The Asian Manager, February 1996 Issue by Sherbet Manalili

l| .*,$"" S"'s'

gUBSCRIBER'S COPY

TI{EAIAI{ VOL.IX NO. 1

1996 FEBRUARY/IUhARCH

StanShih's Fresh,HotPCs I

. Endof theNationState ' Customer Delight Satisfaction-Customer . Marketplace-Marketspace tr

. IT Opportunities in Asia . Stocks andRisk r Emergrn8 MarketEconomies

,l' lltl

A dreamteamfor the informationage: FUJITSUICL. Thistimely collaborationof Japan's FUJITSULTD., theworld'ssecondlargestcomputer company,andICL of the U.K., oneof Europe'sleadinginformationtechnology companies, hasproducedthe ErgoPro. A powerfulPC seriesthat'sintentionally ultra-friendlyto humans. TheErgoProis an ergonomicshowcase power,speed,storage of processing capacity andback-upcapabilities. It is Windows95 compliant,hasPlug andPlaysupport,multi-levelsecurity andPowerMaster, a powermanagement system.Inshort,it is the PC to get ifyou wantto increasework performance and office oroductivitv.

EastGtideonJinebelt andf re-instzlledso/hin

.n tures b tpl, 0f odbc t tlt n ]fom ttcy vflc

.Eqonontc feautes: ulrfa lnendty to tbe uter znd tbe natronment I

- lcn qltct P(

The Breakthrough ErgoPro By Cv

FUf|TSU cL

IntemetAddress:tam@aim.edu.ph

vol.x,No.1

THEASIAN

MANAGER FEBRUARY/MARCH 1995

covmslonY

IDATI]NXSI

TheNew InformationTechnologyAge

TheRiseof World-WideCybermarket

byMr. StanShih Reengineeringand decenhalizationare key successfactors in information technology. to competitiveness

by DaoidA. Hernan Computer-IiterateconsumersexPectmore high-tech innovations-network andcableshopping.

MANAGDMBNT I]PI}AIf,S

Authors for TheProfoundExecutive 15

Kaizen

Ma o AntonioG.Lopu, NM byPrcfessor your customersto influencepurchasedecisionsand Delight reinforcebrand lovaltv.

Marketing AtM Francisco L.Ronmn, byProfessor in salesandprofits. leadsto increase Virtualpresence

RonuloL. Nrri, AtM by Professor More books!Build your library with managementPrinciPles and strategiesfrom leadersof civilization.

TheJoboB. Fernandez,Jr.MemorialLecture

byMn E. GeraldCorigon and discipline-aside Creditworthiness,competitiveness, from econornicpolicies--establishefficientbankingand financialsystems.

NDSDABCN 1A Block Buying and Selling and Risk AtMandMr. EnticoB.Velnsco ErrolB.Perez, byProt'essor thestockmarket. Investorbehaviorinlluences

Measuring Consumer Perceptions PurbnRao byProlessor , uu Marketstudiesarecriticalin brandmanagement.

POI,IGY I'ONUM 33 DefiningTheAIM PolicyForum uu andHazelSangalang L.Roman, Francisco byProlessor TheAIM PolicyForum:"honestbroker,"issuedriven, process, anddesk-direcied. consensus research-based,

SAIM APubli@tionoltheAsianlnstihrr€or THEA5TANMANAGER Management and the Federationof Asian InsiituteofManaBe ment Alumi Asiations. Copyright @ 196 by md ,4rian n&,azer. A[ nghts @.v€d Reproducrion in any mannr in whole or in Part in EnSlbh o. othq lang6g6 prchibited. Tle Asian ManaSd is Fblished bi monthly by the Asian lNtitute of MaM8em€nt. Edibnal and Advertbint Office: Asian lmtitute ol Management, EuE€nio L6pez Founranon, J@Ph R. McMickin8 canPus, 123Pas de Roes, City of Matati, PhiliPPin6. T€l (632)89 ,() 11-5: 89 04 3H3:893 33 4l Faxr (632) 817 92 40 Photo_ g.phs sured by the AIM Library. Printed by Tim6 Prinie6 Pte. Ltd,, Sin8zPorc 'fte Asian ManagerMTTA (P) 1%/10/95 KDN PP(S)r07613/93 ISSN 011G7790

Coping with Trauma WDt.P.N.Singh

Turn adversityintq opportunitiesfor growth OPIIIIION EntrepreneulsComer by RobertV. Chandrnn,MBM'74 Unleashthe power of your higher consciousness'

BOOKnxY|DW TheEnd of TheNation State

MariaAnto io G.Lopez,NM byProlessor Go beyondheadquarters'mentality;rely insteadon marketplacerealities.

FelipeB. Alfonso PrllLh.r RicardoA. Lim .r & f,alloFlr{hIcl Co.Prb|| ils.ald. PlULler Dltcor.r Delia C. Cuti€rrez & A-rcdCrg r ClrG||.Oor Millie C. F€ner Ur.cr.r' Of.r.rbd F dnm Patriarca D.aF f PEdrrahr C.Hi.ra iIBNIIA |NTENAIIONAI, OII'TOES f, DPf, ASENTAIIVB r.n! rdlt Pamel, Choy, Pacific Asia Media, 13,{, 361_363 Ldkhart R@d, wan hai, HonB Ko6. Fax. (85 2) 83 5980 Pte. Ltd.83A Teddy Tan, Pam Media s.nic SlrtrtoFr East C@st R@d, Tay Bm Guan Shoppint cdtrc, SinFPorc Rama Slam€t, Manager, 1q2. Far. (6s) 4408760.frrlondb Circl€ C$Mu.ications., ll.B^ Ea xt A/s,lalar{a W0, Indoneia. Fax, (62 21) 792090,797378{, dDdaComE M.d'apl6 (M) sdn Bhd Nr" Adverbshs RepMtahve, 14A, lalan 5520 10 D.mNra Nn, 47,l0OPetaling layd Media south hdL Sob"odal||da: Selansor Malavsia 'Apnrin€nt 1A, Abhi'Anil Awas, X.nxPab' Asia iP) Ltd., Jamal, Kathmandu, N€pal. Telq 2606MEDREP NP, Fax, (9z/

1996 TTIEASIANMANAGER. FIBRUARY-MARCH

A!...1.4G B|dlor ludith Angela[. AlPay AmyG LsPiritu .ra HralLt ic€..rat vane$a M. laballas rrldlrb|r Atlvcrdsln! Cecile C. Banan AslrLnt c'|rcd.tlor f, orrd ReneT. DominSo,l6us G.Gallegot "rrll3rh! lr., RicardoA. Lim,Victors. Limlingan,EdoardoA. Morat6, Ashok K.Nath S.l. Salahuddin, Ctief Ete.utile, INS 1) 227 36. ?.rke. Ltd., 6/F, PanoraM Centie, Fati@ Jimh Comunicatio$ Y.K. Rd., Karachi, Pakistan. Fax. {92 21) 568 227'l xortl Chun, Fi6t Media Sqvi6 Corlbration, CPO Bor 7919,Seoul, Ko@. Telex FMSCORPK 29t37,Far. (a22\ na797A t+.t Tokuii Niinum, Ni.e Day Inc., 107 X@ido Akeka Buid 413R; t17-16 Akasr", Minatcku, Totyo, JaPan. Fax (813) Dr- AnthonySham, ManaSing Drc 3582-9104trdbra Ltd., 867156 Ponta@ Sulhmvit td, Ttai R€DMtaUve 9r lol, Prak nonq Banatol 10260,TlD'land.l-ar (t'6 2) $1 32 Fishery cao3. l.h.a 8;aa-. Bnan Tapln Asditls, Ro.d, Doxm@r, H€@l H€mD6t@d,HqtsHPl lNDU.K FU (044212{o 034 fEr..r 9aphane de R6musi, Mamtint 24 bis rue Gallieni, 95160 Dire.tor REM tnl€rMtioGl., Montmor€nq Fhne. Fax. (33 1) 39 89 63 41 a

ombay:Smokefires from squatters drift throughthecool Januaryair Our car avoids a wandedng cow in the streets around the Queen's Necklace,a hilly residential neighborhoodof Bombay besidethe Arabian Sea.Boxy black and yellow taxis,with, curiously,metersorlsldr the car,carom around the cricket fields. Like the back streets of Jakarta,Bombay'sare wall-to-wall with aggressive vendors of plastic toys. Wavesof pedestriansplow through traffic and into each other without apology.For three rupeesa pacnvendor will fold betel nut, tobacco, and lime pasteinto leaves, which one can tuck in betweencheekand gum for an intoxicating chaw. We are in Bombayto interyiew 200prospective studentsfor AIM. They are a small sampleout of 900 million citizensof this huge and fascinatingcountry. India is like a giant in hibernation,a giant that has not had a meal in 20 years. Its noseis twitching, for it can smell, more than see, successin the ait like it is just around the corner. After vears of socialistpolicies,the new government has liberalizedthe economy. Storiesof BOTsdot the businesssectionof the morning papers.Texas oilmen and Singaporean tradersprowl the hotel lobbies.From time to time there are hiccups,Iike the Enron-Maharashtratangle. Thereare clashesin the Kashmir with Pakistanand, like any democracy,there is the usual politicking. (Lee Kuan Yew also visited here and probably admonished lndia to be lessdemocratic.) Unlike the rest ofAsia, one cannot seeconsplcuous 4

Iivingis still low but the paradoxis thatwith more Indiawill loseits success, "low-cost"advantage quickly.) Wetell theprospects abouttherigor aheadat AIM: thethreecaseseach day,theSaturdayWACs; We thetoughprofessors. them to tough subject questions. Theprospects are They want the unfazed. it is their educationbecause ticketupwards;sowhat if thevhaveto work 18hours a dav.Manywantto taste thebrightlightsof SoutheastAsia.Many,also,want to comebackto stadtheir because the own businesses hereare opportunities multiplying,whether softwarefirmsin Bangalore plantsin Bandior cement pur.Financialanalystsfrom talk theBombayexchange of proliferatingprimary offerings,or IPOs,a sure Gharwal,Beherafrorn indicatorof capitalinflow. Orissa,Daru-walaof Parsi Theprospects areall origin,DubeyfromUttar lookingproperlyscaredand Pradesh, Thomasfrom brave-and hungry like Kerela.If onecomesfrom India.Theyarehungryfor a nearMadras,namesare betterbreak.Theyrepresent prefixedby thevillageone thenew lndia.As oneAIM comesfrom-a cataloging alumnusput it, "Chinamay system,in effect.Themany regionsanddialectsof all of seemmorevastandmore intimidatingbut theworld Asiapalein Southeast shouldalsolookat India." numberandvadetyto Wemark "admit" besidethe India's.Thisnumberand vadetyarealso a vastsource namesof thenextgeneration of IndianMBM students. of ambitiousknowledge who can worker-managels ]>tof.Ri(kVA. Li ten(h$IIT a1ld pull Indiainto NlC-hood. I Cofi,nutti(atiotl faI earn ManaSetnen TheMBM prospects ttu EDP n,tLlMBM 'n1rcg'drt1ls. an averagesalaryof 70,000 h1t( m cl: ricky@n in. &ltt.ph rupees,aroundUS$2,000 annually,about$160a Erratum: month.Theyarebrightkids, l n o u r D e c - J a ni s s u ew e honorgraduates from m i s l a b e l l e do u r 1 9 9 4 prestigious schoolslike the P h i l i p p i n el / T w i n n e r , Indianlnstituteof TechnolTELECOMMUEASTERN ogy.They haveoperated P H I L SI,N C . , NICATIONS "EXTELCOM."We steelmill lines,soldpolyesas ter film, andquality-audited a p o l o g i z et o o u r w i n n e r processespharmaceutical for the error. at $160a month.(Thecostof

FnouTru Enrron

Journal India

Success is iustaround

consumptionof cognacand cellular phones-at least,not vet. Still, the giant is stirring awake and it senseswonderful aromas. One whiff of this success is the jump in demand for education,particularly MBA education.AIM has experienceda marked increasein Indian enrollment in the last two years.It is mostly the result of the marketing efforts of one of our professors,Nishi Mukerji, and our active alumni office here. Nishi insiststhat it is as much a function of India's new-found fortunes.AIM's prospectscome from North and South, from big cities like Calcuttaand Delhi, and from towns around Lucknow Goa, Pune,Hvderabad, and Bhopal. I am surprised bv hor. familiar Indians, particularly Nishi, are with namesand their origins: Boseand Majumdar from Bengal,Bahukhandifrom

1996 . THEASIANMANACER FEBRUARY-MARCH

The$oup comprises of taxisin Jakarta. 4,000sedans, limos,andlargeandsmall buses.It hasexpanded into the hotel andis business, containeltansportation, fire truckslor export.It now assembling a month, servestwo millionpassengers has employsseventhousandemployees, nineoffices,andservesoutletsin all four-andflve-star hotelsin Jakarta.Blue logistics Birdpioneered computerized in Indonesia andradiocommunicadon for its taxi fleet,andprovides24-hour ol its cars.BlueBird's availability do not stopat the bottom responsibilities he nameof the gamein business the environline,either;it alsopreserves overtle nextmillenniumis with CNG mentby experimenting are service.Asianconsumers (Compressed NaturalGas)energyraisingtheirsophistication constantly efficientcabsandusingozone-ftiendly suchthat levelsandexpectations, materials, andhaswon an awardftom seruiceis goingto be a competitive Affairsfor the Ministryof Environmental Manufacturing firmsthem' difference. its efforts.And BlueBirdstill givesthe selvescanno longerignorethe imporqualityandvaluefor moneythatit tanceof customerseryiceasintegral backit 1972. partsof their products."Qualityof offeredcustomers compaIn an erawhereestablished serviceis aboutto becomethe decisive factorin corporate survival,"venture niesusuallyofferlesserservice,Blue WilliamH. Davidowstates. capitalist Birdstill strivesfor totalcustomer How is a servicedifferentftom a prom' satisfaction. Mrs. Djokosoetono product?Christopher manufactured ises,"AslongasI am alive,I will listen Lovelock,consultant andformer to andrespondto everysinglecustomer professor, states the following Harvard complaint."HersonDr.Pumomo "seNicesandperformances conditions: With help ftom family, she acquired Prawiro,Directorof the company, which tendto beproducedin realtime Blue Bird more cabs, and incorporated realfirmsthismission:"Twomillion products;the unlikemanufactured asa companyin 1972with 25 carc.Her passengers a month,with at leasttwo customeris alsoinvolvedin helping taxiconceptat the timewassimple,and millionspeciliccharacteristics, affected createthe servlce--â&#x201A;Źither by seMng novel.Insteadof havingcarsroving millions of service conditions...to by or by cooperating with themselves aboutme city,shestationed themat timeis moreimporseNicepersonnel; satisfyeverysinglepe$onseemsa little hotelsto wait on guests. Shealsooffered tant-customershaveexpectations bit out of our hands,"Prawirostates, 24-hour-a-day service,honest,polite "but we will payattentionto every abouthow longthe servicetakesto Moreodrivers,andcleanautomobiles. areconsumed asthey complete; services singlecomplaintandtry to makeit ver,sheactuallylistenedto, andacted areproduced, which makesfor quality of the on,customer complaints abouthertaxis. better.I assuremy customers conffolproblems..." samecommitment." It seemed an unnecessary stepfor a An excellentAsiarlcasestudyof AsJoanFrederickandJamesSalter but Djokosoetono was smallbusiness serviceis tie BlueBirdGroupof profess, adamantabouthighquality. the keyto customerloyaltyis A tv,/o-time winnerof AIM's Indonesia. "customervalue Because of its unbeatenservice,the paying attentionto the Awardsin Opera. AsianManagement BlueBirdGrouptodayis marketleader price,product...innovative package: tionsandsubjectof two casestudiesin quality, andimage."BlueBirdis service andentrepreneurship, anda operations for customer valuefor all a model winnerof the muchcovetedIndonesian of Adikaryotama Award,it is a trailblazer buddingAsianserviceorganizations. full customerinvolvement excellence: qualitycon[ol, andreal andsatisfaction, REFERENCES: AIM caseby MutiaraDjokosoetono, Ime seruce. Managing Hasibuan Sedyono; stum Chrysanti Mrs. MutiaraDjokosoetono H. LoYelock; byChristopher Seru?es, at the ageof bledinto entrepreneurship "Beyond byJoanO. Satisfaction," Customer widowed. 39whenshewassuddenly The ELI,E BInD GROlrP, M. Saltet lll, Manage' Fredericks and James Sherentedout her two familycarsas I 995 AIM Man.gementAwardee Review, May 1995. ment ln Opâ&#x201A;Ź.atlonsMan|gemenl taxisandsoldeggsto augmentincome.

BlueBird's Value Customer Package

PAIDADVERTISEMENT

Covnn Srony BYSreruSHm CEq ACER GRoUP or Couperrcs

TheNew InfonnAtion TechnologyAge ItsImplication toAsia Editor'sNote: Mr. Stan Shih is Chairmanand CEOof the Acer Group,the world's seventh IargestPCcompany.Established in 1976,Acer has earnedthe number two position in the PC consumerelectronicsmarketin the US. Salesin 1995reached $5 billion, from only $25,000in 1976. Mr. Stan Shih spokeabout lT trends with AIM studentson the same day he openedAcer's Subic Bay operations.Acer will produce motherboardsand plans to use Subic as a worldwide service hub. 6

felds cost-saving ferticalintegration benefits for companies. Companies, I Y however,aremovedto disintegrate, not to integrate.Verticalintegrition startedafterWorld War II when indushies tded to controlthe marketand reducecost.Majorcorporations in the US weredownsizingin the pastfive to {en years.Employmentis by small-andmedium-sizecompanies. Most,not onlyPC, industriesaremovedtowarddisinteerauon.

lust makingcomputets haslow valueadded or noneat all.

In ve icalintegratiorLindustry giants areusuallythe winners.Productlife cycles,dueto controlby few giants,arelong, like automobiles---every six years,there is a changeof model;and everyyear,a little bit of change.In the disintegraiion model,manycompetitorscanintroduce new technology anytime;newcomers alwaystry to find waysto competeagainst big companies. In the PC industry,IBM introducedtheXT,/Al Compaqled with the 386;othercompanies, the 486;Pentium?Compaq,IBM arebehindby six to ninemonths. Customervalue in the integration modeis providedby the so-called vertical,final solutions.In the disiniegration mode,thesegmentleader,not necessarily thebig companies, is thewinner Prod-

FEBRUARY.MARCH 1996. THEASIANMANAGER

uct life cyclesare short and customers (SeeFigure1) requirefreshtechnology. Thisfundamentalchangein comPutersbasicallyapplyto bankingandother industriesaswell.Wecalltheseshiftsnew paradigms.This changerequiresfresh style,and ideas,a differentmanagement approach. a decentralized approach In the past,the centralized Verticalinwasstructuredin a hierarchy. tegration,is easierbecausecompetitors arefew;companiesenjoyhighermargins. But toda, onehasto adoptthe network structureandoperateefficient$ Furtheralhavebecome smarter; more,customers ways looking for the bestbuy. Only enterprisedeliveryandhighlyefficientoperationscangivethisbestbuy.Acerwas in fortunatethatit startedto decentralize 1976. Figure2 talks abouta value added curve,from componentto assemblyto the dist bution of computers.The x-axists the traditionalverticalintegrationmode of theindustry.Acerstartedwith desiEning a computerand providing a value addedgood.Buttoday,makingcomputershaslow valueaddedor noneat all. Valueaddedhasshiftedto thecomponent sideand to thedistributionside.

Figure1

Today'sBusinessMega-Trends Integration

Disintegration

Winner

IndustryGiants

S69mentLeaders

Product Cycle

Longer

Shorter

Customer Value

VerticalSolutions

FreshTechnologies

The componentside requiresnew technology,manufacturingcaPability, of scaleto reand,mostof all,economies ducecost. Componentsconsistof software, CPUs,memorychip sets,storage,monitor, motherboard,etc.To most PeoPle, computersare synonymouswith the motherboardbut,actually,justlike thePC is not of much system,the motherboard valueaddedbecausemostkey components,like thechipsetsandtheCPU,are monopolized. not necessarily Thecomponent sidehasmanysegments.Competitionis globaland,there-

Figure2

Stan Shih'sSmiling Curve Value Adderi

PCIndustrvValueAdded Curve

Speed

Cost+

Components by Product Segment

Assembly

Global Compâ&#x201A;Źtition

1996 THEASIANMANAGER. FEBRUARY.MARCH

Distribution Segmentby Country Local Competition

for fore,global leadershipis necessary survival. Somecompaniescontrol the of somecomPoworldwiderequirement Softnent segmentwith few engineers. investmore wareand CPUcomponents money,have more entry barriers,and thereforehavemoremargins. In Taiwan,makingmonitorshasmore Unmarginthanmakingmotherboards. lessa companyhaslargescale,it cansurvive in motherboardsfor only threeto six months,andonly two yearsin monitors. The entry barriersaredifferent. Thedistributionsiderequiresbrand, channel,and logistics.Sincetechnology is like a commodity,logisticsplays the mostimportantrolein thebusinesstoday. otherwise,lBM Brandis notsonecessary; couldhavecontrolledthemarket. In 194,lBM lost$1billionin PCs,$700 inventorywriteof whichwerematerials offs.Why?IBM'slogisticsweretoo slow. ln this business,speedis critical,even morecriticalthancost.Thisis the disintesrationmode. Todemonstratethisshift ftom integration to disintesrationlet me showwhat StanShih's"Smiling" my colleaguesiall Curve.After we realizedthis curvewe hrrnedour businessinto a profitable and "smiling" business.Actually,it can "upset"(dashed linein changefroman Figure2) to a smilingcurve.How?Technologycanchangethecurve.Infrastructurecanchangethecurve. in the computerbusF Infrastructure nessusedto beprovidedby theindustry giants.Today,infrastructureis built by third parties.Do IntelandMicrosoftlead leadtheintheindustry?No. End-users dustry becausethey involve knowledge andarein a on how to usethecomputers position to selectthe best technology

ing curve,to thedisinte$ationmode.All will be digital.The electronics consumer will becomponents: softkeytechnology ware,semiconductor,CD-ROM,etc.(See Figure3). PCIndustryValueAdded Curve Value will playimSmallAsiancompanies Added portantroles.I do not think thatiapanor Koreacan control the marketsin the fuhrre.I seea changein thesoftwareindustry: Today,the softwareindustry talks aboutiniegration;in ten to 15years,the softwarewould alsoconsistof components,softwaremodules.Today,people talkaboutsystemintegrationandknowmiconductora how complexity;in ten to 15years,systemintegrationwill becomesimple.It will becorneso easy-if you understandapplications,thenyou canput standardsofttogether;you canprowarecomponents duceeffectivesolutions.Themostvaluablefunctionof softwarethatsysteminDistribution Assembly Components tegrationis now will becomelessimporLocalCompetition GlobalCompetition tant ten to 15yearslater.Why?Because Segment by Country Segmeniby Producls disintegrationis moreeffectiveandmore andto theinwelcomeamongend-users dustry asit involvesmoreplayers.In the Figure4 past companygiantsalsorequiremany peoplebut theproblemliesin centralized Human anddecision-making. operations natureis Bearedtowardsdemocracy-inValue want to particiPate dividualemployees Added in theprocessandown thed€cisionthemselves,consideringtheir hainingandeducahon(SeeFigure4). Changewill happenwith reengineering, which requiresfreshideasand longterm, consistentimplernentation.Acer hasundergone a big transitionasa result of reengineering.Beforethe 1990s,Acer wasprofitable;its grossincomedoubled in the induseveryyear Dueto changes try howevet we experiencedmanydifficulties-an upsetcurvestructure.Acer to dealwith disintegrahadto reengineer, tion.Onecantalk aboutrestructu ngor processes but Acer startedby reenginDistribution Components eeringits strategy(SeeFigure5). LocalCompetition Segment by Function Froma revenueof $1billion (we have byApplication Segment GlobslCompetition this year), there was a big billion $5 changein profit. Rehrmon equityjump€d to more than 34%.Revenueper headdoubled in three years-Acer count surnerelectronicsis dominatedby Japaproducts.Theirinvolvementin ffiastrucmoved morethanM00,000perhead--one but thePCis hrre makesthe businesstotally different neseandKoreancompanies highest in the industry in 1995. PC of the going to be the core technology.All from before. (Some units are $2 million revenuePer If a companydoesnot realizethis componentswill becomethe key compoWebelieve headcount.) electronics. change,its corporatestructurewill never n€ntlor consumer Our personalexpensewent down meetcustomerrequirements.Weare ex- that, in thrce to five yeart the consumer from 10%to lessthan670of our revenuepecting it in consumerelectronics.Con- electronicsindustry will shift to the smilFigure3

Electronics'Value-AddedCurve NewGonsumer

Curve 21stCenturySoftwareIndustryValue-Added

1996 . THEASIANMANAGER FTBRUARY-MARCH

Tbelongwa'itis ouer,,, INTRODUCING

llbnrnlbuctt

yoar connectionto the world

internel corp0rate \Ie provide hasopened Provider Senice l0ternet Th€newest viaourindividual Veofferfull internetaccess foryourorganirations. solutions ot dedi(lt€d accounls LN access accounls, corporate multiuser accounts, rlialup and design senite.webpage ve als0ofiermailrouting actounts. leaserlJine programming.

