GLOBAL


 

Think Global, Act Local

What does it take for Asian companies to succeed in going regional? A global mindset, says a study by Accenture.

And what's that? 'I always believe you must be able to squat down and have porridge with everybody as a leader.   You cannot just sit at the top,' says Sidney Chew, executive chairman of MegaChem.

That's what having a global mindset means to him, when he was asked the question.

'For organisations wishing to succeed in Asia, we must all learn to 'squat down and have porridge' - or nasi lemak, or ramen, or dahl, or kimchi, or banh mi or a meat pie, or Hokkien mee,' says the global management consultancy firm. 'This openness, sharing and engaging on a local level, across different locations, is the essence of a global mindset.'

A company-wide global mindset is what higher performing companies have in common, according to the Accenture study done for the Singapore Capital Summit.

The study defines global mindsets as 'the openness and readiness of a company, its employees and leaders to support globalisation'.

'We found that a global mindset is strongly linked to employee engagement and company performance and is critical to successful regionalisation in Asia,' it says.

But for regionalisation to succeed, global mindsets must be present at three levels - employees, leaders and company.

  • Employees should be at ease and sensitive when working with people from other cultures. They must be able to understand different perspectives and adapt to new situations.
  • Leaders must be able to appreciate and support differences across cross-cultural teams, be approachable to employees regardless of where they come from, and to adapt their management styles in new environments.
  • The company must have in place espoused values, a vision and strategy for regionalisation or globalisation, as well as supporting structures for cross-cultural collaboration and experiences and to reward cross-border execution.

Accenture says a global mindset provides a strong foundation to build local leaders, nurture diverse teams and to pave the way for cross-border collaborations - three keys to success in Asia.   - 2010 September 29    SINGAPORE BUSINESS TIMES 

Tackling challenges of global mobility

This instalment focuses on talent issues in the accounting and finance industry in the Asia-Pacific looks at the increasingly geographical mobility of talent.

People are no longer restricting themselves to the possibility of working in just one country.

And companies are no longer recruiting solely for positions in just one country; instead, they are increasingly looking to hire workers for their various offices around the world. A growing number are also offering their staff global opportunities through temporary overseas assignments or permanent transfers abroad.

The Watson Wyatt 2007-08 WorkAsia study surveyed 6,500 employees working in the Asia-Pacific region. Of these, 217 were expatriates - and most of them were working in India, China, Singapore and Hong Kong.

Watson Wyatt found that 80 per cent of these expatriates were below 30 years old. About 40 per cent of the expatriates worked as professional/technical staff, while another 30 per cent worked at the middle or senior management level.

Public accounting firm KPMG recognises this growth in demand for expatriate staff. 'As our clients continue to respond to the opportunities offered by the growth of free markets and emerging economies, we will continue to leverage the strength of our national practices, and globalise our people, services, infrastructure and risk architecture to respond to our clients' needs,' says Stephen Tjoa, executive director of human resources at KPMG in Singapore.

'Our services are now in higher demand. We are attracting more diverse talent into the profession, with deep vertical skills such as information technology, risk analysis, and international tax, in addition to traditional accounting and auditing. Competition for talent is not only local but global,' he adds.

KPMG has also instituted a range of programmes designed to ensure that its employees will have much international experience, so that they'll be able to contribute to the firm's ability to respond consistently in every part of the world to the needs of an increasingly global client base.

Nearly 2,500 KPMG professionals from 90 countries were on international assignments in 2007 - reflecting the developmental value of international experience.

'Leveraging our global people resources means we can draw upon the best talent at KPMG member firms for our clients anywhere in the world. We also have global training programmes that involve new hires through lead partners. We have established several programmes designed to give younger managers rotational international assignments to round out their development,' Mr Tjoa says.

PricewaterhouseCoopers (PwC) Singapore says it has, at any point in time, over 50 Singaporean staff on overseas secondment in the US, UK, Australia, China and Japan. It also has secondees from overseas offices working and gaining specific experience in Singapore.

