Strategy for Success in Asia: Mastering Business in Asia

By Andrew Delios and Kulwant Singh

In order to achieve success, managers need to understand the strategic issues in Asia. Strategy for Success in Asia covers areas from the uniqueness of Asia like its economic and cultural diversity to the roles of governments and the importance of alliances. One of the first books to offer a perspective effective company strategy and how local and multinational companies can achieve strategic success in Asia. This important book is for anyone who has a stake in Asia or has plans to do business in it.

• Language: English
• Publisher: Wiley
• Release date: Feb 3, 2012
• ISBN: 9781118178720

Book preview

CHAPTER 1

Strategy

This book focuses on strategy and strategic thinking in Asia. Leaders who think strategically will be better able to identify and exploit the myriad opportunities that exist in Asia, avoid the equally widespread risks, and develop strategies that can enhance the probability of success for their firms.

In this chapter, we develop a framework for leaders to think strategically about business, to help them focus on the key factors that determine success. This chapter provides an overview of strategy and the factors that determine business strategy. We focus our overview on a strategic thinking framework which provides a systematic way to evaluate core business issues and focuses on the key factors that influence business success. This framework will help managers to fulfill one of their primary responsibilities – the development of strategies that will move their firms toward success. The strategic thinking framework is not specific to Asia, but is applicable to all business contexts. Even so, this framework is particularly useful in Asia, and is especially appropriate for managers in Asia-based firms.

THINKING STRATEGICALLY

All choices have implications and all actions have consequences. Senior business leaders, in particular, regularly make decisions that have important, widespread, and long-term impact. Leaders must consider the impact and implications of their decisions. Doing so is, in effect, thinking strategically.

Strategic thinking is the process of considering the consequences of one’s actions. A business leader who thinks strategically is one who identifies a desired outcome, and evaluates alternatives and their consequences in selecting the choice that will best achieve that outcome. If the focus is on the firm’s success, a leader who thinks strategically first identifies measures of firm success, next considers alternative means for achieving this success, and then selects the strategy that is most likely to succeed. The strategic leader therefore knows what he or she intends to achieve, and selects from the many factors that influence success and from the alternatives available, the best means for achieving success.

Possibly the most fundamental of all questions in business is: What determines business success? This is an issue that is at the core of every senior manager’s job. A fair assumption, therefore, is that successful managers can and do devote considerable time and attention to understanding this issue from a strategic perspective. However, it is difficult to provide a clear or comprehensive answer to this question because of the complexity of business, the multiple external factors that impact business success, the multiple roles that leaders play in influencing firm performance, and the multiple paths that exist for achieving success. Another reason is that many managers are inclined to action, rather than to introspection or to retrospective examination of the reasons for their successes and failures. Relatively few leaders think systematically about the issue of business success, so that even the most successful managers may find it difficult to identify the reasons for their success.

Most explanations for firms’ success take the form of a list of resources, activities, functions, and environmental factors. Most of these are often unrelated, and some may appear to be almost random influences on business outcomes. It is usually difficult to explain how the factors in the list specifically influence success in a particular case. It is even more difficult to use this approach to generate insights and strategies to enhance future success. The fundamental problem with this approach – which we term the laundry list – is that it generates a random collection of generic factors, most of which are important to some extent in many situations, but which collectively, do not provide a meaningful or rigorous explanation for business success in a particular context.

The danger in focusing on a laundry list is that by indicating that everything influences firm success to some extent, it suggests that nothing is of particular importance. Further, a laundry list often comprises many operational or tactical issues, distracting managers from strategic influences on performance. More insidiously, a laundry list may reinforce the impression that managers are powerless to control the many factors that affect firm success. This may reinforce a manager’s tendency to focus on concrete and urgent operational problems, rather than on the nebulous, long-term, and conceptual issues related to strategy.

The laundry list approach is likely to create senior managers who think and work tactically or operationally, and who focus on short-term opportunities or on correcting mistakes. This approach is unlikely to result in sustained success in complex and rapidly changing environments, such as those found in many Asian countries. To deal with such situations, leaders require an approach that is in essence the antithesis of the laundry list approach.