WonrnibucH

TECHNOLOGY CORPORATION

4th.Flr..ExecutiveBuildingCentcr.Sen.Gil J. PuyatAvenue.MakatiCity T e l .N o . 8 9 5 - 1 4 5.2F a x :2 4 4 - 6 2 8 5 , 6 3 4 - 6 5&8 58 9 0 - 1 4 3'5H e l pD e s k :2 4 1 - 6 2 8I1o 8 2

low overhead,efficientoperations.Inventoryis evenmorecritical:Beforereengineering,wehad 100daysto coverour global requirements; right now,we haveonly 50days,includingtransititems.Thisbusinessis so dynamic.This momentum keepsgoing-Acer had morethan 707o growth in revenuefrom 1994by mid1995. Whatcausedthischange? Freshideas, and new waysof thinkingbasedon disintegrationunder a decentralized managementandwith threemajorstrategies: fastfoodbusinessmodel, client-server organization structure, andglobalbrand, localtouchapproach. Tastlood Buslness Dlodel In thesecondhalf of 1992,Acershifted its PCassembly fromTaiwanto themarketplace. Weheatedthe assembly of the PCasa servicefunctionof logistics.Materialsmanagement became morecritical. Puttingall matedalstogetherto form a PCis a simplejob,but we haveto make surethatweproduce"fresh"PCs.lttook ushvomonthsto deliverfreshPCsto the US,Europe,or Latin America-and by then,the PCswereno longerfresh;they wereno longercompetitive. Wethoughtthatif we assembled PCs justlikein fastfoodchains, our PCswould reachthe customersfresh.Now, we have

Figure5

Acer ReengineeringResults 1991 US$

1994 US$

Remarks

Revenue

986 M

3.228

X 3 limes

Net Profit

2 6( M )

205 M

-2.7o/oto +6.3% of revenues

ROE

Loss

34.2o/o

Tops in lT Business

180K

381K

x 2 Times

10.6%

6.0%

Revenueper

H/c

TotalPersonnel Expenseof Reven ue InventoryDays

100days

<50 days

morethan 30 "Uniload" assemblysites worldwideto ensurefreshPCs,Compaq carries110-day inventorywhichdoesnot allow themto introducePentium.Compaq says/"486is enough."Pentium's pricedifference with the486is now only 10%.Canyouimaginea 3000cccarpriced like a I 000cccar?Youhaveto understand alsothat childrenand the homemarket todaybuy Pentiumsand multimedia.

F i g u r e6 .

CorporateUSbuys 486,but homesbuy Pentium. This strategyturnedaroundour US operations. Welosta lot of moneyin the countryin theearly90sbut becameprofitableand gainedmarketsharein 1993. \Negrew92%during the first quarterof 1995,numberonein thetop 10PCCompanies.On a globalscale,we grew62Va, againnumberonein thetop tenPCcompanies.Thefastfoodbusinessmodelis the keyreason(SeeFigure6). Olient Server Organization The secondapproachis the clientserverorgdni/ationalstructure(SeeFigure7).On theleftsideof thesmilingcurve arevarioussegments of componentsi on therightsidearemanyindependent, geo-

Fast Food BusinessModel Value Added

orrnhi.

. Reduced inventory . Time to market

Assemblyshifted from Taiwanto the Marketplace

Components 10

Assembly

Distribution

hrrLar.

Acer is structured such that every unit i s i n d e p e n d e n tl.t c o n s i s t so f v a r j o u s shareholderswho make individual, not "matrix" collective,decisions.The 80s organization is no longer right; "network" is the new term here. But what kind of network?Througha client-server organization. In a computer system, for example, only mainframes had the computing power or the intelligence;terminals are "dumb." Today,PC terminals have the computing power of mainframes.Using computers as an analogy for human organizations,employees,after being eduFIBRUARY-MARCH 1996. THEASIANMANAGER

cated, tend to move intelligence to the lower levelsof management-to the rank and file, and not limited within top management.Not everythingis controlledby "bosses."Bossesdo not necessarilyunderstand what is going on and are often not in d positionto male all thedecisions. On the left side of Figure 7, the SBUs, from the top, Acer Inc. may take careof desktop, notebook,multimedia,etc.Acer Peripheralstake careof monitors, cables, scanners,fax, etc.All thesesegmentsare separatebusinessunits in the company. Eachonefocuseson its own segmentonly. TI-Acer concentrateson semiconductor memory and Acer Labs on chipsets.The RBUstake careof America, Europe,Asia Pacific,and Latin America. They are all independent yet focused.Through this network, we can take care of the most c tical elementsof the PC industry today: speedand cost.Decision-makingis no longer centralizedand top-down. Beforereengineering,we had a 300staff headquartersand they all reported to me, today we have onlv 80. Cost was reducedfrom $10 B to $5 B. Originally, "tax" to we allocateda 37ocorporate all subsidiaries;now we do not chargeany. Corporate headquarterscost is offset insteadby higher dividends. We serveour subsidiaries so we expect dividends to offset our costs,and we chargefor servicesrendered,likelegalseruices.With this structure, we do not receive any complaints that "headquarters charges too much corporatetaxes." Dealingwith changeisalsoimportant. If youcomplain oftoo much change,then you betterquit, becausechangewill even begreaterand quicker in the future.A client-server structure, however, rs more flexible to change.Looking at traditional approaches,the Japaneseare more akin to mainframes;US operationsseemto be at the mini-distributed process,multnational approach;Europeancountdesare powerful work stations but not networked together.The client-serverstructurewill be more effectiveinthelong run. Global brand, Local Toueh "global The last strategv is called brand,localtouch" (SeeFigure8).Wehad limitations when we first attempted to "globalize"in Taiwan:First.theimageissue. Taiwan was not supposed to manage "advanced country" operations.We . FEBRUARY-MARCH 1996 TI{EASIANMANACER

Figure7

Client-Server Organization Structure Value Added The Acer Group SBUs

. Focused managemenr in eachBU {Client) . Network relationship for speed& cost effectiveness . Effective responsero business dynamrcs

Components

Assembly

were not supposed to have the knowhow A lthoughwe weretheboss,our image was that we could not managewell. Second,Taiwan was not into global operationsbefore;most of its businesswas OEM. Taiwan did not manage international operations.We did not have experiencedpeople. This is the fundamental background. Acer, however,viewed the matter differently: When we were young, we always complained that Japan did not transfer technology.Thelower units alwaysasked

headquarters for decisions. Thesense of ownershipand achievement within were not soclearWefelt thisway in Taiwan. WhenAcer globalized, we consideredthe limitations.Weadoptedthe "local touch" approach.Schools usuallyteachus to localize operations.But we thought that localizing,by meansof partnership,is risky. Local shareholders, asthemajority, shouldtakemorerisksthan me,and I would be willing to sharetheriskandbenefits.

Distribution

I think it is an effective way to reduce risks. Furthermore,Iocal ownership is more motivated to do a good job. "Local touch" meansmuch more than just localassembly,localizedproducts,local managament,and local investors.In "local" meansmajority lothe long run, cal shareholders.Acer will be identified not only as a Taiwanesebut also as an American, Singaporean,Filipino, etc., comPany. Theseapproachesinvolve many challenges (SeeFigure 9): cost, qualiry and

Figure8

"GlobalBrand,LocalTouch" . Localizedproducts . Local assembly . Local management . Local ownership . Localshareholdermajorities 'Long-term leadershipin the market

control.Forthefastfoodmodel,everyone asksme,"How canI ensurequalityofthe products?" Wejustadoptedtheapproach of McDonald's. As long aswe certifyall keycomponents, applyglobalstandards andqualityauditsinassembly, thenquality is not a problem. Assemblycostis higher,true,but is much easierto offsetby inventorysavings,lessinventorywrite-offrisk, and, mostimportant,improvedtime to market,whichhelpsgainmarketshare. I do not believein haditionalmultinaiional thinkingaboutcontrol. Someindustrieslike telecommunications are forcedby thegovemmentto belocalshare majoriryOur approachis unique.Everyoneasksme,"Whataboutcontrol?"I answer,"I am alwayswilling to losecontrol,but makemoney."I canalsoexplain my philosophythis way: I tried to redefine control.In the past,you controlby holding51%of thestock.I like to control in an intangibleway-by commoninterest,only in thisclient-serversystemwhere everyone benefits. Eachonesharesin the commoninterest. Thecorporate direction is towardscontrolby commoninterest.It makesbettersense. Acerhasto keepfresh productsand be competitivein technology.Todeliverfreshproductsto themarketplace, webuildmoreUniloadsites.Today,we have30sitesandaim to increase theirnumbers(SeeFigure10). In 1989,Acercommitted$250million to ajointventurewith TexasInstruments. We originally wanted to produceone megabitDRAMs.Technology changed so

Figure9

New Ways of Thinking Challenges

Eenefits

Assemblyin the Marketplace

Assembly costs Ouality (following McDonald's approacnl

Fresh PCs Lower component & Inventorycosts

LocalShare

control (control by common interest)

Sharing Risks Motivation Local Leadership

Global Brand, Local Touch

fast so we increasedto four megabit DRAMsandinvested$400M. Rightnow, we canmakei600megabitDRAMsand spentabout $1B.Forthenexttwoto three years,we aretargetingspendinganother billiondollars.Why?Because innovations in electronicproductscomefrom semiconductors. Semiconductors isa majorcostd river to supportoperdtions. Aceris not hying to integratevertically.Everyareain the companyis independent; eachhas to competein an openmarket..We haveto investmorein semi-conductors andin researchand development(R&D).We do not want to limit our R&D 6udget.We

F i g u r e1 0

How Acer Stays Fresh& Competitive .

. More uniloadsites . More 'localtouch'units . Moresemiconductor fabs . More R&D-related humanresources . Moreworld-scalemanufacturing facilities

Global Brand, Local Touch

conductresearch notonlyaboutcomputersbut alsoin consumerelectronics and communications. Wehaveto build more world-classmanufacturingbase.Every yeat we haveto gross$1billion to have world-class, largescalemanufacturing. Down The Road Globalcompetitionincreases by 2030%eachyear Belowthisscale,you cannot compete.Thenextgoalof Aceris to becomea householdname.We haveto bringthetechnology andIT intohomesmultimediaPC,PCry, mobilephone,etc. In thenexttwo to threeyears,we will introduceNext TV,which is basedon PC technology. As a technologycompany, Acershouldmaketechnology moreavailableto more people.We haveto make technologymore affordableand more (SeeFigure11) user-friendly. In 1994, ourbattlecry was"21in21"21 publiclylistedcompanies to work in the 21stcenhrry.We only havea single publiclistingnow in Taiwan;we haveto add 20 more.Toughjob but it is our vrsionanddirection.Weexpectthatour US, Singapore, andothersubsidiaries in Taiwanwill become publiccompanies. Thenextgoalof Acerwasto become "1994, a $10B company.From$8 B in it became $10B in early1995.Sonowl have to changethat goalagain.Our vision, however,is focusedon directionrather thanfigures.All our management teams and employeesare shareholders.The

,I996 FEBRUARY.MARCH . THEASIANMANAGER

STAY ON OP

Iilrl rlillr

COfiIPUTERWORlD rn rurm

Incooperation with

pdlfy,hil" PC trorld Philippin6 And (-onput.fl orld Philppid5.ttre lenJ n! inloma|on rshnobgr" ln rhc .ounr^. bd lhtulen-Pu.^!rd Philippin.s fublicarions (b.pardlt,r, lhe counl^ s No I pnnl.r iup!'Lrcr. trrll 8,\c .NrJ! lhr.. (l) tlP 'rkjcr pn .rs s! ( l ) onc HP pc.so.rl ro,nputr r. r,)u. lurl\ suh\Lnbcr\ ol /'( ,i,,/./ l' h || 4t\ n. \ Ml (l n'pur e^'.t l,J l' htl ryfl a! \ P.ono

Pcriod : Il.rch

l, 1996 io Dsember

10, 1996

| !!bscr'bc r,i l'( lti,fl,/P/riltpptnr\ I'hrlqpde\ nt| ""1t uk^.rlJ subscnher 11 l( u1'AJ lhthtrln.\ J, rof de a cuftnr rr lonNtt^,trld Pr'lrrri,.l \.u..f r$ h \ r c n c \ , n g t . u f s D f 'srn .n Nnhin rhe p(no l.n

rnhe( \r b c a . . e p t d b e S r n nn C N J r . h I)..cmhcf ir. l'r'16 Onl\ th.\d.uh\rfpt.n\ ptumo penod s qu!,ll li,r rhe ralllc{ltu*\

,1 a ul{rl

and rrrjre dras darc\

PRILI]II]IAR!

(;R\\D j

AND WIN AN HP VECTRA AND HP DESKJETS! to $ubscrihe PC Wonld Philippines and EonIulenwonld Plrilimines, the

DR^\r

4l 4l at

nf.rr\!rl

t-ljn. lrrtnl ( ur .ffD3ies Atr L. lqqo Jrl\ L. recb S.ntmb.r:r0. Dccenb.r

\hal bc.ollectd unlrL rnl prid tl,r $nh'n rhc

R ffle D.trs Afr t. L.rq6 l9S6

10. lget

luLr 5 lqq6 O.robcf J. Lqq6 l)ecembe. ll.

1996

L\c4 \!bsrflprr!r ord4 ti cihcr 1'( tt.tt,l Phtl4)ptne\ N t t)ntpule'vorld l'r,/4rpr,.\.nlnL.s the \ub\crbcr k) n rrljle !.upon lh. numb.r ol ralll. coupons r r l l d e p . n d o n l h c r c m o l r h c f r J . r c l $ b \ l n n r b n 1 \ c . r a b L cb c L o r ) I . i l l u p I h c roupon {ilh !ournrmc. rddr.ss.l.lcfhooc numbc. Md s 80arur. lndrcal.\hcthcr \.u \lhr.ribcf ni l'( ubld lhrlrtrrnr\ ad.t |,)nrt,rrtnt,,rltl |'hnryptnr\ hd rle r.m ol \our \ub(.pn.n on rl,. rn&. trtN drd n rh..outon lnrompl.r. cnln.s*

I tlcd\qur||llcd

\o. or RrrneCoupon{s)

Publicarion{\)

Trrm\

P( ll.r tC \or

(lnc lcj l*o \ea^ a)ne \.rr

T\ro \.16

d.nl)

d onh a omfuleruor d onl\ a,imtlrcnr.r d on \ L omtutes.r

One \eir

( (,nrfur.n\.r J 1*. \car trt)rld lhtltt,litu\ 6 linr^ .ouN|hnr \il f'e pnnrel n rl rh. r$ues .t l( 1 n.!t,n!it,n1,l I'htltt\,,t\ \\ trhin Ih. tnr. n.n.d 7 (.uflns 'run fr 'ubnrtrtr tiscrh.r \trh rh. \ub\rnfr.n.fdrr nrn

Rt.Lls rnd Rl](;lil-ATlOliSi I l,i qDrl'Ji. !ub\Lnfr.n .rdcrs mL{ h. r!lL\ tritl l,r dJ

fr.cesed

{d rd

(Llhin rh.

( nuro( \,ll h. !.nri.d b\ lhc rir.uL .n ,jenannr.nr .1 !lS( PC All \]Lrd b. nFn.J ,Dl! n rh. n.cs.n.s .,\,r'n\ *j I be kerr ,n r slr ed d th.\ trid ( . l r L l ur r u r h . n z . d D I I E r r e s e n l r l r \ e o n t h . \ r h e . u L . r L l r r \ L l 3 r € \ 1 subs.r *LL ons cnlcrcd alie. De.enb.r 10. lr')a nrr 1.. rn.lud.d In the lrud fr 'rlle dris ,$ l)c..mh.r ll lqq6 J $S( I)t srll n.r tu rr\n.n\ h e Jitr cnrne\ \[trr]. I

, l r m t r ! . d . r d e l & r d i n r r . r n sr \ \ , n n . ^ \ ' l l h . d f r \ n d I ) 1 )r n I r h r . l l l . . t , l u \ ( n m n u r e . P u h i i \ b n 8 (o.no.rlhn. rrl. stDC( {) I 8u ll,n! .,rirr rrrl! !t..ts. I cAor Lc!,n'

dir\. In rlrc.\.nrrh.nrn€01 \ n,blcribe.n \ urn onl\ ('n.e n rh.trelrFlnt\ I rli. ru!r..! tr! ti0 m..6rr.tr\\:rr{h.rrouNn rl)c\rrnc !rl,\..1..r \dtu\n (h! \roD!6 In lhc rtu mrDr^ drrn\ \rlL i'll b. c|!rbl. s'LL b. Jra\n lld\r!.r n, Ed ! n.nr rh. lrrnd .:lll. Jfu\ 7 \.nr\ ,lrr\\ rr..L.rhl. n,f rhr rD....Jrne nnLn! r.uf.n\ in lh. Ff.Lmn!^ 6

HPYECTBA PC

toplI co[ffiT'$

putlication$, and winlnires lnom llP!

DRAws

l. lq!6.nd

nd drr\s ril rh. lrrnd .rJI! d..N tru r fur trJuia bin shrn :il 8 \\Lnn.^ \ I hc n.rLli.J r,, f.! nr.i(l n,r,l,r r.l.! (hrr.l.,!Jmlh.trpr1c\ 'r \\,D.r^ d,.,\ rl.rD rhr.tf/r. uNn trr\.rlrl !r . I .tn\ ftu'r... il.nr li.rlhn L..ni...t do.um.nl 1c! romprnr lD \nh Fhrl. fr':r,fl. J.\.f\ rni!.rh.r \ rlr rh. l.n.r or rclrlfMr f l,r{rrl..n Lr.r rhr $\( iir ()llirJ rl j I \t DLl O I \ l r u 1 , 1n g I r ! , t i r.{ Rrli 51\ I J!.'p LJ!.. UiLlrl r'(\ L l ) \ \ n n . ^ m u n ! . ' J n r h r : n r i l . i \ r r l r r n . ' \ t r r 6 L r rL l r \ \ l r i m r . . . r n t . J f,{ rn!rnr L nLlrrmcd pnr.. rill h! l..l.,l.J rfon nr,{.,nnn^,ii ,,t rh. l) I \\Slll JJ.rll triTr .!\uF.\ lf. nlhr ni tub n, rh. th,n,,r.rl,lr\.!1d.rmr\ s,dn.rr r,r\ tr(,n.rn'n.n mrlcrJi, rn,i ( rtrl\..1r\.in.rl, Ll ,\ll fr /c' rr. I 1\ ]r\ll) n!.n.!n.n,.nrhihrL)lI\ nuil h. li lnrA.!l JLl\n!r. $s(l)(,J.L\rn Ll

l . l I m p l i ) \ . . \ , , 1 \ \ \ ( . n t u r . r l \ r l . \ h , n ! I , r n , t u l f n . , n L il h r r L m m r d r r r T i r ' | i . , i n ,r r1l . tr .!. nfr. r!'hr. r) rrn rh. fulllj trt rl, rh...!.n!lJ.trr.,,l.o,,\r!r

IIP OTSXJET PNIHENS

F i g u r e1 1

Acer'sNext Goal:A HouseholdNameBrand . More lT Droductsfor homeuse . Today:MPC,PC-TV, phonefax,wirelessphone, cellularphone(GSM),videoDC . Tomorrow:NextTV,set-topbox,digitalAV, videoon demand,video-phone, PDA Global Brand, Local Touch

companieswill eventuallybecometheus. Ownership is an effective motivational and driving force. Let me try to summarize the smiling curve under the disintegrationmode. Sincethe curve is changing,you do not want to invest in areaswhich do not pro"beef." vide retums or Five years ago, Acer invested much on the automation of the PC housingassembly.The areadid not provide any "beef." Where was it? ln business,look at all the processes. Draw a curve of vour own business.Basin8 on current operations, evaluate whether or not you have investedon the rightdirection. "Go big, or go home."You must have economiesof scale to be

strong.In the disintegrationmode,if you are not one of the leaders,you will lose the business.In hardware, the Top Ten may survive and the Top Five, make profit. In software, if you ranked fifth, thereis no way to make profit or survrve. Perhaps,at third ranL,you can 5urvive. Seewhat happenedto Lotus. lEditor's Note:SittceSt'attShih'sspeech, Lotusmerged ruiLhIBM.I One good thing with disintegration, however, is niche marketing-there are many segmentsto competein and choose from. An old saying in Taiwan applies here: "Better to becomethe head of a chickenrather than the tail of a cow." No matterhow smallthesegment, iI vou gain

F i g u r e1 2

PCsWill Support Asia'sRole as An InternationalTechnologyCenter . Asia's increasingworldwide technology leadershipwill also support other types of b u s i n e s sd e v e l o p m e n a t nd opportunities . Asian countries will have easv accessto regional PC technology . Asia can use its "later adapter" advantage for lT applications

Global

Brand.

