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Interview with Frank-Jürgen Richter, Asia Inc, July 2005

Advancements in technology, industry changes and political shifts are reshaping competition and challenging the traditional strengths of Asian companies. A new book Global Future: The Next Challenge for Asian Business published recently shows how Asian companies can best develop the strategies and capabilities needed to succeed in a global future. One of the book’s authors Frank-Jürgen Richter, a Switzerland-based economist and consultant, recently spoke to Asia Inc on how Asian companies are growing into global multinationals and how other budding Asian companies can achieve similar success.

Is it necessary for all companies in Asia to think global or regional?
Scale is important. In small markets like Singapore or Hong Kong, companies need scale and they need to think about building a regional or global business. In China or India where the domestic market is huge, you can be a very big player even if you were selling domestically. But no, not all companies in Singapore or Hong Kong need to be global. If you have a taxi company or a noodle shop, you really don’t need to think about globalization. But if you are in any other business, you probably need scale and, therefore, you need to be global. If you are not global, a foreign competitor can come to your market and destroy your because of their brand name or scale. As globalization takes hold, companies with just a very little local identity will perish. Look at Switzerland, it’s a small country but it has ten global companies: Nestlé, Novartis, UBS, etc. That’s as many as Germany which is a far bigger country.

Where do you draw a line? There is room for maybe a handful of global retail banking players like Citibank and HSBC or global coffee chains like Starbucks. What happens to the 50,000 other banks in the world? Do they just merge with a global leader or turn into niche outfit?
True, many of the global players have long history, wealth of experience and deep pockets. But that shouldn’t be a disadvantage to companies that are only now thinking of going global or regional. When HSBC started its global strategy, Citibank had a 30-year advantage and was far bigger. Many people doubted that HSBC would succeed but they did. Take Singapore. There is a shipping company called NOL which is now among the biggest in the world or among the top three or four. Then years ago, NOL was really almost unknown. But it really boils down to working on your own niche. You really need to concentrate on doing what you can do best. If coffeeshops and retail banking aren’t something Singapore or Malaysia can do best, the need to look at other areas. But if they really feel they can be globally competitive in these areas, then by all means they should go for it. But I also want to address the notion of size. Globalized companies are not just about size. You don’t need to be a US$100 billion company.

So what is the key to building a globalized company? The right mindset? Good leadership which can provide the directions?
The key to building a globalized company is global mindset and leadership. You need a CEO with a mission who can drive the company towards its goal to be a global company. A CEO plays an absolutely critical role. It really has to be a traditional top-down approach with the CEO explaining his vision and providing directions so that the rest can just follow. But a CEO also has to work on changing the mindset of a company. Take Jack Welch who was CEO of GE. He provided the vision and told GE employees and managers to follow his vision. He understood what needed to be done, he laid out the vision and people followed. In China, you have companies that are trying to acquire global scale but the CEO has no vision and isn’t driving the companies the way Jack Welch was driving GE 20 years ago. The CEOs have great guanxi (Mandarin for ‘connections’) inside China but when they start doing business overseas, they realize they have almost no guanxi.

What will continue to drive globalization of corporate Asia?
You have the breaking down of trade barriers across the globe with WTO. Increasingly, we are seeing bilateral and multilateral trade agreements in Asia. Sure, there is still some residual protectionism but the trend is towards more openness and barriers are coming down. All this is pushing Asian companies to become more globally competitive, look for business overseas and compete against bigger global players. This trend is irreversible. In places like China, the government is pushing globalization. The governments wants 30 to 50 Fortune-500 companies in China by the end of the decade. That’s what behind TCL, Lenovo and CNOOC trying to do global deals. Some Chinese company might buy Hewlett-Packard’s PC business. Those are the next big stories. The globalization push is coming from all directions. There is pressure from governments for their companies to globalize and there is peer pressure as well.

Will outsourcing help create more global companies in Asia?
It will. What outsourcing does is that it forces companies to focus on their core competence. That makes is easier for them to do business anywhere. If you were a coffee company that grew its own beans and transported its own beans to all its own shops, then served and sold the coffee, it would be difficult for you to be a globally competitive player. But yes, we are seeing companies increasingly outsource more and more of the work – manufacturing to China, services to India, Eastern Europe or wherever and that makes it easier for them to grow and be global players.

What sort of companies have really been successful in their globalization efforts over the last ten years and why have they taken so long to get there?
A great example is Samsung Electronics. They used to be a small OEM me-too player in Korea. They realized they had to build their own brand. They realized they had to build the right processes, bring in the right people and invest in the right technology. They reinvented themselves after the Asian financial crisis to become a focuses company with a long-term view on what the could do and what the couldn’t. On the other hand, take Sony. The years ago, it was a great consumer electronics brand. But they didn’t invested in new products, they lagged behind in innovation and Korean companies like Samsung and LG overtook them in many areas. What Sony makes, Chinese companies can do better and cheaper and now Samsung has almost as good a brand names as Sony, if not better. Sony’s biggest problem was that it list its culture of innovation. Apple, Creative Technologies and Samsung came up with MPs players before Sony finally woke up. Sometimes, successful companies develop bureaucracies, heavy structures and are so laid back that they lose their way.

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