The Asian Manager, June 1988 Issue

SPECIALEDITION PAGES 20 ADDITIONAL APUBUCANON OF THEALUMNIREITTIONS ANDPI-ACEMENT OFFICES OF ANDOFTHEFEDERANON THEASIANINSTITUTE OFMANAGEMENT ALUMNIASSOCIATIONS

JUNE1988

ASIANMAI\IAGBT

AStoryofSeeking this issue,thereis an articlethat startswith a storyfrom a book ln 'entitled TheSeeking.

The article is interestingin that it coversthe conceptof an "AsianManager:"asan entrepreneur,asresource managerand asa leaderof men.

letters and Manuscripts f)eaders are encouragedto submit Flletters and manusc"ripsfor pub lication. The editors reservethe right to edit materials selectedfor publiiation as they deem appropgiate or necess:uydue to content or space restrictions.

The articletalksof Asian pride.The needfor loyalty.Itswomen.It Sendcontributionsto: Relations Office speaksof thegeneralcharacterandcommonexperiencesof theAsian Alumni c/o EmyR. de Veyra peoples.The article talksof you.

4lumni Relations Director That therewill be an economicAsia-Pacificera,is a prognosisin- Asian Institute of Management creasinglyeasierto believe.MasaoFujioka,in his speechon the oc- MCC P.O. Box898 casionof thisyear'sgraduationceremonies, notedthat in theregion's L23 Paseode Roxas development,religion and political ideologydo not seemto be Makati, Metro Manila Philippines hinderinggrowth.Somecountriesof the regionhaveachievedpositive balancesof trade.Developmenthascut acrosscultures.

Upon reflection,we mayagreethat this success is manifestin the AlumniNews "AsianManager."Itwas hewhowas,is andwill be taskedto manage I lpdates on alumnibeginin this development.It is he who understands hispeopleandknowstheir lJissue with C/assesof '69- '71: weaknessess and strengths.It is he who hasthis responsibility.

Were are they now? Alumni are enA commonexperiencebegetsunderstanding.

In someinstances, it c o u r a g e d t o s e n d r e p o r t s o n t h e binds.Perhapsfor us in Asia, it lies in a commonmigrativemix of progress of their own careersand of their classmatesand other felAsian peoplein eachof our countries.Colonialperiods.Distinct that low alumni. Sendinformation to Emy brandsof democracy.We are within a generalproximity to each R. de Veyra at the address above. other. And for thoseof us who havemet, we are more comfortable Information on weddings, births, and special occasionswill also be of whenin eachother'scountries. interest.

-Gan Thereis both ity and iW in this.

Santos

Lettersto the Editors On the Magazine I am happy to receivethe inaugural copy of TFIEASIAN MANAGER. Kindly checkwith the managing editor andadviseif I couldrepresent (the publication)asassociateeditor from India.

B. Bose(India,MM'77) At presstime, the alumni affain office wasconfirmingBhoskar'sappointmentwiththeIndian alumnioryaniution. - Eds. Greetingson the initial publication of THE ASIANMANAGER,it'sbeen sometime sinceI lastgot hold of an AIM publication.

E. B. Orodio (Phil,BMP'78) May I takethis opportunityto let the publishersof the Asian Manager

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knowhowinformativeandinferesting your publicationis. Thankyoufor includingme in your list.

C. J. Guerrero(Phil,BMP'83) It wasindeeda pleasuretoreceive a copy of THE ASIAN MANAGER. The publicationis quite informative and I would earnestlyrequestyou to sendme copiesof suchpublications in the future whichwill definitelv keepme up-datedon the undertakingsof the school.

S.Joglekar(India,MBM'73)

secondsonremindsme of managers whoaretrainedto"knowitall"but accept the humility of beingtaughtnot onlya thingor twobut a thousandand one thingsby 1) the job itself,and moreimportantly,2)the verypeople he is supposedto manage.

On the other hand,the eldestson remindsmeof sharp,astutemanagers who respondto.the art of management in a vacuum,to the point of beingobliviousof the variouspublics they are to manageand serve.

But thenr my Zen spirit has long beenbaptizedby the Triune God and The Samurai I might haveforgottento appreciate I enioyedyourarticle,"TheSemurai the mysticismof 7*nBuddhism. a n d t h e M a n a g e r , nT H E A S I A N Pleaseesend my congratulations to MANAGER,April1988. Much asI publication.I look forthe staff of the respectBokuden'sdecisionto find ward to receivingmy next copy. favor in the eldestson,I am inclined c. N. Necesito(Phil,BMP'87) to castmylot with thesecondson.The

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CONTENTS - I -t-l --7

Development and Organization the Management of Human Resources byAssoc.DeanHoracioM. Bonomeo, Ir. SaysJunbo:Peoplearenumberonein Asianenterprises. tlt\

:{r IUY

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Management Communication: An AsianPerspective Cover Story

Riskand the Multinational Enterprise byProf.AlftedoE. Pascual Fredexamines the conceptof risk and risk as a positivebut complexcatalyst activity. of internationalinvestrnent

From the Publisher

Gr A Story of Seeking Feature

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by Prof.Gloia Chan An area of increasingconcern as Asia transforms into an Asian Tiger, Gloria proposes some hard-hitting facts to remember when we want to get our messageacrossclearly.

-^t-. t--lr-I -7-7

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in Brand Opportunilies Marketingfor TaiwanExporters byProf.loseM. Faustino Recommendations and exhortations byJoeto potentialexportersontheoccasionof a visitto Multitech.

--..-, -h rII,I - Searchingfor the Asian Manager byProf. GabinoA. Mendoza He's closerthanyou think. Gabytells usmoreaboutourselves.

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Victoria N. The Coming of Managerial byProf. Wctoia BantugHoffarth Capitalismin Malaysia Thefirst in a seriesof WomenIn BusiProf. WctorS. Limlingan nessOrganizationcasehistoiies to be Whenthe British left Malaysia,the napresented in THE ASIAN tion faced the task of developingthe MANAGER. managerialtalent to manageits b u r e a u c r a c ya n d s t a t e - o w n e d Vic relatesthe processof enterprises.