The strategic thinking approach dictates a systematic, organized, and iterative process to developing and implementing strategies for business success. A strategic approach to answering the question, What determines business success? defines firm success, identifies the many factors that influence firm success, generates alternative means of achieving success, and selects the alternative that is most likely to achieve the desired success. This approach or framework allows leaders to focus on the key factors that determine firm performance. A strategic thinking framework should be comprehensive, but intuitive and easy to use. It should allow leaders to focus on key strategic factors and encourage them to think strategically.

Successful managers on their success

Many people dream of success. To me success can only be achieved through repeated failure and introspection. In fact, success represents 1% of your work which results from the 99% that is called failure.

Soichiro Honda, Honda Motor

Do your homework and start small. When you are in a new place, learn. If the signs are positive, then don’t be afraid to expand.

Kartar Thakral, Thakral Group

Every successful company is built on an idea that is taken seriously in the marketplace. For this, an idea has to achieve one or more of the following: improve customer satisfaction, reduce cost, reduce cycle time, improve productivity, increase customer base, or improve comfort level of customers.

Narayan Murthy, Infosys Technologies

All you need is the best product in the world, the most efficient production in the world, and global marketing.

Akio Morita, Sony

We now introduce the strategic thinking framework that is the foundation for this book. This framework is a guide for firm leaders to think strategically and is a systematic means for developing firm strategy.

A FRAMEWORK FOR THINKING STRATEGICALLY

In Figure 1.1, we present the core elements of a model for thinking strategically for business success. For reasons that will become clear below, we call this model the Customers-Competitors-Competencies model or, in short, the 3Cs model.

Figure 1.1 The Customers-Competitors-Competencies Model: Core Elements

The core of the 3Cs model comprises the relationships between leadership, strategy, and success. This model rests on two key propositions or relationships, both of which are central to the job of all leaders and fundamental for firm success. First, leaders are responsible for firm strategy and success. Second, strategy is the primary determinant of firm success.

Leadership

The first and most basic proposition at the core of the 3Cs model is that senior leadership is responsible for the strategy and success of their organization. The model confirms that leaders have two primary responsibilities: they are responsible for developing their organization’s strategy and for implementing this strategy successfully. We will go further and suggest that these are the only two useful tasks for leaders. The many other activities that leaders typically undertake are often necessary but distract them from their primary tasks. These other activities always cost time and money, but often do not add commensurate value.

Many senior managers are not able to devote sufficient attention to developing their firm’s strategy. Some leaders may simply be too involved in urgent and routine activities to commit sufficient time to long-term issues such as strategy. Others may rely on teams of advisors or managers to develop strategy for them, or may simply retain the strategy that the firm has always implemented. Some leaders wait for the strategy to emerge by default from the actions and decisions of middle managers. Yet others assign the task to teams of strategic planners or to external consultants.

Some managers believe that it is relatively easy to develop a strategy and that the greater challenge lies in its effective implementation. Another common view is that implementation is the responsibility of middle managers and employees, not of senior leaders. These leaders typically hold their managers accountable for the implementation of detailed plans and for achieving specific targets. They then attribute failure to achieve these targets to the poor implementation of the strategy by middle and junior managers. On the other hand, successful implementation and achievement of targets is attributed to the quality of the leader’s strategy. It is worth repeating the principle that, regardless of these attributions, the chief executive is responsible for the effective implementation of his or her organization’s strategy.

Leaders must recognize that their primary responsibilities are to develop and implement their organization’s strategy. They cannot delegate the development of strategy to other managers. A leader obviously cannot develop strategy individually and completely independently, and must actively solicit ideas and feedback from the organization. Yet, he or she must be directly involved in the process of developing the strategy and must primarily determine its contents.

Having developed the strategy, the leader must then implement it. Implementation is the process of doing everything necessary to convert the strategy from ideas into action, to maximize the chances of its success. The leader must be heavily involved in implementation, to keep track of progress, problems, and contingencies. This will allow the rapid detection of delays and deviations, both of which are inevitable, so that the leader can intervene selectively to put the implementation back on track or, where warranted, to modify the strategy. Leaders must therefore play central roles in the development and implementation of their organization’s strategy.