Local Touch

leadershipin that niche,it is better-no matterhow smallthe "chicken."A companymaynotbe in a positionto provide productivity softwaresuch as spreadit may, sheetsor databasemanagement; however,be in a positionto createsome CD titles,a gameor two. lt cansurvive andmakeprofit. TiaSpeedis beauiifulin thisbusiness. ditionalcompanygiantswill losemarket shareif theycontinueto usetraditional (SeeFigure12).ThePCgives approaches Asia a good opportunity.Today,most hardware,excepttheCPU,arernanufacturedinAsia:Singapore for soundcards, Taiwanfor motherboards andmonitors, Koreafor memoryJapan for displays, etc. Many innovationshappenwith componentsin the region.TheUSmay leadin themanufacturing of CPUsoftwareand newcomputerstandards architecfure but Asia has becomethe manufacturing centel. Asian countriescanusenew technologiesfor their IT applications.The burden is much less.In Asia, we have to get the leadershipfor the hardware compoilent and we just leverageoff existing industrystandards. (Allaudio-videostandards are developed by the US or Europe. Moreover, standardsare a political, not technological, issue and most markets today are still American or European.) Six and a half yearsago,I spokein the President'sPalacein Taipei. I then said that Taiwan was on its way to becomea high technologyisland. At that time, the country was becoming a regional business centet especiallyfor high-technology businessand massproductionmanufacturing. Today, Taiwan is strong and costeffectivein the semi-conductorbusiness.Capitalis alsoavailableevenifevery new investmentin semi-conductorcosts $1billion. In 1992,the Hnuard BusinessReuient published an article on the IT industry. They said that the value added part of industry' was software.For instance,Apple Computer became a software company in 1991.Had Apple licensedits technology, they might have made much profit. Acer should become a computer company to computerlesseompanies. This is the future of Asia. StanShihis alson Cooerfiorolthe AsiafiInstihtte

FEBRUARY-MARCH 1996. THEAslAN MANAGER

Mlmcnmnur UPDA

By PRoFESSoR MARroANToNroG. LopEZ.

Satisrying

TheCustomer Is NotBnough ustomer satisfaction has been the manasementmantrafor sometime.

considerit a keycon\.,4 Corporations In manvAsian ditiontocomDetitiveness. corporations,customersatisfdctioni\ d key component,even the centerpiece,of corporate vision, mission, value, and strategystatements.

Why shouldwe satisfyeverycuswhatthey tomer?Satisfied customersget havebeentold they canexpectfrom the productor service.The companydeliveISon its promise-no more,no less.It projectsanimageof reliability to themarket socustomers haveno reasonto look for an alternativesourcesof the same goodsor services.They may seriously ifthey offerabetter considercompetitors packagefor the samepriceor the same package for a lowerprice. Butbecause thecompanyonly deliveredwhat wasagreedupon,thereis no reasonfor customers to talkaboutthere-

Nationalelectriliabilityof thecompanyandits products Until DelayAnnounced) much lessenthusiastically cal companiesare another(ThePhilipandservices, volunteerinformationto anyoneexcept, pine NationalPowerCorporationperhaps, whenasked.Thisreticence con- Napocor-was lambastedas No Power trastssharplywith the unsolicitedbad- Corporation). Evenin reliableSingapore, mouthingby offendedcustomers. Cur- somedisgruntledtaxidriverssayCOMrentresearch showsthat only oneout of FORTin ComfortTaxistandsfor "Conten satisfiedcustomers offerunsolicited fiscateOur MoneyForRoadTax"). Internationalstudiesshowthat three statements of satisfaction. Dissatisfied customers, on the other to six out of everyten offendedcustomhand,arepeoplea companymust worry ersopenlytalk aboutthe lousyproduct about.Theybelievetheydid notget what or servicethey got from the lousycomwaspromised.Theystickwith the company that misledthem.Samestudies panybecause theyhaveno otherchoicei showthat,evenh.rally, sixout of theseten thegoodor serviceis soessential to them will changevendorsor transferto thenext but theyhavenowhereelseto procureit bestaltemativegoodor service.Studies from.But theywill certainlybad-mouth furthersaythat, for everyU$1.00a comthe company,As soonas an alternative panyspendson winninga potentialcuscompanyor productcomesaround,they tomer,U$6.00is spent to win backdisgruntledcustomerswho shiftedalleshift. Nationalairlinesarea goodexample glances. (In Indonesia, of thisphenomenon. GaruBut if everyoneis out to satisfy cusda is saidto standfor Go Ahead,Relax, tomers,thatis,doingthesamething,how

THEASIANMANAGER. FEBRUARY-MARCH 1996

cana company exceland gobeyond mere ? copycats Excellerrce is deriled from Latin, rr (ontop of) + celltre(hill)."thetop of the hill." To be ercellent,therefore,is to be

"top

of the hill," to be thc best.Horv c.rn a companv excelrvheneverybodyis try ing to do it? The answeris-Do not do rhat cveryoneelseis doing. Do somt' thing distinct,somethingdiflerent,some

ihing betterthan the rest! Noi onlv cloexcclltnt companiesrvork hard at not dissatisfying cusbrnersasthe bottonllineicxcellentcompaniesdo their bestio delighttheircustomersl

M o r et e s t i m o n i a l s More referrals M o r e r e c o mm e n d a t i o n s

Lessdefections L e s sb a d m o u t h i n g N o c o s ta d v e r t i s i n g and promotions

Morecommitment to work & company

. tm proveo c a p a b i l i t i e s t m p r o v e om o r at e

M o r e p r i d ei n c o mp a n y m e m b e r s h i ps, e n s eo f contnbUtton

Expense

Profits

More reinvestible funds

L16

. More product/servicesR&D . M o r e f a c i l i t i e su p g r a d e s . More HRD

More liberal reinvestment decision

FEBTiLAR).MAR( lr 1996. THFAsrANMA\ACFR

EPSON'

Some of the best presentations in the world

are presenting on a 3OO"computet screen. <>

A small innovativetool that makes a big difference to your presentation... New EPSON@ EMP-3000Multi-mediaProiector connects to computers, laser disc players, VCRs or camcorders and delivers the brightest and sharpest images independentot the surrounding illumination. coMPAnatLtw Thisnewprojectoris compalible withlBi,l@PCand Macintosh@. - NISC, PAL and S€camsystem. It can be connectedwithvideoequipments EPSONEli,lP-3ooo has bullt.in 110V/220Vuniversalpowersuppty. Usercanuseit in ditfersntcountries.

BRIGHTNESS ll is one of the brightestproiectors in the wodd. ll can produceimagesup to 250 lumens.lt can proieclthe jmagelrom 21"to 30O'ev6nin a brightlylit room. LIGHTNESS ll is alsoone of the lightestpoectors in the world.lt is only7.7k9.lJsercan evencarryit in a brielcase. EASY TO CONTROL EPSONEMP-3O(X) is userldendly.ll is easyto conlrol.lt bundleswith a communication sollwareand a remotecontrol.So usercan usethe remole controlto controlprojectoroperations suchas the contrast,sha@ness and sourceol the image.Moreover,usercanalsousethe remolecontroljusllike a computermouseto contol compuleropetationsin a windowsenvironmenl. '

A trademarks and brand names are rhe p.opedes ol lhe r respeclve owne,s

Au*b'iz€d Didribuior:

@actrnauorun

/F Citylond I 0 T*r I 68 | 5 AFlo Av€nu€,Mokoli Cit Tef.l.lor. 893-2519io 2ll A93-2523||o27 ror l.Lo6.I|2-7299 / 893'1763

Aieescon 68 | 5 Ayllo Av."u., Motoli Cit T6l.lloi. 892-3051 lo 55 Fox Nol. A%-7272 . 816-6402

"A high degreeof enioyment,pleasure,raphre..."is the dictionary'definition of delight. Few of us have experiencedrapture,but many of us have experiencedhigh degreesof enjoymentand pleasureat getting more than what we bargainedfor. Productsand servicesthat delight us gaveus more than what we expectedat a pricewe hadpaid willingly beforewe experienced ihe delight.Wefeel we receiveda bonus! Research on customersatisfaction indicatethat the level of enjoymentamong delighted customersmake them talk with much enthusiasmabout the oroductand/or thecompany. Peoplehappily babbleabout many surpdsesthey get when they fly SingaporeAirlines-"the hot facetowelsthey give you after takeoff'or "thosereallyclassygiftstheygive (businessand fust classpassengers)on thelong legs;" or whentheystayat Dusit Thani Hotel-"elegant setting, fantastic service."It seemedthat five out of every tendelightedcustomersgive unsolicited commendahonsfor the product and the comPany. Positivecommentscomein various ("1usethismyself."); forms:testimonials referrals("Why don't you try it? I have alwaysbeenhappy with them.");and ("If I were outright recommendations you, I'd get this. They won't let you down.").Thesestatementsserveasfree advertisingand promotionof the most effectivekind. Peopletend to trust people theyknow ratherthansomeshanger on TV or radio or print. It is especially true in the caseof products or services with a relativelyhightechnology content which mustbe understoodto makethe productwork better,e.9.,videocorders, camera,computâ&#x201A;Źrs,and peripherals. Peopleaskcurent usersrather than rely on ads. Thesepositiveresultsmaynotbepreciselyquantifiable but all of usmusthave experienced the "bandwagoneffect" at variouspoints in our lives. Word gets aroundhow gooda productor serviceis.

People rushtoseeforthemselves whatit is.Storesgetstockedout or you seelong queuesforms:Thesearethekindsof problemscorporations would like to experiences. Salesgo up without increasesin ad-

about winning back lost customersor stavingoff attacksfrom disgrundedones, exceptperhapstheimpatientonesat having to wait for their tum. Nevertheless, deft handling canyet tum the setbackto thecompany'sadvantage. Theresultinghigherprofits arealsoa sourceof delight among executivesand shareholders. This delight changesthe way executives and managers dealwith their employees. Thereis openpraisingof peoplefor a job well done.Manymanagers find hme to write out commendations for individuals,units, and evenwhole divisions. Meâ&#x201A;Źtingstakeon a morepositiveair and peoplefacethe future with greaterconfidenceand burstsof adrenalin.And becauseof the optimism,management investsmore. The investmentsinclude moneyinto facilitiesupgrades,marketexpansion,

entsand, in a growing numberof cases, healthand/or sportsclubmemberships. Delight is thensharedby theemployeesand becomerewardinsfor all concerned.Delightedemployeestypically hanslatetheir delight into severalinterrelated behaviors.The most obvious, though difficult to clearly define, much lessquantify,is work attitude. Work-to delightedemployees who haveiust beenappraisedof the value of their work to the companyand have beeneitherrecognizedor rewardedfor doing it well-takes on a whole new meaning. Whenacompanyinvestsh bricksand mortar, it presentsa better imageto the communitywhich bringspride,if it is not yet thereto theemployees.Thecorporate progressimplied by a facelift works its own magicon employees, customers,and thepublicat large.ltgivestheimpression of growth. Upgradesin facilitiesand equipment make work easierwithout theconcurent downsizingsendpositivemessages thai thebosses wish to helpthestaffdo their jobs evenbetter for mutually beneficial ends. Peoplewith suchhigh level of procompanymoraleeraseabsenteeism. Employeeswho getsickor attendto emergenciesftet thattheysomehowlosetouch with their colleaguesto keepwork in progresswhile the colleagues willingly stand-infor theirabsentpartners. The net resultsare higher levelsof productivity which reducemarket responsetime andproductionandmarketing cost.Productsandservices improvementwhich,in manyoccasions, aretruly groundbreaking ratherthanincremental. In manyoccasions, new industrystandardsareset,includingnew levelsof customerserviceexcellence. The companyreproducescustomer delight.The positivecyclestartsagain moreproductandservices development, andagainandagain...Wow! and greater human resourcesinvestments.lnvestments in humanresources ';:,::i::,f"":;";::,i,lli!i,iii!;i,ii#ii'

Fewhave expetienoed

rapturc, but

manyhave

expedenced

enioyment

andpleasure

atgetting

morcthan whatthey

bargained for.

need notcome ontyinhigher budgets fo,

work-relatedtraining and education. Suchinvestmentstypicallyinvolvesalary increases, improvedperks(facilitiesupgradesare themselves a form of perk), irore liberal employeeloans-housing,

vertising andpromotions expenditures.car,educatiory t"tt". n"atnin.urrn;J The company does not have to worry

etc.,often for both employeeand depend-

diagran.

Prof. MarioAntonio G.Lopez is thePilipinas shell Cor\raLion Professor of PublitAdninislntion. deoetopnent, i:.:i:::::!:::1:':..manasetiat '::,:XT:;;:i;ifi:::H:#::::'#:ffi::; Internet: magiopez@aim.edu.ph

FEBRUARY-MARCH 1996 . THEAsrAN MANAGER

Mmlcnmnnrr Upnmn:

FRANCrscoL. ROMAN,IR. By PROFESSOR

Marketingin the IT Era:

FromMarketplace to Marketspuee (PaftII of II) "rnini-series" his is thesecondin the of articlesdevotedto innovations thatmarketingis makingto address thegrowingimpactof ITM (lnformahon Management). Technology As in thepreviousarticlein the series, This only one sourcewill be discussed. the updatesummarizes andparaphrases articlein the HBSBllletin,June1995is"MappingThe Marketsue,entitled: and The space:InformationTechnology by DanNew MarketingEnvironment," iel Penrice(pp.49-51). Thecorningof theso<alled"information superhighway,"which may well be themainproductof n, hasgeneratedconsiderableh1pe. What doesIT meanto Activities,suchas marketingmanagers? shoppingby televisionor via theIntemet in the comfortof home,readilycometo mind and suggesta boon for marketing. "input Someconcernarises,though,from overload"astheconsumeris facedwith and more choices.Someacademicians

marketers. on theonehand,extolthenew freedomandaccess to goodsandservrces and thatIT provideswhilegovernments certainconsumergroups,on the other hand,worry over unregulatedgrowth, for safety,health,quality,etc. standards Two professors,John Sviolka and JefferyRayport,at theHarvardBusiness School,offera moreihoughtfulapproach. In an interview from the HBSBulletin, theypositthat: ...Fewmanagersfully comprehend how radicallythe businessenvironm e n t h a s c h a n g e da r o u n d t h e m . Rayponand Syiolkacapturethe magnitudeof this fundamentaltransforma"What tion with a striking metaphor: we arewitnessingasa resultoftoday's advancesin information technology, they say,is a transitionfrom the traditional marketpraceto somethingthat " the two men call the marketspace. lf you haveever used an ATM ma-

. FEBRLAR\-MARCH 1996 THEAsrANMANAGER

chine,you havedonebusinessin the is a marketspace marketspace...The information and world madeup of madepossibleby the ditfusionot the microprocessor throughoutthe economy. "The diffusionhas itself been drivenby the stunningimprovement overtimF-to an extentunparalleled in the history of commerce-in the price-to-peormancelatio of the chip,Theresultis that semiconductor all the essentialaqtivitiesof business cannowbepedormsdin anelectronic environment. 'The marketspace is a world that you cannotseebut is nonetheless a placewherebusiness cango lo make moneyin severalways:by delivering productsandservinformation-based manices,administeringfundamental ol agementsystemsand processes, establishing entiremarketsmadeol information." 19

Two,the "distribution"of the infor- Deflnlng Marketspac"e mationitselfaffectsthe physicaldishiRayportandSviolkacautionthemarbution of the product.Here,the news- keting managerfrom going overboard paperis the more obviousexample. with theideaof themarketspace. Sviolka Everymarketingmanagermustlook at obsetves: his or her productand its logisticsnet"First work to determinehow muchwill it be of all, what we are talking influencedby the marketsprce. Exports, about is not a wholesalesubstitution an importantsectorfor many develop- ot information for the physicalworld ing countries, is a potentialbeneficiary but rather two different worlds that of marketspace: It is easyto imagineprod- coexistwith one another.Second,we Inthe newspaperbusiness,thecon- uct designs,alreadyhansmittedvia fax aretalkingnot only aboutproductsand tent is the intormationthat the paper machine, multiplyingin thee\portmar- services,managementprocesses,and contains;the context is the physical ket with a complimentary risein export marketsbut alsoaboutchangesoccurform ot the publication;and the infra. revenues. Thsksinvolving creativity,such ring in these three areassimultanestructureincludeseverythingfrom the as cinematographyand cartooningas ously.Third,the fundamentaleconom. printing plant to the physicaldistribu- well as softwaredevelopment,are al- ics in the marketplaceand the markettion system.In the marketplace, where readyin themarketspnce. Moreproducts spaceare differentsuch that the chal. the traditionalnewspaperis produced and services, particularlythosehigh- lenge lor managersis to learn to recand sold,a customermust pay for the value,limitedquantityitemsfromdevel- ognize the differencesand figure out entire aggregate- for content, conhow to takeadvantage of them...Think text, and infrastructure.Yetthe newsof the marketspaceas a tiansaction paperbusinesschangesradicallyonce venue for information extractedfiom l T m o v e s t h e e n t e r p r i s ei n t o t h e the marketplace,and it beginsto make marketspace.In the market.space, moresense...Certain businesses are (or content, context. and inftastructure eventuallywillbe)totally marketspace becomeseparablecomponentsand, basedwhile others will continueto with differentusesand purposes,take competein both "place and space"si. on new and differentvaluesas well." multaneously." "lf the product is news, now you seflices.tt can deliver the content of a newspaThebasicassumption is themanager's pei or magazineon the World Wide beliefthatthemarketspdce is alreadyhere. Web or AmericaOnline,for example, Thekeyissueis managingthetransrhon. as pure intormation.You've moved Recallthe daysbeforethe PC (personal from a world where you had a prod. opingcountries, shouldfollowin thefu- computer)becameascommonasa camucito onewhete now you havea serv- ture. era or a typewriter Organizations went ice,a virtual "infrastructure-independThree,quiteapartfrom thepossibil- throughconsiderable painsintroducing ent" world where the user can con. ity of costsavingsfor both thefirm and the early mainframesand coordinating sume in a variety of contexts." the customer,there may be a "first traditionalmanualsystemsto the new mover" advantagefor thosefirms that computer-based systems.In a similarfashIt may be usefulto pauseand digest cantranslatetheirgoodsandservices to ion, expectresistance and a greatdealof threeimplications of thepreceding exam- fit the marketanduseit to getaheadof muddlingas marketingmanagers and pre: theircompetitors. Marketingfromdevel- their salesforcegrapplewith the notion One,thenotionof separating themar- opedto developingcountries,in somere- of the marketsprce. ket transaction into threecategories cre- spects,represents a straightforward To makemattersworse,Ra)?ortand atesthreedistinctcoststructures with the "transferof technology"and the infor- Sviolkaexpectcoexistence rather than possibilityof manipulatingthe costs mationsuperhighway makesthe hans- dominance,as if manualand computer within eachconstruct.For instance,the fereasierSuccess, therefore, dependson systemswereequallyimportantsothatno "distribution" of a newspaperonline how quicklyopportunities canbedevel- completetransitionfor someindustries implies a reductionin thi overall cost oped. will everbe attained.Whetheror not this througha new,competingmedium.In The implications,however,are not coexistence will requireh.vodifferentsets North America,labor is expensiveand entirelybenign.Everymarketingman- of organizational skillsremainsto be exelectronic "distribution" relatively ager is concernedabout product and ploredastheconceptevolves.Fortunately, cheaperThiscostreductionmayor may branddifferentiation. A primemoverin the startingpoint is fairly simple-infornot be truefor developingcountries, de- themarketspare is electronic interaction: mationandthevalueor "price"attached pendingon thecurrentstateandeconom- How doesthe marketingmanagersus- to acquiringand usingthat information. ics of their respectiveIT infrastructure. tainbrandloyaltyandstayaheadof com- The startingpoint alreadyexists,for exButthepotentialforcostsavingsis there. petitionunderthistypeof inhastructure? ample,in thecostsof usingvariousinforPlaee vs. Space In orderto explorethisconceptofthe marketspace, considerthe followingbasic constructsofferedby Rayportand Sviolka:Any markethansaction involves threedistinctfeatures:thecorfentof the transaction,thec,ntertwhereit occurs, and the int'rastrucrrlethat makesthe transaction possible. Theyusethenewspaperindustryasan example:

"lt is a morcefficient distributionchannel of goodsand

FEBRUARY-MARCH 1996 . THEAsrAN MANAGER

who offereda simplebut powerful con"marketingmyopia" which ceptcalled article.He wasalsothetitleof thatclassic Dointedout thattherailroadsin Amenca declinedbeforethe onslaughtof the authe marketingmanagtomobilebecause Dxamples and Implicatlons of thatindusiry ersand chiefexecutives ExampleOne:TheATM is alreadyan be in the railth€mselves to considered in marketspnce vehicle of the accepted not in the transportaroad business and developing coundeveloped and both "buggy-whip"andthe The tionbusiness. is often conin the lafter Expansion tries. slide rule went the sameway, with far who quickly strainednot by consumers, Voicemail moredisashousconsequences. rapidly benefits and appreciateATM's however, seem to have providers, service sysby thebanking it, but more often use all too that lesson as they appear learned over seis concemed tem itself-which productone willing to sacrifice fraud, the curity and electronic theansweringmachine,in favor economicsof building and exof the new,IT-drivenvehicle. the types pandinga network,and Whetherthesecompanieshave deand amountsof chargesto totally grasd the implications mandfor thisservice. remainsto be of themarketspnce for In the Philippines, exams€en. ple, armedrobberyoccasionally ExampleFour comes from takesthe form of temporarily "kidnapping" ATM users and the authors and from Japan wherethe traditionalmethodof bringing them to the ATM for an sellingused carsrequiredthat involuntarywithdrawalof their wholesalerstransportthe vehicash.Thissituationalsooccursin cles to different selling sites theUSbut mostATM unitshave acrossthecountrywheretherein theformof surveilsafeguards tailerswould then inspectand Somevideocamlancecameras. purchasethe cars at weekly erasofUSbanksarebuilt into the "live" auctions:(seethe accomATMunit itself,lookfor a reddot panyingillustration) of light at theupperright or left In a vidoo image from the Marketspace course. a in a weekly from his office car dealer bids Japanes€ cornerof theATM.With respect Unfortunately,only about to the economics of ATM usage, nationwide automobile auction. r[57o of each week's inventory certainbanksin the Philippines sell. In responseto this inherent would and distribution tried to raisetheusagefeeor to severely tweencommunications one entrepreneurcreated inefficiency, TV home limit thenumberof monthlytransactions in marketine.The ATM and "virtual proprietary communications satellite a retailspace" becausethe consumerswere using the shoppingrepresent "second AUCNETinAUCNET. system called wallets" and accordingto Rayportand Sviolka.FurATMs as their (at lots and visit wholesalers' spectors IT is notonlyreducingcosts costswerein- thermore, processing andtransaction photographs gather of and information countries) butalsodeleastin developed with repeateduse. creasing is The infolmation vehicles. The biggestproblemfacing banks centralizingtlie controlover marketing available p u t l a s e r d i s k s , a n d o n from d i g i t i z e d , ExampleThree, with regardto ATMS,howevet is thede- communications. retailerc. Now to subscribing shipped celerationof consumerloyalty to indi- Rayport: the weekly transactions-moderated vidual bankssinceATM units servicesev"...A marketspaceproduct over- by AUCNETstaff-take place in the A cardissuedby onebankcan eralbanks. be used in ATM units of other banks. whelms its marketplacecounterpart. marketspace,on subsctiberc-computer and service. The numerousfeatures and options, screens,with greaterconvenience and theautomated Technology of peopleor availabletoconsumerswho subscribe efficiency. thus,reducethe allegiance to individualbanks.EIec- to the voice mail servicesoffered by organizations are complete, Oncethe transactions troniccashtransfersofferbettersecudty telephone providers,virtually ensure go in thetramust be delivered theusedcars but a moreimpersonalseruicethan an that those customerswill never rail-to the or the image back to using a telephoneanswering ditionalmanner-byroad armoredvan which suggests lesson, The key destinations. appropriate of power,reliabiliry etc.thatabankmight machine." in theaboveexample,is on theoPPortuwant to "dde on," to Thepreceding exampleharkensback, nities for imaginativeentrepreneurs ExampleTwo:TV homeshoppinghas diis rich and ago,to anotherHBS prosperThe marketspdce alreadymadeits way into developing somefour decades countdes.Goodsmay still seemsome- marketingprofessol TheodoreLevitt, verseenoughnot only for largecompamationmedia.The marketingmanager mustbuildon thisbasiccostby determinto marketingProding new approaches in themarketsPace. uctsandservices

what overpricedand limitedin quantity beandvarietyfor manypossiblereasons: of scaleare not yet causeeconomies present,because the upper-middleclass theprodis thetarget,or possiblybecause specialty uctsfor saleareprice-inelastic, or noveltyitems,or intendedfor impulse purchases.But if theseconstraintsare thesamesituationwith ATMS overcome, couldvery well occurin TV homeshopfor ping with similar consequences brandedproducts, is blurringthe technology In essence, bedistinctionamongcertainbusinesses,

1996 THEAsrAN MANAGER. FEBRUARY-MARCH

niesto takeadvantageof. Thekey to success,at leastfor now is to useinformation as a more efficientand more economicalsubstitutefor thephysicaldistribution of goods and servicesalong the valuechain.

