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Monday, June 28, 2004

What the New Asia Means for Multinationals via HBSWK

Asia is remaking itself, and that means important strategic rethinking for Western multinationals doing business there.Many of the Western multinationals operating in Asia have a head start when it comes to achieving the potential benefits of cross-border integration. They already have an international reach that spans the region through established subsidiaries and experience of how to adapt to local conditions. But arguably the presence many multinationals have established in Asia is more suited to prospering in yesterday's competitive environment rather than being well attuned to winning in the next round—especially against the new breed of Asian multinationals that seems likely to evolve as Asian companies rise to the challenge of inter-nationalization.
When compared with the demands of Asia's changing competitive environment, the limitations of Western multinationals' existing bases in Asia typically lie in three areas: the "long, thin arm" problem, lack of cross-border integration within Asia, and the belief that it is sufficient to "think global and act local."The role of the Asian units was to execute functions directed from headquarters or to apply a business formula already perfected back at home base. Just as the fingers on a hand execute commands from the brain, Asian subsidiaries acted like the end of a long arm of the corporate center. The arm was also "thin" in the sense that the breadth and complexity of knowledge that flowed along it was constrained. Thinking global, acting local often means that best practices and innovations generated in the course of adapting a global business formula to a local market remain imprisoned locally: They don't get propagated across Asia and the world. While this remains the case, Western multinationals in Asia won't be able to fully exploit the learning they are accumulating inside their Asian operations. The long-term consequence of this failure will be an inability to keep pace with their Asian cousins as they become increasingly capable of taking what they learn in one Asian country and deploying that learning elsewhere. In short, while Asia remains a recipient and implementer of best practice within Western multinationals rather than a strong contributor to global improvement and innovation, their competitive advantage will erode relative to Asian rivals capable of milking what they learn in Asia for all it is worth. Well written article, correaltes to my professional experience in dealing with various western multinationals out of Asia.

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