Alumni andFacultvNews thisdevelopment.

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EnterpriseDevelopment: Life Forcesand Cycles Moratu,fr. byProf.EduardoA. Entrepreneurship has a role in development.Ed tells where it fits in.

el4D

-. J-t l Computersin Management Educationin Asia

by Prof.Rene T. Domingo Hands on in the caseroom: Things have changed.

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ADB'sFujiokaAnnounces in Commencement Scholarships Address

The top Asian Development Bank official exhorts 12L MBM and MM graduates from twelr,e Asian countries and the United Statesto lead regional development.

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Wherearethey Classes'6$'71: nov/?

The first of a seriesof updateson alumni. Alumni Relations is revitalizing is data base and needsyour help.

AIM Developments

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Attemptsto Define"Mala1/' Managerial SystemPremature

More on entrepreneurialand profesin Vic Limlingan's sionalmanagement The Overseas published work, iust ChineseinASEAN.

E.a

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-rrf StrategicManagementMust Reflect CulturalValues - -

frF vtt of Exporters Interdependence and Suppliers conlributesto successful ExportDevelopment

THE ASIAN MANAGER A Publicaiion ot th" Alumni R.lations and PlacemcntOfffG md thc F.d.ration of lhc AsiM Institule of Manage mcnl Alumnl Assialions.

Publisher Edoar Santos

Editonin-Chiet MichaelHamlin

Editors Emvde Vevra.SusieArrovo

EditorialBoard GastonOrtigas, FelipeAlfonso Gabino Mendoza,Horacio Borromeo Tomas Looez

AssocrateEditors Effie Goh (Malaysia,MBM'78) lshtiaqQureshi (Pakistan,BMP'77) StephenLee (Singapore,MM'86) TeerachaiChemnasiri(Ihailand,MBM'73) BhaskarBose (lndia.MM'Z/)

rfv tf

TheWalkabout:KotaKinabalu, Sabah

Copydghl 1988 by Thc Ads Mmagcr. All righls rerved.

Bcproduclion in my mmncr in wholc q pan in Englishor olhcr languagcs p,ohibitcd. Thq Asian Manager is publishcd quadcrly by tho Alumni Rclatiom and Placcmcnl OfRc of thc Asim Institulc of Mmagcmcnl.

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COVERSTORY Multnaimak qe br+ryrrisl<s thmpwdy donesicfams-.

Riskandthe Multinational Enterprise

by Prof. Alfrcdo E. Pascual Arneican Fxpress Foundation Professor for Financial Management The concept ofrisk aversionhas long been used to explain many of the phenomenaobservedin the economic world. The assumptionunderlying the argument is that individuals and businessorganizations are both averseto risk. In this article, I will present an explanation for foreign direct investment (FDI) and certain aspectsof behavior of the multinational enterprise (MNE) in the context of its response to risk.

Seven sections comprise the bulk of this article. Section I is concernedwith the nature of risk; it deals with the questions:What is risk? What are its charad.eriztngelements?What is the difference between taking risk and being at risk? How is risk perceived?

How does one respond to risk? What is the market failure rate associated w i t h t h e v a r i o u s d e g r e e so f r i s k taking?

SectionII provides a description of certain types of international risk: political risk, foreign exchangeexposure,market-making risk, and other risks relevant to this discussion.

The next four sections relate risk to FDI and the MNE. Section III shows how FDI takesplace as a responseto certain types of risk and how risk is eliminated by internalization', it explains why raw materials industries tend to integrate vertically, why hightechnology enterprises set up foreign operations, why firms in an oligopoly act in certain patterns - all in terms of responseto risk. Section III concludes with the question of whether risk is a necessarycondition for FDI. Section IV discussesthe risk considerations involved in deciding between acquisition and green-field entry into a foreign market, and whether to share ownership of a foreign operation with joint venture partners. Section V elplains the time

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pattern of product introduction abroadand the geographicalpattern of MNE activities.SectionVI explains why despitegreaterexposureto risk, MNEs enjoylower overallriskiness thanpurelydomesticenterprises.

Finally,a discussion of riskastheunder\ing reasonfor FDI is providedin termsof the wholeprocessof multinationalization of a firm whichis in an oligopolisticallystructuredindustry and whichrelieson foreignmarkets for salesand/orsupplies.

The Natureof Risk flisk is the prospect of a negative floutcome or the chance of incurring some loss or harm. It existswhenever there is a possibility that an event might prove unfavorable. When the possible outcomes result only in a loss or at best a simple break-even,the risk involved is what is known as pure risk.

Examples of pure risk are fire, theft, and expropriation). On the other hand, when the possibilityof gain coexistswith that of loss,the situation involveswhat is called speculativerisk.

F o r e x a m p l e , a f i r m i s e x p o s e dt o speculativerisk if its profitability rises or falls with changesin foreign exc h a n g er a t e s , i n t e r e s t r a t e s , c o m modity prices consumer preference, or some other pertinent market variable. Invariably, most sourcesof busin e s sr i s k a r e s p e c u l a t i v ei n n a t u r e .

S p e c u l a t i v er i s k s p r e s e n t o p p o r tunities for gain; pure risks are nothing but threats.

In corporate finance,risk has a precisemeaning;it is defined in terms of variation of ratesof return on equit y a n d i s m e a s u r e db y t h e s t a n d a r d deviationof theserates.This definition and measurementdemonstrates the totality of risk to which a firm is exposed.The varioustypesofrisk can all contribute to this total risk, with speculativerisks causingboth positive and negativevariationsand pure risks exertingonly a ncgativepull.

ForthsS\rsasss of thisS(Sar,it\\

usefulto think of risk not only in terms ofvariation in returns but also as the possiblevariation of any firm-spccific variable from its expectedcashvalue.

The other variablesthat may be of interestare cashflow, accountingprofit, book value,and economicor markct value.