Strategy

The second key proposition of the 3Cs model is that business success depends fundamentally on having a strategy to achieve that success. Firms with well-developed and effectively implemented strategies will have higher likelihoods of success. Well-developed strategies will allow them to mobilize and deploy their resources to satisfy their customers, and to achieve the competitive advantage that will ensure their success. Firms that do not have strategies face the alternatives of relying on luck for their long-term success, or of doing business in markets without competitors. Neither of these situations is likely to occur.

Strategy focuses the resources of the organization on achieving specified outcomes which are its measures of success. This is done through detailed evaluation of the internal and external factors that influence how a firm can achieve these outcomes. This process includes design of the approach and actions the firm will take to achieve its objectives. The statement concerning how a firm will invest its resources to achieve its objectives is its strategy. We elaborate on the detailed development and contents of a strategy below.

Strategy formulation and implementation differ in many respects. Relative to implementation, formulation focuses more on the future, outside the firm, on competition and customers, and conceptually, draws ideas from the field of economics. Relative to formulation, implementation focuses more on the present, inside the firm, on competencies and resources, and conceptually, draws ideas from the field of management. Both are of equal importance for the success of a firm’s strategy.

Leaders and managers must undertake many actions to ensure effective implementation of a strategy. Among these are:

communicating the strategy to the organization in an appropriate form;

aligning the reward structure to support implementation;

specifying and allocating required resources;

monitoring actual implementation and performance closely;

evaluating the strategy continuously to ensure its validity; and

intervening selectively to overcome problems and delays.

These are onerous and challenging responsibilities that are central to the job of all leaders. The leader’s involvement and responsibility are central to this process, and his or her absence at any stage during it will reduce the likelihood of successful implementation.

Strategy formulation and implementation must be a single set of activities that are conceptually inseparable, which leaders undertake and manage jointly.

Given the importance of implementation, it could reasonably be viewed as a separate element in the model presented in Figure 1.1, specifically as a separate factor between strategy and success. We do not include implementation as a separate element for a very important reason – to prevent leaders from viewing strategy formulation and implementation as separate activities undertaken at different times, and as different tasks for different people. As we have highlighted above, strategy formulation and implementation must be a single set of activities that are conceptually inseparable, which leaders undertake and manage jointly.

Firms may formulate several strategies, but not implement them. A strategy that is developed but not implemented is not a firm’s strategy but is merely a document or idea. Similarly, an intended strategy that a firm deviates from in the process of implementation is not that firm’s strategy. The only strategy that a firm has is the strategy that it implements.

At times, the implemented strategy will deviate from the intended strategy even for effective organizations, because of changes in the environment, competitors, and customers. In less effective organizations, deviations may not be detected, so that the implemented strategy varies substantially from the intended strategy. The primary means for preventing this problem is for leaders to regard strategy formulation and implementation as a single process, to ensure their involvement. Any alternative way of thinking about strategy formulation and implementation carries the high risks of separation, lack of integration, and failure.

Strategy in Asia

Many Asian firms have traditionally under-emphasized strategy. The high growth environments in much of East and Southeast Asia in recent decades created opportunities that allowed firms to succeed even without well-developed strategies. In fact, some managers not only do not formulate and implement strategy, they disparage it as an exercise in academic futility or as an unnecessary Western management tool that is irrelevant in Asia. In part, this attitude reflects the fact that relatively few senior managers in Asian firms have had formal management training. Founders and entrepreneurs, having built their organizations without reliance on formal management techniques, are often suspicious of ideas that require them to reconsider issues such as their desired business outcomes, how they deploy resources, and how much control they should exercise. Another reason why some Asian managers do not accord strategy the importance we believe necessary, is that many of their firms have succeeded as component suppliers to large Western firms. For these firms, success has been determined by increasing operational efficiency, rather than by achieving unique market positions and competitive advantage. However, circumstances in Asia have changed substantially in recent years, making inattention to strategy a major risk for all firms. In particular, the economic and competitive environments in most Asian countries have changed radically, making it essential for firms to invest in strategy and strategy processes.

