Mark Braithwaite recently conducted a series of one-to-one interviews with more than 60 large European-and US-owned multinationals and found that their understanding of this complex region far from impressive.
Economic indicators point to a great future for multinational corporations [MNCs] in Asia, yet for most global companies, the promise of Asia and what is being delivered are not the same.
To try and understand what’s going on – and what the barriers are to rapid success for MNCs in the region – I recently met executives from 63 large European- and US-owned multinationals, spanning the Life Sciences, Consumer, Technology and Industrial sectors for a series of off-the-record interviews. I asked questions about how their business is performing in Asia against expectations and what they see as the major challenges.
Four significant and common themes emerged. Cutting across all sectors, these four themes form the main roadblocks to success in Asia for MNCs.
When we consider that today, as a region, Asia accounts for a third of the global economy and is home to half of the world’s population it’s evident how vital this market is going to become. For MNCs, Asia represents an average of 23 per cent of global revenue and in four years from now, most MNCs expect this to reach 33 per cent.
Whichever way you look at it, Asia is a big and fast-growing market, but execution – successfully operating in an area that has a myriad of different cultures, languages and business practices – is a constant challenge.
What follows below presents a snapshot of the kind of thinking going on amongst senior MNC leaders as they grapple with developing their businesses in Asia.
Overcoming the roadblocks to business success in Asia
Road Block 1: Communication, Culture and Understanding
If you don’t think this is a big issue, then you don’t understand the problem. The interviewed executives had a great deal to say on this topic and it seems that a lack of two-way understanding between Asian regional leaders and HQ is an issue for most MNCs:
“Our executive leadership team does not understand the region, they use the US domestic market as their frame of reference.” APAC President, Industrial
“I really struggle with this. There cannot be one policy or strategy that works across Asia. There is not even a single common language. We make progress, then there is a new exec at HQ and we start again.” APAC SVP, Technology
“Our HQ culture is ‘disagree first and then discuss’. Try that in Japan!” APAC HR Director, Life Sciences
Most believe that global executives need to spend more time in Asia as these two examples confirm:
“You can read as many books as you like about Japanese or Chinese culture, but this cannot replace time on the ground.” APAC HRD, Consumer
“With the rise of quality local executives, there is less education about Asia going back to HQ. There needs to be a ‘walk-in-the-shoes’ strategy.” APAC SVP Technology
Doing business in Asia is about relationships, not transactions:
“The emotional attachment to the transaction is greater here. People want to deal with people who understand their way. If you are accepted, then you can do business easily.” APAC President, Technology
“Asian people often find it easier to deal with other Asian people.” APAC VP, Industrial
The way managers and staff interact in some Asian countries may not fit your culture. This is not just about individual style, but about the way people in other cultures perceive hierarchy:
“In emerging markets, managers are usually very hierarchical. There is a directive leadership culture as opposed to the nurturing and empowerment culture we have in the developed world.” APAC HRD, Life Sciences
Of course, not all companies misunderstand these issues, but interestingly, those without problems were closer to their market through structure. B2C companies seem to be further ahead than B2B companies on this front.
“For us, our senior leadership team knows Asia Pacific pretty well. The CEO used to be head of Asia Pacific and the whole executive team has international experience.” APAC President, Industrial
“We don’t have this problem. Our execs travel a lot.” APAC SVP, Consumer
“It takes a lot to appreciate and understand another culture. You need humility to win in Asia.” APAC SVP, Technology
Road Block 2: Talent
Of the four common themes, every executive interviewed sees talent as the biggest issue standing in the way of progress. There is no magic bullet, unfortunately:
“In mature markets, finding staff that know our business is easy. In many Asian countries, it is not.” APAC HRD, Consumer
“The difference of Asia is all about people. It’s about finding people so we can deliver business.” APAC SVP, Industrial
The brand pull of MNCs in developed markets does not always translate:
“We did a survey in China and found that up to three years ago, MNCs were more attractive as an employer. Three years ago local companies were equal. Now, local is preferred at all levels. Graduate to executive.” APAC VP, Technology
So while most MNCs understand the benefits of local leadership, making this happen is a difficult process:
“We have 80 per cent expats as our country heads. We know we need to localise, but are struggling to get this done.” APAC HRD, Life Sciences
Rising salary costs are an issue in China and Singapore, where they are now higher than the US for equivalent roles. Attrition is also high for MNCs in Asia. At management level, there are so many opportunities that employees keep moving for a bigger role and a bigger pay packet.
Culturally, people in some countries are reluctant to relocate and this in turn drives attrition as it limits career opportunity for them in MNCs.