'Today, we have among our partners and staff, 35 different nationalities. Such cultural diversity creates an internationally vibrant work environment,' says PwC Singapore's executive chairman, Gautam Banerjee.

The diversity is even apparent at smaller public accounting firms, such as RSM Chio Lim, which recognise the benefits and challenges that come with operating in an increasingly global marketplace.

RSM Chio Lim now has people of 12 different nationalities working in its firm. Still, it recognises that it cannot compete with the Big Four accounting firms or the financial institutions, when it comes to foreign postings. And so, it chooses to develop its own niche appeal.

RSM Chio Lim's founding partner and CEO, Chio Kian Huat, tells BT: 'We offer our people a more personalised work environment that is not too concerned with hierarchical structures in the way we work with each other. We take each person's career plan and path very seriously. And we respect each person's choice as to the pace and the extent of time commitment and agree on the work load each person carries and configure the compensation to meet the choice of work load.'

The hiring of expatriate staff in the fields of accounting and finance is fast becoming a mainstay opportunity and challenge for many companies here, notes recruitment agency Robert Half.

Holistic approach

'To effectively hire and retain foreign talents, companies should look towards a holistic approach,' says Tim Hird, managing director of Robert Half Singapore. 'Talent management is key and issues such as the rising cost of living and housing in Singapore, children's education, lifestyle needs as well as cultural barriers such as language should all be taken into careful consideration. 'Overall, a broad mix of cultures from an international team will bring tremendous benefits in terms of incorporating different perspectives, standards and cultures, specifically for a global multi-national company based here.'

At HSBC, such diversity is central to its brand. 'We believe that employing and managing diverse people gives us a more rounded and balanced organisation and makes us more adaptable to new and ever changing business landscapes. To this end, we have conducted recruitment trips to countries in the region to scout for talent,' says HSBC Singapore's head of human resources, Stella Wong.

Local bank OCBC is also looking to hire globally to match its international aspirations. 'In line with New Horizons II, our five-year strategy, we are committed to building up a diversified pool of international talents to support our overseas expansion plans in Malaysia, Indonesia and China,' says the bank's head of planning and employee communications, Jacinta Low.

But such diversity in the workplace is not without its challenges. Watson Wyatt's WorkAsia study found that expatriates have different views from non-expatriates as to what attracts and keeps them in a particular company - a difference which companies need to be aware of.

Watson Wyatt found that while expatriates have more favourable opinions about their companies, a smaller proportion of them - compared to non-expatriates - responded favourably when asked if they intended to stay in the company for at least another year.

This means that while expatriates seem to be a more contented bunch, there is also a higher risk of them leaving their companies.

Watson Wyatt believes the fact that expatriates are happier about their companies does not translate to a greater likelihood of them staying with the company, partly because employees who are expatriates are high-performing employees and/or are more mobile.

It is therefore important for companies to figure out how they can retain their expatriate employees during and after their overseas stint.

But they can take comfort in that what drives expatriates to stay with a firm is similar to what non-expatriates consider important.

Watson Wyatt found that both expatriates and non-expatriates consider a company's customer focus and its rewards system as being the two most important drivers of engagement.

But having the right rewards for expatriates is one of the most challenging tasks faced by companies today. On the one hand, companies feel the need to pay a premium to expatriate staff, to make up for their being away from home. On the other hand, this premium typically causes unhappiness among non-expatriate staff.

Smooth transition

When asked about the challenges it faces in attracting and retaining expatriate staff, OCBC Bank's Ms Low says: 'The key challenges in the hiring of expatriates are with the expatriate's ability to adapt to the local culture and work environment and on the flip side, the local people's receptiveness to the expatriates.

'At OCBC, we recognise the need to make the transition for our expatriates to live and work in Singapore a smooth and seamless one. Thus, apart from offering them market competitive remuneration packages, we also provide them with individual and family support programmes.'

