Perspectives on Leading in Asia -Business-

By Chris Traub
The world is becoming ever smaller – and the business world is leading the charge. Software is as global an industry as any, and in many ways, leads the charge to leverage new manufacturing centers and new product markets in emerging regions of the world.

Asia today is at the top of the list of global priorities for many companies across most business sectors. Leading companies generally have significant operations in multiple Asian nations, and emerging competitors are looking to Asia earlier than they used to.

More and more companies seek not only to send product development work offshore, but also to leverage a global development cycle – very often based or anchored in Asia. At the same time, new opportunities to market products to the burgeoning populations and unique markets in Asia continues to be a compelling avenue of growth for software vendors worldwide.

It is possible to succeed in Asia with a good understanding of its regional intricacies. In order to lead in Asia, however, it is critical to set forth strong leadership in a culturally-sensitive manner.

Opportunities by Region

Exploring the world as a whole, and looking not just in technology but in all markets, the last 4-5 years have been dominated by attention given to India and China. The supply chain opportunities are tremendous, due to the low costs and industrial drive into technology and manufacturing in the region, particularly in China.

But beyond that, companies are increasingly looking to both India and China as emerging end markets – although China generally receives more attention than India in this respect. One of the reasons for this could be around concentrations of targetted audiences. Of China’s more than 1.2 billion people, the 300 million people living along the coast, are also those with the greatest economic leverage. In India, the addressable population is more evenly distributed across its large land area, with infrastructure still a big challenge.

But more than just an offshoring destination, India deserves attention as a significant consumer end market in its own right. Consumer & industrial products, banking, supply chain services, and many other vertical markets are all booming. These industries will continue to thrive as India continues to become wealthier, as it eventually overtakes China as the world’s most populous country.

Everyone talks about China as “king” of manufacturing and supply chain to India’s supremacy in offshoring supply and services. While China is rapidly becoming seen as up-and-coming in terms of IT offshoring, China’s offerings today are a small fraction of what they can and will be, and in direct numbers, in comparison to India. It will be many years, if ever, before China comes close to challenging India’s software development supremacy. I believe that ultimately, “hybrid” plays involving both China and India and utilizing the tremendous advantages of both, will dominate – not just in offshoring, but in overall market approaches that combine the two countries’ combined supply chain strengths with their excitement as end markets. This is already happening now, albeit in a quiet way.

Industry Vertical Opportunities

Looking beyond geography alone, Asia’s vertical markets are often borderless in their opportunities. Let us look at a few:

Manufacturing/Supply Chain – Manufacturing/supply chain is fundamentally driven by early stage product development and intellectual property creation driven largely by the U.S.  Japan and Korea are very active in product development and creation – however there is a tendency to keep more of their operations vertically integrated (think Samsung and the major Japanese electronics manufacturers) than their Western counterparts do. There are also supply chain centers in Greater China and Singapore, supported by development in Malaysia, and to a lesser extent Thailand and Vietnam.

Semiconductor IP development is still heavily influenced by key areas in the U.S., primarily Silicon Valley, and secondarily, cities such as Austin, Boston, and Irvine.  But Taiwan is running a relatively close second, and design work is growing rapidly in China.

Taiwanese ODM’s (original design manufacturers) control more than $100 billion in notebooks, PC’s, handsets, LCD screens, and peripherals, amongst others.  Another trail of U.S. semiconductor development leads from the Silicon Valley to Singapore and Malaysia, with a greater focus on back-end packaging and testing. Asia is now largest end market for semiconductors and other electronics manufacturing services. For any software that supports manufacturing, Asia is arguably one of the two most important markets in the world (along with the US).

Financial Services – The biggest Asian market today for financial services is Japan. It is huge, established and mature. Korea is also significant but very self-contained. Hong Kong and Singapore are more open to offerings from other countries and are the main focus of most marketing efforts in this area. A new financial center emerging on the global market is Shanghai. It aspires to be as big as the other financial centers, and unofficially aspires to eventually replace Hong Kong as the financial services hub of Greater China.

Open Source – China loves open source. As a nation, it wants to get away from proprietary standards. That makes free software a very appealing idea. China is always looking to break away from – or at least question – standards for which it must depend on others. Other regional markets are rapidly evolving to open source standards as well.

Challenges Remain

Intellectual Property Theft – This remains a problem – much more so in China than India. It is a legitimate concern. The light at the end of the tunnel could be the fact that more and more Asian countries are developing their own IP. As they begin to have financial interests in their IP, there is a commensurate increase in IP standards and protections. With India, the prevalence of the IT services industry has ensured stronger protection for IP in that nation than it has in China.

Geographic and Cultural Diversity – Think about the number of languages you encounter when covering Asia Pacific: If you start in Japan and run west to Pakistan, and south to New Zealand, you enter more than a dozen primary languages, let alone many more regional dialects.  In addition to languages, there are dozens of different regulatory environments, logistical setups and infrastructure concerns – managing Asia Pacific is much more difficult than managing the U.S. as one market. Each nation is different from selling to managing to marketing – it is very complex. Software vendors entering the region need to choose their markets very carefully. Finally, the reality of travel in Asia is that one can fly for 14 hours and still be in the same region.