Elements of Risk elellisk hasthreecharacterizing

I lments: a setof possible outcomes ( e v e n t s ) ,p l u s t h e p r o b a b i l i t y (likelihood)of occurrenceand the

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result (impact) of each of these outcomes.Outcomes are eventswhich take place in the environment; the nature of an outcome is determined by conditions outside the frm. However, the result or magnitude of the impact depends on the specific characteristics of the frm. Both the environment and the frm inlluence the probability of occurrence.

A given set of environmental developments will affect individual firms differently. Take the case of foreign excha"ge risk. American firms operating in Japan are all affected by fluctuations in the exchangerate between the US dollar and the Japanese yen; however, since these firms invariably have different balance sheet and cash flow structures, the impact on each one will differ not only in degree but also in kind. Deterioration of the rate, for instance, will favor some of the firms and penalize the others.

Among those negatively affected, the extent of suffering will vary from firm to firm.

the wayrisk is perceivedand not on whatit reallyis.

In viewingfuture events,thereare threepossiblestatesof nature(Knight 1921).Certaintyexistsif a singleoutc o m e c a n b e u n a m b i g u o u s lay s sociatedwith a givenevent.Risk (or risk proper,alsocalledmeasurable or objectiveuncertainty)existsifone can specifyall possibleoutcomesassociatedwith an eventand the probabilityof their occurrence, either throughcalculationor a pioi, or from s t a t i s t i c so b t a i n e df r o m p a s te x perience.Uncertainty(or true uncertainty, alsocalledsubjectiveuncertainty) existsif one hasknowledgeof

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...and responseis often basedon the way risk is perceivedand not on what it really is.

TakingRiskVersusBeingat Risk distinction befhere isanimportant

I tween risks firms take and those they merely face (Rescher L983). To take risk is to decide by choice on a courseof action that createsor enhances the chance of a negative result, making the occurrence of something unwanted more likely (for example, investing in a foreign country with a potentially hostile government is to take the risk of expropriation). To be at risk is to be so circumstanced that something harmful could occur. A firm can be at risk without activelv taking risk. By mere circumstances,it can passively find itself at risk (for example, a firm in a high technology industry faces the risk of product obsolescence due to prospective res e a r c hb r e a k t h r o u g h s b y a c o m petitor).

Perceptaon of Risk role perception playsa significant f in specifying the response to risk.

Recognition and evaluation of real risk (as distinguished from imagined risk) depends on the availability of relevant information. Since information is costly, if it can be obtained at all, response is oftentimes based on

,, neither all possibleoutcomesnor their "objective" probabilities.

Since firms operate in the realm of uncertainty (through ignorance or otherwise), both certainty and risk maybe consideredideal constructsfor purposes of making real'world decisions. In dealing with uncertainty however,firms are not helpless;they can make judgments about the most important outcomes and their likelihood of occurrence. This exercise ofjudgment provides a set of data which approximate the three characterizing elementsof risk proper.

Hence in a practical sense,nuncertaint/ can be managed in the same manner as "risknand the two terms maybe used interchangeably,as in this paper.

establishinga subsidiaryin a country with socialist tendencies, or it can avoid political risk altogether by not making any FDI at all.

But business thrives on risk (the speculative kind) and risks of various sorts (including the pure variety) are e v e r - p r e s e n ti n t h e e n v i r o n m e n t within which a firm operates. Outright avoidancetherefore is not alwayspossible.

The firm ofcourse can decide to bear a particular risk and endure its adverse consequencesfully. However, if t h e n e g a t i v ei m p a c t o f t h e r i s k i s potentially devastating,the firm may h a v e t o s e e kp r o t e c t i o n b y s o m e meansand pay the price for it. Protection entails cost and oftentimeslimits the opportunitiesfor gain. Depending on the relative magnitude involved,a know'i fixed cost for protection is more acceptable to the risk-averse firm than the indeterminateloss associatedwith the risk, a reduced profit potential is better than uncertain profitabiliry.

Protection from a particular risk may be achievedby either of two alternatives: o modiffing the characteristics of the firm or its relationship with the environment, in order to either reduce the likelihood of unwanted outcomes (preferably to zero) or mitigate their impact on the firm; or o transferring the burden of absorbing the adverseconsequencesin whole or in part to another entity.

The first alternative involves measuresthat the firm has to take on its own and within itself. In some in-

stancâ&#x201A;Źs,the measurecould involvea cost so high asto frustratethe desire to achievea certaindegreeofprotection (for exarnplem , akingthe m a n u f a c t u r i n go p e r a t i o n f u l l y automatedin order to protect a firm againstlossesdue to disruptivelabor Responseto Risk unrest).

The secondalternativerepresents of risk-aver- the essenceof an insurancescheme. /\ iveaths assumption \l5isa, Insurancearrangementsfor riskthe immediate responseto risk is avoidance: abstention from transfermaybe doneprivatelywitha taking risk and stayingawayor getting singleparty (for example,a mining out of situations where one can be at companymaypasson the risk of price risk. For example,a firm can avoid the fluctuationto thebuyerbywayof longrisk of nationalization by simply not term, fixed-pricesupplycontract).

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Under suchone-on-onescheme,the costof protecrioncauld be prohibitive (in termsof substantialprice discount asin the caseofthe supply contract).

The only wayto bring down the costis to involvemanyparticipants,as in a narket, and spreadout the risk-bearing burden.

posure,risk associated with mark€tmakingabroad,and risk generatedby pre-emptiveactionby competitorsin an oligopolisticindustry.