HSBC Bank takes a similar position. 'Our expatriate staff here in Singapore are predominantly colleagues on cross-country assignments for the purpose of their career development. Singapore is an attractive destination among our expatriate colleagues. Certainly for expatriates, certain incentives and benefits may be necessary as an incentive to help them adjust to the new environment, culture and lifestyle,' says Ms Wong.

These examples are in line with the findings of Watson Wyatt's Total Reward Survey - which revealed that most of the expatriate employees receive an 'expatriate premium' in the form of fixed cash allowances. These allowances may include hardship allowance, cost of living allowance and foreign service premium. There are also other benefits such as housing assistance, children's educational allowance and home leave.

This 'expatriate premium', however, creates a disparity between the compensation levels of local employees and expatriates - and is the source of some unhappiness among local employees, who perceive the practice as being unfair.

Notably, such perceptions can drive local employees to leave the company.

Companies need to help local employees understand the rationale for the difference in pay levels - and expatriate employees can help by exhibiting greater sensitivity towards local employees.

Over at KPMG, the firm believes in treating its expatriate and non-expatriate staff equally, given the global nature of the firm.

'Our practices in the United States, United Kingdom, South Africa, New Zealand and Australia are top graduate employers in their markets, and recognised as such by a variety of national media outlets and organisations. In that sense, we don't really see different staff in different country practices as being 'expatriates',' Mr Tjoa says. And, as it does for its local employees, KPMG also offers career development potential for its expatriate staff.

'In the light of this increasing competition for talent, it is inevitable that companies need to be innovative, flexible and provide a work environment which not only balances an organisation's business aims, but provides an environment which balances the personal and professional development of staff. This has a direct correlation to the positive view they have of their organisation and how long they choose to stay with a particular firm,' Mr Tjoa says.

PwC Singapore also says that it does not resort to offering an 'expatriate premium' to lure foreign talent to work at the firm. Mr Banerjee says: 'As a vibrant financial hub with relatively low tax rates, world-class infrastructure and a secure environment for families, Singapore is increasingly becoming the place for foreign talent to gain the 'Asian' experience.

'(But) when special circumstances call for a particular subject specialist to be based in Singapore to grow a new business area, and that expertise is not available locally, we would offer a strategic secondment or appointment with special terms.'   - 2008 January 9    SINGAPORE BUSINESS TIMES

Borders Are So 20th Century
High-tech transnationals take "stateless" to the next level

When the first reports surfaced at 12:17 p.m. Pacific Time on Aug. 11 that the Blaster computer virus was on the loose, researchers at antivirus-software company Trend Micro Inc. scrambled to come up with a fix. Meanwhile, the company's five global alert commanders began sizing up Blaster via cell-phone calls and e-mails. At 1:55 p.m., Hammud Saway, the commander based in Japan, declared a global alert, signaling that this virus was nasty enough to require all the company's resources. Just 51 minutes later, a cure was ready. The company routinely is among the first responders to viruses, often delivering 30 minutes before market leader Symantec Corp., according to GEGA IT-Solutions in Germany, a response tester..

Trend Micro is able to respond so quickly partly because it's not organized like most companies. It has spread its top executives, engineers, and support staff around the world to improve its response to new virus threats -- which can start anywhere and spread like wildfire. The main virus response center is in the Philippines, where 250 engineers are willing to work the evening and midnight shifts necessary to keep ever-vigilant. Then there are six other labs scattered from Munich to Tokyo. "With the Internet, viruses became global. To fight them, we had to become a global company," says Chairman Steve Chang, a Taiwanese who started the company in 1988.

Trend Micro is among a new breed of high-tech companies that's defying conventional wisdom about how corporations ought to operate. While most large companies have extensive worldwide operations, these companies go much further -- aiming to transcend nationality altogether. C.K. Prahalad, a professor at the University of Michigan Business School, calls this the fourth stage of globalization. In the first stage, companies operate in one country and sell into others. Second-stage multinationals set up foreign subsidiaries to handle one country's sales. And the third stage involves operating an entire line of business in another country.

