Title: Winning Asian Strategies. (Current Research)
Abstract: Many of the most successful companies in the world have discovered that their prosperity frequently comes from a focus on narrow slivers of business, a lightening of the asset base, and globalization. In Asia, a lot of executives are skeptical about this approach; often, they are bound to the conglomerate model and to a focus on asset-intensive local industries. Nonetheless, our research suggests that the best-performing companies in Asia have already adopted the strategies that have proved successful elsewhere in the world. To identify the most successful companies in Asia, we ranked its 200 largest by the value they created for their shareholders from December 1995 to May 2001. (1) Not surprisingly, given the recent economic difficulties in the region, we found that 73 percent of its companies underperformed the Morgan Stanley Capital International (MSCI) World Index (Exhibit 1), which comprises all of the world's major stock markets, weighted by their relative market capitalization. Among the laggards were some of the biggest and best-known corporations in Asia. What sets apart its big value creators from other companies in the region are the strategies of expanding quickly to capture global market opportunities, atomizing (that is, picking a relatively narrow market sliver and building scale rather than competing across a range of sectors or industries), and becoming asset light by using intangibles (Exhibit 2). We also tested for other variables that might distinguish the top performers from the rest and found, for example, that being in the right country or sector at the right time was not in itself sufficient to make a company a leading performer. Not every Asian winner followed each of the three strategies, but the vast majority pursued at least one of them. While these strategies are important, they are not necessarily sufficient for success. However, the analysis showed that, by and large, the laggards did not pursue them. Being the best company in a domestic market no longer guarantees survival, since global players have the ability to attack fat-cat incumbents in their home markets and to eat away their profits rapidly. We found that the top ten value creators in the sample earned, on average, more than half of their revenues outside their home markets, often by leveraging Asia's low-cost labor or mastering its complicated and inefficient supply chains. Johnson Electric, a Hong Kong--based manufacturer of micro motors, derives more than 70 percent of its revenue from Europe, Japan, and the United States, for example. India's Wipro, a software company, has chosen the Fortune Global 500 as its target market and earns more than 80 percent of its revenue from non-Indian customers. Both companies benefited from the relatively low cost of local skilled labor to capture global market share. We also found that 90 percent of Asia's value creators are atomizers-that is, companies receiving more than 80 percent of their revenues from a single main industry sector, such as banking, consumer goods, electronics assembly, power, or telecommunications. Unlike the typical Asian conglomerate, these focused companies have resisted the temptation of empire building. Taiwan Semiconductor Manufacturing Company (TSMC), one of the top performers in the sample, is a specialized integrated-circuit foundry. Its founder, Morris Chang, has enshrined in its corporate charter a single-minded preoccupation with the semiconductor foundry business, thus preventing the company from attempting to move into the production of its own branded products and from competing against its present customers. Physical assets are becoming less relevant in the global battle for supremacy: to produce $1 of sales, the biggest value creators in our sample needed only $1 of assets, compared with $4 for the average Asian company. …
Publication Year: 2002
Publication Date: 2002-01-01
Language: en
Type: article
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Cited By Count: 1
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