Polilical Rbk

Flolitics is tbe exerciseof mwer in l- humanrelationships (Dail 1984in Markel Frilure A$ochled with Brewer 1985).Politicalrisk pertainsto Risk the unwantedoutcomesof a political exercise(Kobin 1979).In more conr i s k s h i f t i n g o f t h r o u g h t h e creteterms,politicalrisk arisesfrom fhe I market appearsin an explicit form the actionof nationalgovernments in insurance(Arrow 1965).In prinwhich interferewith or preventbusiciple, all risks are insurable.Events nesstransactions,changethe termsof that are perceivedas uncertaintiesby agreemeDts, or causethe confiscation individual firms canbe convertedinto of businessproperty (Westonand insurablerisks through a pooling Sorge1972in Kobin 19?9).By wayof mecbanism.Insurancecoverageis a definitioq we cansaythat political normallylimited to pure risks. risk is the probabilityof the occurOther examples of market renceof somepolitical eventat home nechanismsfor spreadingout risk are or abroadthat will changethe value the stockmarket,the futuresmarket or profitabilityprospectsof a givenina n d t h e o p t i o n s m a r k e t . T h e s e vestment.Examplesof theseevents marketstrade in investmentsthat repare: war, revolution,coupd'eto!,expropriation, taxation,devaluation,exresentspeculativerisk. By meansof the market for comrnonstocks.the changecontrols,import restrictions, ownerof a businesscan divesthimself etc. Although political risk existsalso of someof the risks of the business, in thehomecountrymostfirms,espep e r m i t t i n go t h e r st o s h a r ei n t h e ciallythoseia theindustrialized world benefitsaswell asrisk losses.On the are morecoucernedabouttheir exposureto political uncrrtaintiesin the other hand,by buyingor sellingcontractsin the futuresor optionsmarket, foreign countrythey do businesswith. one is able to hedgeagainstthe adThosewith directforebn iovestments verseimpact ofprice changes. haveagreaterdegreeof exposurethan On the whole,the economicsystem thosewhosedealingsare limited to export andor import. is very limited in its risk- bearing ability. The market hasnd been able The political risks to whic[ a foreign MNE is expoeedmaybe categorized to provide the mechanismfor the transferor sharingof manyoth€rtyp€s in termsofobjects of constraihtasfolof risk. This failure of the market h ar lows: imperfectionthat can be associaaed a trans&r- unc€rtaintiesabout with risk. Becauseof this imperfecflows ofcapital payment,techtion, firms arc oftentimesleft to their nolosr, people,etc; own devicesto copc with risk. When o operrtlonal - urrertainties protection is critical ad risk-trarcfer abootpoliciesthat dircctly or risk-sharingis not feasiblc,they constrainlocal operations;and resort to the afternativ€of r€structuring their operationin or&r to arcrt o omcrshi/control - uncerthe occurrenceof an unwantedouttrinties about policiesrelating comeor to mitigateits inpact. In Secto orrnershipof assetsand of tion III, we will seehow suchmarket nanagerial control (Root imperfertion leadsto FDI. rE72).

Tvpesof ldtbrnatonalRlsk fhe riskswe shallad&essherearc I thosecommonlvrcferred to as ioternational risks. Among them are: political risk, foreign exchangcex-

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Rclativeto thescopeofeffect,political risks may be classifiedinto: (1) nacro risksor environmentalevents that afrectall foreignfirms in a country (example,price control, rnassexpropriation); and (2) nicro risks which are thoscthat are specificto an

industry a firm, or evena proj€ct (exa m p l e s r: e s t r i c t i o no n e x p a t r i a t e e r n p l o y m e n ft o r o i l c o m p a n i e s ; regulationon increasinglocal content (Robock for automobileassemblers)

lnD.

In a reviewby Kobrin (1982),the conclusionsare that mostpolitically generatedcontingenciespresent micro ratherthanmacrorisk.andincreasingly,most affect operation ratherthan ownership.The natureof t h e p o l i t i c a l r i s k f a c e db y a f i r m dependsuponits interactionwith the political environment.The impact upon the firm is a function not only of political eveutsbut alsoofthe firm's operatingand organizational characteristics.For exampl€,wla€rability to e x p r o p r i a t i o nv a r i e sw i d el y w i t h respecttotheindustrialsector,level of technology,andownershipstructure.

Sensitivesectors- naturalresources, utilities- are sigbankinginsurance, nificantly more likely to be expropriatedthan manufacturingor tradesectors, The distinctionbetweenpolitical andeconomicrisksbreaksdownat ths exoerientiallevelasa resultof the int e r d e p e n d e n c eo f e c o n o m i ca n d political phenomena(Root 1972).

P o l i t i c s l a r g e l y d e te r m i n e s t h e frameworkof economicactivity.The converseis equallytrue.The production anddistributionofwealthdirectly affectsthe distribution of power.

For example,a strike,evena general one,cannotbe considereda political eventif its motivationresultsfrom dissatisfadionoverwork-relatedissues.

However,a wide scalestrike protesting a regimeis clearly political.

Still, it is necessaryto determinethe causeof anycalamitousevent.While the immediateimpacton the MNE maybe the samewh€theror not the origin of the eventis political, the longrun consequences mayvary.More importantly,the responsemayhaveto be tailored to the actualmotivationfor the event.

In a number of industrialized countries,investmentguaranteeand political risk insuranceprogramsare offeredby nationalgovernments and privateinsurancecompanies(Brennglass1985).Not all typesof political risk can bc covered.however.

Coverageusuallyis limited to those typesthat maybe classifiedaspure risk (asin the lossofitrvestmentdueto

war, revolution or civil strife or throughexpropriation,nationalization or confiscationandtotheinability to convertlocal currencyfor remittance).The cost of suchinsuranceis considered16fu high.Onereasonfor fies6 highratesis that the smallnumber of political risk insurershavelittle onwhichto baserates. lossexperience Also, the natureof political risk (low frequency,high severity)makespredictability difficult, and insurers would rather err on the high sidein settingrates(Baglini1983).

ForeignExchangeExposure fhe risk that corporatenet worth I will changedue to fluctuationsin foreign exchangerates is called foreign exchangeexposure.There are threemajor typesof exposure.Translation exposure,alsoknown asaccountingexposure,representsthe ofthe variationin theaccountingvalue firm brought aboutby changesin exchangerates.Transactionexposure refersto theprobabilityof gainsor lossesin the settlementof transactions whosetermsarestatedinforeip currency.Economicexposuremeasures the effecl ofexchangerate changeson t h e e c o n o m i cv a l u e o f t h e f i r m (EitemanandStonehill1985).