What's different about these outfits -- call them transnationals -- is that even the executive suite is virtual. They place their top executives and core corporate functions in different countries to gain a competitive edge through the availability of talent or capital, low costs, or proximity to their most important customers. Trend Micro's financial headquarters is in Tokyo, where it went public; product development is in PhD-rich Taiwan; and sales is in Silicon Valley -- inside the giant American market. When companies fragment this way, they are no longer limited to the strengths, or hobbled by the weaknesses, of their native lands. "This is very new, and it's important," says Prahalad. "There's a fundamental rethinking about what is a multinational company," he says. "Does it have a home country? What does headquarters mean? Can you fragment your corporate functions globally?"

There has long been talk of the stateless corporation -- BusinessWeek even ran a cover story on it in 1990. Yet the dispersal of key corporate functions takes the idea one step further, and it's made possible by advances in technology, especially the Internet. Harvard Business School Professor Christopher A. Bartlett says improved communication is allowing an evolution toward "an integrated global network of operations." To deal with the gaps between time zones and cultures, these tech transnationals operate like virtual computer networks. Thanks to the Internet, they can communicate in real time via e-mail, instant messenger, or Web videoconferencing. Over time, these scattered experiments could coalesce into a powerful new model for business. Bartlett and other management experts say the strategy of truly globalizing core corporate functions is applicable for all kinds and sizes of companies.

Tech's transnationals are popping up all around the world. They range from business-intelligence-software maker Business Objects with headquarters in France and San Jose, Calif., to Wipro a tech-services supplier with headquarters in India and Santa Clara, Calif., to computer-peripherals maker Logitech International with headquarters in Switzerland and Fremont, Calif. While no one tracks the numbers, BusinessWeek interviewed executives at a dozen such companies, and new ones keep popping up. For instance, 24/7 Customer, a business-services provider with headquarters in Los Gatos, Calif., and Bangalore, India, just raised $22 million from Silicon Valley venture capitalists.

Running a transnational company is a tough management challenge, though. Executives are separated by oceans and time zones, making it difficult to maintain basic communications and routines that old-style companies take for granted. Then there are the cultural chasms. "The curse is that national cultures can be very different," says Trend Micro's Chang. "We have to figure out how to convert everybody to one business culture -- no matter where they're from." That's why Chang is visiting the company's 20-plus sites and laying out a set of common values. Chang, who learned to do magic tricks when he performed at his parents' bowling alley in Taiwan during his youth, breaks the ice by performing sleight-of-hand with cards or coins.

In spite of the complexities of spanning the globe and a sluggish economic environment, most of these tech transnationals have been delivering outstanding financial results. Of the dozen companies BusinessWeek studied, the average revenue increase last year was 25.4%, vs. a 4% decline for the overall tech industry, says market researcher IDC.

These companies use geo-diversity to great advantage. Logitech, for instance, has placed its manufacturing headquarters in Taiwan to capitalize on low-cost Asian manufacturing. Meanwhile, its business-development headquarters in Europe has lined up strategic partnerships that have kept the company at the cutting edge of peripherals design, particularly for optical pens and mice. That has helped Logitech hold its own against mighty Microsoft in worldwide markets for peripherals.

For Wipro Ltd., there are clear pluses to locating sales in the U.S. and engineering in India. Wipro's vice-chairman, Vivek Paul, is based in Silicon Valley to be close to the mammoth U.S. market. At the same time, the company can underprice Western rivals because 17,000 of its 20,000 software engineers and consultants are in India, where the annual cost per employee is less than one-fifth that of Silicon Valley.

There are even some unintended benefits from operating transnationally. To collaborate smoothly in spite of the geographic barriers, all of the Wipro managers file electronic activity reports with their superiors on Monday, who in turn pass them along, via e-mail, until summaries reach Paul, who travels nearly constantly. Not only does Paul stay plugged in wherever he is, but the report process "steps up the pace of the organization," he says.