BensonShapiro,entitled Seeking Customers and KeepingCusfonels.The common interestin IT and marketingled to their collaborationon the marketspnce, a concept that they initially worked on independentlywhile thinking aboutihe hansitionfrom a "physicalto an informationI-carnlng aboui Marketspace basedworld." If theconceptstill seemsobscure,fear The two professorsteam-teacha secnot. A book on the marketspace, by ond-yearelectiveat HBScalled"ManagRayportand Sviolka,is alreadyin the ing in The Marketspace,"which "look works. Rayporthimselfbeganhis explo- aheadto management in thenextcenhrry rationof theconceptby shrdyingthe "real to ascertainwho the winners and losers world"- theregionalBelloperatingcom- are likely to be asthe marketspnce grows pany US West.He docurnentedhis re- increasinglydominantin the global searchin a bookPioreerofTheMarl<et-qnce economy." which focusedon that firm's successful While waiting for the book, markethansitionfrornbeingatechnology-driven ing managersmight chooseto reflecton to a marketing-orientedcompany. the main topics of that courseand perSviolka,in turn, startedout in manage- hapscomeup with their own insighisand ment informationand expertsystems, interpretationsof the conceptof the marthen moved on to marketing,where he ket-space. Thecourseaskscorequestions, edited two bookswith HBS Professor sucnas:

mancll 2 I 7 || 12

14 15 23

Nationwide Exams BOT/BOGAnnual Meeting(2d) AIM Management Awards Shangri-La HotelManila(1d) GolfToumament(1d) VillamorGolf Club,Manila Asian Management Conference"Asian GrowthPolygons"(2d) Shangri-La Hotel,Manila AIMHomecoming-Shangri-La, Manila FAIMHeadMeeting Shangri-La HotelManila(1d). TestingDate(Manila)

APTII ,l HR SeminalJakarta, Indonesia(2d) 6 TestingDate(Manila) I I ResearchConference, Association of Deansof SoutheastAsian Graduate Schoolsof Management (ADSGM)(3d)

t 5 Financefor SeniorExecutives(2w) ,, BasicManagement ,7

Program(4w) TestingDate(Manila)

* Whatarethesimilaritiesanddifferences between"place"and "space"with regard to businessfundamentalsandmarketing strategy? * How will customeracquisitionand retention takeplacein the rnarketspace? * Doesthe conceptrequire a new interpretation for the oeation and extraction of valueor a redefinitionof consumerperceptionsof "value for money?" * How will salesand dishibution channelschangefrom "place"to "space?" Toconclude,bothRayportandSviolka and developedtheir idea of the marketspceby observingthe"realworld" sothere is noreasonfor marketingmanagers to feel that they themselvescannotthink about andexploitthe opportunitiesthisconcepi offers. Plof.FnnciscoL. Ronan,lr.,is theDiectot oftheNM Poli.y Forrrn ond its SvstemCompetilioeness Desk. I t1temet: f anki@im.edu.ph

29 MarketingShategy Course(2w)

at$trsT

Iu,{Y TopManagement Program(4w) Bali, Indonesia Programfor Development Managers(4w) t2 MBM,MM andMDM 1996 GraduationCeremony Management Development Program(8w) 30 MM, MDM Registration stans b

JINI 3 Corecreditcourse(4w) 6 MM, MDM Classesbegin

12 AdvancedManufacturing ManagementCourse(3w) 26 AdvancedBankManagement Program(6w)

sEmtuBxn 2

BasicManagement Program(4w)

OC,IIIBIR 7

ManagementDevelopment Program(8w)

N0lTtt|B[n ,l 4

BasicManagement Program(4w) Programfor Development

JU[Y 4 I I tl

MBM Registrationstarts BasicManagementProgram(4w) Programand Proiect (4w) Development Management MBM Classes begin

Logend:W- weeksD-days

FEBRUARY-MARCH 1996 . THEASL{N MANACER

the

NEXUS of Informotion technology ERIC z lNFORN/rX

Pd 3i=Y'.'fJJ filitxwtt 6A moronot-a

SCOI !!L!_:!.llfl:jil]']]:]]lr

x n"q*+:

lSth Floof, Slroio lm, EmefoldAvenue.orligos center. PosigCily. Philippines to 87; 632-7O80; 632-7311: 632-7322; 632-W8 . Foxr(632)632-9015 Phonesr(632)632{808to l0; 632-4786 Emoil:nexus@mnl,sequel.nel

RnsnancH

BY PTtoFESSoR ERRoLB. PEREZAND MR,ENRICO B. VELASCO

TheRelationship between BuyngandSelling LargeBlocksof StocksandRisk he institutionalinvcstoris no\,\,the driving torct bthind financialnrarkeis.As of thc.earlv 1990s,non-US financialassetsamount to an cstinatecl $12trilliol ivhichisabout55'i of tot.rlfin.rncialassets. Pcnsionfundsanclnrutual funclshavc driven this trlumc arrcl,due to their investmentpol'c1 orvnersJrip of equities,and fircd income,securititshave shifted to institutionsaitav frorn tradi tionalretailmarkets. lnstitution.ll in\,estors,asirie fr0m , , \ !l l i n Am . r i o r i l v, , i l h c i r r r a ni ,. t l . r r u r r ties,alsotradethost sccuriliesfretprentlr. i n , , ' n s , ' n . l n .r,r i l h p t ' r t i , l r rn, r . t n . t -d , mcnt target!.It is estim,rtedthat 70'1,of all sharesdo a complctcturnover per vcar and institutionsaccountfor ii(l'i of this trading.In the Neiv \brk SiockErchange (NYSE).thc averagesizeof '10,(100 share's and over (n,hichis caliedblock tracling) accountsfor 507 of all iracles. I h ( r r ( r e , r - i n Ab r r ri n q , r n d . e l l i r r t pon'er of institutions has come under r ( r u t i n r .c ' f r 1 r . r i l \i r , ' n rt h er r r ' r r p U i no{t 21

volatilitvn,hichis usedasa substitutcfor risk. Thercis an ongoingdtbate on risk such that pros anclconsu'ill har-eto be considered. Tho fDebalr' lnstitutionstradt' frecluentlyin relaU ' , n\ \ ' i l hp o r l l , ' l, , m . l l r d F c m r 'tnatr $ i . t \ . The sizt of thesetradcsare of the block tradc \1lrietv 10,000sharesor moredue t()iinancialpower and costof tcot'urmics.For the companvselJingshares,a lon'erpriceper sharemav haveto be acccpiedin returnfor speecl(antlsecrccv). ( l ) l t h . o t l r c rh . t r r , ,l lh. , h r r r e rr n . t i r u t i , ' n cxpcctsto nake a prolit bv seilingat a highcr price. lf there is an in!estment bank in bt.trvee.n, then that in\,estment bankmav useits orvn capita)onthe turnamund.' Thereare t\\'o cause-effectconsiderations:first,thereis a positir,erelationbe trvctn block tradesand sktck price risk; anclseconcl, sincemarketefficiencvis txpected,thtrc is no significantrelation.

Therearc thrtt argunrentsfmm both p()sltl(]nsi A. PosifiivrtlnliLtr.b/octs arrdlisk L B l , \ L 1 r . 1 r l 1cn,gr u \ ( \i r . t < r t r r l i ti n \ liquidit\'',in thatpricesart'clroppedto efi c t t a . . t l c t p o ne \ e c u i r , ' nt .h ep r i c t r m mediatelvrevertsto tht lbrmer level.This )iquiditv of adjustnrentincreasesstock volatilitv (as a substitutcfor risk), and sinc!.institutjons pcrforn most oi the block trades,thc marketitself increases in risk. 2. lvhen institutions t'rccnte brrq< trarles,thev tcnd io follorv the same dir e i t i n n -l h u \ , ' r . e l l ) . u c h l h . r tt h c i ru n r Jjreclr,'nn f llr , \ \c \ , r \( r b . l t r 'l-n C c . , t \i l t g and increasesrisk and nhen popular stocksin thc narket index are involvtd, aisoincreases risk for the overallmarket. 'I. I t i n L l rird r r a il n ! t ' . t o r rr , l \ ( ' n p c r ceivedinformationscanningsuperioritv of institutionalinvestorsand follorv rnstitutionaltrades,then thc aggregatemark e t r r i l l a l s oe r l n t u a l l vr . \ p e r i e n r,cl r i n creasein risk.

FEBRLATt\.MARCr r I996. THEAstANMA\AcER

ippinecapitalmarket. The databaseconsistsof the January 1993to December1993Block Trading Recordof the Makati StockExchange.a A.TheData Std dov Mo.n Thereare295blocktradesfor thePe1,574,449,314 1,631,353,738 TTV riod, reducedto a net 169dueto missing TBV 99,552,839.2 821,978,428 .105 data on specificdatesand incomplete .025 PBV ,048 .018 ctcl trades. .040 .031 ABSCICI DefiniUsedandOperational B. Variables .042 .010 oPcl tions .003 .028 ABSOPCI Try totaltradingvolume. TBV totalblockvolume. PBV percentage of blockvolume;the ratio TBV/TTV. Relation... B.No Signifiunt 1.Therewill be no significantinflow of DailyStockPriceVolatility: of new informationsinceit hasbeeneffi- Measures priceon day l---{losing ClCl Closing market has been cientlydigestedandthe With sign /closing price on day t-1, well. efficientas price day t-1 . is on small 2. The liquidity adjustment andinvestorshavenumeroussubstitutes ABSCICIClosingpriceon day t-closing p ceon day t- | , Withoutsign/ closing versustheblocktradedsecurities. in dipriceon day i-1. do not trade one 3. Institutions conOPCI Closingpriceondayt--opening rectionat a time due to competitive pdceon day t, Withsign/ openingprice of inforrnaditionsand too manysources provide liquidon day t. tion. In fact,insiitutions ABSOI{I Closeon day t---{pen on day t, ity for oneanother. withoutsiSn,/ openon day t. TableI presentssomesummarystaand lYright Study' The [ellly Reillyand Wright examinedthe pe- tisticsfor thedatabase. usingdaily andmonthly riod 1972-1981, tradingdata,aswell aslargeblockhansactionsdatafrom the NYSE.Theresults of theirstudydo not supportthecontention that thereis apositivecorrelationbetweenblocktradingand stockpricestability. Thereis somepositiverelation, howeverbetweentotal tradingvolume PBV TTV TBV andstockpricevolatility. Other Dr.ldenee Thereareotherevidencefrom the US asfollows: context,summarized aredue to information, 1. Pricechanges not liquidity,effects. 2. If thereis a liquidity effect,it is offset duringtheday of thetrade. within a 3. A liquidity effectevaporates few minutesaftertheblockhansaction. 4. Blocktradesmay evenhavea dampeningeffect. 5. Institutionsdo not tradein the same directionbut on oppositesidesof themarket. Context The Phlllpplne This study replicatesthe Reilly and Wright frameworkasappliedto thePhil-

TTV TBV

ABSOPCI

1.000 (169) 1.000 .5058 (169) (169) P=.000 .3488 ,7610 (169) (169) P=.000 P=.000 .0875 .0486 (169) {169) P=.530 P=258 .1008 .0556 (169) {169) P=.473 P=.192 -.0269 .0030 (169) {169) P=.969 -.0447 -.0475 (169) {169} P=.564 P=.540

C. TheAnalysis The hlr:othesis testedis that thereis betweenDlocKtraolnSln no relahonshlP thePhilippinesandstockpricevolatility; just thatblocktradingin thePhilippines, like in the MSE, doesnot produceincreasedrisk sincethe marketis efficient enoughto anticipateliquidity andinformationneeds. Table1 showscentraltendencyand dispersionmeasuresof the data, producedby SASsoftware(asarethe other It showsthatthevolatablesandresults). tility of the price volatility measures is quitelow. themselves of thefour measures Table2 presents dailystockpricevolatility;thâ&#x201A;Źirintercorrelations,thethreestocktradingvolume andcortheirintercorrelations, measures, relationsbetweenstockprice volatility measures andstockvolumemeasutes. Resultsshow positivecorrelations amongtotalblockvolume,totalholding blockvolumeas volume,andpercentage would beexpectedwhich meansthatvolumevariablesmovein thesamedirecuo& whetherup or down.Closingpricemovewith volmentsarepositivelycorrelated ume variables,whetheror not signsare in thedailypdcemovements, considered whichmeansthatpricesmovein thesame

ctct ABscrcl OPCI ABSOPCI

1.000 (169) ,0205 (169) .0950 (169) P=.219 .0213 (169) P=784 -.0259 (169) P=738

1.000 (169) 1.000 .8085 (169) (169) P=.000 1.000 .6395 .856? (169) (169) (169) P=.000 P=.000 .5814 ,8183 .5550 (169} {169} {169) P=.000 P=.000 P=.000

1.000 (169)

(C06fficienV(Cases),two-tailed Significance)

1996 THEASIANMANAGER. FEBRUARY-MARCH

INDEPENDENT VARIABLES PBV

TTV DEPENDENT VARIABLE clcl ABSCICI oPcl ABSOPCI

IVALUE

COEFF.

IVALUE

.570 .310 -.412 -.491

.004063 .086116 .034873 -.011729

.049 1.045 .421 .421

T.VALUE

COEFF.

.047165 .025514 -.039024 ,40634 TTV

DEPENDENT VARIABLE ctcl ABSCTCI oPcl ABSOPCI

COEFF.

.084520 .097701 .022274 -,033445

.943

'r.091 .248 '.372

directionasvolumetradesat the endof the trading day. Openingprice movements,signs,or directoriesconsideredare positivelycorrelatedwith total blockvolume (TBV)andpercentage of blockvolume (PBV),bui negativelycorrelated with total tradingvolume(TTV)which meansthat openingprice incrementor decrements movein the samedirection asblocktradingbut notnecessarily with total trading in the market.On the other hand, when only the size of the daily changeis considered(ABSOPCI), thecorrelationwith all the volumevariablesare negativewhich meansthat at the opening of themarket,p cestendto movein the oppositedirectionof block trading and totaltrading,regardless of whether the incrementsarepositiveor negatlve. Finally,againaswouldbeexpected, volatility measures arepositivelycorrelated with one another,meaningthat stock pricevolatilitymovesin thesamedirection,whetherup or down. In order to examinethe behaviorof our daily pricechangevariablesasa function of morethanonevolumevariable,a multiple regressionwas run on the following basisas a functionof PBV and TTV: a.closingpricechange b. absoluteclosingprice c.closingpricelessopeningpriceand d. absoluteclosingpricelessopening Pnce Another setof regressionwasrun on 26

.005835 .006139 -.038't25 -.027810

T,VALUE

.065 .069 -.424 -.310

the samedaily pricevolaiility variables, and the time with total tradingvolume and total block volumeas independent variables(TTVandTBV). Theresultsareshownin Table3. Table 3 is the setof coefficients and t-values from the regressions and indicates the relationshipbetweenthe dependent variables takenoneat a timeandtheindependenttradingvolumevariables. The iable and the runs indicate low coefficientsof multiple determination which meansthe degreeof relationship betweenpricevolatilityandtradingvolume is low. Thet-valuesof regressioncoefficientsaremostlyinsignificant, except for ABSCICI,as a functionof PBV and TBV bothof whicharepositive.Thisreinforcesthepositivecorelationbetween closingpricesand blocktradingshown in Table2.

dissipates duringoff-markethoursanda new cyclebeginsafterthe startof trading thenexthadingday. Basedon the evidence,we are led to believeihat while thereis a definiteliquidityeffectby blockhadesin thePhilippinecapitalmarket,themarketissufficientlyefficientasto eliminateall liquidity effectsduringonetradingday.In the caseof institutionalinvestors,this indicatesthefollowing: 1. Institutionalinvestorsdisruptnei ther the marketnor the liquidity of the market; 2. Sincethereis no evidentbuild-up afterone day,institutionalinvestorsdo not exacerbate oneanother'shadingpositionsbut insteadofferliquidity among themselves. 3. Institutionalinvestorswho do block trading do not increaseoverallmarket risk in general. 4. Blocktradesare a fastermeansto redistdbutesharesratherthan through secondary offerings. 5. Blocktradesrepresenta viable trade-offbetweenriskof pricedropsand higherpotentialreturn. 6.Thebehaviorof themarketactually increases liquidityanddeepens thePhilippinecapitalmarket.

References: 1.Inlroduction toTheFinantialSentircs lndustry,by RichardCrawford,Darden GraduateBusinessSchoolFoundation, Universityof Virginia.A Technical Note, WA-F-104}1993, p.4. 2. Non-Core Holdercon TheFastTrack. By AntoniaSharpe.TfieFinanciql Tines, Thursday, November30,1995. 3. BlockTradingandAgyegateStock PricesVolatility.By ReillyandWright.FinancialAnalystsJoumal,April 1984,pp. 54-60. tr'lndlngs 4. The authors thank Dr. Pablo F. On balance, thereappearsto be a reMangaran, Directorfor Research, GSBE, inforcing,positiverelationshipbetween De La Salle Universiry for the use of his blocktradingandstockpricerisk in the database. PhilippineStockExchangealthough 5. For specificoutput of regressions, somewhatlow and weak for the most part.Whileopeningpricesareunrelated pleasee-mailtheauthors. in any systematic senseto blockhading, thereis evidencethat during the course Prof. Errol B. Perezis a membelof thecorefaculty of thetradingday,stockpricesare,in fact, of the Maste/in ManagefienlProglam.l ternel: .ph influencedin thesamedirectionasblock errcl@ain.edu tradesand closingpricesbecomeposiMt . Efitico T. Velascois a DBA nt the tively correlatedin a systematicsense. GladuateSchoolof BusinessandCafididate Economics,De This systematic relationshipapparently la Salle University. FEBRUARY-MARCH 1996. THEAsrAN MANAGER

Tlmsn ,PP|\ES,rNcoRPoRA:ED. (F<) Drs-., LTD.- (liglMlilgql;l/{r . OIIA GFNFRAL . wahrueq IIVEEETTflN'FINtS, INCOA'OFATEO RITEIEEEFR

PHILS.,tNC,. ELECTORN;GS

i.ru,;$[Bi#,'n:rF#?Effii+;{$Hffiff,iffi *nt*. a,]'",i,P*Af"?i'3?'l l3!iiil';X',35lBL[,8[,lA9i,Riil-'f,lLf IPORATED. TOYOTAMOTOB PHILIPPII

AND TRUST COMPANY' NATIONALPOWEB CO SMTION . METROPOLITAN -LO . WESTIN PHILIPP|NEPLAZA . AS AN TMNSMISSION CORPOMTION ' RICE RESE . INTELPHILIPPINES, MANUFACTURING,NC. . INTERNATIONAL ' SIME DARB\ PINES,INCOBPoRATED.SCHERING- PLOUGHCORPORATION

ig.qSAIhL?.pJm,85NrE#.1#i1ls;S^9J^v*R$S.fFrWHltPflii?"1c,N...HrnN^arANGRorpoFcoMpANrFs.FASrFRNrFr FcoMMUNrcAroNSpHrL..rNc..MAc PHlL., {NC llES . EASTERNTELECOMMUNICATIONS

'qffiHni!,I?i+tr'ilt'ffif.'$il83ilsff'.3*: $itllh"'ffi'H'i5fl ;:"#dfi s,ffi$S';iuffi AN AND TRUST COMPANY . NATIONAL PoWER

HavnOnnTIUwcINCouuol Wmr AREAtt INsunnD OnEuruovnEs Tium CLnNTS

nelite tsPhilippi From 486 to 488 companies with the most recent addition of the Philippine Postal Corporation in its fold, Philippine Life is trusted by all these companies to give their clients or employees an assurance of the Good Life with its Group Life, Accident, Hospitalization Insurance or credit Life. Join these 488 companies. Philippine

Life, working hand in hand with Metrobank, the biggest private universal bank.

v-""'il *-n-,.-rnii ;;

il-,-r;;

*, * * * *" J

Plan tor our employees. Please send me your Group Insurance Marketing Ollics Name:

BuhayPilipino. BuhaySegurado.

