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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
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