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Book: The next challenge of Asian Business

By SONIA KOLESNIKOV-JESSOP, UPI Business Correspondent

SINGAPORE, March 14 (UPI) -- Globalization has become the key word for many Asian companies with many aspiring to propel themselves from national champions to global winners.

Be it computer giant Lenovo's acquisition of IBM's computer business or TCL International's takeover of the television assets of French multinational Thomson, Chinese firms are certainly showing their global ambition. But how can a company best climb the globalization staircase, avoid its pitfalls and build a sustainable global organization?

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"Global Future: The Next Challenge of Asian Business" -- a book published this week by Arnoud de Meyer, Pamela C.M. Mar, Frank-Jurgen Richter and Peter Williamson -- is taking a crack at prescribing a framework for how Asian firms can best manage their internationalization process.

"The book is like a roadmap for globalization in Asia. It has been devised as text book with lots of graphs, but more as live cases you can studies to see the real pitfalls and the possible different ways of globalization," said Richter.

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The authors have had access to the CEO of nine Asian giants, who have contributed small sub-chapters to the book, providing real 'insight' on their globalization journey, from early pioneers like Sony and Samsung to leading Asian contemporary globalizers, like SingTel and Li & Fung and newcomers like ICBC and China Netcom.

Yesterday's environment may have given little incentive for Asian companies to globalize, but the 1997 Asian financial crisis revealed the weakness of the horizontal diversification that had been pursued by many Asian companies.

With the emergence of China as the "factory of the world" and India as the "back-office of the world," Asian companies' home base are often no longer competitive enough for their own manufacturing or back-office operations.

They need to look further a field to maintain their existing supply-chain advantages, perhaps even relocating some of their operation in those new rivals.

Powerful forces of change are reshaping the competitive environment for Asian companies and for many, globalization will be a key to success in the new competitive game, the book argues.

Historically, most Asian companies pursued a mix of two basic strategies in the face of globalization: wall off their home market to become a dominant player locally and penetrate overseas markets by exporting from their home base. Compared with their Western counterpart, relatively few invested in building extensive networks of subsidiaries, and even fewer have run their expanded presence as a single, integrated, global company rather than a portfolio of semi-autonomous business scattered around the world.

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But becoming a truly global company means much more than establishing a portfolio of units in different countries, the whole must be worth more in terms of efficiency and the capacity to create value for customers than the sum of its parts, the book points.

"Very few Asian companies have experience in going global. The main issue is that Asian companies used resource based advantages, being protected by their government, and by going global they're going naked. They often do not know how to deal with this," Richter told UPI in an interview. Richter, who used to be the director of the World Economic Forum in charge of Asian affairs, is now the president of Horasis, a consulting company, which advices Asian companies on going global.

Richter said the key challenges Asian companies face related to laying down the necessary infrastructure with partners, ranging from financial to supply-chain networks; building the necessary capabilities, like brand building and people developments, and creating a sustainable global organization. "Companies need to have a long-term approach to be able to interact with global stakeholders, with governments, NGOs even the media," he said.

"Today's CEOs in western companies will probably spend on average 20 percent of their time on roadshows, meetings with government, NGOs, grass roots movement. This is quite unusual in Asia, because usually companies do not see the need," he pointed.

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Richter believes TCL's acquisition of Thomson could have been smoother if the Chinese company had expressed better its intentions for the acquisition. "They wanted to get a famous brand, the access to technology and the access to the sale network in Europe, which they did not have. But its plan from the beginning was the close the plants, because it doesn't make any sense for a Chinese company to manufacture in Europe. But it didn't communicate to the French party and now they're facing the unions, the French government. Now they're in trouble and this acquisition doesn't seem sustainable," he said. "This means that Asian companies have to have a long term plan of globalization. Not just think about opportunities," he added.

The book argues that Asian companies need to be especially mindful of handicaps that can have arise from the kinds of strategies they had pursued in the past: strategies that emphasize local presence ('planting the flag') over reaping network economies; under-investment in intangible assets and systems; lack of international experience and capabilities; and a heritage of highly centralized organizations.

They also need to plan their expansion carefully. "You can climb the staircase at the pace you choose, but trying to skip steps is dangerous and risks creating an unstable global edifice," the book argues.

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