“Indians will move because they are better off if they move out of India. The Chinese earn more in China than the US. Generally, they are less mobile.” APAC President, Industrial
Despite all of this, MNCs can still do well in Asia with the right talent attitude. Executives with years of on-the-ground experience in Asia are taking a pragmatic view on how to operate effectively for the long term in this talent tight environment:
“In emerging markets, you cannot always hire the management talent you want. We now hire on potential. Hire someone who is 60 per cent now with the potential to be 200 per cent.” APAC SVP, Life Sciences
“When you can’t hire the experience, you need to be good at hiring the raw talent. IQ, EQ, DNA.”
APAC President, Technology
Road Block 3: Corruption and Compliance
The GlaxoSmithKline (GSK) corruption investigation in China, citing a “massive and systemic” bribery network, and the subsequent jailing of two consultants operating on behalf of GSK, has shaken executives as more MNCs are coming under scrutiny in China.
According to the Asia President of one of the world’s largest technology companies, this activity is indirectly impacting their business:
“There is a more nationalistic approach from our customers. There is some anti-American sentiment and we have been removed from the supplier lists of some State Owned Enterprises.”
In principle though, the anti-corruption drive is good news for MNCs as this moves markets towards a more level playing field:
“Compliance is a big issue. It is not a level playing field for MNCs. We cannot compromise on standards of governance and, in one case, this meant that our licence to trade in one country was not renewed and we were locked out for a year.” APAC President, Consumer
China is the focus of the media in regard to anti-corruption reform, but reform is taking place across the region and this is a good thing. Of the four themes, this is the one that most executives running a clean business from HQ think least about. The exposure comes through independent actions on the ground.
Who will be the next GSK?
Road Block 4: Strategy AND Structure
Many global companies look at the world through the lens of their home country, which means that a successful strategy in Europe or the US may not translate well in Asia. This comment from a regional leader was echoed by all:
“There is no such thing as Asia. The go-to market models in China, India, and Indonesia are all completely different. There is no uniformity of market rules.” APAC SVP, Life Sciences
The Asia region has unique complexities that are difficult to grasp without on-the-ground experience. Consider these comments from regional executives:
“South East Asia alone is six languages, cultures, histories and labour laws. The difference between Thailand and Indonesia is as great as the difference between the US and Japan.” APAC VP Industrial
“Whatever you say about Asia does not apply to all of Asia. I did not understand this until I moved here.” APAC HRD, Industrial
“HQ has high expectations, but they underestimate the volatility of emerging markets. Political uncertainty and policy change arise overnight and we cannot predict this like we can in the West. The landscape and environment we operate in changes quickly. Every year, I have a $100m problem in one of my markets that I can’t see at the beginning of the year.” APAC President, Consumer
Two years ago Bain & Company published a report called ‘Global Growth’ in which it listed these same issues as key challenges for MNCs. It added a sobering note on the rise of local competitors:
“Most multinationals in developing countries find themselves operating on the far edge of their supply chain and talent pools. Many find it hard to adapt to unfamiliar business practices and customer expectations. They also find themselves up against a new kind of competitor – nimble, focused, entrepreneurial enterprises, deeply embedded in their home markets, with significant cost advantages, ready to access local talent and often a hard driving founder.”
Similarly, a recent survey of 500 MNCs by The Economist, found that more than 75 per cent of companies include India, China, Japan and Australia as part of a single Asia Pacific region. The structure used by most MNCs is based on geography and time zones and is organised into three global theatres – Americas, EMEA and APAC.
Interestingly, the leaders of companies that have moved away from this ‘three global theatre’ model claim better results:
“I report to a President of Growth Markets. He is a growth market specialist and fully understands my issues in APAC. It works.” APAC President, Technology
There also seems to be a tipping point related to the ratio of revenue that Asia produces in relation to global revenue, where MNCs move away from a one-size-fits-all strategy.
The local-versus-expat manager’s debate still runs hot:
“Hiring local managers ingrains the business into the local economy.” APAC President, Life Sciences
“Expats often make decisions for the short-term, because that is the timeframe they are here for and are rewarded for. There are long-term consequences.” APAC HRD, Industrial
And for some companies, successful products in the home market simply don’t translate:
“Our European designs and specs are too expensive for this region. We are killed on price by local product.” APAC VP, Industrial
The Asian leader of an iconic global brand portfolio summed up his view of their market commitment: “We are running a 30-year strategy in Asia.”
Most MNCs speak only about a five-year strategy, then align KPIs to drive quarterly performance!
Ultimately global companies need to get better at being global if they want to succeed in Asia. There is no simple formula, but the clear message from our 63 experienced Asia executives is that success in the Asia region for your company may need a serious rethink. You might also need to grow an extra pair of ears and spend more time on an aeroplane.
“We are a true MNC,” says a senior executive of a global brand. “We are global in our team and outlook. Our culture is non-negotiable. We are good at strategy. What will stop us from succeeding is execution and this simply comes down to talent.”
You have been warned.
Read the full report, which has substantially more detail, here