Industry Consolidation – Although industry consolidation is most visibly a U.S. phenomenon, it has ripple effects which impact Asia. When setting up an early stage company, you end up competing against giants – many of whom have pretty significant infrastructure in Asia, not to mention big head starts. Startups have to be really smart about how, where and when to go to market in Asia. It is entirely possible to view one of the global industry leaders– or a leading, Asian solution provider – as a “distributor” of your product or solution, and leverage their connections and infrastructure to get your products into Asian markets rapidly, through either collaborative ventures, or (of course) trade sale.

Government Regulations – Companies must assume that the regulatory environment in most Asian countries is complex (with the exception of Hong Kong and Singapore.)  Japan, Korea, China, Taiwan and India all create very confusing circumstances with their diversity. There is significant favoritism which encourages local dominant players. There are non-tariff barriers in some nations – witness the security industry in China. It all boils down to entering markets in a very different way: you can’t impose your way in. Look at the experience of leading firms like Google & eBay in China – it hasn’t been as easy as many people expected it to be.

Leadership Strategies

There are several must-haves for international companies looking to move ahead in Asia.

Local Leadership. Regardless of country or strategy, the key to success in Asia is identifying, recruiting, developing and retaining very strong global leaders in each nation.  The reality is that these leaders should be locals: Japanese for Japan, Koreans for Korea, Indians for India, etc….

China is a different story. In this case, it should be Chinese for China, or more specifically, Mandarin speakers for China. In China, there is particularly great demand for the “Tier 1” executives – the best Chinese national to lead their organizations. This elite group is generally born in China, educated at the best schools in China and then graduates of Ivy League schools in the U.S.  However, most companies can’t get these “Tier 1,” native PRC Chinese, though there are a few exceptions, such as private equity firms, leading venture capital firms, investment banks, and strategic consulting firms like McKinsey.  Are they a bargain? No. They’re rapidly becoming amongst the most well-paid professionals on the planet. And the very significant demand for these people and a big shortage of them that will continue for a foreseeable future.

The reality is that most businesses don’t need (and generally can’t afford) this caliber of person. They need strategic, yet tactical, “block & tackle”, executives for China. They need to be able to manage upwards effectively (many Chinese nationals still face this challenge); manage across their peers, and manage their direct reports. The good news is that there are many capable Mandarin speaking professionals in Greater China today, coming from Taiwan, Hong Kong, and Singapore, as well as returning PRC Chinese or Mandarin-speakers from Western countries. 

Savvy Asia Leadership – There is no perfect configuration for managing Asia. Very often, nationals want to be managed independently, particularly Japan and Korea. China is increasingly becoming such an important focus nation, that the country manager can capture a higher level of CXO mindshare. Often you’ll hear about an Asia Pacific region that is really Asia Pacific excluding Japan, India, and increasingly, China. The region is massive and intricate – like managing north & South America.

It is a unique skill to be an Asia Pacific manager. On a regional basis, the Asian manager needs to be above all else, a human “cultural systems integrator”.  This person must integrate the needs and vagaries of all of Asia’s diverse markets. They must integrate the wide-ranging capabilities of professionals and managers with capabilities that are frequently immature relative to U.S. standards.

Strong Recruiting & Retention Strategies – These are very human issues and therefore, very personal. All professionals, regardless of where in the world they are, want to feel respected, honored and challenged. All high-level managers are driven by career opportunities and will be incentivized by them.  Title matters, and can change by region – a president in Korea might be a Director in Singapore.  More importantly, however, is how each is treated by their Asian peers, which considerably adds to the complexity of selecting local managers. Local executives are very conscious of this.

In terms of compensation, high-potential leaders are not only driven by money; however, they will negotiate aggressively on their own behalf in any part of the world – tigers are still tigers. Asian managers must be mindful of compensation equity. If one executive is a non-Asian expatriate and one is local, they need to be provided fundamentally the same opportunities and benefits, or the company risks losing one of them.

Strategic Use of Expats & Locals – There are often cases to be made for hiring an expatriate leader. By definition, the Asia leader will be an expat in some locations; and in most cases, the manager will not be from the countries they are running.

Determining how to choose the right leader to run Asia is a very challenging question. Many companies today choose Mandarin speakers because of the importance of China and because Mandarin is spoken in most Asian countries. People who don’t speak Mandarin often lose out to Mandarin speakers. Yet this ability doesn’t necessarily translate to doing a better job when running the overall region. In the enterprise software industry, the vast majority of Asia Pacific leaders are not ethnically Asian. They tend to be American, British or Australian, and secondarily Mandarin speakers. You rarely have a Japanese or Korean running Asia.

In the end, the right way to run Asia is a matter of personal style and experience. The people who know Asia best will do best.

After investing in and leading businesses in Asia for two decades, across multiple markets and thousands of executive search engagements, I’ve developed a personal operating principle that may be of use to companies as they think of managing in Asia: P&P. “We live by our Principles and we live with our Precedents.”

If you want to keep consistency in your business across diverse areas, you have to have shared values and principles, and do your best to keep the application of these principles consistent – with as few exceptions as possible. Every exception makes it easier for the exception to become the rule. This happens particularly easily in Asia. 

A commitment to consistency, a strategic understanding of regional intricacies, and strong, culturally-sensitive leadership will combine to push savvy companies ahead in Asia.

Chris Traub is Group Managing Director & Technology Practice Head of the Strategic Executive Search Group, the Asia-based, boutique alternative to the leading global search firms. Chris can  be reached at ctraub@sesasia.com. http://www.sesasia.com
Source: Danish-Chinese Business Forum
 

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