Translationexposurecomesfrom t h e n e e dt o r e p o r t c o n s o l i d a t e d worldwideoperationsaccordingto pre-determinedaccountingrules.Assets,liabilities, revenuesand expenses originallymeasuredin a foreigncurrencymust be restatedin termsof a homecurrencyin order to be consolidatedwith the homecurrencyaccounts.MNEs :re verymuchoPPosed to this type of risk. Purelydomestic firms with foreign currency denominatedassets(for example, receivablesfrom exports)or liabilities (for example,foreip. loans)are only 5lightlyexposed.

Transactionexposuremayarisein the following instances: o purchasingor sellingon credit goodsor serviceswhoseprices are statedin foreip currency, o borrowing or lending funds denominatedin foreign currenciesand o being a party to an unperformed forward foreign exchengecontract.

MNE and purely domesticlirms are exposedto this risk to the extentthat they engagein anyof the foregoing transactions.

Economicexposurecomesabout due to the possibilitythat the net presentvalueof a fum's expectedcash flows(the firm's economicvalue)will changedue to an unexpectedchange in foreign exchangerates.Economic valuemaybefairly insensitiveto chan gesin the exchangerates,assuming marketpricesadjustfastenoughin ac-

marketagainstlocal producersand exportersfrom third countries.

Changesin real economicvariables are difficult to forecastfor the very reasonthat theyare affectedby both rates nominalfluctuationsin exchenge andby structuralshiftsin theeconomy (Kogut1985).Becausethesevariables cannotbe preciselyforecast,firms with their flucbear risksassociated t u a t i o n .T h e r e a r e n o f i n a n c i a l

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At the experientiallevel,the manifestationsof foreign exchangeriskis the realm of economics. , , cordancewith the theoryofpurchasing powerparity.For example,the foreign currencygeneratedfrom the saleofinventory assetslocatedin a particular countrywill be exchanged for fewerdollars after a devaluationin that country.However,the inflation whichusuallyfollowsdevaluationmay causethe future sellingprice to increasc.If inventoryturnoveris long enough,the valueofthe inventory,in foreign currency,will rise. In some in the foreigncurrencases,increases cy valueof inventoriesmayoffsetthe reporteddevaluationloss.

However,there could be deviations in the valueof an exchangerate from that predictedunderthe theorYof purchasingprice parity(Kogut 1985).

Short-rundeviationsmaybe due to time lagsin theadjustmentprocess.In the long run, failures of market prices to adiustmayimplythattherehasbeen a changein real economicvariables betweencountries,suchaswagerates nreal" adjustedfor infl ation. These' changeshaveirnplicationson the comparative location advantagesof countriesaswell as the competitive positionof firms.At risk are MNEs becauseof their multi-countryloca' tion aswell aspurely domesticfirms which have to competeat home againstimportersor in the export

0 marketswherethe risk of real foreign exchangerate fluctuationscanbe shifted (Kogut 1985).In the caseof translationand transactionexposure, avoidanceor reductionofrisk is availin theforward ablebyvariousschemes exchangemarket,the moneYmarket the optionmarkef etc.(Eitemanand Stonehill1986).

Other Forms of Economic Risks I n general,economicrisk consistof I uncertaintiesresultingfrom the impact of normally functioning and on suPPlY economicprocesses demand,and on the productionand distributionof wealth. with Therearethoserisksassociated market-makingactivities.Examples a r e : f a i l u r e t o m a k ea c o n t r a c t , of specifications, misunderstanding failure to agreeoverprice,defaulton specificationscausedby dishonesty, default in transportation,and failure to enforcesupplycontracts(Casson 1982).

Another set of economicrisksare with actionsof comthoseassociated petitors,especiallyin an oligopoly.

Falling under this classificationare pre-emptivemovesof rival firms that tend to destabilizean oligopolistic structure.

Fluctuations in foreign exchange rates are in most casesdue to pressure from economic forces. However their origins can sometimesbe traced to political pressures.At the experiential level, the manifestations of foreign exchange risk is in the realm of economics.

Economic risks in a world of uncertainty and volatility are difficult to speciS. There are no markets to which all these risks may be transferred. In fact, economic risks are accepted as a normal part of doing business and in 66s[ ins[31gssfirms have to deal with them on their own.

FDIas a Response to Risk /f s previouslydiscussedfirms must Flcontend with the failure of the marketto provide adequatefacilities for risk-avoidance throughrisk-transfer. When certaintransactionsare an essentialpart ofthe business but are the sourceof seriousrisk. firms tend to internalizesuchtransactionsas a wayof avertingrisk. Internalization elimin3lssrisk by makingthe desired outcomecertainthrougb administrative control. Risk is thus avertedbv makingan investmentthat entailsi fixed cost.

While the internalizationof certain transactionsrsencounteredin domestic aswell asinternationalsettings, suchan approachis especiallyimportant asa risk-avoidancemeasurewhen the transactionsstraddlenational boundaries(Caves1973andCason 1979n Vernon 1983).According to Vernon (1983)the internalization phenomenonoccursmost commonly when the number of firms in the marketis small,whenttresurroundirg environmentis uncertain,and when the representations or commitments of the partiesconcernedare difficult to verify or enforce.The circumstancesdescribedby Vernon shouldnot be thouehtofas conditionsthat existoutsidea particular risk. Theseconditionsare themselvesthe verysourceof risk; theyconstitutethe risl situation which canserveasan impetusto FDI, the instru'rrentof internalization.

Raw Materialslndustries f fertical integrationacrossnational U boundariesis commonamong

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c o m p a n i e si n t h e m i n i n g a n d petroleumindustry.In this industry, largeinitial investments createhigh entrybarriersthat keepthe overall numberof firms small.The dispersed locationof overseasooerationsand the tenuouslinks amongthe participating partiesbring aboutuncertaintiesand makefact finding extra difficult. Firms enteringthe industry beginwith largesunkencostsandcontinuewith a relativelyhighproportion of fixed operatingcosts.Becauseof

1a

Thereis alwayssometypeof risk associatedwith an FDI or the motivationbehindit. ,, this coststructure,variationin output generatesdisproportionatefluctuations in net profits (Vernon 1983).