This next big step in globalization won't be steady -- or fast. Expect startups to experiment with new ways of operating, and a few innovative established companies to tinker with their geographic organizations. But being transnational requires fundamental and difficult shifts for the giants that might not be worth the trouble. Often, the transformation requires a unique leader -- and extremely flexible business unit managers. Still, given the necessity to exploit new markets and to operate ever more efficiently, the pressure won't let up to create something approaching a corporation without a country.  - 2003 September 22     Business Week      

Overseas Job Shift Could Displace 50M SF of US Office Space Per Year

Read any business magazine and the story is the same--another top flight company is packing up and moving jobs from the US to India, Russia or some other far away locale. The name players who have opened facilities in India include Oracle, Motorola, Microsoft, IBM, Reuters and banking giants JP Morgan Chase and Bank of America. And that list is growing.

While jobs transfer is not a new phenomenon, it primarily affected the manufacturing sector. That's where the change has come in--it's not just the manufacturing jobs anymore. A recent forecast by Forrester Research suggests that upwards of 3.3 million service or white collar jobs will be shifted overseas in the next 15 years.

Using a conservative per sf/per employee ratio of 220 sf, Ernst & Young's real estate practice says this translates to a demand drop of 726M sf in the US office sector over the next 15 years solely from the move of jobs overseas. In annual terms, the demand drop is almost 50M sf.

Dale Anne Reiss, global director of EY's Real Estate, Hospitality & Construction practice, says this demand drop, when added to the current demand deficit, could potentially keep the office sector off kilter for several years to come. "It's not a definitive number," she cautions. "It's a future trend we need to be alert to and react to."

Long term, the impact on the US office sector could be significant, particularly in secondary and tertiary markets and in large back office type real estate such as call centers, many of which have already been moved outside the US.

"It's not a black-and-white situation. The demand for new buildings may be reduced. This is as much a reflection in the way we do business as it is any individual cost element," Reiss adds.

A number of companies have made recent expansion moves into India. At the end of May, GVA moved into South Asia with the addition of New Delhi-based GVA VCI Consulting. GVA is now afforded entry into India’s emerging market, which recently has seen a number of new opportunities in infrastructure developments including the country’s burgeoning commercial office market for the information technology sector.

The trend to outsource work overseas to such places as India and China started to take hold a few years ago, explains Eric Beichler, managing partner for Mohr Partners, which last month expanded into India through an exclusive partnership with New Delhi-based Arora & Associates. “When establishing international offices and operations, our clients are looking for a seamless real estate process so that they can get up and running without delay.”

In addition to India, Mohr Partners has exclusive partnership agreements or affiliate relationships in six European and nine Asian countries to help clients globally manage their entire real estate portfolios. According to Beichler, clients are interested in India’s English-speaking, highly educated workforce.Many are able to set up operations in India and other Asian countries at one-third of the cost compared to operations in the US or Europe. But it's the kind of jobs that might affect the US office sector.

"GE Capital moving accounting practices to India makes a big statement," says Beichler.   - 2003 August 19  Globe St. com

Soft Power Matters in Asia

U.S. President George W. Bush returned from Asia after attending the Asia-Pacific Economic Cooperation forum summit, but he should continue to pay attention to another Asian summit to which he was not invited. In December, Malaysia will host an East Asian Summit that deliberately excludes the United States. According to many close observers, America's attractiveness is declining in a region where the allure, or "soft power," of others has increased.

Asian countries have impressive potential resources for soft power. The arts, fashion and cuisine of Asia's ancient cultures have had a strong impact on other parts of the world for centuries, but Asia went through a period of relative decline as it lagged behind the industrial revolution in the West, and this undermined its influence.

