investments in this area. On theother hand, a weak government monitor-ing system and small penalties levied on"polluters" encourage companies to paythe penalties, rather than invest in anti-pollution equipment and processes. Whilegovernments have started to implementmajor drives for cleaner environment inall the ASEAN countries, executives inthe private sector shared similar views:lack of "incentives," "financing availabil-ity," "unrealistic level of regulation, with-out regard to the process technology," etc.

The last point will be a serious concem.The predominant company size in devel-oping countries is small or medium-scale.Incentives and financial schemes mayhave to be devised to make environmeni-

Our rcsearch looked into the differcntenvinonmental guidelines:

Some industry sector-specific guidelines are prepared by industry associa-tions, such as "Guidelines on Biological Impacts of Oil Pollution" by the Inter-national Petroleum Industry Environmental Conservation Association, publishedin 1991, and "Environmental Guidelines for Pulp and Paper Industry" publishedby the United Nations Environment Program, (1982). APEC has other industryguidelines and standards. Some industries are in the process of developing onefor their area. The International Organization for Standardization (lSO) pub-lished Intemational Standards for Quality Management in 1 986, made a numberof environment-related references. ISO is also preparing a new standard for En-vironmental Management with its ISO 14000 series.

The "Business Charter for Sustainable Development " was oublished in 1991by the Intemational Chamber of Commerce (lCb). Together with this chartetICC prepared an "ICC Guide to Effective Environmentil Auditing," which pro-vides specific steps to follow for an effective environmental audit system. TheUnited Nations Environnent Program (UNEP) was specifically created to copewith the issues of environmental prot€ction in 1972. In 1975 the Indugtry andEnvironment Program Activity Center (IEIPAC) was established to bdng to-gether.indushy and govemments to cooperate in environrnentally-sound de-velopment. More recently, UNEP, through iis Industry and Environment Office,has published a number of technical reports specifically dealing industry's re-sponses to environmental challenges. The reports cites actual cases. Other pub-lications from UNEP cover a wide range of environmental concerns.

Arnong LINEP's publications, "Awareness and Preparedness.for Emergen-cies at Local Level "(APELL) was published in 1988 as a handbook for industry,Although initially APELL drew lessons from the chernical industry, the hand-book applies to almost any industry and community. The Intemational LaborOffice (lLO) published "Tripartite Declaration of Principles conceming Multi-national Enterprises and Social Policy" in 192, to which the section ,,Occupa-

tional Safety and Health and Working Environment" was added in 1981. Also,ILO published in 1991 rnore detailed guidelines entitled, "Prevention of MajorIndushial Accidents." In 1991, the Organization for Economic Cooperation andDevelopment (OECD) added in its "Declaration and Decisions on intemationalInvestment and Multinational Enterprises" a new chapter for environment prtrtection. The Food and Agriculture Organization (FAO) of the United Nationshas a code for the safe marketing and use of pesticides which provides guide-lines for agriculhrre-based products.

,a Ocrorsr-Novsr srn 1994 r Tm AsraN Mlrr:ecer

related investment more attrac-tive and affordable to smallercompanles.

DItr'FUSION OF DNVI.NONMDNIAI MAN.AGDMDNT PNACTICES

Since many environmentalmanagement practices are stillnew in Asian developing coun-tries, companies must diffuseboth internal and external inno-vations and experiences to em-ployees. The research, therefore,tded to identify the more popu-lar media through which corpo-rations could learn about, orshare knowledge on, environ-mental management.

Internal sourees ofendronmental pfaellces

Companies used presentations at man-agement meetings and produced com-pany newsletters. Some divisions pre-sented to othe$ to disseminate environ-mental management practices intemally.Video and film preparations and annualreports were seldom used as channels forinformation dissemination. A closer lookat the responses reveals thdt companiesuse multiple media for the disseminationof experiences. Some companies used fouror five different modes extensively, whileothers used very little of any media. Un-derstandably, larger comPanies, with morethan employees were more likely to usevarious modes of dissemination. An inter-nal audit system is widely practiced fordissemination purposes by larger compa-nies, than by small and medium firms.

Benchmarking with other affiliates ofthe same group ofcompanies helps diffu-sion. Many multinationals have the advan-tage of access to information to bench-mark.