Success

The 3Cs model indicates that the goal of all strategy is the achievement of success. The starting point for leaders developing organization strategies is the identification of clear measures of success. Success is defined by a collection of outcomes or positions that a firm wishes to achieve in future. These will range from a broad vision that a firm may never achieve in full, to the mission that a firm attempts to achieve in the long term, to specific and detailed goals and targets that it seeks to attain in the short and medium terms.

The vision and mission of a firm collectively comprise its strategic intent, which is an outcome or leadership position that a firm wishes to achieve in the future but which exceeds its current capabilities. Strategic intents are useful for providing motivation and guidance to firms, and for driving them to strike the right balance between focusing on urgent problems and building for the long term. A good strategic intent is one that a firm and its people believe in and support, and which energizes them toward long-term success. The intent is a major influence on strategy, as it provides guidance to leaders for the direction a firm’s strategy should take and the outcomes it should achieve.

It is inconceivable that senior managers do not understand the value of a strategic intent or are unfamiliar with the many benefits of having a well-developed strategic intent. It is common for many firms and managers to invest repeatedly – often with the help of expensive consultants – in developing and refining vision and mission statements. Unfortunately, these firms often subsequently disregard these expensively developed statements. Managers in these firms might not consider the strategic intent when developing or evaluating their strategies, or when setting goals and targets. For these firms, the time and cost of developing the strategic intent have been poorly utilized.

We should be clear here: we are not questioning the value of having a strategic intent. Rather, we question the value of having statements that do not motivate employees and that provide no guidance to management in the development of a firm’s strategies. Managers and employees who do not value a strategic intent are unlikely to be fully committed to the strategy that seeks to achieve that intent. Clearly, visions, missions, and strategic intents will only be valuable if leaders value them, and can convince their people of their value. As we show in Table 1.1, it is possible to develop a mission statement without much reference to the core values and intent of a firm. In essence, firms do not need vision statements and mission statements, but need visions and missions. Belief in and commitment to the vision and mission are critical. Instilling these within an organization is an important task for leaders.

Table 1.1 The Wrong Way to Develop a Vision

Random Visions

It is possible to develop a vision statement without giving thought to the aspirations, abilities, and specific circumstances of a firm. Unfortunately, it appears that some firms take this random approach to developing their visions. The table below only requires the random selection of one item from each column to generate a plausible vision statement. Unfortunately, the results often seem similar to many firms’ vision statements. Although we present this model to illustrate the limited value of vision statements that do not inspire belief and commitment, we recognize that there is some risk that some managers may in fact use it.

THE DETERMINANTS OF STRATEGY

We now discuss how a leader should think strategically and can develop a strategy. This development requires a full understanding of the concept of a strategy and of the factors that influence the strategy. We address these issues by fully developing our 3Cs model for strategic thinking.

Defining strategy

There are many definitions of strategy, most of which relate to how organizations use their resources to realize their specified aims. Our definition of strategy is similar and focuses on how organizations use their resources to achieve their intent. An organization’s strategy is how it uses its competencies to satisfy its customers more effectively than its competitors in the context of its environment, so as to achieve its strategic intent.

An organization’s strategy is how it uses its competencies to satisfy its customers more effectively than its competitors in the context of its environment, so as to achieve its strategic intent.

This definition specifies the three key determinants of a strategy: customers, competitors, and competencies. Figure 1.2 shows the complete version of the Customers-Competitors-Competencies model, building on the core elements identified in Figure 1.1.

Figure 1.2 The Complete Customers-Competitors-Competencies Model

It is essential that the elements of the 3Cs model are evaluated collectively, not in isolation. The value of competencies cannot be determined without reference to customers’ needs and competitors’ abilities. Similarly, discussions of how to achieve competitive advantage will not be useful unless considered in the context of what the firm is able to undertake and what customers are willing to purchase. All factors must be considered within the specific business context in which the firm operates.

Customers

Leaders and their firms are much more likely to achieve success if they focus on the value their firms create for their customers, and make this focus the key driver of the firm’s strategy. This leads to the question that represents the starting point for the development of strategy for every firm: What value can we create for our customers? It is essential for the development of an effective strategy, that leaders are able to answer this question comprehensively. It is essential that strategy development efforts start with the customer, and that customer satisfaction is made the ultimate test of the effectiveness of strategy.