Thusit is importantfor lirmsin thisindustryto stabilizethedemandfor their output and to protect themselves againstinterruptionin the supplyof neededmaterials.To achievethese ends,firms find it necessaryto make FDIs and integrateverticallyin order to internalizetransactions with suppliers and buyers.However,uncertaintiesin transactingwith unaffiliated suppliersandbuyersdoesnot mean that risk alwaysleadsto verticalintegration(Vernon 1983).Suchintegrationrequiresan investmentof substantial capital.Therequiredcapital outlayhasto bejustified in termsof expectedhnancialreturnor reduction in risk. Moreover,the capitalinvestment entailsrisks of its own,which may outweighthe risk-reducing aspectsof the investment.Also, the flexibility of the integratedunits is reducedcomparedwith unintegrated competitors.

The pervasiveness of vertical integrationin therawmaterialsindustry can be partially explainedby the presenoeofanothertypeofrisk. In an industrythat is only partially integrated,there are alwayssomeparticipantswho seethemselvesespeciallyexposedbythat fact;aslongasa par-

tial stateofintegrationexistsin the industry,a newmovetowardverticalintegrationon the part of any firm withdrawsa sourceof supplyor a potentialcustomerfrom the market and therebyincreasesthe perceived risksof thosethatremainunintegrated (Vernon1983).

High-TechnologyIndustries considerations have !l isk-reducing I lpushed firms in hightechnology industries(whichare oligopolisticin structure)to set up overseas subsidiariesasa portion of their foreigp business.

As thetechnologicaledgeof the firm is eaten away,foreign countriesmaybeginto barits products in favor of local producers(a type of political risk). Facedwith that risk, firmsin thehigh-technolog5rindustries havecommonlychosenthe subsidiary alternative(Vernon1983).This type of foreigninvestmentis oftenpursued eventhoughthesefirmsrarelyexhaust the scaleeconomies that canbe exploitedat anyproductionsite.

Oligopolistic Behavior f\ gainin oligopolisticindustriesthe fa"follow the leader"(Knickerbocker 7973)andthe "exchange of threatn (Graham1974)observations canbe explainedin termsof responsesto risk.

The challengefor the oligopolistic industryisto ensurethatnoparticipating producerupsetsthe existingequilibrium by cutting its pricesand enlargingits marketshare.If that should happen,thereis a risk that other producerswill alsobe obligedto cut their prices,therebyreducingthe rent for the industryasa whole.Suppose one of the firms in the raw materials industry,troubledby the risk of being cut off form its existingsources, decidesto developsomenewmining propertiesin a particularcountry.The qualityof theinitiatingfirm'sinformationmaybegoodorbad.[f bad,itmay burden the firm with a costthat will have tci be absorbedin the rent generatedby its otheroperations.But if good,it mayeventuallybecomean industryleaderwith a sourceof ore whoselow costor strategiclocation posesa threat to the stabilityof the oligopoly.If other nembersof the oligopolyare risk avoiders,theyare likely to turn their facilitiesfor infor-

mationgatheringto an examinationof thenewlocation.Somefirms mayeven committhemselves to the newterritory evenwithout all requisiteinformation.The propensityto movewill be enhancedby the expectationthat if a sufficientnumberof membersof the oligopolymakea similar moveandif all of themeventuallyproveto be mistaken"the oligopolywill passon a part of the costof the lossto buyersin the form of higherprices.Hencethe followthe leaderpattern(Vernon1983).

On similarlines,risk-avoidingmembersof an oligopolistical$structured industrywill be expectedto pursue one anotherinto any substantial foreign market in which one of them hasset up a producingsubsidiary.In this case,the risk of pre-emptionwill be particularly great, in as much as the first entrant canbe expectedto urge the governmentto impose restrictionson anyfurthbr importers and to limit the number of foreign producersallowedto set up production facilities in the country (Vernon 1983).

The cross-investment behaviorof certain European and US based MNEs hasbeenexplainedby the sohypothesis. calledexchange-of-threat of a Threatenedby the establishment foreign ownedsubsidiaryin their homemarket, the responseof the lsndingfirmin that marketis to setup a subsidiaryin the invader'shome market.

The two-wayflows of FDI in the samesel of industries,moreover,may serveto reducea somewhatdifferent kind of risk, namely,the risk of lagging behindin the globaltechnological race.In industrieswith rapid inn6vxtive change,firms facethe risk that their rivalsin other countries,exposed to different conditionsin their home marketgmaydevelopa technological l e a d t h a t w i l l e v e n t u a l l yp r o v e threateningelsewhere.Sometherefore acquiresubsidiariesas a technologicallisteningpost in the territory of their rivals(FrankslgTLnVernon 1983).Where this hasoccurred,the FDI hasbeenthe firm's responseto a risk generatedby the actionof competitors.

Risk as a Condition lor EDI oesexposureto risk automatically lead to FDI? Obviouslynot.

Only thosefirms with the requisite financialresourcesand managerial capabilitycanuseFDI to avert risk.

Is exposureto risk a necessary condition for FDI to occur?Thereis alwith wayssometypeof risk associated an FDI or the motivationbehindit.

Certainclassesof FDI, thoughapparentlyinducedby a desireto exploit firm-specificadvantages, are actually motivatedby the needto overcome

operation. Entry through a new business has the disadvantageofgreater riskiness.The going concern mayhave a proven track record ofviability and a working managementteam in place.

From the viewpoint of the foreign investor, the local management of the going concern has the advantage of being highly familiar with the national market environment. The investor that buys the local firm also buys accessto a stock of valuable information.

Thesefactors obviouslyreducethe uncertainty of how well the new subsidiary will do and an existing operation is therefore expectedto command a premium. In general, to chooseacquisition rather than a new venture is to opt for a lower but less certain expected rate ofreturn (Caves1982).It should be noted, however, that the acquisition alternative is rarely available in developing countries.

An exampleis the internalizationof marketsfor intangibleassets(suchas, patentsand trademarks)in order to earnedon fully exploitmonopolyrents them.Someof theinf-rmitieswhichintangibleassetsare subjectto haverisk implications.For instance,transactions in intangiblessuffer from the effectsof impactedness combinedwith o p p o r t u n i s m( C a v e s1 9 8 2 ) .T h e owner- seller of a piece of knowledge facesthe risk that after fully describing the "product"to a prospective buyer,the latter mightno longerfind the needto actuallybuyit.