In the 1950s, Asia conjured up images of poverty and starvation. There was a brief political infatuation among some Westerners in the 1960s with Nehru jackets and Maoist revolution, but it was brief. As John Lennon sang in 1968, "if you go carrying pictures of Chairman Mao, you ain't gonna make it with anyone anyhow."

Asia's resurgence began with Japan's economic success. By the end of the century, Japan's remarkable performance not only made the Japanese wealthy, but also enhanced the country's soft power. As the first non-Western country that drew even with the West in modernity while showing that it is possible to maintain a unique culture, Japan has more potential soft-power resources than any other Asian country. Today Japan ranks first in the world in the number of patents, third in expenditure on research and development as a share of GDP, second in book sales and music sales, and highest for life expectancy. It is home to three of the top 25 multinational brand names (Toyota, Honda, and Sony).

The decade-long economic slowdown of the 1990s tarnished Japan's reputation, but it did not erase Japan's soft-power resources. Japan's global cultural influence grew in areas ranging from fashion, food and pop music to consumer electronics, architecture and art. Japanese manufacturers rule the roost in home video games. Pokemon cartoons are broadcast in 65 countries, and Japanese animation is a huge hit with filmmakers and teenagers everywhere.

In short, Japan's popular culture was still producing potential soft-power resources even after its economy slowed down. Now, with signs of a reviving economy, Japan's soft power may increase even more. But there are limits. Unlike Germany, which repudiated its past aggression and reconciled with its neighbors in the framework of the European Union, Japan has never come to terms with its record in the 1930s and 1940s. The residual suspicion that lingers in countries like China and Korea sets limits on Japan's appeal that are reinforced every time the Japanese prime minister visits Yasukuni Shrine.

Japan also faces serious demographic challenges. By mid-century, Japan's population could shrink by 30 percent unless it attracts 17 million immigrants -- a hard task in a country historically resistant to immigration. Moreover, the Japanese language is not widely spoken, and Japan's meager English-language skills make it difficult to attract international talent to its universities. Japan's culture remains inward-looking.

Looking ahead, China and India are the looming giants of Asia, with their huge populations and rapid economic growth rates. Not only are their military, or "hard power," resources growing; there are signs that their soft-power resources are increasing, too. In 2000, Chinese novelist Gao Xingjian won China's first Nobel prize for literature, followed a year later by the Indian diaspora writer V.S. Naipaul.

The Chinese film "Crouching Tiger, Hidden Dragon" became the highest grossing non-English film, and Indian movies like "Monsoon Wedding" were global box-office successes. Indeed, "Bollywood" produces more movies every year than Hollywood.

The list goes on. Yao Ming, the Chinese star of the National Basketball Association's Houston Rockets, could become another Michael Jordan, and China is set to host the 2008 Summer Olympics. Large expatriate communities in the U.S. -- 2.4 million Chinese and 1.7 million Indians - have increased interest in their home countries among other Americans. Moreover, transnational connections in the information industry are close, as Western high-tech companies increasingly employ affiliates in Bangalore and Shanghai to provide real-time services.

But the real promise for China and India lies in the future. A country's soft power rests upon the attractiveness of its culture, the appeal of its domestic political and social values, and the style and substance of its foreign policies.

In recent years, both China and India have adopted foreign policies that have increased their attractiveness to others. But neither country yet ranks high on the various indices of potential soft-power resources that are possessed by the U.S., Europe and Japan. While culture provides some soft power, domestic policies and values set limits, as in China, where the Communist Party fears allowing too much intellectual freedom and resists outside influences. Both countries have a reputation for corruption in government.

India benefits from democratic politics, but suffers from overly bureaucratized government. In foreign policy as well, both countries' reputations are burdened with the problems of long-standing disputes over Taiwan and Kashmir. Moreover, in the U.S., the attraction of an authoritarian China is limited by the concern that it could become a future threat.