The success of all firms rests on their customers. This is perhaps one of the most obvious and well-established rules of business. Yet, many firms do not understand the implications of this simple principle, while others are unable to behave in ways consistent with it. A related mistake that senior managers commonly make is to regard customers as largely relevant in the context of marketing, but not as central to the strategy of the firm.

In general, there has been a growing shift in power from producers to consumers. This shift increases the importance of placing customers at the core of strategy, not as an afterthought. Customers are increasingly well-informed and well-equipped with information on products, prices, actual performance, and reliability. Customers demand the latest products, at the lowest prices, and are increasingly intolerant of product defects or service failures. They require that their total experience is positive, and are more willing to switch to alternate suppliers when dissatisfied with their experience. These trends are common not only in the most advanced economies in Asia, but also in the poorer ones, where customers’ limited disposable incomes translate into high levels of price sensitivity and high expectations of product reliability.

The customer imperative exists even in industries that are not focused on the individual consumer. Industrial customers have become better able to identify and source globally from lowest-cost suppliers, and have a greater ability to dictate the terms on which they make purchases. All these trends increase pressures on firms and require that leaders pay close attention to customers’ needs.

The new customers

Are better informed

Search outside traditional boundaries

Have more connections

Have more but weaker relationships

Have greater power than ever

Will increasingly dictate terms

Expect more at lower prices

Expect an immediate response

Are easily disappointed

Demonstrate little loyalty

Will readily switch to other suppliers

Asian firms often pay too little attention to customers and to ensuring that they are satisfied, value the firm and its products, and will return for subsequent purchases. Many Asian firms have succeeded by focusing on low cost and rapid production of components or intermediate products, and so have not learnt to develop, manage, or gain from consumer satisfaction. There are many obvious exceptions to this view Many hotels, airlines, and manufacturers in Asia provide legendary standards of service. Successful firms, such as Singapore Airlines and the hotel group Shangri-La, spend inordinate amounts of time and energy to understand and fulfill customer expectations. For most firms with strong customer orientations, these efforts are led by top management, and are central to their firms’ strategies.

Multinational corporations (MNCs) operating in Asia are often guilty of the same errors, although from a different perspective. Some MNCs assume that customers in Asia want the same products as customers in the rest of the world, and that they are able and willing to pay similar prices. Other MNCs assume that customers in Asia are willing to accept dated technologies and older products, and are unable or unwilling to pay for the same products as wealthy Western customers. Both of these assumptions are true in some markets in Asia, but they are seriously flawed in other markets. Attention to customers will allow MNCs to distinguish between these markets, and to develop appropriate strategies.

In developing their strategies, firms must consider the value they provide to different segments of customers. Even if it is ideal to treat every customer as an individual buyer for whom fully customized products or services are provided, this is not yet technologically possible or cost effective in many industries. Each strategy should therefore identify major customer segments by the solutions customers seek, identify the segments that the firm can serve most profitably, and focus efforts on serving these segments more effectively than competitors. It is as important for a strategy to identify segments that a firm will not serve as it is to identify those that it will.

Competitors

The second key driver of strategy in the 3Cs model is competitors. Competition is central to strategy, since a firm can only succeed if customers value its products and services more than those of competitors, and are willing to pay for these products and services. An effective strategy is one that recognizes the threat of actual or potential competition, and dictates how a firm will avoid, eliminate, or overcome this competition.

An effective strategy is one that recognizes the threat of actual or potential competition, and dictates how a firm will avoid, eliminate, or overcome this competition.

The basic outcome of competition is that it offers alternatives to customers, who in most cases will select the option that provides the greatest value. The collective choices of customers impose tremendous pressures on firms to improve the value they offer to customers, by improving the cost, quality, and efficiency of their products and operations. As each firm reacts to customers’ choices, the pressure on firms to improve performance increases. This process supports one of the most fundamental propositions in economics – that competition is almost always good for customers and for economic development, but is rarely good for firm profitability.