Address: Company Tel.no

CLIP& SENDTHISCOUPONTO:

Manila L4etro Makati, Slreet, Avenue cor'Tindalo Plaza, GilJ. Puyat Floor, Skyland Ground .TelN . o s8. 1 0 1 3 9841, 0 2 1 2894, 4 1 9 3 3F'a xN . o s8 1 9 2 6 3. 1

\____--

Ground Fl6r, Skyland Plaza Sen. Gil J. Plyal Ave , cor Tindalo Sr , Makal

RgsEAncH

BY PRoFESSoR PURBARAo

Measuring Consumer Perceptions ThroughFaetorAnalysis he techniques of factotclustetand othermultivariateanalysishave long beenrecognized as indispensabletoolsfor advanced marketresearch. Wheneverit becomesnecessary to analyzeconsumerpreferences, identify inherent dimensionsof the real needsand wantsof thetargetmarket,or find segmentswithin thesetargetmarketwhich exhibitsimilarbehaviorpatterns,these techniques are extremelyhelpful.While the theoreticalcontentsof thesetechniquesarecomplex, requiringa highlevel of understanding of statistics, the applicationsare often quite down-to-earth, havingphenomenalrelevanceto business decision-making therebyaccountingf or managerialappeal.Let us look at some examples ofsuchanalysis to elaborate the scopeand implementation of the above techniques. Considera $pical everydayconsumer product,say,a brko(coconui)juicedrink. 28

Supposethe marketingmanagerof this productwould like to find out theoverdding reasonswhy consumerslike to buy it. Thesefindingswould serveas input to the productplanningor product rmprovement process.

2l% ofthe GOnSUmer needsin

this targietmarket relateto the healthy andfreshaspectof bukojuice.

Again, if managersare considering product changesor innovationsin the productathibutes,theyhaveto determine what changes would serveto satisfythe consumer andalsowhatfactors,actually influencethe consumers' purchasedecisions. The startingpoint of suchmarket analysisis the surveyand the designof thequestionnaire. A llplcal Survey To apply any quantitativeanalysis in consuherresearch, thestepswouldbe to identifya targetmarket,setup a suitablequestionnaire, determinestatistically acceptable samplesizes,andrecommend therelevantsamplingprocedure.Assuming that our marketingmanagersknow who comprisetheir targetmarket,the nexttasl would beto designa questionnaire.In thequestionnnaire, questions, or statementsto identify the consumers'

FEBRUARY-MARCH 1996 . THEAsrAN MANAGER

of all kinds of product atpreferences hibuteshaveto be raised.Table1 gives sometypical questionsin a survey on toothpaste. or samThe numberof respondents plesizemaybeobtainedusinganyof the formulas: Large/VLarge Population

4 (moe)'

MediumSize Population N 1 + N (moe)'

In the first formula,Z refersto the Ievel of confidencerequired in the sampling;moe= marginof erroror maximum error to be toleratedwith respectto the populationparameter.(usuallymoe N = sizeof thepopulation. +107o); Havingdeterminedthe samplesize. themarketingmanagerhasto choosethe or methodof selectingthe respondents target popumethod. If the thesampling lation is homogenous,simple random samplingmay be used.On the other hand,if the targetpopulationis heterogenouswith severalstrataexhibitingdipattems, versebehaviorsor Purchasing a shatifiedrandomsamplingshouldbe used. To useour brkojuicedrink example, thatwe arelookingat a tarletusassume getpopulationwhich comprisesA, B and upper half of C segments.Sincethis targetmarketis very large(an infinite popuwe usetheformula: lationin statistics),

identify as the product attributesaffecting the consumers'purchasedecisions. Whatis factoranalysis?Conceptually, the techniqueidentifiesthe majorcharto bermacteristics or factoFconsidered portanibythesample.Usingdatafroma ap largesampleasabove,thistechnique plies advancedcorrelationanalysis.We try to determineif the responseto sevare highly correeral of the statements latedor not.If, for example,theresponses are indeed to threeor morestatements it is believ'edthat the highly correlated, statementsmeasuresomefactorcommon to all of them.Sincesuchstudiesusually involve many questionsor statements, thereare likely to be severalsetsof such n=----------(moe)' correlatedstatements.Eachof thesesets 4 by onecommondimension we represent is mathematically a linor factor which Takea 95%of confidence,which is the (from highly conelated of the Normal ear combination industrystandard,2=1.96 in In thisway,thestatements DistributionTable).Further,take moe= statements. (moe)2=.01, with one highly correlated anyonesetare with n= 97 r10%sothat with In measuringconsumerpreferences, anotherbut arenot at all correlated in othersets. we oftentakethesamplesizecloseto 100 thestatements Now, for eachsetof thesehighly corto conform to the aboveformula. Now the marketingmanlet us seehow factoranalysiswasactu- relatedstatements, ally appliedto measurethebroaddimen- agershaveto determinethe basictheme of thefactorthat for our oi inherentcharacteristic sionsof consumerpreferences togetherin theminds tiesthestatements bakojuiceexample. of the respondents.Thereafter,the market researcherlabelsthe factoraccording Julee Facrlor Analysis-Buko to thethemeor dimensionthusidentified. Case Thereare many different algorithms The 24 statementsin Table2 refer to the 24 attributes the group was able to by which to conductthe factoranalysis. 1996 THEAsrAN MANAGER. FEBRUARY-MARCH

Among market analysts,perhapsthe rnostpopularof ihesealgorithmsis called principal componentanalysis.Here, the facto$selectedareall totally uncorrelated to oneanother("orthogonal"in nature). Thefirst factorselectedrepresentsthe mostpredominantneedor characteristic emergingfrom the consumerrcspolrses. In statisticalterms,it explainsor accounts of variationin for the largestpercentage thedata. Thesecondfactor,on theotherhand, out of balexplainsthelargestpercentage by thefirst anceof variationunexplained factor,and so on. PrincipalcomPonent analysis,followedby a mathematicalmanipulationcalledthe rotationPhase,is ableto selectthe setof questions/statementsfalling under eachfactor Thus,we know exactlywhich factoris constituted by which staternents. In our blko iuice example,upon the applicationof the principalcomPonent analysisfollowedby varimaxrotation,the following factorswere derived. Table3 givesthe faciors,their namesaslabelled the statementsassociatedor comingunof variation der thern,and thepercentage Read Table3 sideby sidewith Table 2 to seâ&#x201A;Źthe essenceof the statementincluded under eachfactor,leading to the labelgivento it. Table2 irnpliesthat 2170of the consumerneedsin this target market relate to the healthyand freshaspectof buko

juice.Hence,marketmanagersmust prioritizethisattributein formu)ating a bakojuice for thissegment. Again,to plan the packagingrequiredfor thisproduct, thatthetarmanagers shouldunderstand getmarketprimarilyexpectsthe followbeingdurable(statementing standards: conven11)of goodmake(statement-l4) andsoon.Pleasenote ient(statement-l6) thatthe[actors asbrought outbytheprincipal componentanalysisare uncorrelated.Hence,thehealthandfreshness aspectsoughtfor by the consumers is perceivedto havelittle or no relationship with packaging. At thispoint,it would bepertinentto pointout thatif marketingmanagers are lookingfor whatcompelstheconsumers to buy anothervadetyof readyto-drink, saymangofruit fuice.the resultingfacAs theprodtorscouldbequitedifferent. uct or themarketshifts,evenslightly,conmay undergoa total sumerperceptions thisfindre-orientation . Todemonstrate ing, considerTable4 for measuringconsumerneedsof anothercategoryof fruit

Table 1 What is it in a toothpastethat is importantto you? Pleaserankthe following on a Likert scaleof 1 to 5. LOW ' t l. 2. 3. 4. 5. 6. 7. 8. 9. 10. ll. 12. 13. 14. 15. 16.

HIGH 5

Scent Taste Color of toothpaste Opaqueness Regulated quantity of toothpaste dispensed Calcium Flouride Baking Soda Flowability of toothpaste Dentist recommendation Transparencyof container Soft squeezecontainer Upright container Flip cap Twi\t cap Shape of container

Tablo2 Consumermarketsurvey

JUlCe. "the Good afternoonll I'm conducting a survey to find out what factors affect decision to purchase,a*o juice." Pleaserank accordingto the importanceof the "low" importance, 5 indicates "high" importance. attributes.Rank I indicates

l. 2. 3. 4. 5. 6. 7. 8. 9. 10. ll. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. 24.

Sweetness Size of coconut meat Readily available (can be bought anywhere) Shape of coconut meat (strips, balls. etc.) No preservatives Color of packaging Freshness Affordable price Taste Nutritionalvalue D u r a b i l i t yo f p a c k a g i n g Coolness Clarity of juice Reputation of manufacturer Flavor of variety (eg. buko lychee) Convenience Natural Size of cups (s.m.l) Medicinal value Having spoon 10 eat buko meat Occasion of purchase(meals. snacKs) Brand name Shelf life Presence of meat

LOW t t

2 2

3 3

1 t t t

HIGH

,1 4 4 1 4

5 5 5 5 5

2 2 2 2 2 2

3 3 3 3 3 3

4 4 4 1

5 5 5 5

2 2 2 2

3 3 3 3

4 4 4 4

5 5 5 5

productour manageris Whichever with, factoranalysishasto be concemed designedandcarriedout for thatspecific target productand the corresponding market.Only aftertheperceptions,needs, preferences, and benefitssoughtare shouldone proceedto the evaluated, productplanningstage,if theproductrs new or to the productimprovement stage,for an existingproduct. mayalsoassess Marketingmanagers attributesarerelevantto whatpackaging the consumers. Consideragainthe case Afterdeterminof our bllo juicesurvey. needs,themarketresearch ing consumer groupalsocaniedout a surveyon packof the consumers.(See agingpreferences Table5) Onceagain,a principal component analysiswith a VarimaxRotationPhase yieldedthefollowingfactorslabelledon Table6. brand of toothA premler pasto... Sofar,we havetalkedabouttheconsumerneedsfor a bukojuice and some other categoryof ready-to-drinkfrurt juice.Now let us considerhow a similar analysiscan help a premierbrand of in its marketposiiioning. toothpaste

1996 . THEASIANMANAGER FEBRUARY-MARCH

Tlrecountryside

\-J

continues unibank togrowwith thenation. Wherever you are, whatever You do, you can be sure LANDBANK is there for you. Your first chartered universal bank is present in over 90o/oof the country's rural municipalities.And soon, vl'erlleven be closer to you as we open 24 more branches nationwide. This makes us the only universal bank with the most extensive countryside reach.

frtn

tEl I lstr*. I

LANDBANK The Countryside Unibank Member:PDIC(Depositslnsuredup to Pl00,000.00)

FACTOR I 2 3 4

STATEMENTS LABEUNAME % OF VARIATION CUMULATIVE 2l 21 l0,l3,l?,7,8 healthy& fresh 32.4 | 1.4 tr ,14,t6,22,23,6 packaging 4l 8.5 18,20,21 48 1 aasre |,r2,15,9 54 cocoiut meat 2,23,24 " ' , .: -i r..,' .i..,. STATEMENTS%

I 2 3 4

OFVARIATION EXPANDED

convenience& flexibility quality consciousness health consciousness product life consciousness

CUMULATIVE

19.4 34.6 46.,1 57.2

19.4

"presentand I am conductinga survey to determinethe factors that affect of future packagingtrends to the existing and changingtaste/preferences consumers."Pleaserank theseattributesin their order of importanceto you' (Rank I is "low" imDortanceand Rank 4 is "high" imponance.

l. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19.

FACTOR t 2 3 4 5

Se e as container Protect goods from handling, transpon, storage Producthygiene EnhanceProduct aPPeal Portability (can be taken to work, school,etc.) Does not leak Prevents tamperrng Breakability Protectionfrom climatic hazards(heat, sunliSht) Easyopenability/closeability Detailson nutritionalvalue Readibilityof label Colors Attractivedesign Cap seals Clear (see through) Easy drinking (wide mouth) Safety Reusable

STATEMENTS 15,3,6,7,8,9 14,4,5,13 1 8 ,tI, l 2 l9 l6

HIGH 5

LOW t

1 1 r

2 2 2

3 3 3

t 1

2 2

3 3

4 4

)

t 1 1 r r r r r

2 2 2 2 2 2 2 2

3 3 3 3 3 3 3 3

4 4 4 4 4 4 4 4 4

Think of a toothpastecomPanyPnmarily in the theraPeuticsegmentof the high-endmarket.Thecompanyis thinking of inhoducinga new Productwhich, benefits,would in additionto therapeutic alsooffercosmeticvalues.Thus,the positioningof thenewbrandhasto beproperly plannedsuchthatit will beperceived benefits. ard therapeutic for its cosmetic Now,beforeundertakingthepositioning of the brand,the companyhasdecided to get a feelof what its targetmarketis reallylookingfor grouporganizeda A marketresearch surueyon 14 ait butesdescribingthe themarketresPondbrandof toothPaste entswerecuffentlyusing.Onceagain,an applicationof factoranalysisyieldedthe following factors.More than anything else,the targetwaslookingfor tangible aswell ascosbenefitsboth therapeutic metlc. The company,therefore,is recommendedto positionthis brand accordit alsoasa unique inglyandto advertise linds of benefits. both having brand Concluslon-. Theaboveexamplesshowa few of the in of factoranalysis typicalapplications conpositioning and planning product sumerproductsin MetroManilamarkets. eventwo decades Suchapplications, becausethe not so common back,were and elaborate involved techniques and computation lengthymathematical Howevet analysis high level statistical the availabilityof numeroussoftware, well equippedwith user-friendlystatisall that.Tohaschanged ticalapproaches, right are available day,thesetechniques marof modern onto the working table we understand Thus, ketingmanagers. and are ableto analyzemarketpercepmakingit postionslikeneverbeforeand sibleto offer thebestattdbutesin a Product or service,which the consumeris lookingfor

5 5 5 5 5 5 5 5 5 5 5 5 5 5 5

% OFVARIATIONCUMULATIVE LABEUNAI'E 21.4 21.4 productprotection 33 ll.6 designfeatures 424 9,4 label feature 56.9 7.8 reusable 62.5 5.5 clear

Thus when designing the packaging features for this kind of buko drink, the product prctection aspect must be given the foremost importance and so on'

Aeknowledgments The abovePaPeris basedon class proiectsof MBM-'97studentsfor their MarketingManagementCourse.MY to all of then heartfeltcompliments Prot'.Putua Raoteaches Q a Litstite ManaS?ment for MBM ond EEP,and MarketingReseorchfot MDM.htemet: p tua@ain.edu Ph

1996 . THEASIANMANAGER FEBRUARY-MARCH

PorrcvFoRM

.1.

BY PRoFESSOR FRANCISCO L. ROMAN,JR. AND HAZELSANCALANC

Definingthe AIMPolicyForum i s t o r i c a l l y t, h e P o l i c v F o r u m cused on area-baseddevelopment, peoevolvedfromtheAIM ProjectRe- ple empoherment.and povertv alleriawas tion, income-generationapproach.In adsearchunit. ProjectResearch

the Forum is not tied to anv specificconstituencyor interestgroup. Thus, the different forums organized by the Forum "marketplace" for the exdition to its researchand training tasks, represent(1) a so named partly becauseof the nature of "process" for its funding which was predominantlv CDM nor.runs a degreeprogramin de- change of ideas and (2) a "exporttrom inlernatronJlloundatiL]ns lor .pe- velopment managementand is transformingthescideas into concrete ing" its model of developmentbeyondthe actions. cific projects. Project Research,in turn, The Forum's target participantsare had to be differentiatedfrom AIM's Case Philippines,to Vietnam.The activitiesof keydccisionmakerssuchascabinetmemResearchProgram(in the 1970s),later re- Project Researchbegan to overlap with bers and the congressionalcommlttee named as the EnterpdseManagement CDM, ResearchProgram (in the 1980s),and C i v e n t h e a b o v e c o n f i g u r a t i o n s , chairmen,public sectoragencvdirectorc, n u w a sa r e 5 e a r cuhn i t u n d c rt h cA r s o c i - ProjectIlesearchis redefining itse)f, unand private sectorCEOs and COOs. To sum up, the Forum (with a capital ate Dean for Research.The latter focused der the name of Policv Forum. The FoF) and its facultv facilitatorsdo not take rum's mission can be defined under five on caseresearchfor AIM's teachingpropositionson any issue.The PolicvForum, key concepts: grams. however is not simplv a venue; the goal The donor-funded Project Research of eachforum on eachissueis to give the spun off from work done bv the Rural Honesl Broker D e v e l o p m e n tM a n a g e m e n tP r o g r a m As noted, the Policv Forum evolved discussantsa senseof ownership of the (RDMP)in the 1970s. The RDMPunder- from ProjectResearch.The latter's activisolutions or action plans. ln that sense. "po'ition" talen oler,tn i..uc,.li* took researchand training to assistin ruties were originally driven by donor- t h e ral developmentand institution building, funded projects with the bulk of funds cussedin anv single forum (rvith a small derived from internationalagencies. f) representsthe consensusof the pafticifor agenciessuch as the Department of Although still donor-driven,consider pants of that particular forum. Agriculture and the Natural lrrigation first what the Policv Forum is not. It is Administration, among others. Issue-l)riven TheCenterfor Development Manag,e- not primarilv a policv researchcenter.Il "honest broker" which proThe Forum is principallv issue-driven. ment (CDM) developed from a concept servesas an in the mid-1980sto a completeprogram. vides the opportunity for multiple stake- This conceptimplies the following selecIts original three-prongedmission foholders to tackle critical issues.As such, tion c teria: I HL A5IAN MANALEI{ . fEBI(LAR\-MARLHl99b

First,theissuemustinvolvemultiple Theconverseis thatimportantissuesnot triesin theregion,suchasSingapore and stakeholders-interest groups from the "in the publiceye"may not receiveap- Malaysia,whicharealreadymuchfarther privatesector,industry associations, propriateattentionfrom policy makers down theroad to freemarketreform than NCOsand PVOs,and representativesbut theissuesstill remainunresolved re- thePhilippines.Similarly,theissueof raisfrom the public sector,suchasmembers gardless of thedegreeof publicattention. ing the savingsrateis of little interestto of the executiveand legislativebranchPut anotherway, certainissuessuch ASEANcountriesotherthan the Philipesof govemmentaswell asmembersof as export competitiveness are already pines. the local governmentand community heavilyresearched and"conferenced"by On theotherhand,issuessuchascorgroups.Thesedecisionmakersrepresent other pdvate think-tanksand govern- ruption and bureaucraticreform are rel"prories"for theForum'sfinalclientmentaSencies. Theissueof developing evantevenfor relativelysuccessful econothepublicat large.In essence, the issues competitive erportclusters, with itsim- mies,suchasThailandand Korea,which selectedmustbe seento affectthe public portanlsocio-economic andpoliticalim- arebeginningto addresstheseconcerns welfareasconsumers, communities, so- plicationsof resourceallocation,how- evendstheycontinue to grow lndonesia, ciet, etc. ever,is relativelylessstudiedand dis- for instance, is experimâ&#x201A;Źnting with demoSecond,theissuemustrequires]'stem- cussed.Devolutionis anotherpopular craticreformsand theprocess of opening wide resolution.as dictatedby the var- issuebut not thespecificproblemfor as- up its press,henceit is interestedto seâ&#x201A;Ź ied and oftenconflictinginterestsof the sessinglocal govemmentperformance whetheror not the Philippines,givenits multiplestakeholders. A resolutionof the from theperspectiveof theend-userAnd democratic heritage, cansustdineconomic problem,therefore,requiresinformatron theenvironment is anissuethatreceives growth. inputsaswell ascommitments to action lipservice--dearlyimportant, but seemFinally, whenlookingat thehighlyin(HICs),anissuelike frornall concemed groups. ingly not urgent,until too lateor nearly dushialized countries Forinstance, in mediathumanrights,especially for ing thediscussions between groups, minority seemsof the nascentmutual fund greaterconcernfor develcompanies andthegovemoped countries than for ment,theForumorganized LDCs.Moreimportant,note "lmportantbut Seemingly roundtablediscussions inNot Urgent": that someissuesoverlaPvolvingall relatedindustry Philippine Context traffic and the incomegap players,suchasbanksand affectbothBangkokandLos lnvestmentcompanres, as Angeles,for instance.Most wellasvariousgovemment Verylmportant Verylmportant important,notethatthepro(e,9.,SEC,DOR Seemingly Not Urgent VeryUrgent agencies ductivity issuecrosses over BSRBIR) and committee L D C s ,N I C s , a n d H I C s . headsfrom the legislative Evenhighly industrialized branchof government. One countdes,suchas America resultof theforumson the andGermany,areconcemed development of thePhilipabout falteringproductivity. Not So lmportant Not So lmportant pine mutual fund industry TheForumis still buildMay Be Urgent Not So Urgent hasbeenlegislativeaction ing its regionalnetwork.At to redefinethelawsgovempresent,it focuseson the ing muhralfunds.For this Philippinesby treatingthe particularissue,legislation country as a "laboratory." Figure1 was essentialto accelerate Forexample, thePhilippines policychanges by the SEC is not regardedin theregion and the BlR.No singleinas an exampleof competidividual or agencycouldhaveresolved too late,as in the caseof forestresources tivenessbut othercountries,evenNICs, theissuewithout a cooperative seriesof (seeFigure 1). are interestedin the processof "demodiscussionsamongdif{erentstakeholders Fourth, the issue must represent a craticdevelopment" that the countryis with differentpositions. going through. resionallvapplicabletoDic relevantto Third.theissuemustbeimDortant but other countriesin the region,specifically seeminelvnot urpentto the publicat the enlargedASEAN. Conceptually,the Researeh.Based large.For instance,importantissuesof- Forum focuseson thoseissueswhich reThe Forum is research-based. Alten enjoy only temporarymedia visibil- flect the transition ftom the impedirnents though the primary taskis to run forums ity (e.9.,food security,overseasworker to, and the aftermath of, development on issues,researchprovidesthe rigorous protection,traffic) giving the public a (seeFigure 2). Thus, the Philippines' cur- foundationfor all of the Forum'sconfershortlived senseof urgency. Govern- rent struggle for liberalization and its ef- ences.It is the "backroom" which proment policy making sometimesseems forts to open up the economy may not vides the input to link to the Forum's reactiveasa response to publicpressure. be particularly relevant to other coun- "frontroom"activities-theforums,con34