The soft power of Asian countries, then, lags behind that of the U.S., Europe and Japan, but it is likely to increase. Indeed, if the U.S. continues to pursue unattractive policies, it may find that its absence from the summit in Malaysia in December is a harbinger of things to come. - by Joseph S. Nye, a former U.S. assistant secretary of defense, is a professor at Harvard University and author of "Soft Power: The Means to Success in World Politics." He is chairman of the Pacific Forum CSIS Board of Governors. -   2005 December 5   The Japan Times

Survival Strategy
As the experience of the U.S. and Europe shows, companies need to gain critical mass to stay competitive, a lesson Asia is now learning.

Asia is on the cusp of a massive transformation--one that was foreshadowed a decade ago in Europe and before that in the United States. The old model of sprawling, family-dominated conglomerates is breaking down. In its place, a wave of merger-and-acquisition activity is creating a corporate landscape populated by modern, focused and professionally run companies better able to compete with global giants.

In 1999, some 390 merger-and-acquisition deals valued at $110 billion were wrapped up in the region. That's 46% more deals and 61% more money than in the year before. This year, the trend is likely to be even stronger--more deals, more money and each deal bigger.

"What's driving it all is the same as anywhere: the need for consolidation," says David Livingstone, managing director for M&A at Goldman Sachs in Singapore.

For all its vastness, Asia has produced few world-class companies. Outside Japan, Asian corporations are barely a footnote in the league tables of global business. Of the world's 100 biggest companies, none is from Asia, excluding Japan. That will change as consolidation continues.

"There is a gradual appreciation and understanding in Asia of merger and acquisition as a business tool," says an American investment banker. "In Japan or Korea, if you have to sell something it is thought of as a failure. But gradually business people are getting over that view. They see the need for rationalization. The old model is no longer working perfectly."

What's striking is that the dreaded foreigner, seen by many Asian governments as a latter-day business colonist, is barely visible in the current M&A boom. By far, most of the mergers and acquisitions taking place are among Asian companies.

Goldman Sachs' Livingstone estimates that more than half of all M&A deals in Asia last year were strictly domestic--one Philippine bank buying another, a South Korean chip maker buying its rival. About a quarter of the deals were among Asian companies in one country buying an Asian company in another. Just 25% of all M&A deals last year involved companies from outside the region.

To be sure, M&A in Asia is still puny compared to the West. The average takeover last year was worth just $283 million, and this year's headline grabber--Pacific Century CyberWorks' bid for Cable & Wireless HKT--was worth only about $30 billion (depending on PCCW's share price). Compare that with the proposed $165 billion merger between America Online and Time Warner in the U.S.

In mature economies like the U.S. or Europe, the total value of M&A activity in a given year is roughly equal to 12%-14% of stockmarket capitalization. American stockmarkets, mainly the New York Stock Exchange and the Nasdaq, have a market cap of about $15 trillion. Each year, some $1.8 trillion-$2.1 trillion-worth of M&A deals are transacted. In Asia outside Japan, by contrast, the ratio is less than half that.

DEEPENING DEBT MARKETS

Before Asia can start producing its share of world-class multinationals, the region will have to find new ways to finance mergers and acquisitions. That means developing deeper, more liquid bond markets and maybe even adopting a regional currency along the lines of the euro.

If there's one thing that sets Asia's merger business apart from the wave of takeovers in America or Europe it's the financing. In 1980s America, easy money from the junk-bond market drove the merger frenzy. In Europe, many recent mergers have been paid for with shares in the acquiring company. That's also the case nowadays in the United States. And in Europe, the common currency was almost a precondition of the current merger boom.

But in Asia, almost every deal is in cash. The region's relatively small bond market rules out the use of debt for takeovers, and most Asian companies prefer coin to scrip, particularly if the shares come from some place other than home. That's understandable. "Cash speaks anywhere, whereas paper doesn't to the same extent," says Livingstone. "You need investors who are comfortable taking foreign paper, paper listed in another place and in a foreign currency. You haven't seen much of that in Asia." The PCCW deal, however, could mark a watershed: Cable & Wireless will receive a significant chunk of HKT's purchase price in the form of PCCW shares.

