Asian multinationals should develop a global outlook

Updated: 2016-08-19 07:52

By Bonnie Wang in Hong Kong(China Daily Europe)

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Firms grow rapidly but need better brand building and post-merger integration to be successful

In a short period of time, Asian multinational corporations have come a long way and are now included in the ranks of the world's elite.

But despite this rapid success, these multinationals still have far to go to catch up with Western counterparts, at least in terms of business sophistication and image.

Asian multinationals should develop a global outlook

A giant billboard advertising Huawei smartphones on the Piazza di Spagna in Rome in Italy. Asian enterprises, such as Huawei, are rapidly evolving into successful multinational corporations. Zoraz / For China Daily

Many are struggling with issues such as post-merger integration and trying to generate synergies from disparate operations.

"Asian companies usually operate in a top-down system, with a single person making most of the decisions," says Harsha Basnayake, head of transactions for Singapore and the Association of Southeast Asian Nations with global consultancy EY. "When (Asian companies) acquire a foreign one that does not operate that way, there are conflicts."

He warns that if Asian multinationals do not adjust their management approach, they risk losing the talent of the acquired company. "Companies should value the team they purchase and preserve the local management team. How to get business together requires thinking and planning," he adds.

Ultimately, this means companies should find ways to plan ahead and be more flexible, both in terms of how they work independently and how they work with their partners.

Lan Sai, a professor from Peking University HSBC Business School, says: "Companies should have an overall integration strategy and a clear purpose in advance. Sometimes, we find that China's state-owned companies are a little bit irrational, as they only step out because of government policies."

One example is Shougang Group's operation in resource-rich Peru. A pioneer of Chinese overseas investment, Shougang set up shop in South America in the 1990s, when the Chinese government started initiatives to encourage companies to expand abroad.

The company has been in Peru for more than two decades and, in that time, has been dogged by labor disputes and strikes that have resulted in a steady stream of losses.

For companies in much of Asia, particularly those in Southeast Asia, traditions of family-owned businesses often conflict with the needs of successful world-class multinationals.

In India, between 70 and 80 percent of large businesses are owned and controlled by a single family. In China, the proportion is 35 to 45 percent.

Elsewhere in Asia, however, families own between 80 and 90 percent of large companies, according to a report by global consulting firm McKinsey & Co.

The management style in these businesses is not always conducive to growth. Instead, a patriarchal style and strong family culture often make outsiders uncomfortable, particularly at the highest levels of management.

Asian multinationals should develop a global outlook

Amit Nandkeolyar, assistant professor of organizational behavior at the Indian School of Business, says the CEO of a family-run business should not always be a family member.

"The concept is that the business owner started the whole thing, and after it gets bigger, he or his family doesn't need to be the one who runs the business," he says. "If you have a global ambition, you have to hire the best people to run a business.

"However, it's always easier to think it or say it than to do it. The idea of having nonfamily members as the decision-makers is difficult to turn into fact, even when the company becomes a multinational."

Cultural barriers may also hinder the global growth of Asian multinationals. In countries with strong local cultures like Japan and South Korea, some employees see international opportunities as a punishment instead of a reward. Their main concerns are cultural clashes and a disruption of the work-life balance.

Statistics from Willis Towers Watson, a risk management consultancy, show that 35 percent of Asian companies say employees from their home countries are unwilling to move to other markets, which is a major obstacle for global mobility.

Lan at HSBC Business School cites the challenges faced by workers asked to move overseas: "Many staff members are sent to Africa or the Middle East or Europe as pioneers to expand new markets. In this situation, they usually have to face severe living conditions, and some young people worry that they could miss the time and chance to get married."

These cultural concerns also mean that Asian multinationals are often reluctant to hire foreign workers.

At a US multinational, about one in five executives is a foreigner. However, Chinese and Indian nationals hold all the senior management roles in the top multinationals in their countries, according to Willis Towers Watson.

Nandkeolyar refers to a national glass ceiling. "Employers at Indian and Chinese companies prefer to hire talent from their home country," he says. "But as a company expanding to another market that you're not familiar with, the first thing to do should be finding people who know the local market. The next step is hiring globally, aiming to be as diversified as possible."

Unfortunately, this is not always up to the company. Asian employers often find it difficult to attract international employees, and they may not be able to manage them well.

"They grew too fast and lack corporate culture and brand cultivation," Lan says. "It's hard to attract international talent, and this is particularly true in private companies in China."

Many private enterprises in China are successful because they are growing at a time when there are many opportunities, he adds. "The owners become billionaires quickly, but they do not really know how to manage multinational companies. That keeps away international talent."

Another obstacle for multinationals is brand building. Most Asian companies have not managed to build a good brand image and fail to prioritize the need to reach consumers and investors.

"The ability of cultivating public relationships in China's multinationals still lags behind," Lan says. "Three internet giants - Baidu, Alibaba and Tencent - have all made mistakes on the way to building their brands."

Baidu, for example, failed to appear sincere in its apology after Wei Zexi, a 21-year-old student, died this year after taking an ineffective treatment for cancer that he had discovered on its search engine.

The company's statement was almost dismissive and did not outline any action that it would take to prevent a repeat of the incident, Lan says.

Another example is Jack Ma, the founder and chairman of Alibaba, who made a seemingly flippant response to accusations over the availability of counterfeit products on the company's online marketplace, Taobao. He said many fake goods are now of better quality than the genuine articles, which infuriated his critics.

Such an approach needs to change, Lan says. "China has been focusing on exporting goods. Now, it's time for multinationals to foster our own brands and export them."

Despite obstacles, experts say Asian multinationals are young and learning fast.

"This is a perception issue," says Basnayake at EY. "We should not underestimate Asian multinationals that are doing a decent job, such as DBS Bank in Singapore and Samsung in South Korea.

"Samsung's expansion happened not that long ago. We'll see other multinationals following suit."

For China Daily

( China Daily European Weekly 08/19/2016 page7)