FEBRLARY-MARcH 1996. THEAsrANMANAcER

Transition from the Impediments To, The Aftermath of Devolopment

6. Monitor the actionplan to determinetheneedfor futureinteruention.

The natureof the problemand the variousstakeholders involvedwill deterLDCs Nlcs HlCs mine the sequence and possiblemodificationsin theprocess. Whateversequence process or is used, what mustbestressed . Liberalizstion . Democratization . MirorityRights . JusticeandCoruption . SavingsRate is thattheForumshouldachievecommit. Labor . Responsive . TaxRetorm . UrbanTraffic mentfromthestakeholders by involving . Bureaucracy Government . IncomeGap themat all stagesof thediscusisons. The stakeholdersmust believethat they "own" the actionplansandthatthesolution liesin theirhands. Finally,one aspectof the Forum whichitstitledoesnotimmediatelv sigFig\ne 2 nify is action.Butactionis precisely what the Forum seeksthrough its consultations and mediateddiscussions. Scholferences, and workshops.Research also or an apparentwinlose sifuationwhere arlyoutputis nota priorityof theForum, constructively limitsthescopeof discus- the gain for one meansthe lossof an- merelyits by-product. Instead,the Fosionfor an issueby offeringdataasa fo- other TheForum'sgoalis to expandar- tum seekstangibleresults,possibly cusfor the pdrticipants; research mini- easof agreement by seekingmultipleal- throughpresidentialEOs,congressional mizesthe tendencyto pontificateor to temativesthat providegainsfor every- legislation,or industryadvocacyplans. offerunsubstantiated conclusions. one.It is preciselyfor this reasonthat The Forum,however, will not directly ThePolicyForumusessurveymeth- research is largelysurvey-based; it pro- involve itself in the implementationof odologywhich balancesAIM's current videsthe basisfor an informeddiscus- actionplanswhichis thetaskof theparin in-depthcasestudyre- sionto achieveconsensus compelence amongmulti- ticipatingstakeholders. search.Oneexampleof surveyresearch ple stakeholders. by theForumis to developa "consumer TheForum'sconsensus process hasa Desk-Dtrected pulse"or a "citizenindex" to assess the specific sequence involvingthefollowing TheForumcurrentlymaintainsthree "issue"desk andone"service" perception of localgovernment perform- steps: desk.The ancewith the citizenas the "custome/' 1.Afterselecting anissuebased on the latter's activitieswere describedin an that the govemmentmust service.Sur- previousculture,identifyconstituencies earliersectionon "Research." Thisfinal veysarerepeatedto establish trendsand or concernedstakeholders r.elatedto a sectiondescribes theactivitiesofthe three "issue"desk (seeFigure3). to avoid "idiosyncratic"evidence.With particularissue. TheCompetithecomplexityof humanresponses and 2. Initiateresearch to estallishbasic tiveness,Politicsand Governance, and opinions,surveyresearch seeksto quan- informationand the foundationfor the Sustainable Development desksprovide tily or measure perceptions on issues in discussions on theissue.Reserach might the research focusand analyticalframeorder to developconclusions basedon includepositionsof the differentstake- worksto process thedifferentparadigm: solidevidence. holders. andpositionsevolvingfrom theissues. Finally,the Forum'sresearchis fo3, Brainstormwith the stakeholders TheCompetitiveness Deskis founded cusedon quick turnaroundstudieswhich and expertsin workshopgroups,possr- on "contestation"and a competitive can be accomplishedin an averageof bly usingthe GSStechnology, to gener- economyor environment. A "freer"marthreeto sixmonthsinsteadof the12to 18 ate ideasand prioritizeproblems.(The ket is oftenassociated with openingup monthsforthe"traditional" scholarly re- GSSor GroupSupportSystemis a soft- cartels,monopolies,and monopolistic Forumresearch search. emphasizes both ware-basedtechnology,which allows oligopolies.In the Philippines,the govtimeliness andrelevance. anonymouselaborationof views on a ernmenthastargetedsectors, to be "libtopicor discussion.) eralized"suchastheairline,telecommuConsensus Process 4. Runa series of smaller, specjfic, fo- nications,banking,shipping,and food Thefourthconceptisto resolveissues cusgroupdiscussions andforumsto es- ^ - ^ : - : - , 1 . . ^ ! - : ^ ^ by a processwhich achievesconsensus. tablishconsensus-based positions,solve Theapproachand analyticalprocess At the sametime,in negotiationjargon, specificproblems,or generaterecommen- focusesat the sectoror industry level, lhe Forumseels"win-winoutcomes," dationsfrom variousstakeholders con- ratherthanthemacro-economic level,The and it is preparedto put its processon cernedeitherseparately or jointly. Desk'sprocesstakesoff from,but is not holdor even"walkaway"froman im5. Organizea final forum or seriesof limited to, MichaelPorter'sframework passeif no win-win outcomeis feasible. forums to sharerecommendations and for industryandnationalcompetitiveness Most issuesareplaguedby an inherent proposedactionplans. to the extentthat competitiveness and 36

FEBRUARY-MARCH 1996 . THEASIANMANAGER

rivalry representkeysto openinguP marDeskdoesnot kets.TheCompetitiveness assistin makingindustdesmorecompehtive.Rather,thefinalresultofits research System Competitiveness andforumsaimsat enhancedconsumer welfareas manifestedby reasonable -5ft4;t wN:r, prices,improvedquality,greateraccessrandmoreinformability andavailability, OPEN :: CONSUMER judgment. tion to makea reasoned MARKET WELFARE DeskfoThePoliticsandCovernance thecomplexissues andprocesses cuseson nMtffi. :5, PROCESS for achievinga balancebetweena strong " E N V I R O N M E N T " RESULT and recivil societyand an accountable sponsivelocalgovemment, Forexample,theDesk'sactivitiesare gearedtowardsachievinga societymade business upbothof a sociallyresponsible Political and Governance productive labor force, and a community represented by government sectot anda decentralizedand decentralizinglocal with rcsponsive anddevelgovemments, "balance" The programs. opment-driven thatthecitizenspay implies,for instance, (local)governvote while theirtaxesand hand, ments,on the other servethe citicdmeprevenzensby offeringadequate management, and otherbasic lion.trdffic services. The Environmentand Sustainable the estabDeveloomentDeskespouses interaction among lishmentof sustainable responsible andenvithreecomponents: ronmentallyconsciouscorporations, Sustainable Development transparent and incentive-oentedgovernmentagencies, and an informedand communrry. acl1ve The Deskemphasizes thatrespon5iCORPORATE not must encompass ble corporations ENVIRONMENTALISM butthesmall and onlythebigcompanies who tend medium- sizedmanufacturers mediapublicity to hidebehindexcessive Governreceived by largercorporations. ment,in turn,mustactnotonlyasa regulator,to strictly enforceenvironmental COMMUNITY GOVERNMENT a "levelplaying lawsand.thus.establish "incenti-vizer," AWARENESS AND AS REGULATOR to field," but alsoas an "INCENTIVIZER" PROXY} {NGO AS conscience. encourage an environmental in fum, mustbe contnuCommunities, ally awareand activeto monitorand practices andthe checkonbothcorporate Figure3 of governmentpolicy;oreffectiveness ganizedformscrfcommunityorganizats theDiItot oftheNM Poli! by the Prcf. FranciscoRonrf,an articles, tionlikeNGOsactasproxiesfor thecom- PolicyForum.Subsequent Desk.Interfiel: Foruma d its slslem Comrylilil)efless Forum, different directors and staff ofthe munity and assurogatewatchdogsfor flanki&ain.edu.ph will expandonthisoverviewandprovide andgovernment. corporatrons specificexamples of theissuesandproc- Hazel Sa'/galangis the Polity A alVslof the Slstem is- Competi I it'enessDesk. in different esses involved addressing Nerl Steps sues. Thisarticleoffersan overviewof the 1996 THEAsrAN MANAGER. FEBRUARY-MARCH

fflhanks to thespaceage I technology,borderless I companies arespawning a borderless economy. ln theprocess, theglobalis becoming, well,a virtual reality.Yes,globaltelemarketingitselfis boomingbut it's quicklybeingsupplementedby TV andInternet

Thev include: Purolator

Courier of Canada,that nation's largestovernight carrier scrr.ice;FedEx,Canco, a leadingCanadianmakerof householdapplicanccs; Business-toBusinessTeleI narketing, rvhich handles '7. telemarketingfor other l; companies on a contract ; ch^nnino cprwi.a< basis; and the Royal Bank of a : Canada. Upsurge in Foreign Nevertheless,the infra,BY DAVIDA. HEENAN Demand structuresupporting worldREpRTNTED FRoM,fouRNAt oFBusrNEss STR,4rrcy, No industrybetterignores wide catalogers needs WITH PERMISSION FROMTHE AUTHOR. thebarriersof borders,time, upgrading.A majorconandspace thanthemail straint: the absenceof a tollorderbusiness. In thelast free "800" number systemfor few years,UScatalog globaluse.Howevet recent companies havebegun efforts to dereguiatevarious { courtingove$eascustomers. national telephoneand h L.L.Bean,theFreeport, postal nehvorks irave lil Maine-based sportsoutfitter, brightened the prospects for r, reporteda 627.jump in international mail-ordering international salesin 1994. and delivery. Its biggestmarketby far is Americanand British for 70%of Japan,accounting telephonecompaniesare t{: 4 :ir,*i},}t @:; foreignactivity. beginning to erode the long Thisyear,the83-year-old distancemonopoliesof retailer's international telephoneoperators(includThis upsurge in foreign severalEuropeanstatedivision-mannedby 200 ing 11Japanesespeakers)demand is creatinga netowned companics,offering foreignlanguagespeaking should generateabout 13ol" work of global call centers. 40% to 50% lower pricesto of company sales."We never SaltlakeCitv is the multilinconsumers. ln addition, made a consciousdecisionto gual srvitchboardhub of the private express-mailsuppli becomea global market, it US. Thanks to its large ers-UPS of America, DHL just happenedto us," says Mormon populalion, many Worldwide Express,and Laurel Milos, the firm's of whom have servedin FedEx-now enableoverseas intemational director. overceasmissions.Utah's suppliersto sidestepnational Land's End is following capital is well stockedwith postalsystems. L.L. Bean'slead.Its online people who speaka number computer network servesa of languages-helpful when llome Sbopping growing number of foreign you're staffing telemarketing Unlessit respondsquickbargain-hunters.The folksy posts. Iy, the mail-order industry catalogerhassetup a 170Further north, the once could be leapfroggedbv an personservicein UK and is batteredrail in town of integratednetwork of teleexpandingrapidly to Japan, Moncton in the province of communicationsand compCermany,Australia, and New Brunswick has found uters.Techno-enthusiasts can New Zealand.Similarly, the new life as the bilingual Iearn about foreign goods "800" Wisconsin-basedFingerhut call centerof Canada. and servicesdirectly from predicts a major uptick in its Severalleading direct mail their TVs and computers offshorebusiness,especially marketershave locatedtheir therebyenabling direct from Canada,Mexico, and telemarketingor customer marketersto avoid the hassle SouthAmerica. seryiceoperationsthere. and expenseof printing and

TheRiseof AlMorld-Wde Cvbermarhet

Theforeign

direct-response markethasgrown to aboutone-sixth thesizeofthe United States directresponse market, accoding group to thetrade NIMAInternational. 38

F F B RALR \ - V { R (H l q g b. T H r -A 5 t A \ M A N A C E R

"Television marketing(called distributing catalogs,timeconsumingsalespitchesover WithoutFrontiers")Iimit to onehour of localchannels and costly800-numbers, home infomercials and banksof multilingualteleTosurvive, shoppingadsper day. phoneoperators. Individual country regulaare severalcatalogers tions add to the confusion. cable their own launching In Canada,infomercials andare shoppingchannels andhomeshoppingcanair tappinginto established asProdigy,Compu- only from midnightto 6:00 services are a.m.;lifetimeguaranteâ&#x201A;Źs Serve,and AmericaOnline. bannedin Germany;and complete Teleshopping, is Frenchrulesrestrictthe use with fancyinfomercials, of brandnamesaswell as alsowinningconverts daily and weekly program. Home-shopping overseas. havespreadto channels Beaehlng a Orulslng morethan 30countries,hom Indiato EcuadorAs a result, Speed Despitetheseproblems, theforeigndirect-response the information superhighmarkethasgrownto about way is givingtheoneone-sixththesizeof theUS trillion-dollar global retailing market, directresponse accordingto the tradegroup, industrya majorboost.The Intemet theworld'slargest NIMA International. is computernetwork,has RegalCommunications beefedup its international largest direct the oneof capabilities. with business televisors response Launchedin 1969by the globalambitions.The for scientists and Pentagon basedin Fort company, now the Internet academics, Pennsylvania, Washington, more a much accommodates holdstherightsto theJoan diversepopulationroughly Rivers'product line, the lncredibleSweaterMachine, 25million usersworldwide. companies are Nearly30,000 LastingKissLipstick,and CuisineWok,amongothers. aheadyusingthenetand nearly2,000arejoiningeach It expectsto doubleits month. offshoreeamingsthis year TheIntemetis pioneedng from 1994. the globalcybermarketby in But thepacesetter intemationaldistanceselling combininga varietyof netbusiness-to-business is InterwoodMarketing year, Commerceworks. Last Limitedof Concord,Ontario. effort Net,an experimental Thisyear,thecompanywill linking25of America's movemorethan five million companies largestelectronic units-from steakknivesto (including Apple Computer, wiper blades-in 70counAmdahl, SunMicrosystems, to tdes,from Bangladesh andIntel),wasformed. Venezuela. With $12M in federal internaNevertheless, govemmentandindushy tional teleshoppingis backing,theallianceallows anythingbut easy.The who arehooked companies EuropeanCommurity's Intemet to buy and up to the distance directives on tough 1996 THEASI'ANMANACER. FEBRUARY-MARCH

selltheirgoods,access information,andcollaborate on a variety of commercial ventures.Multinational banks,amongothers, want to tie into desperately "At CommerceNet. Bankof America,thisis thebeginning of what we arecalling the 'virtualbank,"'says ColinKilpin, a vice-president for theSanFrancisco-based bank."Weseevirhral bankingasa majoropportunity to expandour reach

I Global telemarketing itselfis booming butit's quickly

products.Computerjunkies placetheirordersthroughan Internetserviceknown asthe World Mde Web.An order is within 15minutes processed of beingreceivedand shippedfrom oneof approximately12distribution centersfor next-dayor delivery. second-day avoidingthe Besides ordealof storevisitsand telephone ordering,ISN customersget a maiorprice break,usuallyabout20% compubelowconventional mail-order retailers and ter Thecompany's houses. clienteleis primarilyAmerican,but this,too,is changm8. Bill Rollinson,vicepresidentof marketing, foreseesenormousopPortuparticularlyin nitiesoveseas, "Japan, Asia. SouthKorea, andHongKongareshowing stronginterest," especially he says.

beingsupplemented byTVandlrternet seruices. Ploneert shopping

Challenge Convincedof ISN'srosy future, the HomeShopping Network bought the comThe panylastSeptember world." aroundlhe together brought financialservices, acquisition Besides two pioneersin global manyotherindustriesare merchandising. electronic settingup shopon the Resultssofar areunknown. Intemet.PeterKill-com"The fuhrre will look and mons,founder,NexSys "We're work like the lntemet networknotes Al today,"Vice-President alreadyhere." The recently. declared Gore InternetShopping for thestrategistis challenge Network(lSN)of Menlo to adaptto a shdnking Park,California,also andan increase cyberspace believestheworldwidenet conin computer-literate presentsthe next-business sumers. frontier.Theself-professed "ToyStoreof TheGlobal DapiilA Heenan,tlustee,lames a virtual Village"resembles CampbellEstate,Honoltl u, retailstorecarryingan onHapaii,frcquentlyuites on &lobal of 15,000 line selection policy issuesdnd the economyfot Strateg!. softwareandhardware Business

Editor'sNote: In our last issue,DerekNewtongave us 99 Authors for TheLiterate Executive."lncomplete! " says Prof.Romy Neri. HereRomy offers his own kit of reading for a niny evening.

Authorsfor the Profound Executive

y frustrationwith recentexecutive bestsellers is that they are too verbose.The ideasare more "flavor of the month" in nature rather than lasting conceptswith concretecont butions to managementphilosophy and practice.The easewith which authors can now key in words into their personal computershas encouraged wordiness.The need to capturethe buyers' attention has encouragedtabloidlike titles and faddish concepts, the validity of which crumbles over time. Remember,lrl Senrchof Excellence?Except for Drucker and some scholarly managementauthors,I have not really found conremporarymanaSemenr books worth reading or worth investing my time in. I have, therefore,turned to classicwriters who, over the centuries,have been consideredgreat authorsof great books.They were supposedto be part of the curriculum of educated gentlernen(and emancipated women). They contained profound lessonsin management and leadership.It is unfortunate that the present managementdiscipline has fumed managementinto mechanisticformulas for dealing with work and people rather than a philosophy of life in dealing with and leading fellow human beings. For the profound executive, I would recommendthe following classicauthors: Plutatch wrote extensive

;

ByPnorssson RorrauoL. Nrnr

,!rlPâ&#x201A;ŹE.9'|{!ll!w'!'iq?-t*!.ar5l.l'|i{i,bt?;\lâ&#x201A;Ź)i

biographies of thegreatest leadersof theRomanand Greekcivilizations-Julius Caesar, AlexandertheGreat, Pericles, Lucullus,Pompey, Alcibiadies, amongotherswhosegreatactionsand monumentalfolliesimpartto otherleadersenduringlessonson what makeshuman beingsgreatleaders,on publicfickleness, and the fleetingnatureof power. Thucydides wrotethe historyof thePeloponnesian War-the classicwar betweenAthensandSparta. Thisbookis alsoa mustfor thinkingpoliticiansand foreignserviceprofessionals. His writing styleis superb, ideasmagnificently organizedwithoutanyunnecessaryword.Much,I suppose, is lostin thetranslationfrom classicGreekto Oxford Englishbut its brilliance shimmersthroughthescreen andveil of thetranslation PrcCeSS.

Tacitus wroteaboutthe corruptionof Romanemperors,includingTiberius,

1'"

s't{*

\n:,]

Nero,andCaligula.It is an interestingstudyon power it andtheworstaspects b ngsout in humannature. Itsvalueto managers is its abilityto shockthemout of theirsuperficialandcomplacentview of humanity. Ssu-maChien, an official duringtheHan Dynastyof thehistoryof China,_wrote theD)'nastyandthelivesof its early.emperors, its court intdgues,andits internal revoltswhichpervaded Chinesepoliticalleadership at thattime. andbureaucracy Theeventsandlessons areas freshasif theyhappened His writing only yesterday. goesat a fastclip andthe readermaybe lostin the paceof eventsandthedelnames. But ugeof Chinese his historyleavesthereader with deepandlastingimpressions on thenatureof wat politicsandintdgue, muchmoreprofoundthan anyconremPorary wesrern treatmentof SunTzu's Art of War. Readthebiographies of Chou En Lai of Chinaand

Cardinal Richelieu of Francefor lessonson effectrve counrry managemenrln the midst of socialand political turmoil. The I Ching is an ancient book an Chinesedivination which must be at least3,000 yearsold. The original authorship was ascribedto Duke Wen,the founder of the Chou Dynasty.Later commentarieswere added bv Confucius.Consulting the I Ching is useful in making crucial managerialand personal decisions.One pores over ancientsymbolism which activatesthe subconscious.In the process,one canacquirea deeperand more profound insight on the nature of the problem being analyzed.Various Englishtranslations of the I Ching are easily availablein Americanand Asianbookstores.But one has to be careful of the choiceof English translatorsas some translatethe I Ching passagestoo freely,losing the accuracyof meaning in the process. Thesebooks and biographies have had a profound influenceon how I look at life and realitv The lessonsI derived from them form the wellspring from which I drew mv views on human nature,politics, and society which, in turn, have become the basisof mv management philosophv and practice. Prof. Ronu 0 L. N|ri l1':lu's f i n n ( i n l t n n a g . n ' i , , tn t d (orpomt e filnncitl l rn nfl gu,nttrt it1 lhc Masler in Busittss Manag.DtL'ttl(MBM) nnd D.\tlolmc1lt Md,l, genlenl Prog',]tns(DMP ) : ftt1itlaiol r.ltt?Scn'( li atd DKroecono,nics in lhe Exiutfi,e Educntio Progrn is (EEP)tatd ie1\'L\ntl.nt finnt[. il lha Mnstcr i,t D.t eloptnenIManlgz,n.nt I MD M ) llrL)gr'lnt.Iiltet tt | : ro'ttv@nitt.edu.lh

FEBRUARY-MARCH 1996 . THEAsrAN MANACER

Participate in the first NESEARCHCOIIFERENCEON ASIAN BUSII\ESS with the theme

RESEARCH IN JOTJSINESS SOUTHEAST ASIA: THETALENT DELIVERING TO THEBUSINESS \TORLD AUGUST 22-24, 1996 NEII/WORLDHOTEL MANIIA" PHIIIPPINES oF DEAN5 oF SolrftrAsr OR6ANTZED By rHE AssochTloN vrrH A5L{N C&\DUAr! ScHoors oF M^r,rAcEMEtfi (ADSGM) THE Assrsr^NcE oF THE CANADhN INTERN^TIoNAr DEVELoPMENT AcENcy (CIDA), rJE coNFERENcE BRINGS ToCETHER TH€ BEsr MINDS AND LEADING PMCTITIONERS IN ASIAN BUsINEss AND MANAGEMENT THRoucH PLENARYslssloNs AND coNcuRRENT CLUSTERSE.SSIONS COWRINC THE FOLLO!/ING TSSL'EAREAS:

CoNmRENcEFDE|

US$ 350 roR rHrEE (3) DAys US$ 250 FoR E RLYREGtsrRAnoN ev MAv 31, 1996

HorEL RooM CoNTERENCE R \rEsr

US$ 100++ pERMcm

FoRDEraIs: . RrsEARc,J oN AsrAN BusrN[ss aND MANAGEMEN'I rN . -

GENEB^L MANACEMENT DEWLoPMENT [44NAc EMEN"T HuMAN BEHAvIoR IN ORGANTZATToN INFoRMATToNTEcHNorocY

AsuN l^1mm oFMaAaauENr

FINANCE MARKtnNc OPEMTToNS MANAGEMET'{

. RTSEARCHoF MAN^GEI4EN'I CoNsuLnNc . CoRPoMTE

GRoLrps

RE5EARCH

. R.ESEARCHoN MANAGEMEMT EDUc^TroN EFFEcrrlTNEss

FE lPE E ALtoNn

^ND TEACHING

DE E taIlrEL V SoRl,tNo ADSGM Co ruocE ORGAMzt^cCoMnrEE AsLrNIrafifiE or MAtAcE$F.\i: R. McMrcnNc Ca pus J1SDPH 123 PAstu DERoxa, MCPO Box 2095 1260 MAx^n Cna, Mnto M^Mu, PHTUPPINa F^x No. (632) a924621/(632) 817-9240 TEr. No. 8924011 E-M,u: NOEIS@A&I.EDU.PH

/ry3v

oF AsrAN AND NoN AsrAN CoLLEAcUEs JorNT RESF-^RCH . DrssERTATroN RF^SEARCH oF OursrANDrNG DocroML CANDTDATErN BusrNEss PAR'nCIPATEas a DELEGATEoR a pApER pREsEN'roR. Por[NTIAL pApER pREsENTopJ MUsr suBMrr A 250-wono Assrn-ecr *qo ,r BtIEr oN THE ALmtoR's DrsIcNATloNr tNsrITUTIoN, AND couNTRy oF RESTDENCE sy AIRIL 30, 1996. Suel{tsslolrs vlLr rE ll-tl.roBoARD oF REwEwrR5 AND v'iLL BE REFETEDBy rlrE ADSGM puBLIcATroNs FoR TNTERNATIoNA! rNcLuDEo rN ADSGM DISTRIAUTON.

