A Winning Strategy for the 21st
Century's Largest Consumer Market
The Honorable Alan W. Steelman
Former Member of U. S. Congress, Texas
The Monitor Company
International Trade Association
World Trade Week Awards Gala
Dallas, Texas, May 20, 1997
An Asian Renaissance
It has become fashionable to speak about the coming 21st century as the Asian century. Indeed, when you combine a region that contains 60% of the world's population with national economic growth rates in many of the countries of the region that have approached double digits for more than two decades, then this point of view becomes persuasive.
While it is true that we are witnessing an Asian Renaissance, I think that a more careful analysis supports the case for the next century being a period that will be dominated by the countries located along the Pacific Rim, including Asia and the United States. The fact that Asia and the United States are each others biggest trading and investment partners, the fact that the world's four most productive economies: the U.S., Singapore, Hong Kong and Japan are all Pacific Rim countries and the strong desire on the part of all the major nations in Asia for the U. S. to continue to play the role of "honest diplomatic broker" in the region, all combine to provide a compelling case in favor of this broader Pacific Rim view.
A Complex Strategic Challenge
This presents a particular challenge for policy makers in both Asia and North America. The challenge is equally great for those who manage businesses engaged in international trade because many in Asia and North America are, at the same time, the others biggest customer and biggest competitor. Navigating this complex set of challenges requires integrated thinking and important strategic choice-making. My purpose, tonight, is to address this question of how senior-level managers can position their companies to compete and win in Asia.
An Economic Market Equal to the Size of the
U. S. and Europe Combined
The size and dimension of the region in both geographic and economic terms is awesome. Of the more than five billion people who live on the planet, more than half reside in Asia. Over 20% of the world's population live in China alone. 1.2 billion people live on a land mass roughly equal to that of the United States. There are 8 provinces in China which have more population than the largest European country. Guangdong Province with 65 million people is larger than France, Hebei Province with 63 million people is larger than England, Sichuan Province with 110 million is larger than Germany and is 70% the size of Japan.
Within five years it is estimated that Asia's combined GNP will be double that of Europe and will represent one third of the entire world economy. Over 500 million will be middle class within the next 5 years representing a market roughly equal to that of The U. S. and Europe combined. With India included, there are 3 billion people in the region and half of them are under 25.
America is Mars and Asia is Venus
A winning Asian strategy starts with an understanding of Asia as a region of the world where certain adjustments in the traditional business model are required on the part of Westerners in order to accommodate the subtleties and nuance of culture and business practice.
Acer, one of the world's leading PC brands has a slogan, "global brand, local touch". This means that the company will have one brand worldwide, but that local market conditions are taken into account in each country where the company does business when it comes to strategy, equity structure and how local operations are conducted. It behooves anyone doing business in Asia to take into account several important issues where Incorporating a "local touch" can dramatically enhance the chances of success.
There are many surface similarities between east and west. In Tokyo, Hong Kong, Singapore and Kuala Lumpur the visitor observes familiar looking architecture, fashion, movies, music and most of the familiar brands of Western consumer products. Yet, in the commercial world the subtle and often subterranean differences are significant enough to sabotage otherwise, well-thought out business strategies.
Many of you, will have read or heard about the Men are From Mars and Women are From Venus book which has been a best-seller for sometime now. It describes the different styles of communication used by men and women. It describes a world in which men and women frame situations differently and therefore reach different conclusions about important relationship issues. Similarly, the way that business relationships are viewed and conducted between east and west are different. Taking account of these differences are key to developing a winning Asian strategy.
The Competitors: Asian conglomerates and
other Multi-national Corporations
Competing in Asia means taking on your traditional set of MNC competitors and in addition, a group of regional and/or local country-based competitors as well. The average MNC knows its international competitors pretty well in terms of positioning, product-mix, market segments, distribution channels, cost structure, etc.
Winning against these traditional competitors in Asia becomes essentially a task of understanding the battleground in each of the country markets better than your adversary and configuring your value proposition and your activity-set closer to the market than they do.
Winning against the Asian-based competitor, however requires a much different approach. Outside of Japan, Korea and Taiwan, the Asian competitor will in most cases be an Asian-based conglomerate with a broad and diverse array of different businesses. The conglomerate's initial advantage will be superior market intelligence and better relationships built up over time. The important weakness, however, is that the conglomerate model is in most cases a "hodge-podge" of business units, without any clear focus and without any world-class positions in any of the businesses. Because most of the Asian countries have provided protection from foreign competition until recently, these companies have been successful largely because of systemic factors, rather than from facing and winning against world class competitors who are focused, differentiated and have leading cost positions.