Joint Ventures

Riskandthe Modeof EntryandOrnership /l n FDI maytakethe form of either laa gteen-fieldinvestmentto establisha newenterprise or theacquisition of a goingconcern.In termsof ownership structure,the foreignsubsidiary maybewholly-ownedby the MNE; it may alternativelybe a ioint venture with otherMNEs,with local private i n v e s t o r s ,o r w i t h s t a t e - o w n e d enterprises.The modechosenfor the FDI can be explainedby risk considerations.

Acquisition Versus Green-Field Entry fhe choicebetweenacquisitionand I green-fieldentryis dictatedbythe expectedriskinessof the foreign

alsoprovide EDisk considerations l ' l t h e b a s i sf o r d e c i d i n g o nt h e ownershipstructure of the foreign operation.To reducecertaintypesof risk, the foreigninvestortakesthe joint-ventureroute especiallyin the in Third World caseof investments countries.

Consodia of Foreigners An" form of ioint venture the Vconsortium of foreigners- helps the investorwith limited resourcesto diversifyrisk morewidely.In operationsin which scaleeconomiesare large, risk-reducingdiversification canbe costly,especiallyon the part of the smallerfirms in an oligopoly.The solutionis for suchfirms to multiply byioining othersin a their resources numberof consortia.Consortiaof this sortalsorespondto theriskthata rival Iirm mightbein a positiontoupsetthe stabilityof theoligopolybysecuringits m a t e r i a l s a t a n e s p e c i a l l ya d cost.Someconsortiaare vantageous organizedto reducepoliticalrisk by diluting the exposureof a firm that is basedin a countryto whichthe host country is hostile and by providinga counterforce that maybe ableto enlist the support of.a numberof difThis tlpe of conferentgovernments. sortia is more commonin the raw materialsthan in the manufacturing

9

industries.This is becausemanufac- technology,capital,or accessto turing firms generallyhavebetter ways foreign markets(Vernon 1983).

Aware of this fact,foreigninvestors of diversifyingtheir portfolios of direct investment.Also, unlike raw that seethemselves asbeingin a relamaterialsproducers,manufacturers tivelyweakbargainingpositionrelative to hostgovernmcnts usuallybrrild their strategieson becausethey product differentiation,combining havplittle to offer to the counfrymay the offeringsof rival producerswould be expectedto usejoint venturesmore be incompatiblewith a product-dif- than investorsin a strongbargaining position(StopfordandWells1972and ferentiatingstrategy(Vernon1983).

Farge and Wells 1983in Vernon 1983).One studyconcludesthat the Joint Ventures with Local Private Investors lessexpericncedthe investingfirm, the higherits propensityfor entering joint private ventures with local inventureswith local partners oint f (Stopford and lrVells1972in Vernon lf vestorsare chosento reducerisk, mainly the political type. In some 1e83). cases,there is simplyno choicebecauseof hostgovernmsl[ imposition. Riskandthe Pattern of Joint ventureswith local firms may MNE Activities alsoreducethe risk to the foreigninvestorof securinglocal distribution fhe time and gcographf cal pattern I of MNEactivitiescanbeshapedby channels. the degreeof familiaritytheMNE has with prospectivehost country.The Joint Ventures with State Owned greaterthe experiencein doingbusiEnterprises nessin a particular country,the loreign investorssometimesagree grsater the familiarity and the lower I to go into joint ventureswith state- the level of perceivedrisk. One study linking experienceto percoivedrisk, ownedenterptisesin the hope of reducingtheir exposureto risk in the coveredthe introductionand subhostcountry.Thesejointventuresare sequentdisseminationof 406 new thoughtof as resultingin freedom productsby 57largeUS-basedMNEs from specialrestrictions,accessto during the period L945-75(Vernon local resources,and protectionfrom in Vernon,L983). and Davidson1979 political risk. Managersof state- The findingsdemonstrated that in the ownedenterprises, on the otherhand, earlydecades of theperiod,firmswere slowto establishproductionunitsfor are generallymuch more activelyinvolvedin partnershipswith foreigners t h e s ep r o d u c t sa b r o a d ;b u t t h e (than those from passivelocal corproductsintroducedin the later poratepartners).Beingexposed to the decadeswereproducedwith much politlcal processin the home country, greaterspeedandin manymorelocastatemanagers areoftentornbetween tions.

A separatestudy(DubinL976in shieldingthe foreign partner from political pressurein order to maintain Caves1972),found that the smaller the partnership,and taking over the the firm and the lesi diversifiedits portfolio of overseasassets,the more foreign partner'sinterestin order to wereto be condemonstratenational commitment likelyits foreignassets (Vernon1982). centratedin familiar countries.A third study (Davidson1980in Caves X983)concludesthat the distribution Joint Ventures and Perception of Risk of US foreigt investmentsamonghost countriesis affectedby the sequence connection risk between and of movesby whichMNE empiresare fhe I joint venturescan alsobe estab- extendedfrom r,roreto lessfamiliar lishedin termsof theforeigninvestor's countries. perception of its olvl susceptibilityto risk. It hasbeen commonlyobserved Risk and the that for anyforeisn-ownedenterprise, Multinational ity Factor the risk of nationalizationrisesasthe firm losesits capacityto offer a sqrce the fl s shownin earlierdiscussions, l{decision to investabroadis meant resciuroeto the host country suchas

10

to reducerisks ofvarioustypes:the relativeunetforceabilityof the firm's right under a contract,the risk of governmentrestrictionon foreignimports,and the risk of pre-emptfveaction on the part of a competitor.And evenas an FDI reducesone set of risks,it exposes theinvestorto another set,includingforeignexchangerisk and politicalrisk. This seemsto suggestthat MNEs are at leastasrisky,if not riskier, than purely domestic firms.Empirical studies,however, showthat MNEs havesubstantially lower overallrisk thanpurely domestic enterprises(PDE) and that the greaterthe degree.ofmultinationality the lower is the risk.