OFFTqAI

MEDIA SPiONSOB:

Irl

Editor'sNote: Thelate Gov.Jobo B. Fernandez and E. GeraldCorrigan becamefriendsand colleaguesin the mid1980swhen economic, financial,and political turmoil in the Philippines pushedthe countryto the very edge of outright collapse.

obo was willing to stand rar ano nrm ar omes I alone-in the et.almost brtterstrugglet0r what he knelv was in the best long-term interestof his beloved Philippines. For all his accomplishments and his mastery of economics,finance,banking, and central banking,Jobo was a sinple man. He knew the basicsand he stuck u,ith thosebasics.He rvasa quiet but forceful champion of the oldest values:love of family and friends, of countrv,and of Cod. Becausehe held thesevaluesso closely,he had the courageand the conviction to pursue what he believedto be right for its own sakeinspite of c ticism and politicalattack.But even when that criticism had gone bevondbeingconstructive and just,he handledit rvith graceand dignitv But then again,true patriots alh'avs do and Jobo,for all of his other traits, was first and loremost a true patnot. As he looks over us today, Jobomust feel a senseof satisfaction,if not pride, in all that has beenaccomplished in the Philippines in recentyears.Indeed,the contrastbetrveenthe mid-80s and the mid-90scould not be more stark. But, knowing Jobo,if he were with us in the flesh, he rvould remind us all that the real task lies ahead sustainingrecent f

TheJoboB. Fernandezo Jn Memorial leeture q

DEllvrnno BYE. GERALD CoRRrcerv Chairman, InternationalAdaisor s Coldman, Sachs & Co.

performanceover the long haul.He would alsopoint out us that the consequences ol errorsor misjudgrnentsin economicpoliciesareeven more harsh than before. All we need do is ponder the swift and costly turn of eventsin Mexico early this year to be forcefully reminded of the dire consequences when a country is buffeted by adversepolitical developmentsand misjudgments in economicpolicv. The Merican casewas striking partly becauseof the speedand magnitude of the shockand alsobecause,until the crisis,Mexico was seen bv many as the model case study of a successfulemerging marketeconomy.For a time, the spillover effectson other emerging market

t'conomieswere swift and alarming.That situation could have turned nasty hatl it not been for the willingnessoftheUS and,subsequentlt the IMF b step into the void r.ith a major stabilizationprogram. While the circumstances of the Mexicancasewere uniqut', its generalnarket manifestationswere not. The "run" equivalent of a cash on a country is a phenomenon we have witnessedu'ith disturbing frequency.Moreover, this phenomenonhas not beenlimited to emerging market economieswith large current accountdeficits.[n fact, the fracture of the EuropeanMonetary Svstem (EMS)with its attendant devaluationsin the UK and ltalv rvere,in a proximate

sense,broughtaboutbv massiveshiftsin investor preferencesfor pafticular currenciesand investment vehiclesrvhich interactedto producethe "run"Jike effectsthat havebt'comtall too familiar While the EMScascand the Mericancasehavelitile in c0nmon, two interesting parallelsshouldnot g0 unn0uceql First, in both cases,market participants, including sophisticatcclforeign invest. ors, rverere.rchinr for high ratesof retum,expecting that erchangeraterisk was nil. lt pcrsistedevenas it becameclearthat trouble nas bren,ingnith the economic and financialfundamentals. Seconcl,eve'nas the problemsrvith the fundamentals bccamcmore oblious, it bok .r poJiticalshockto produce "wakt'up the call" that triggeredthe sharpand abrupt changein market psvchologt'. ln Europe,it was the Danish referendumon the MaastrichtTrcat\';in \,4exico, Chiapasand politicalass,rsslnatlon. This link betrveenpolitical eventsand abruptchangesin rnarket psvchologyis not ner\';what is nerv is the sheâ&#x201A;Ź'r magnitucleand speedn ith "run" which the on thc countrycanmatcrialize. Once the processbeginsk) unfold, even robust levels of official reseryescan be depletedin a matterof davs. More importantly,it is apparentthat efforts to stabilizc thc situation require strong domesticpolicv adiustments in the countryin question policvadjustmentsthat will almost alu,avsn'ork to suppress domesticec()nomic activitv and raiseeitherunemplov ment or inflation,or both.

FIBITLARY-MARcII I996 . TIIEASIA\ MANA(;[R

Third, shong pattemsof capitalinflows,in theform of portfoliotype investments,ironically,canput upward pressureon the ratethatwork in exchange thedirectionof increasing tradedeficitsand current accountdeficitseventhough, for a time,theresulting deficitsarefinancedwith apparenteasethroughthe capitalaccount.Thisprocess canextendbut whenif it beginsto unravel,theunravelingcanoccur rapidly. Fourth,for all countries but especiallyfor relatively small,openemergingmarket thedegrees of countries, freedomfor domesticmonerate tary,fiscal,andexchange poliry aresomewhatreof duced.Consequences misjudgmentsin policy can, throughinternationalfinancial channels,be swift and dire, especiallysoif the countryin questionis also political experiencing instabilities. associated Thechallenges with domesticmacroin economicmanagement tightlyintegratedglobal financialmarketsandinstant informationaref ormidable. This caseis especiallytrue in a settingwhereadversityin onecountrycan,aswe saw in Mexico,havenega-tive for other consequences countrieswith similarprobWhat lemsor vulnerabilities. thencanindividualcountries do andwhatcanthecommunity of nationsdo to reap benefitsfrom opentrading very by their Second, andfinancialsystemswhile investments portfolio nature, providing greaterstability in particular into a of foreigners with theworkingsof thesystem? coupled when country The following recommendapublic and that country's promisegreatereffitions debt obligapdvate extemal andgreaterstability interest ciency yield domestic tions, financial international that in the rates ratesandexchange system. vulnerable canbe extremely For any country, competishould thingsbegin to turn and creditworthitiveness sour in that country.

Pad of the reasonwhy the "run-on-country" phenomenacanbe soswift and violentis tied with technologywhichmakesit easyfor residentsor foreigninvesto$ to movehugeamountsof moneyout oI a particular countryat a moment's notice.ln thesecircumhave someobservers stances, ihat the naivelysuggested solution to similar problems is to restdct,by regulationor action,the administrative extentto whichmoneycan be movedout of a country. Thisapproachalmost certainlywill not work and the threatof moneyhansfer would evencausethevery problemthat the country wasseekingto avoid. Many informed observers haveconcludedthatthe feahrresof contemporary intemationalfinancethat "run-on-country" permitthe are potential phenomena threatsto the stabiliiy of the fi nancial international system.Whilethatconclusionis clear,whatto do is for relaunclear,especially tivelysmallandopeneconomiesandfinancialsystems, suchasthosefound herein CertainconthePhilippines. ditions,however,areclear First,foreigninvestmeni-including portfolio investment-isa necessity for everycountry,especially for emergingmarketeconomiesin therapid stagesof economicgrowth and

1996 THEAsrAN MANAGER. FEBRUARY-MARCH

First,promotinghigh domesticsavingsratesis of specialimportancenot only highdomestic because savingsreducedependence on foreignsavingsbut also becausethe very culhrreof savingsis socentralto the psychologyof prosperity. Obviously,the first and most important thing countries cando to promotehigh savingsis to keepinflation low Well-designedtax policiescanalsohelpbut, for manycountries,thecombinationof skeweddistributionsof income,demographics,and potentially large, unfunded public pension liabilitiesconstitutesignifi cantbarriersto achieving andmaintaininghighdomesticsavingsrates.Formany countries,pensionreform, along the broadlines of the Chileanor Singaporean models,shouldbe given seriousconsideration. lndeed,pensionreformwhich hasmerit in its own right-may be oneof the few,if not the only,waysthat somecountrieshaveevena budgetandan balanced indepeldentcentralbankare fightingchanceof raising domesticsavingsrates. necessarybut by no means domgenerating Second, sufficientconditionsfor thing; esticsavingsis one success. Creditworthiness mobilizingthosesavingsand will be and competitiveness achievedonly if basicdiscip- putting them to the best possibleuseis anotherThat line in monetaryandfiscal policiesarecomplemented is why programsand poliby the full rangeof struchrral ciesaimedat developing efficient,effective,and safe and microeconomicPolicies domesticbankingand finanthatwill Promote(1)high cialsystemsaresovital.It is domesticsavingsrates;(2) sadbut true that, in many flexibility in the markeisfor transitionand emerging labor,and goods,services, marketcountries,large capital;(3)highratesof amountsof precioussavings productivity growth; and (4) havebeensquanderedby of the thedevelopment pooror misguideddecisions humanandphysicalcapital asto theindividuals,the infrastruchrreessentialfor or the projects businesses, sustaininggrowthand that should receivecredit' of living. raisingstandards More generally,few things Severalpoints pertain to aremorecentralto domestic the financialsideof the economicstability and the equation,asfollows:

nessarekey to economic In tum, a country success. canachieveandsustain and creditcompetitiveness worthinessonly to theextent andsustains thatit achieves basicdisciplinein monetary and fiscalaffairs.Forhrnately, many emerging marketcounhies,including have thePhilippines, balancedbudgets,or closeto it-something we cannotsay for any of theG-7countries. Manycountriesalsoadopt legislationto maketheir cenhalbanksindependent. In theMexicancase,a

A cash ttruntt

ona courtryis

a phenomenon of disturbing frequency.

efficientuseof resources. thanis thedevelopment of an efficientbankingand financialsystem,including all paymentsandsettlement systemsnecessary to support thefunctioningof the financialsystem. Tencharacteristics should beassociated with an effective domesticbankingand financialsystem: 1.thepresence of a strong andappropriatelyindependentcenhalbankthatrelies, to thefullestextentpossible, on indirectmonetarypolicy instruments for theconduct of monetarypolicy; 2.broadlydistributed privateownershipof banks andothermajorfinancial institutions; 3. theabsence of intemal or extemalcreditcontrols; 4.market-driven interest ratesfor bothloansand deposits; 5. a unified foreignexchangeratesystem,whether theexchange ratemechanismitselfis fixed,floating, or somethingin between; 6. the presenceof efficient, effective, andhighlyliquid money,equityanddebt capitalmarkets,startingwith stateof theart inter-bank andnationalgovernment securities markets; 7.efficient,safe,and trustedpayment,delivery andsettlement systemsthat ensurethefinalityof transactionsandpaymentsin the shortesttimeframepossible; 8.transparency in all things,especially market anddisclosure practices and policies; 9.equaltreatmentfor foreignanddomesticinstitutions;and, 10.a strongbut flexible systemof prudentialsupervisionof marketsand instihrtions. Thischecklistof thedesir44

abletraits of an effective contemporary bankingand financialsystembeliesthe enormouscomplexities associatedwith achievingall that is impliedby eachone,much lessall ten,of thetraits. Takebankingsupervision asan example.SimplydeveIopingtheskilledandexperiencedpersonnel to conduct bankexaminations and inspections will takeyears. Third, evenin circumstances wheredomestic savingsarerelativelyhigh andthedomesticbanking andfinancialsystemis doing a reasonably goodjob of mobilizingandallocating

for debt managementand thedevelopment of systematicapproaches for managing interestrateandexchangeraterisk,including thedevelopment of appropriatelyconservative hedging techniques.Theeffort will alsohaveto entailcareful monitoring of develop mentsin the strucfureand natureof capitalinflowsand the carefulmonitoring of the extemalliabilities of pdvate entities.With regardto the Iatter,theremay be circumstanceswherethe needfor domesticprivateentitiesto servicetheirforeigndebtcan put pressureon the exchange

needed.Eventhen,the communityof nationshasa role to play sincethe safety andstabilityof theintemationalfinancialsystemis obviouslya collectiveresponsibility.In thisregard,I would shessthreemajor pointsasfollows: First,all G-7countries must redoubletheir efforts aimedat intermediateto longer-term deficitreduction. Collectively,these deficitsarea hugedrainon globalsavingsandare ongoingsources of congestion and pressureof global capitalmarkets.Deficit reductionin theG-7countries would not only free largeamountsof savingsbut would alsobe compatible with greaterstability in financialandforeignexchange markets,thus reducingthe risk of financialshocksmore generally. In thecaseof the 1 . Strongand independont CentralBank the prospects US, for a maior 2 . Broadownershipof banks breakthroughin this areaare No creditcontrols moreencouragingthan has 4. Market-drivenrates beenthecasefor yearsbut 5. Singleforexsystem we arenot yet therein a 6. Liquidcapitalmarket settingin whichtheeconomGoodsettlementsystem ics and politics of the situation arebrutally difficult. L Transparency anddisclosure Second,thereis a pressing 9 . Equaltreatment, foreignand localbanks need for much closercoop1 0 . Flexibleregulatorybodies erationandcoordination of officialoversightof financial marketsandfinancialinstithosedomesticsavings, rateaspdvatedebtors tutionson a globalscale.It manyrapidlydeveloping scrambleto acquirethe is clearlyan areaof great countrieswill be net debtors, foreigncurrenciesneededto progress,particularly especially takingaccountof meetsuchobligations. throughtheB.l.S.andits foreignliabilities of private Thestepsoutlined above, variouscommittees. In that corporations, bothfinancial whencombinedwith sound regard,it is especially andnon-financial. In these monetaryand financialpolencouragingthat many circumstances, governmental icies,will go a longway countriesoutsidetheG-l0, authoritiesare,in mostcases, toward creatingthe financial includingthePhilippines, goingto haveto pay more frameworkthatis consistent havevoluntarilyadoptedthe attentionto thelevel,matur- with thedualgoalsof comB.l.S.capitalstandards for ity structure,currencymix petitiveness andcreditworbanks.Thisprogress notandcashflow implicationsof thiness. withstanding,greaierefforts theirextemalliabilities.This While noi the subjectof areneededasrecentevents, effortmustincludethe thislecture,broad-based suchasthe Baringsand developmentof intermediate effortsin other areasof DaiwaBankepisodes, andlonger-term shategies structuralpolicy will alsobe clearlyillustrate.This is why FEBRUARY.MARCH 1996 . THEASIANMANAGER

at the Halifax Summit,the headsof stateof theG-7 countriescalledupon their financeministers"to commissionshrdiesandanalysis from the internationalorganizationsresponsiblefor bankingand securities regulationsand to report on the adequacyof current togetherwith arrangements, proposals for improvement wherenecessary, at the next summit." Onespecificareawhere actionis urgentlyneededis the enactmentof minimum for market capitalstandards risk by the international communityof bankingand securitiesregulators.Considerationshould be given to devotingmostof the 1996 meetingof theAsianCentral BankGovernorsto the subjectof shengtheningbank supervisoryprogramsand in theregion. cooperation Third,thereis a caseto be madefor an enlargedrole for theIMF in thearenaof theworkings strengthening of theintemationalfinancial sysrem. At theannualmeetingof the Fund, the managing directorannounceda new initiative wherethe Fund would establishstandards accordingto which individual countriesmust release of economic a cross-section andfinancialdatain the interestsof greatertransparencyand disclosureto financialmarketparticipants andothers.It is an important and desirableinitiative which will yield greater disciplineamongindividual counhiesandgreaterdisciplinewith thelendingand investingcommunity. Henceforth,any country that failsto complywith these standardswill be punished by financialmarkets.Moreover,while eachcountry will

releaseits own statistics,the pressand variousinformation networkswill promptly publishcompalativestatisticsfor all countries. All theseeffortswill help marketsto bettersolt out the more,or the less,creditworthy countriesand better allocatecapitalandsavings accordingly. Somewould go further andurgethattheFund's ArticleIV Consultations with individualcountriesbepublicly disclosed. I am strongly opposedto thispa lybecauseit will inevitablycreate for morepoliticalenemies theFundandalsobecause I fear that this practicewould havethe wholly counterproductive effectof watering down the substanceof such when,if anyconsultations thing,theyshouldbe made morerigorous, I am alsosomewhat houbled by the movetoward the establishmentof the "Emergency Financing Mechanism"whichis seen to provide individual countries with fasteraccessto largeamountsof Fundresource.The facilitycontemplatesstrongconditionality and will be financedby doubling, to $54billion, the resources availableto the FundundertheGABfacility. It is furthercontemplated that a numberof unspecified countriesbeyondtheG-10 would participatein the financingof the facility. In effect,the facility is a lender of last resortfor sovereign states. My uneasiness aboutsuch a facilityadseson both practicalandphilosophical grounds.On thelevelof practicaliryI am hard pressedto seehow theobvious needfor a fast trigger mechanismcanbe reconciled with theneedfor stdctcon-

1996 THEASAN MANAGER. FEBRUARY-MARCH

ditionality,especially in termsof painful negotiations thatseemto be associated with drawingson even Fundfacilities. conventional On a morephilosophical level,I am troubledby the clear"moralhazard"associatedwith it. On theotherhand,I am alsodeeplytroubledby the extentof thecriticismin the directedat USandelsewhere theMexicanrescuepackage. Whiletheremaywell be aspects of theMâ&#x201A;Źxicanepisodethatcouldhavebeen handleddifferently,the thattheUSand suggesiion -

A culturc of savings is central

to the psychology of prcsperity. theFu4dshouldhavestayed on thesidelinesandpermitted the chipsto fall where they may strikesme asnaive Thefact anddangerous. remainsthat the conhoversy aboutthe Mexicanrescue packageis difficult to muster,on an ad hocbasis, the resourcesnecessary shoulda similarepisode occurat anothertime.It mav alsomeanthat increasingthe sizeof theGABandbroadeningits fundingbasewill bedifficult. In anyevent,it will take time-a lot of time-to musterthe political support neededto increase theGAB to $54billion. In that intervening period, careful

thinkingneedsto be devoted to exactlyhow thisfacility will work in practice. Dependingon how those detailstakeshape,thescope of themoralhazardcouldbe reduced(andmy personal comfortlevelwith the approachcouldincrease). Underthebestof conditions, is theslipperyslope. Theagendafor the future, asit appliesto effortsto promotegreaterstabilityin thearenaof international finance,is forrnidablefor individualnationsandthe communityof nations.We are,however,in a positionof strengthto approachthose challenges. ln thePhilippinesandin mostcountries,currenteconomicconditionsarequite good.Theinternational financialsystemhasdemonstratedremarkableresiliency in thefaceof stress.Most importantly,thevirtually universaladoptionof the market-based approachto economics andeconomic fresh policyhasunleashed of individual elements initiative,creativity,and freedomthatofferenormous of hopeandexpectasources tion for the fuhrre. As we approachthe future, with its problemsand its challenges, we havethe rare,if not unprecedented, opportunityto shapeour collectivedestinyin a mannerthatcanproduce gainsin standbroad-based ardsof living thatcanonly enrichthe spidt of personal initiativeandfreedomthat in most hasbeenunleashed the world. of E. GeloldCoftigatlseruedtheFederal Resf'rue Bankof Nen yotkasPrcsiderlt joining t' CEOfor eightyearcbeforc Coldtan Sachs. ln lul! 1996,hewas Committee mmedchairmIn ol theBasle lrytheG-10 onBo kingSupeflision to countries, thet'ist Afteticannomed

anagers oftenhaveto facedifficultsituationsin thecorporate world. Someare simply haumatic. Many managers break down as they face such situations.Only a few are able to successfully demonstrateunusual leadershipqualities.They are the real corporate Ieaders. Three traumatic situations are describedhere:a seriousaccident,a major failure, and unjustified efforts to stifle the careerof a manager.Some strategiesto cope with them are also suggested.

Coping with lhauma

Leadersshouldbevisible in suchsituations. Accidents occur,training for safety notwithstanding. Managers shouldassumeleadership in suchsituations. Theyshould bethere.

