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Remarks at the World Economic Forum

September 11, 2009

The following is a summary of the remarks I gave at a press conference yesterday at the World Economic Forum (Summer Davos) in Dalian, China.  My comments concerned a study that I advised, sponsored by Fleishman-Hillard, which surveyed global business leaders on their impressions of Asian multinational firms.  They highlight the key challenges facing up-and-coming Asian MNCs. 

The 21st Century, many believe, will be the Asian Century. The global financial crisis has highlighted the opportunities Asian MNCs have to take a new leadership role in a world economy undergoing so much change. That is why we have gathered in Dalian: to celebrate and to explore the vital role that not only China, but India, Korea, Japan and the ASEAN countries will play in shaping our economic future.

But recognizing an opportunity is not the same thing as realizing it. All too often, many of the Asian companies I’ve worked with and studied – companies that have achieved so much in so short a time –remind me of a runner who is ahead at the end of the first lap, and thinks he has won the race. That’s not to take anything away from his accomplishment – he’s had a great start. But the race is long, and the skills that gave him such an outstanding start are not necessarily the same ones that will sustain him through the strenuous miles ahead.

This race in particular – to be a global leader in business – is one that has no finish line. Even today’s “winner” must constantly learn and reinvent itself to stay ahead.

Over the past several decades, Asian MNCs have demonstrated their mastery of the production process, the application of advanced technologies, and the often tricky terrain of their home markets. There is widespread agreement that Asian MNCs produce the best quality for the lowest prices worldwide. It is the “soft skills” – the ability to communicate value, to build strong emotional bonds with customers, to navigate unfamiliar cultures and political systems – where this survey, and my own experience, suggest Asia’s top firms face their greatest challenge.

There is a temptation, on the part of some firms, to think that the solution to these challenges can simply be outsourced: pay someone else to deal with it, to “work their magic,” while we stick to what we know. Hiring consultants, or lobbyists, or public relations professionals who can bring their expertise to bear in unfamiliar markets is a good first step. But to produce real results, Asian MNCs need to fully engage with these partners in a committed effort to transform their businesses, in three ways:

1) From a product-orientation to a market-orientation. Asian MNCs sell products that are popular all over the world, but few people know their names. What they do know isn’t always good. To some degree, this simply reflects the fact that many Asian MNCs are new on the scene. But it is also part of a natural business transition from learning how to make things to developing long-term relationships with customers and other stakeholders in the market. Marketing, in this sense, is much more than simply “sales.” It involves developing a brand, a reputation, that can build loyalty and lower barriers to doing business. It involves communicating the company’s strategy and its values in ways that enhance its market prospects. All too often, Asian MNCs take a reactive stance, responding to problems only after they arise. They need to take a more proactive approach to defining their identity, before it’s called into question. As I put it, “dig a well before you need a drink.”

2) From a bottom-line focus to a value-add focus. 72% of survey participants identified low costs as a key strength of Asian MNCs. Only part of this is attributable to low wages. Much of it is due to a relentless focus on cost control. Asian entrepreneurs want to know how anything they do will pay off, and if it doesn’t pay they’re not interested. But such a single-minded focus on the bottom line can sometimes lead them to underestimate the value of investments that have more intangible benefits, particularly if they cannot be easily measured. Enhancing a company’s ability to communicate with investors, stakeholders, regulators, and customers may seem costly in terms of time and resources, but failure to do so may prove far more costly. Just because lost opportunities, damaged reputation, and higher costs of capital do not appear as line items on a company’s financial report does not mean they are not crucial to its success.

3) From identification with a single home culture to a truly multinational character. When the co-founder of Sony, Akio Morita, wanted to develop America as an export market, he simply could have set up a sales office remotely. Instead, he moved his entire family to the U.S., where he lived for several years, despite the immense burden this placed on management. His decision was the first step in transforming Sony from a Japanese manufacturer to a truly global brand. To truly succeed beyond their home markets, Asian MNCs need to adopt “foreign” markets as their own. That means playing a vital role in communities, developing a real understanding of different political systems, and handing real responsibilities to local managers and employees. Yet according to survey participants, the single greatest weakness of Asian MNCs is their lack of familiarity with foreign cultures and markets. Without the kind of wholehearted commitment demonstrated by Sony, their learning curve will be long and steep.

The transformational challenges that Asian MNCs face may appear daunting. But they have proven themselves capable of amazing things, and the opportunity is theirs to grasp.

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