As Asia takes over from the West as the driver of global economic growth, will Asian MNEs rise to replace Western MNEs as academic theory suggests? Learn what Western MNEs must do in order to retain and grow competitive relevance in Asia.
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Strategic Issues Conference Singapore - June 2013
Western Multinationals in Asia- Growth or Decline? -
Western multinational enterprises (MNEs) face an economic and mindset challenge in this Asian century
“Asia’s growth in population, economic activity, and income results in huge market
opportunities, implying that the future of industry and innovation will be centered in Asia.
Different systems of competition, organization and management are emerging in Asia
and, as they do, they will have global consequences.
Until now, our [business and academic] theories of competition, markets and firms are
decidedly regional and hemispherical, based as they are on what happened in Western
Europe and North America during the nineteenth and twentieth centuries.”
Fruin, M. 2012. The future of industry and innovation in Asia: firms, networks, institutions and corporate governance. Journal of Asia Business Studies.
Only during the past 200 years have Western MNEs been pre-eminent
the Bounded rationality and ethnocentricity of key leaders in Asia caused them to focus inward and discount the emergence of the late 18th century industrial revolution of the Western barbarians
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Today, there are many Western MNEs in Asia but they have had widely varying degrees of success in terms of sustained revenue performance
Concept that decision makers have to work under three unavoidable constraints:
1. only limited, often unreliable, information is available regarding possible alternatives and their consequences, 2. human mind has only limited capacity to evaluate and process the information that is available, and 3. only a limited amount of time is available to make a decision.
Therefore even individuals who intend to make rational choices are bound to make satisficing choices (rather than maximizing or optimizing) in complex situations.
US Nobel-laureate economist Herbert Simon
The belief that one's own culture [and business practices] are superior to all others and is the standard by which all other cultures [and business practices] should be measured.
Only during the past 200 years have Western MNEs been pre-eminent
the Bounded rationality and ethnocentricity of key leaders in Asia caused them to focus inward and discount the emergence of the late 18th century industrial revolution of the Western barbarians
7
Today, there are many Western MNEs in Asia but they have had widely varying degrees of success in terms of sustained revenue performance
MNEs are home-regional:few MNEs perform well outside their home region
Alan Rugman et al
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The nine global MNEs where identified as Coca-cola, Canon, Flextronics, IBM, Intel, Moet Hennessy-Louis Vuitton, Nokia, Philips, Sony.Rugman, A. M., & Verbeke, A. (2004). A perspective on regional and global strategies of multinational enterprises. Journal of
For the past century, Western MNEs have been prominent as their home region was in the economies driving global economic growth
As the centre of global economic activity shifts from Western markets back towards Asia, regionalisation theory implies that Western MNEs are condemned to slow relative decline
There is an imperative therefore to break historical patterns and determine:
How can Western MNEs compete more effectively in Asia? (Why will your MNE be different?)
As our home region in the West continues to stagnate and demonstrate limited prospects for high growth, Asia has become the most strategic geographic region to sustain competitive relevance. Therefore, we seek a Western executive with:
Deep technical expertise
Strong leadership presence
Effective management skills
Proven track record within Western markets
little to no experience in Asia
Minimal propensity to draw on those with experience in Asia
Academic research1 suggests that Western MNEs need to address a number of fundamental questions in adapting to Asia
How is your MNE applying its unique “firm-specific advantages”?Superior assets or capabilities that are transferable to markets in Asia in order to overcome its “liabilities of foreignness”
How is your MNE’s “experiential knowledge” captured and applied?Objective knowledge can be read in a text book while experiential knowledge is progressively learned by exposure to a market becoming an internal asset
How is your MNE harnessing its “network of relationships?”“Liability of Outsiderness” takes many years to overcome by developing competitively differentiated constellations of networks representing a strategic advantage
How is your MNE overcoming “Physic distance” & “institutional voids?”Western multinationals must adapt their business models (using their experiential knowledge and networks) to compensate for the immaturity of institutions/agencies (e.g. audit, actuarial, credit agencies, regulatory, judiciary) in emerging markets
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1. Drawing from Internalisation Theory (Buckley and Casson, Dunning, Rugman, Zaheer), Internationalisation Evolutionary Theory (Johanson and Vahlne), Internationalisation Network Theory (Johanson and Vahlne), Physic Distance (Johanson and Widersheim-Paul, Ghemawat), Institutional Void and Relationship-based Governance Theories (Khanna, Singh)
30 Years of field experience suggests thatWestern MNEs must address multiple levels of their organization to sustain performance in Asia
Organizational Passion (raison d’etre)Is ‘Asia’ a number in your company’s spreadsheet at corporate/regional office or are employees socially committed to the people within the countries in Asia? Example
Does your MNE have an innovation centre based in Asia subject to the competitive pressure for survival from the developing billions of entrepreneurs in Asia?
Regional and country cross-cultural management teams (silos)do the different functions of the management team socialize periodically outside of the office and work towards the common objectives of the CEO or are managers operating in silos with courteous and tenuous relations with their colleagues?
Expatriates (Short-term self-interests)Do expatriates manage from the perspective of the long-term to build the people, process, and technology foundations of the business or do they manage within the context of the tenure of their posting? (MNEs fail to realise full value from expats)
Corporate Top Management Team (ethnocentricity)Does the corporate management team unconsciously judge and act based on perceived superior Western ways of doing business or is the local context understood and appreciated?
Corporate Board (Bounded rationality)Does your corporate board have sufficient Asian context for deliberation to make informed decisions appropriate for Asia (experiential vs objective knowledge)? 15
Forbes 2012 Edi t ion of Global 2000 Fi l tered for Anglo-Saxon FSI MNEs wi th As ia Object ive(sor ted by h igh l ighted Asian Nat ional i ty Propor t ion then Asia F inancia l Propor t ion then Global Revenue)
Extract of research conducted by Gordon Perchthold during 3Q2012 17