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THERE are five reasons why globalisation is an imperative for more and more Asian firms, according to Global Future: The Next Challenge for Asian Business by Arnoud De Meyer et al, from Wiley (www.wiley.com).

One, pressure from the IMF and other international bodies to liberalise in the aftermath of the 1997 crisis. Two, the crisis exposed "the weakness of the horizontal diversification" by impacting companies that had spread their core competencies too thin.

Three, reduction of information asymmetries because of the Information and Communication Technology growth. Four, "with the continued emergence of China as the factory of the world and India as the it's back office, more and more companies from other Asian countries will find that their home base is no longer competitive" in those two spheres.

And five, the need to broaden beyond `low cost' as advantage and move to building "own brands, distribution capabilities and service centres in markets around the world."

Traditional internationalisation was like this: a company took products that were perfected at home to new markets and replicated the offerings, thus following a `plant the flag' mindset. "Companies like Samsung Automobiles and Daewoo Motors ended up with subsidiaries scattered from Poland to Uzbekistan.".

Similarly, "the Filipino fast-food company, Jollibee, established 23 stores, scattered across 10 countries." What was the result?

"Lacking the critical mass to gain customers' attention in each of these isolated markets, and with little scope for sharing local fixed costs among stores, each was operating at half the estimated minimum efficient scale."

The authors advise companies to break free from such orthodoxy; also, companies must be willing to invest increasingly in "brands, proprietary technologies and systems that they can take with them to compete in overseas markets."

It would be myopic to depend for prosperity solely on resource-based advantages such as `low-cost raw materials and labour, preferential access to capital, and government licences obtained through local relationships'.

These are immobile, point out the authors. In contrast, companies such as Unilever, P&G, BP and IBM reap the advantages of a special capability — that of transferring intangible assets that are `system-based'.

Examples are "quality systems, marketing competence, technology and know-how".

Know the gaps between your capabilities and those that international competition demands.

"Globalisation demands that companies invest in building, hiring or acquiring a cadre of management and staff with the necessary experience and skills."

Asian companies have one more hurdle to cross before globalising successfully — the habit of centralised decision-making.

In a section on brands, the authors state that the global fixation on the China opportunity has tended to mask the arrival of India as an incubator of brands of high potential.

One school of thought says that China sold out to foreign multinationals, but `new India' is developing its own industries and brands.

"Indian advantage is in soft skills, knowledge and creativity," write the authors. Companies such as Wipro, Nicholas Piramal and Biocon find mention in this connection. Don't ignore the Indian FMCG brands such as Jyothi Labs and Cavinkare, caution the authors; these brands originate in regions, gather critical mass through national expansion, show vibrant growth, and provide `close to the consumer' brand mixes to challenge the multinational players.

Let it not be forgotten that Asian companies are latecomers to the internationalisation game. However, success is not assured by "mimicking the strategies followed by the Western companies that went before them on the path of globalisation".

The authors conclude with a tip: that the key to the new Asian global firms will be "a strong emphasis on creating networks that achieve a full and sustainable integration with the future ecosystem, an ability to maintain an entrepreneurial spirit as they expand their size and international reach, and the capability to globalise both innovation and the supply chain." Indispensable read unless you'd like to keep your products and services tethered to the borders.

ManageMentor@TheHindu.co.in

D. Murali

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