Shell's world-wide policy states thqtfhe company chiel executiae offier must

fty to London to reryft the latality of nregular 0r clntract stall inaolaed in anaccident . In the Philippines , field or con-troctor mqnngerc arc reguied fo appeqrbefore seniot management to reryrt aflyrccident. Shell companies use a uniformHealth Sat'ety and Enrironment rEott,containing a sat'ety pe(ormance table. Thetable summarizes the operating compa-

Shell comp anics haa e managanortbenelmarks tomotitor

thc enztironmmt.(Shell Sarawak Bhd oil platforms)

ny's performance , seruing as n benchmarknmong the Shell at'filiates ond encounig-ing manageflent to pay close ottentiotl toit. This may be one ol the reasons whySheII has the lluest ̂ ccident rcte i theindustry.

Dxtcrnel soure€a ofenvlronrnenlal pracllees

Outside seminars and conferences andindustry association courses were meth-ods more frequently used by the respond-ents. The forest-products sector has a 100%rate of usage of industry associationcourses, which indicates strong initiahveand participation among members of theassociation. Respondents which were sub-sidiaries and ioint ventures used studytours of other companies.

Companies that had not started anYmajor drives on environmental manage-

ment practices, chose to getguidelines and training pro-grams.

Outside and in-house semi-nars and newsletters are themost commonly used media fordiffusing of environmental man-agement practices. Because envi-ronmental management requiresan attitudinal, as well as valueshift in the organization, a sin-gle mode of diffusion may be in-adequate. Recognizing short-comings of eisting systems andpractices is the only way to learnnew ideas and to innovate themin an environmentally friendlymanner. To that end, companies'efforts are directed at makingemployees learn by multiplemethods. More open-mindedness and greater willing-

ness to share the learning experience withother organizations and companies, eitherwithin the indusiry or among a group ofcompanies, seem to be the characteristicsneeded to create a more environmentally-friendly management.

lqnM as competltlve edgeMany proactive companies invariably

point out that environmental managementis a nahrral extension of Total Quality Man-agement. Environmental management, ifpursued seriously, could provide opportu-nities to reduce waste and maximize material usage, which would in tum meanhigher productivity The cornpanies whichstarted to move forward towards "environ-

mentally friendliness" consider it to be acompetitive edge. Wthout environmentalfriendliness, companies cannot survive inthe liberalized markets of AFIA.

Research BackgrcundItJle ol f,eeoarch: Policy and practice of envionmental management in the AsiaPacific Region.tvhen Condnctcdl July 1993Partlec lnclnded: A joint research conducted under the Asia Pacific Econonic Cooperation (APEC) Hurnan Resources DevelopmenFBusiness Management Network (HRD

BMN). Paftne$ are the Conlerence Board of Canada, the lnstitu te of Intemational Studiesand Training and Sanwa Research Institute in JaPan, China Muctivity Cent€r in Tai-wan, the Reiearch Institute for Asia and the Pacfic, Sydney University in Australia, andthe Asian Instihrte of Manaeement in ASEAN.Brlel DlethodotogJi,: Over 1,000 mailed in questionnaircs were sent out to comPani-esin 7 counhies. The c6mPanies werc selected randomly for 5 industries - Petroleum, Ce-ment. Wood based, Textiles and electronics.

THE ASIAN MANAGER . Ocrosrn-Novrvnsn 1994 49

( Our ent repre neu r's e n t re p re -neur, Bob Chandran, was feel-ing poetic and pensiue, as hesent in this article. lMy not?Poetry brings home his pointso forcefully - Eds.)

rowth bubbleseternal from thespr ing of hopeand aspirations.Growth is as

natural as rivers flow from themounta ins to the seas . I fgrowth is the natural orderwhy then do companies stag-nate and die? Mostly it is be-cause they lose sight of theirgoals and lack the drive tomove forward. They getstifledby the weeds of bureaucracy.Market changes and financialdecline often lead the companyon a downward spiral. Whenthis happens, the momentumneeded to come out of its diveis difficult to achieve. What isbest therefore is to avoid this.And building a growth-ori-ented organization is key.

Inherent qua l i t ies o fgrowth-oriented companies:

l. PassionIn companies that have

passion, there is a great deal ofcorporate pride. These arecompanies with an ego, com-panies that go after every littlething with gusto. There is al-most a lways a pass ionateleader who believes in a bettertomorrow and that he canmake a difference. As StevenCovey says, "The key to thefire within is our spiritual needto leave a legacy."