Maior Failure All managers want to BYDR.P.N. SrucH succeed. Somewantto REPRTNTED FROMSuccEss UNLTMTTED becomethepresidentof a with permissionfrom the author companywithin 10-15years. Motivatingthemareclich6s like "Nothingsucceeds like "Success success," breeds success." etc.Thepursuit seemsnever-ending for such managers, endowedasthey arewith high achievement motivationaccordingto Serious Aeeident psychologists. The most traumatic Managerwho cannot experiencefor managersin copewith failure,fail. They the corporatesectoris the destrovthemselves. It would lossof human life. For be worthwhileto understand example,the biggestaccident thedynamicsof failuresoas in recenthistory which to avoidit, whereverpossisubsidiary,he took a f'light to or probation extended. occuredin Bhopal will be ble,andcopelr.ithit, when Bhopal only to be arrested Someassignments difficult to forget. Similarly, inevitable. upon landing at the airyort should not be delegated, it will be difficult to forget Whatarethecauses of then deported by the such as the demonstrationof Anderson. failurespecifically relevant government. visible leadershipin trauAnderson was the chief to managerc? While his mission to matic situations. of the multinational comFirst,clingingtoolongto India was seeingfor himself I once faced a similar pany owning the plant at All a productor seruice. what damageswere caused situation some two decades Bhopal.He risked flying to managers know aboutthe by the accident,Anderson ago.A worker had died on India in the wake of the producFlifecycle,Yetthey demonstratedthat managers the top of an oil tank in a catastrophicgasleak in their considertheirproduct must have the conviction, plant nearCalcutta.He had plant at Bhopal which invincible.After all, they the courageof implementanot taken the mandatory causedthe death of more developedit. tion and the boldnessto face precautions.It was his fault. than 2,000men, women, and Unexpected successa the consequences of one's But it was not the time to children and incalculable newproductis almosttotally own decisions.How comdiscusssuch issuesthen. It harm to the reputation of the neglected; worse,managemon it is for top managerc was decided that the entire "inconvenient" company. menttendsto activelyreject to delegate top managementteam The accidentalgas leak it. Hereis oneexampleftom assignmentsto their deputy. would remain at the site till evoked strong public Inno\ation n dE LrcpreneurI heard a story of a the body was finally creresentmentagainstapathy s/rip by Peter Drucker; personneldirector who did mated.The trade union "Morethan30yearsago, and callousnessof organizanot want to hand over the leadershipwas quite militions, both multinational and I wastold by thechairmanof charge-sheetpersonallyto a tant, The dead body was national, in managing safety. managerbecausehe knew New York'slargestdeparttaken in a processionto the What should the Union mentstore,R.H.Macy,'We that it would make him company headquarters. Carbide chief do? unpopular He delegatedthe Severalprovocativespeeches don't know how to stopthe Anderson could have growthof appliancesales'. task to the generalmanager were delivered by union "Why would easilydelegatedthe job of vou want to who, in tum, delegatedit to leadersbut the presenceof visiting lndia to any of his stopthem?"I asked,quite his deputy and so on and so the entire top management deputies,but he preferred to mystified,'Are you losing forth till finally a manageteam had a unique sobering moneyon them?' come in person.Not only did ment traineehanded over effecton them. They never "On thecontrary,'the he visit Bombaybut, along the charge-sheetback to the mentioned anybody's name with the chairman and chief chairmansaid,'Profit executive-in fear of his in their rather critical executiveof the lndian mar8insarebetterthanon haining being discontinued speeches. 46

FEBRUARY-MARCH 1996 . THEASIANMANAGER

fashiongoods;thereareno retums and, practicallt no pilferage'. "Do appliancecustomers keepawaythefashion I asked.'Oh,no,' customers7 wasthe answet "Wherewe usedto sellappliances primarily to peoplewho we camein to buy fashions, now sell fashionsoften to peoplewho comein to buy But,thechairappliances. mancontinued,'in thiskind of store,it is normaland healthyfor fashionto produce70%of sales. Appliancesaleshavegrown sofastthattheynow account for threefifths which is abnormal.We'vetried everythingwe know to restorefashionto its normal ratiobut nothingworks.The only thing left now is to push salesdown to applicance wheretheyshouldbe'. "Foralmost20yearsafter thisepisode,Macy'sin New York continuedto drift. Any numberof explanationswere givenfor Macy'sinabilityto exploit its dominantposition in the New York retail market:thedecayof the of innerciry pooreconomics 'ioo big,' supposedly a store amongothers.Actuall, once thenewhanagementthat camein after 1970reversed the emphasisand accepted the contribuiion of appliancesto sales,Macy'sdespiteinner-citydecay,high laborcosts,and enormous size-promptly beganto prosperagain.At thesame time that Macy'srejectedits another unexpectedsuccess, New York retail store, Bloomingdale's, usedthe identicalunexpectedsuccess to propelitself into the numbertwo spotin the New Yorkmarket. "Bloomingdale's, at best a weaknumberfour, had beenevenmoreof a fashion storethanMacy's.Butwhen appliancesalesbeganto

this bone?icultureby stop ping the growth of managers and othersworking under opportuniry "Bloomingdale'srealized them.Goodmanagers face this hauma when an incomthat somethingunexpected washappeningand analyzed petentbossdeliberately it. It thenbuilt a new position stiflestheir growth. Theyare in the marketplacearoundits neithersackednor allowed to grow.Truly,they aregiven housewaresdepartment.It alsorefocusedits fashionand a slot in the organizationbut areleft to rot. apparelsalesto reacha new A storyexplainsthis customer-the customerof point well. Thereweretwo appliances." individualswhoseheights TheMacy'ssiorymakes wereto be measuredto find an importanipoint.It is nevereasyfor management out who wastaller The to acceptunexpected success. strongerof the two madethe weakerstandin a pit when it takes determinaSimilarly, their heightswerebeing tion, specificpolicies,a Theotheraltemawillingnessto look at reality, measured. "We tive would havebeenfor the and the humility to say, strongermanto standon a arewrong!"Macy'scould stoolwhen the heightswere havetakenappliances asits main product line rather than beingmeasuredto prove hirnselftaller The hidden persistingwith fashion goods. agendawasto pull down the otherman. Onereasonwhy it is in India Manymanagers difficult for any managerto theborsci success is areencouraging acceptunexpected culture.Whatareits causes? thegeneraltendencyto expectthatanythingthathas A few organizational situationsare citedbelow: lastedfor long must be "normal" and therefore Promotion:A manager with two subordinates shouldgo on "forever." decidesto promotethe less Anything thai contradicts competentof the two. what we havecometo Promotionof the rnediocreis considera "law of nahrre" is the order of the day.Many then reiectedasunsound, arguethatit is dueto unhealthy,and, obviously, insecurityof the boss. abnormal. should Seniormanagers Acceptinga mistakeand taking remedialmeasuresate acknowledgethat the new good managementpractices. generationof managerswill be muchbettereducated Owning failure makes managersgoodleaders.That wiih the availability of bâ&#x201A;Źtter facilities.Shouldwe help failure may be a wrong themgrowandachievetheir product,a wrong recruitWhatmyopic potenhal? ment,or a wrongdecision. generallydo is to managers of curbtheenthusiasm Itlalor Dfforts Tb Stlfle competentyoung managers Your Grovth and by side-hacking The third haumatic They them. is superceding for managers situation neithersacknor promote when the bosstries to turn them into a bonsai-a plant or them.They takepleasurein hee grown in miniahrreform turningtheminto bonsai. And sothe talentedyoung in a pot by artificially managers leave. restrictingits growth. PowerMotive: The Many managersin the country today are spreading power motive in many clirnb in the early 1950s, Bloomingdale'sran with the

1996 THEAshN MA\ACER. FEBRUARY-MARCH

executivesmay be high such that othermotives,suchas affiliation, etc.arecompletelyneutralized. If someonedeservesa promotionandheis promoted,peoplewill consider it fair But if an incompetent personis promoted,then "My God,this otherswill say executivâ&#x201A;Źis sopowerful that hecanpromoteevenan anduseless incompetent man."Promotionof inefficientand incompetent managersis a demonstration of power.Excessivepower motivesis oneof the causes of the bonsaiculturein lndia. HiddenDesire:I suspect someinner desirein every humanbeingto do wrong. talentis right, Encouraging whereassuppressingit is wrongbut somemanagers seemto enjoydoing it. systems Organizational should be ableto curb this tendency. Old organizations,with time-testedsystemsand proceduresareableto curb this hidden desireconsiderably.Buttheso-called entrepreneurialcompanies floatedby someneorich are not ableto curb it? Thebonsaicultureis widely practicedin operation in manyIndianorganizations.TheearlierIndian should value that slsyrz alwayssurpassthe8rlll is being forgotten. Beingtumed into a bonsaiis a haumaticexperiencefor managers.They can either seeka transferor apply in anothercompany. In an era of job explosion, thisalternativeshouldnot be difficultto take. Dr. Singh is thefonner chiirnan of the Federationof Asian Inslit te of Mana|efientAlumni Association. uith He is alsoactitJelyassociated theprofessionalma agement i lndia. mooement

f jump in my car with I half-eatenbreakfastand Iuse the cell phone on mY way to the office,balancinga muffin in mv mouth and coffeein the coffeeholder. The evening routine is the same-ear glued to the telephoneat dinner I have this empty feeling that I had not done everything I could. A few months ago I visited Fil Alfonso at AIM. He gave me a book Lindirg Wrfft lfteSoll by L.G. Bolman.The book shook my basicbeliefs. To my surprise,two other "mind and soul" books made it to the New York Times BestSellerslist: Tlrr SetenSpiritualLattrsof Success by DeepakChopra and /l's EnsierThanYtu Think by Sylvia Boorstein.TheBaby Boomersin America have finished the searchfor physical efficiencyand have startedlooking at spidtual efficiency. We go to great lengthsto exerciseto maintain our bodiesbut do too little to control our wandering minds. Our mind is like a five-yearold's, jumping from one thought to another. Have vou ever tried reading a book and, when you are on the fifth line, your mind startsto take off? You may read to the end of the pagebut you do not remember anything you read.You have not beenable to control your mind. Another example: You are now passinga donut shop, The mind cannot focuson anything but donuts and you feel hungrY. How can you control this? EEC studiesshow that, during the waking hours, our brain operateson Befa waves compdsing only 10% of the brain. The rest work on Alpha,Tfutn,and Delfn waves.Imagine what you could do if vou were able to 48

humanbeings.In thisworld "showme" of logicand attitudeswe haveforSotten thesoul.Somepeopledefine it asgut feeling,a feedback from our consciousness. How canwe makeour How Iivesmorecomplete? RosrnrV CrnNoneN "soul" push our we can MBM'74 to thefore? consciousness Oneu,'ayis to give: 1.Love:Weneedto care needsand for oneanother's build deeperrelationships rvithour familyandwith coLraorNc wIrH THEfuuL r workers.Wespend50%of BOLUEN BY L.G. our wakinghourswith them. , Yetwe know little about themandspendlittle timeto WhY developrelationshiPs. Herearesomethings tap at least 207.. not? you mav$'antto do with Logic has maskedour 2. Power:Theabilityto your meditation. natural human instincts:Cut influenceandempower 1.Spendsometime feel,intuition...Whv can we of posiothers,regardless everydayin silence-no not trust our gut feel?ls it otherpeople's tion,increases talking,no music,absolutelv confidence becauseit is hard to explain? in theirrelation(15)minnothing.Fifteen Are we ready to take a trip to you. shipwith utesof silencea day can the unknown world of mind 3.Authorship:Appreciabdng a lot of serenityin vour tion of individualroles,a and soul?Try meditation. life. The mind is composedof senseof accomplishment 2.Do onethingat a time. amongindividualsarethe two units: consciousness (upper mind) and thought Do not eatdinnerin frontof underlyingkeysuccess (lower neither enjov will TV You a imagination and factorsbehindcaring,well nor rememberthefoodyou mind). The strategyis to performingcorporations. arceating. appeal to the higher mind to Constantcorporatecommuto to listen Take time 3. mind the lower of get control nicationsthatexplainthe your kidswithoutpreiudgthrough meditation.Meditapositionof thecompanyand ment. focus the mind to forces tion andfailuresare its successes nature. with 4. Commune the mind Initiallv on prayer. alsokey. Enjoyvour garden,flowers, lmProve rebelsand plays tricks to 4. Significance: ocean. rivers, and half But a evadecontrol. selfimage.Each everyone's "Hurriedandworried 5. will meditation hour a dav of part thatmakesthewhole aptlY buried" joy. we are until great Having you a bring contributeto thetotalPicture We go of us. most describes 20 weeks in the last done this oi success. on vacationandwe want to has improved my life at It is timewe rethinkour down things. Slow do more quantum leaps. lifestyle.Our needfor prosinsteadandseelife in its bY perityshouldbe achieved fullness. inusingall our faculties, NaturalthingshapPen Ourneedfor steadof abusingour PhYsical Birdsdo not frY effortlessly. assets.If we canharnessour prosperity should to fly; fishswimwith least mind for productivePursuits by beachieved effort.lf it doesnot come ratherthanaimlesswandernaturallyaftersomeeffort, ings, we will becomemore usingall our your vou arejustincreasing human! instead faculties, stresslevel.

Durnnpnnununts

LifeSimplication

our of abusing physicalassets.

Ihebook Leadingtuith TftcSorilnotesthat the soul is in the higher consciousness

Mr. Rob.rtv. chtinttra,is thc prcsidotalChenoilCorpatation, cottl LIs A hltrrntt:Rvc@Chemail

1996 . THEASIANMANACER FEBRUARY.MARCH

nation stateis dymhe ing. This demisereI sults from two forces: I The first has beenthe knowIedgeexplosionand the availability of computer and information technologies, which have given more and more PeoPleeasyaccessto information, lvhich in turn hasaltered their whole worldview as well as their abilitv to act on independent Thc individualdecisions. secondis the general inability of most nationstatesto look for solutions outside their traditional paradigms. Kenichi Ohmae'sbook, TheEnd of Thc NnfionStnfe, spellsout the evolution of his thinking on strategic management,a point of view he first sharedwith the public in 1982with lle Mrrd of TfteSfrnfegrif;moving on to ?lad Porter(1985)where he startedto look at transnational alliances.Then, BeyoudNationalBorders (1987) fully develops his conceptof regional economic alliancesjand, beforethe 1995opus, T/rcBorderless World(1990),where he becomesthe de facto spokespersonfor a new world socio-economicorder Ohmae presagesmany nlnetlesmanagement "trends." In his first book, Ohmae admonishedreaders to go back to the proven basics-alwavs think srrategically:identify and develop kev successfactors in your businessii vou still do not have them; strengthen them if you already have;constantlvcompare your strengths and weaknessesu'ith vour competitors, (the term benchmarking hadn't quite caught on yet)

exploit your advantagesto the fullest; and use your unique skills to satisfy customerneeds(delighting the customerhad not vet come rn vogue). Ohmae echoedmanv successfulentrepreneursand CEOswhen he admonished

made beforethe phrase "leaming organization" was made popular bv Peter Senge. ln Tlc Eorrlerlcss l{orld he saysthat no one, not even the most powerful governmenis, can forever hold back the free florv of information

BookRerierv , BY PROFESSoR MARIo ANToNtoG. LoPEZ

TheBndof TheNationState managen to concentrateon pleasingcustomers-prof its rvould follour He reminds managersto leam to ask the right questionsall the time so that the organizationdoes not stagnate.Leam to not onlv respondto situations, but also anticipatetheir evolution and emergence and be aheadof everyone else.Lastlv he admonished strategiststo go beyond the barriers of traditional problem definitions to look for the bestsolutions. Strategistsmust challenge the constraintsimposed on them manv self imposed! All these admonitions he

T H EA . I A \ M A \ A C I - R' F I B R L A R \ - M C R \ hI q 9 6

that leadsto changed mindsets.Hc saysthat leading companiesrvill resort lessto direct confrontation \.viththeir competitors and rely more on novel, often radically ditlerent, approachesto the same challenges.The same firms will be characterized by their ability and willingness to expe ment with many approachesand rvith solutionpackagesrather than single solutions.The most successfulcompanies will be thosethat rvill have learned to go bevond a "headquarters mentality"in their decision making,

relving instcad on marketplacerealitiesin craftirrg tailor-fit strategies,u'hich he "insiderizaiion." calls Companiesthat insist()n hcadquartcrsmentalitvrvill be forcedout of competition. Part o[ the smartw.]v of dealinglvith the evoh'ing realitiesn ill be the forming of businessalliances. InTfu End...,Ohmae asks readersto look closclv at "the 'l's" flor.of the four namely,the florv of ltti'r:si ,lrtfs; the tloi\'0f i rslfifsj the flow of ,rfof dil()/,,and the effectsof information technologv; and the flows createdby irrdii'irlrrrrl corrsirxr0-croiaas. lnvestmentsflow where it canrealizethe bestreturns. lndustries u,ill locatewhere thev canlrar,ethe most efficientaccessto cheapraw' materials,the m0st productive labor,the most hospitable operatingconditions,and eagermarkets.Somcof the older tools,like tar brcaks, used bv governmentsof nationstatesto attract f0reignindustriesto locate rvithin their boundariesare proving increasinglyirrel' cvantas a result. The rest of thc Tlt End is dividcd into t$'clve parts: nine main chapiers,and thrce appendicescovering new theorieson the clv namicsof erchangerates, changesin Ncw Zcaland "outr.vhichallorvedit shinc" Australia, and Itenang'ssuccessful atterlpt to copv Singapore. The chaptershave catchy titles and are peppered u'ith controversialassertions which should cause all governments and not a ferv businessmcnto pause and take seri0usstock of

what they are currently doing. In 'The Cartographic Illusion"Ohmaesaysnation statesand the iheory behind themare"remnantsof 18th and19thcenturythinking." He saysthatinha- and intemationalclashes are causedneitherby geopoliticalconflictsnor by what SamuelHuntington calls "cultural clashes"but by "old fashionedleaders" with parochialmindstrying to solvenew problemsin "old fashionedways."Part of nationalleaders'problems is providing for the econornicand materialaspirationsof theirfollowers. Theseaspirationshavebeen draconicallyrachetedupwardsby freeaccessto informationabouthow peopleelsewherelive, reinforcedby the freer flow of goodsassociatedwith this lifestyleacrossborders. Ohmaeierms this phenomenonthe "Californization" oI lifestyleaspirations. Europeanshavedecriedthistendency with the term "CNNization."Unableto arriveat effectivesolutionswith their old ways,theyexhorttheir followersto armedconfrontation. In "TheLadderof Development,"Ohmaelinks in lifestyleaspirachanges tionsof peopleto changes in income.He identifiesthree thresholdlevels-US$3,000, US$5,000 andUS$10,000. Eachthresholdis accompanied by dramaticqualitative changes in what peoplewant to haveandhow theywant to live their lives.These changesaffectthe natureand level of involvementthey wish to havein the internationalsocio-economy. At the 50

US$3K level they want to thateconomyas access consumersand producers,to participatein andenjoythe productsof "modemization."At US$5K theywant to havethemajorconveniencesof modemityhighways,modernhansport, access to potablewaterand reliablepower supply, telecomrnunications and cheaperfinance,relatedto having accessto better housing,convenience consumer durables,andcars. At US$10Ktheaspirations becomethosewe seein presentday indushialized countries. Whata govemmentchooses to do whenthe economyis still in the US$ 5K leveldetermines the speedat which higher levels areachievedandnahrreof ihe us$ 10K level economy whenit is achieved. What distinguishesa populationat theUS$10Klevelis their totalimmersionin a borderlessworld and the inability of nationstatesto change their thinkingin a substantial manner.At best,the state haveinstruments thatcan enforcebehavioralcompliance. In "TheNew Melting Pot," Ohmaediscusseshow access to massmediahas changedthe thinking of the generationbom after World WarII. Thisgeneration has no commonexperiencewith theirelders.Today'schildren sharemorevalueswith other childrenelsewherethan they do with theirparentsand grandparents. TheNintendo Generationdoesnot come only with the game,but with a technologythat provides the young generationaccess to all sources of information which allows them to gene-

ratealternativesolutionsto poverty.He paraphrases problemswhichtheirelders SamuelJohnson by saying neverhad.Thiscomplexity thatnationalinterestis the has resultedin a completely lastrefugeof theeconomidifferentvaluessystem callydispossessed. Growth whicholdersystemscannot dependsnot on keepingthâ&#x201A;Ź Theanswersthese globaleconomyout of a address. technologies andmoreupcounky,but in invitingit in. with to-dateandcommonsources Whilehe first agrees of informationprovidethose MichaelPorter'sconclusions who work with themoften in The Competitire Aduantage of Ndliors,he arguesthat conflictwith the way the old systemsoPerate. competitiveness mustnot be In the "Civil Minimum" tied to theboundades of the nation The Ohmaemakeshis most state. Japanese controversial assertions. He andtheKoreansremain will getstrongnegative competitiveby bringing their factoriesout of thecountry, reactionsfrom peoplewho believein a combinationof closerto keyraw materials the nation staieruled by the sources, andcloserto key philoso- markets. liberalor socialistic "ScaringtheGlobalEcophies.By insistingthatthe roleof thestateis to ensurea nomy Away" is a straightfor"civil minimum"of services ward treatiseon how current thinkinghas and life-sustainingresources socio-political like jobs,nation statestend tendedto driveaway to fostersihrationswherethe intemationalinvestments from certainstates,eitherby rich subsidizethepoor, with neitherbeingfully satisfied. making it difficult for foreign to comein, or Nationstatesusetheillusory investments averages-averageincomes, by negatingtheiniiial averageemplo)'rnentrates, advantages of locatingwith difficultoperatingcondiaverageconsumption. etc.to makecritical decisions.As tions.This will be of special interestto politicalscientists a result somepeoplehaveto Ohmae's pay morefor servicesthan asit presents theyreallyhaveto, while analysisof whathashappenedto theway people othersreceivea tenuous safetynetwhichtheyarenot think aboutsocieryself necessarilyentitled to. In this interestandciviclife that now rendersthenationstate situation,agenciesof the nationstatemakedecisions inutile.Ii is thischapter thatarepoliticallybeneficial - whereOhmaeunequivovally to thern,but economically statesthattheworld's populationhasfocusedon inimicalto thecountryasa selfinterestasthemaior whole. In "NationalInterestasa motivator. DecliningIndushy"Ohmae continuesto hammerat the Prof.Mario AntotlioG. Lopezis the Pilipinas ShellCorrytution Profirrelevanceof the nation essotof PublicAdministratioll.His how use stateand continued cutrefit i Lerestsare manqgeritl of the conceptsasthe key deoelopmenL , deoelopmenlfianage ment, crossculluralmanagement , contructin decisionmaking dmelopment and andprcjecL will endup in greaterrather fianagefient. I nternet: maglopez than lesser,problemsand @aim.edu.ph FEBRUARY-MARCH 1996. THEAsrAN MANAGER

Mosr-VnLUEPExrruMS

BnevoLC THE IDEAL BUSINESSVALUE PmtiumPnfomwnced,oesn't need,m beey&nsiue. Hqe's BrauoLC Pmtium.A new ttchnohgytJwtptovides uwivalled.ualueat a high\ reasonable price.Va)tu rllr;tbusiness uill rrwb apfteciatE.SuchValuewithow compromise. I

Higherperformingprocessors yield betterbusiness productivity

The BravoLC hasmorestandardcachesthan most brands

The BravoLC providesmoreroomto growwith 5 drive bays,2 PCI and3 ISA slots

64-bitgraphicssubsystem for fastvideoperformance

AST VirusShieldprovideshardwareandsoftwarevirus protection

AST.SystemGuard provides greater securiry

AST-AssetPak DMI assetmanagement helpstrack networK tesoutces

ffi

r r t t

';.llt*

,1m

64, GE

8MB RAM 850MBHarddisk l2SKBCache Dual Install:Vindaws95 or Windows 3.11 t 3-yearwananq t \Yith AST4i SVGA 14" moninr

t P49,950 only

For further inquides, please ca!!:

6ffiffi

8/F CITYLANDCONOOMINIUM 1OTOWER1 5815AYALAAVENUE,CITYOF MAKATI TEL.NOS.892-3051 TO s5 FAXNOS.893-7272.816-6402 SERVICE HOTLINE: 813-2653 SERVICE PAGER:141-113906

AST" COMPUTEF|

Here'ssomefood forthousht.Acer has been steadily meeting and surpassingprojectionsfor years, Last year,Acer's unit shipments grew 102 percent- the second highestgrowth rate among the top ten PC companies. Resultingin a US$3.2billion companywith projectedl995 revenueof over US$4.5billion. Our ingredients for success? Everyday, we deliver the newest, freshest PC technology to our custome$ aroundthe world. Acerbuilds PCsdaily at thiny manufacturingsites worldwide. So, we'recloserto markets-andcloserto you. This regionalapproachto manufactudnghelpscutour inventory times to half the industry average.And guaranteesyou the freshesttechnologyand pricing, not month-old product. Our manufacturingprocessis just one of the staplesin Acer's "Global Brand, local Tbuch" approachto improving your quality of life. And one of the main reasonswe're quickly rising to the top of the PC indusrry.

Acen (o Local Touch. GlobalBrcnd