Most Asian companies considering a merger or acquisition now rely on their bankers for financing. Stung by the bad debts still lingering from the Asian Crisis but with their vaults flush with deposits, Asian bankers recently have been eschewing long-term loans in favour of short-term deals--like financing takeovers. But this system means that M&A in Asia is limited by the willingness of bankers and the cash hoards of the predators. Western-style mega-deals are a long way off.

Still, several recent deals have set new benchmarks. In Australia, the proposed $4.8 billion merger between Commonwealth Bank of Australia and Colonial brings together a bank and an insurance company and would create the country's biggest financial-services group. New tax laws allow the companies to swap shares, a common practice elsewhere but a first for Australia.

Likewise in the Philippines: In 1999, Bank of the Philippine Islands merged with Ayala Life Insurance, and then merged again with Far East Bank & Trust to create the country's largest diversified financial-services group. Development Bank of Singapore holds a 19% stake in the company, making it the second-biggest shareholder behind the Ayala family. Recently, Metrobank announced plans to acquire Scotiabank's 40% stake in Solidbank. If Metrobank and Solidbank merge, Metrobank would once again be the Philippines' largest bank.

SIZE MATTERS

In Taiwan, blue-chip Taiwan Semiconductor Manufacturing Co. bought out Acer Computer's 70% stake in their joint venture and then bought Worldwide Semiconductors in a stock swap worth an estimated $5 billion-8 billion. TSMC, already the world's biggest chip foundry, is desperately trying to boost production as the electronics industry goes through one of its perennial boom cycles.

There's more to come. Car giant DaimlerChrysler has announced plans to take a 34% stake in Mitsubishi Motors for $2.1 billion. If the deal goes through only two Japanese car makers will remain completely independent--the rest will be tied to foreign groups.

As diverse as the deals may be, there is one common thread--size matters. "Companies in Asia are beginning to appreciate the importance of scale and the value of operating in more than one market," says Harry van Dyke, managing director for M&A at Morgan Stanley Dean Witter in Hong Kong. "A fair number of our deals are driven by consolidation within markets and across borders . . . Asian companies are finding a need to compete on a global scale and that's harder to do if you only operate in one country."

Then there's the X-factor--that hard-to-define mix of psychology, fear and greed. Like so much else in business, merger-and-acquisition activity tends to have a snowball effect. "Every day, business people see a TSMC deal and a Hong Kong Telecom deal and they see what is possible," says Goldman's Livingstone. "Competitors have to react. And that is the substance of consolidation--things do feed on themselves."

But it's not just market forces bringing businesses together. Asian governments are playing matchmaker and running roughshod over entrenched interests. "The best example is the Big Deal in Korea," says Livingstone, referring to President Kim Dae Jung's efforts to push the chaebols to restructure their holdings--as when the LG group sold its semiconductor business to Hyundai. Another example, he says, is Malaysia's efforts to force its banks to merge.

Indeed, banking regulators in Singapore, Malaysia, the Philippines and Taiwan are using carrots and sticks to consolidate and strengthen their fragmented banking industries. The logic is plain: A few big banks will be stronger than many little ones, and easier to regulate.

In the Philippines, half a dozen mergers and acquisitions in the past year have already started to reshape the banking industry. And the central bank is encouraging more by refusing to issue new branch licences. If a bank wants to expand, it will have to buy another bank to do so. Bank Negara, the central bank in Malaysia, likewise hopes to force the country's 50-plus financial companies to bunch together into 10 mega groups by December.

In sum, if the trend toward consolidation continues to accelerate, the Asian corporate landscape could become virtually unrecognizable in the space of a decade. Entire industries, whether in manufacturing, financial services or telecoms, could be dominated by large regional if not global players.   -  2004  By Alkman Granitsas  Hong Kong   Far East Economic Review

 


Copyright ©  2010
By opening this page you accept our
Privacy and Terms & Conditions