Open and Deregulated Markets
Most of the Asian countries are now signatories to the WTO agreement and are obliged to open their markets to foreign competition for the first time. While they have been active for many years in exporting to the West, they are for the first time having to deal with defending the home market against world-class foreign competition. The conglomerates are vulnerable to having their individual business units picked off one-by-one by leaner, more focused competitors. To illustrate, lets take a look at the configuration of a hypothetical Asian-based conglomerate.
A Joint-Venture Partner is no substitute
for a well-considered strategy
An increasingly popular tack being taken by western MNCs, many of whom are late off the mark in getting to Asia is to attempt a short-cut by finding a local partner. The local partner, in many cases one of the Asian-based conglomerates can provide government access, get the necessary permits to operate and in some cases provide distribution channels. The western partner is expected to provide a well-known brand, technology and capital. Selecting the right partner can be a very effective tactic and is often necessary, particularly in China, but should not be seen as a substitute for a well-thought-out, informed, integrated strategy.
Failure of a "joint-venture as a substitute
for strategy" strategy
One of the more publicized cases of a failure of "the joint-venture as a substitute for strategy" is the case of Wal-Mart allying itself with the CP Group of Thailand in order to do business in China. There are several reasons for the break-up, including several of the factors listed on the "Mars and Venus" chart we saw earlier. Nevertheless, a significant cause was taking the format that has worked so well in the US and "plopping" it down in Asia, without taking sufficient strategic consideration of the need for adapting to the particular requirements of the market.
Similarly, the Chief Executive of one of Asia's largest conglomerates told me 18 months ago that he didn't need any formal strategy for China. He had capital to invest, strong connections at the most senior levels in the Chinese government and needed only to find interested American or European MNCs with well-known brands, and proven technology. The test of the wisdom of this approach wasn't long in coming. Recently, write-downs were taken on more than half of the 20 joint-ventures. There was no strategy for how these individual joint ventures were going to position themselves versus the competitors, inadequate analysis of the economics of the target industries in China, what market segments were attractive, how product was going to be distributed, etc.
Successful New Entrants to Existing Markets
A winning market entry strategy takes into account a defined set of steps. These steps apply in competitive situations involving both the MNC and the Asian-based competitor.
A Country by Country Strategy
The region is far more complex for the business strategist than is the United States or Europe. It isn't one homogeneous market, but a diverse set of countries with broadly varying customer demographics and regulatory characteristics. This can prove particularly perplexing for businesses whose success has been built on a foundation of one uniform format rolled out over hundreds of thousands of locations. The first wise choice when formulating a regional strategy is to conduct a country by country assessment to determine overall market attractiveness and barriers to entry which must be surmounted.
Dimensions of a Winning Strategy
A successful market entry strategy development process is integrated and comprehensive. The objective is to design a position that achieves a sustainable competitive advantage and superior financial returns over time. This process profiles the customer demographics, segments the customer needs, looks at the industry structure in the given country, analyzes the competitors and formulates a counter strategy, models the economics of the strategic options, and lays out the configuration of key capabilities necessary to achieve competitive advantage.
A Pacific Rim Century
In closing, This next century offers to the United States and to the countries of Asia a unique opportunity to build on a foundation that can ensure peace and prosperity on both sides of the Pacific for a sustainable period of time to come. The economic models among all the countries along the Pacific Rim for example, are much closer and compatible than those between the U. S. and Europe in the post WWII period. Free markets, relatively low tax rates, a strong work ethic, strong entrepreneurial traditions, and low social welfare costs are hallmarks of most of the countries in question.
For those charged with driving the strategies of their respective companies, it is recorded history's single greatest economic opportunity. With careful analysis and intelligent choice making, it can provide substantial new market growth for those with the drive and determination to capture the opportunity.Alan Steelman is a Senior Principal in the Monitor Company, a large international consulting company which specializes in designing winning competitive strategies for regional and global companies. After serving in the United States Congress representing the fifth district of Texas (Dallas), he lived in Singapore for eight years. There he served as Group President of the Asia Pacific Region for another international Consulting firm. Today Mr. Steelman devotes his time between the U.S. and Asia and serves on the advisory board of several Asian companies.