2. CuriosityCorporate curiosity is the

basis for an inquiring organi-zation. The inquiring organiza-

tion is the first to recognizemarket changes and thus, isthe first to ring the alarm bellsin the organization. Theinquir-ing organization always tdesto understand competitor'sactions searches for reason.

FreshMBAgraduates needto play this role. They bring theclassroom case discussion andanalytical skills to the corpo-rate world. They also bring aninquiring attitude to the corpo-ration.

3. Value Syslem"True North," as Covey

terms it, is doing the rightthings all the time, rather likea magnet always pointing tothe North. Illegal activities inthe name of corporate profit-ability is like a killing poisonto corporate growth .

4. Learning inCorporallons

This is about shifting the

organization's focus to the dis-ciplines of personal mastery,mental models, and systemthinking, Learning in the or-ganization means the continu-ous testing of experience, andthe transformation of that ex-perience into knowledge-ac-cessible to the whole organiza-tion," says Peter Senge in thebook Fifth Discipline.

Managing the growth or-ganization requires a differenttact and style. Conventional

management systems ale aproblem and hierarchy doesnot work. People earn their re-spect because they can makethings happen not becausethey are promoted to a posi-tion. Here are some things Ihave found effective.

A, Corporation is run as anopen book. In my own com-pany, ChemOil, you will findthat anyone can gethold ofourmonthly financial statements.

They can ask any question,they can walk into my officeany time. I continuously lookat every possible way to opencommunication lines.

B. Compassion. I f youwant to fire someone, pleaseprovide the emplovee time tofind a new job. Help withplacement and reasonable sev-erance. I havea simple policy:"l will not give you a reason tohate me."

C. N egotiating Skills. Thrsis a skill that does not comenaturally. People who are poorat it have a hell of time gettingthings done as they have toconvince someone to helpthem. I would rather teach theskills of negotiation to every-one in the organization.

D. Long Term Outlook. En-ter into a partnership as if it isgoing to last a lifetime. Thenotion of "l" disappears and isreplaced by "us." It puts eve-ryone at ease, and every onepulls for common good. In fo-cusing on the long-term youtend to overlook short term re-versals and focus on buildinga group that will pass the testof time.

E. Be Generous to the En-ployees, We are all taught theskills to buy cheap, and unfor-tunately, we have chosen toapply this concept to our em-ployees. Each manager asks,"What can I get away withoutpaying ?" But why not try theopposite? Pay youremployeeswell and you can expect theirbest.

It is a great thdll to drive acar at breakneck speed and yetbe in control. But it is doublythrilling to head an organiza-tion that isdedicated to growthand wi l l achieve greaterheights everv year

"A Rose only becomes beautiful and blesses others when it opens upand blooms. Its greatest tragedy is to remain a tiglrtly-closed bud,

neaer fulfilling its potential."

\

50 Ocrosrn-Novrvsrn 1994 o THt Asrau Mlruecrn

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TOP MANAGDMENT PNOGNAM(4 weeks). May 15 toJune 9. Ball. IndonesiaFor t [ : Ch ie f -Fr , 'o r r i |e O l i i re r . r r ( l l r t re r r ,u l t r i n ] ro n i l l - ' r 'l\sumr ne LIU roLe

MANAGEMDNT DEVDLOPMENTPnqERA-l[ (B weeks). M;y 15 loJuly ?. ArM cariiprs --. ocro&r 2 to November 2* AfrftampusFor dre niddle to upper-level manager $'ith the clp:tbilitl rthd. .drire to advence tg ftti>level positions in hls finlr

BASIC MANAGBMENT PNOGRAM(4 u,eeks) I. February 20 to March 1Z AIM Campus. Apdl 24 to May 19. AIM campu!. July 3 to 28, AIM Campus ti\". seprrmb€r 4 !o 29, AIIII campus. November 6 to Decemb€r 1, AIM c,mpusFor thc fifst to ntddl€-level mamqer $'ho has demonstrated rporcnthl for taking on g.eater responsililitv.

AsIANINST'ITUTE oFMettlouurxrEutumo Lore? F!unditn.