A further problem is that direct competition among firms is only one source of competitive pressures. The mere threat of firms entering into an industry to compete with incumbents can have the same impact as direct competition. Similarly, the emergence or threat of substitute products also imposes competitive pressures. More powerful buyers who negotiate prices downwards and suppliers who raise prices also have the same impact on firms as direct competitors.

The result of increased competition is, in almost all cases, the same: lower prices and greater value for consumers, narrower profit margins for most firms, and lower average profits for the industry. This will hold true for most firms and most industries in most countries in Asia. The key challenge in such circumstances is for leaders to identify ways for their firms to achieve unique positions within their industries in order to achieve above-average returns. The options for doing so – differentiating products to provide unique customer value, or achieving the industry’s lowest costs – require that the entire set of activities of a firm are systematically organized and coordinated, in accordance with the strategy of the firm.

Asian firms and leaders have traditionally paid little attention to the impact of competition. Many leading Asian firms first achieved success between the 1970s and early 1990s. In many Asian countries, this period saw rapid economic growth, rising disposable incomes, increasing consumption, and, in many cases, government support for business. Collectively these features of Asian economies had the impact of reducing competitive pressures. MNCs were not a major threat to Asian firms in many markets, as they often focused on high-end segments or on sourcing from Asian countries, rather than on selling into these markets. Many Asian leaders and firms thus placed relatively low importance on the actions of their competitors, focusing instead on reducing costs, building capacity, absorbing technology, increasing sales, and exploiting opportunities.

Competition

Competition is increasing in many Asian countries due to:

Globalization, technology diffusion, knowledge diffusion, rapid innovation, easy entry, more firms, excess capacity, deflation, reduced government protection, and convergence across industries.

Competition leads to negative outcomes for firms:

Prices, margins, and average profitability will decline.

The main options for dealing with increased competition are:

Aim for the industry’s lowest costs, so as to compete on price.

Differentiate products and services to increase value for customers that they are willing to pay for.

The best outcome with increased competition:

Ensure that costs fall faster than prices.

If possible, prices should rise faster than costs.

A major change in the business environment in Asia in recent years is increased competition in most industries and countries. More open economies and reduced government protection have encouraged the growth of local enterprises and the greater presence of MNCs, both major sources of increased competition. Larger and more globally oriented suppliers have also increased pressures on firms in some industries. As Asian firms increasingly compete globally, they face larger and more powerful MNC buyers, or more informed and less loyal customers. All of these forces increase the competitive pressures that Asian firms face. In some cases, competitive pressures are so great that firms are unable to achieve profitability in large and rapidly growing industries.

CASE STUDY

Competition in China’s TV industry

The TV industry in China illustrates the importance of paying close attention to competition. China’s rapid economic growth in the 1990s increased household incomes substantially, which led to major increases in demand for color televisions. Domestic sales more than doubled between 1990 and 2002, to about 24 million units. Attracted by China’s rapid growth, many foreign firms invested in the manufacture, assembly, import, or distribution of TVs in China. The potential size and profitability of the industry was also apparent to Chinese provincial governments, many of whom supported the entry of state enterprises into the industry. As a result, the industry quickly developed excess capacity, with annual production capacity at close to 50 million units estimated to be double the annual demand.

The rapid maturation of the TV market in China exacerbated the excess capacity problem. Most Chinese homes that could afford a TV had acquired one by the end of the 1990s. By 2002, there were 25 TVs for every 100 people in China. As relatively few homes could afford a second TV, the market quickly changed into a replacement sales market, causing a significant slowdown in units sold. This led to severe price competition, with prices of TVs declining by as much as 80% between 1995 and 2004. The average price of a 29" colour TV fell from US$940 in 1996 to US$290 in 2003, for example. As customers moved toward larger TVs, many smaller models sold below cost, contributing to widespread industry losses. Although imported brands had a reputation for high quality, few customers were willing to pay premium prices of up to 100% over local brands. As a result, leading global suppliers such as Panasonic, Sony, and Toshiba fell out of the top 10 brands by 2004, a status they had enjoyed as recently as 2003.

Despite severe price competition and heavy losses, government support allowed most of the 90 domestic manufacturers to continue operating, so that very few firms had left the industry by 2004.