Run To The Revenue - Part II
July 26, 2008
In our first segment, we discussed some of the key factors associated with the economic growth of Asia. We spoke in depth about the top 25 global company trends over the past 10 years, the top 50 competitive nations, and how Foreign Direct Investment (FDI) has influenced the in/out flows of money. As companies from Asia continue to penetrate the U.S. markets, so too must North American enterprises penetrate Asia. The opportunities are vast, but the task of executing a successful strategy can be even more daunting. Strategies developed by most U.S. companies, either small or large, don’t work well in Asia for two main reasons.
The objectives seem to be that if it worked in the U.S. then it must work in Asia. Sending the same processes, procedures, equipment, people, and replicating it in China, India, or other markets, only adds to the cost, reduces productivity and frustrates the local employees as well as management that was sent to set up the operations.
Many enterprises believe that emerging markets are years behind western nations. Multinational companies (MNCs) and Small to Medium Enterprises (SMEs) believe that they can be the savior, assuming it will be just a matter of time before they see their current business model/value premise transferred successfully to developing countries.
Five Strategies For Competitiveness
As economic shifts continue to take shape, how are you going to take advantage of the competition in Asia? Let’s examine five strategies for success that will allow U.S. companies to increase revenue, expand market share/customer bases, and add to the bottom line.
Do the “homework” to understand the needs of your customers, the market trends, and the weakness of the competitors, i.e. what they don’t offer. Develop suppliers, services, and products that will allow you to mix and match the needs of the local market. Just because it works at home does not mean it will work in Asia. McDonald’s spent years and millions of dollars in establishing themselves in India. Their thinking that the brand name would automatically bring the customers clouded their judgment to the cultural fact that none of the more than one billion people eat beef or pork. They changed to lamb and veggie burgers and began cooking the fries in vegetable oil rather than beef tallow. The brand is still very much alive. It is the product to fit the market that changed.
The obstacles of doing business in Asia are insurmountable compared to the U.S. However, Asian companies have “figured it out” in America, so can you in the competitor’s backyard. Know the rules of engagement, which are the right people that make decisions with respect to logistics, IT, and distribution channels. Pick the right partners to guide you through the process of establishing your business, accessing markets, and developing local suppliers. Above all else, know the financial model before you invest. Making money in the U.S. is much different than making it in Asia. Regardless of the business, there a number of transactional costs that affects the bottom line that must be taken into account before investments are made.
Asian competition, regardless of industry or market, has a very good handle on the latest technology, not necessarily in terms of IP or innovation, but with respect to keeping costs to a minimum. This ensures that customers get the latest products/services, and are able to make rapid adjustments to changing market trends. Having a local robust IT service is the foundation for success in this area. To put this in perspective, Baidu, a major search engine in the PRC, exceeds Google by 4X. In India, Bharti Airtel competed directly with Hutchison Telecom and has become the leader in the cell phone market.
Do it like the locals, tap into local labor rather than investing in automation. Going low tech for assembly and back-end manufacturing processes will help on two fronts. First, it will allow you to validate your costs, processes, and viability in the market with minimum up-front capitalization and/or fixed costs. Second, it allows the company to gain respect from the local government for tapping into the number one resource in any developing country, its people. This will only work if the labor content of any given manufacturing operation is greater than 30%. In-house training can help reduce costs and ensure the employment pool is taken care of with local management. Implementing a train the trainer program will be vital to the success of an in-house program.
Gone are the days when executives regarded working for a foreign company as something special. Today, they believe it is just as rewarding to work for a local company. Do not underestimate the necessity of skilled talent. Talk to any western manager that has spent more than three years in Asia, and they will tell you local managers are hard to find and hard to hold. They’ll go on to say, it’s not the money that has them moving around every 18 months. It comes down to training, a career path, support from within the country and the parent senior management staff, as well as trips to interface with their counterparts. When looking for management positions be sure to look at local companies with local people. Ask the search firm to find local managers that have experience with western companies as well as local enterprises.
Globalization has a double-edged sword. The local Asia companies have become very smart by using globalization to narrow the gap in technology, capital, and the employment pool in order to compete with companies from western nations. Whether you are an MNC or SME and want to expand your presence in Asia you must be able to fight the locals on two fronts. First, you must be able to emulate some of the local practices. Second, you must develop strategies that the locals cannot replicate.