In one study (Hughes,Logue and Sweeney1975)involving46 MNEs and L00PDEs (for the period 1970havebeenthat 73),the observations the MNEs havelower systematicrisk risk and aswell aslbwer unsystematic thattheyalsohayealowertotalrisk(as measuredbythe standarddeviationof the ratesof return on equity).

In anotherstudy(Agmonand Lessardt977),217US firmswereranked accordingto their degreeof international activity and their returns (by group) were regressedon the indices for the US stockmarket and the rest of theworld.Theresultsindicatedthat MNEs with little internationalinvolvement have much higher betas (which are measuresof systematic risk).

A third srudy(Shaked1986)comparedthe failure probabilitiesof a sampleof MNEs with thoseof a control group of PDEs.The resultssuggestthat the meaninsolvency-probability of MNEs is significantlylower thanthat of the PDEs. Two explanationscanbe offered for the better risk profile of MNEs comparedtoPDEs.Onehasto dowith the traditional risk-reducingresultsattributed to diversification,which in t h e c a s eo f M N E s i s p r i m a r i l y geographical.The other pointsto the inherentin a systemalicadvantages globalnenrorkthat enablesthe MNE to better copewith enviro',mentaluncertaintiesand achievelower overall riskinessthanPDEs. In Kogut's(1983and 1985)model, the MNE is viewedasa collectionof valuableoptionswhichpermitthediscfetionary choice of altering real economicactivitiesor financialflows

from onecountrytothenext.Byvirtue of theseoptions,theMNE hastheunique ability to mitigatethe impactof risksasandwhenit occursandevento exploit conditionsof uncertaintyfor additionalgains.For example,the MNEs abilityto shift productionfrom one countryto anotherenablesit to avoidtheimpactof changes in relative pricesdue to fluctuationsin exchange rates.Becauseof its abilitytoarbitrage institutionalrestrictionsit canhave the option to choosein which country to declareits profits fs1 minimumfar consequenoes.

By operatingin diverse locations,the MNE gainsbargaining powerwhich canbe usedasleverage in enforcingequityclaimsor contracts in nationalmarkets,effectivelyreducing its exposureto political risk.

In managingforeign exchangerisk the MNE is in a verygoodpositionto implement"leading"and "lagging" strategiesbecauseit caninternalize the movementof fundsbetweenaffiliates. Leading or laggingbetween independentfirms requiresthat the time preferenceof one firm be imposedto the detriment of the other firm. Thus it is more feasibleto carry o u t b e t w e e nr e l a t e d f i r m s t h a t presumablyembrace a commonsetof goalsfor the consolidatedgroup (EitemanandStonehill1986).

But evenif the MNE doesnot actively employthe optionsavailableto it, it canstill passivelyenjoythe risk-reducing effectsof diversification.

Corclusion I n conclusionwe cansaythat risk can I providean adequateexplanationof FDI and for the wholeprocessof multinationalizationof a firm which is in an oligopolisticallystructuredindustry and which relies on foreign marketsfor salesand/or supplies.

At the outset,the firm recognizes thatit is exposedto risk in its dealings with partiesbasedabroadandthereis no market to which the risk can be shiftedfor a fixed cost (first case),or that it facespotential risk if it exploits certain advantageglike intangibleassets,through the market (second case).The recognitionof ris( which presumablyhasdevastatingeffects, leadsthe firm to internalizecertain transactionsin order to avertthe risk in the first caseor to avoid the risk in the secondcase.Sincethe internaliza-

tion straddlesnationalboundaries, the movegivesriseto an FDI and starts the firm's multinationalization process.

The initial FDI enablesthe firm to get out or keepout of one sqt of risks onlyto exposeit to anothersetconsisting mainlyof political and foreignexchangeuncertainties.Again, the market fails to provideadequate facilityfor risktransferandsothe firm hasto act on its own in order to minimizeits exposureto risk in anyone country.The solutionof courseis to diversifygeographically.

The drivefor diversificationfurther enhances the degreeof the firm's multinationalization. In the choiceof whichcountries to investin, the firm is guidedby its

perception of risk, developing bias in favor of countries with which it has greater familiarity through experienee or information.

In the meantime, pre-emptive actions of global competitors generate anew another type of risk which again can be averted only by further FDI. This multinationalizationprocess continues to escalate.

By analogy, we can liken risk to a chronic illness and the FDl/multinationalization-combine to a potent ph armaceutical whose effectivencss against the persistent illness depends on its being administered in continuing increasing and occasionallymassive doses.

BIBLIOGRAPHY Agmon, T. and D. R. Lessand{1977) "lnvestor Recognitionof Corporate Inlâ&#x201A;ŹrnationalDiversification", Journal of Finance,September.

Arrow,K. (1965)Aspecrcof theTlnory of Risk-Baing, Helsinki,Finland: Yrjo JahnssoninSaatio, B a g fi n i , N . A . ( 1 9 8 3 )G l o b a lR i s k Management: l$w U.S. lnternational Corporations Manage Forcign Rhks, Risk ManagsmentSociety Publishing,Inc. Brennglass,A. C. (1985)"lrwestment G u a r a n t e ea n d P o l i t i c a lR i s k I n suranoePrograms',in T. L. Brewer (ed), Politbal Risksin lntemational Euslness,New York: Praeger,pp.

289308.

Brewer,T. L. (1985)PoliticalRisksin InternationalBusiness,New York: Praeger.

Gasson,M, C, (1982)'Transaclion Costsand the Theoryofthe Multinational Enterprises",in A" M. Rugman (ed.l, New Theoles of lhe Multinational Entepdses, New York: St. Martin'sPress,pp. 24-4i,.

Caves, R. E. (1982) Multinational Enterpisesand Economb Analysis, Cambridge:CambridgeUniversity Press.

E i t e m a n .D . K . a n d A . l . S l o n e h i l l ( 1986) Multinational Eusiness Finarrce(3rd.ed.), Reading,Mass.; Addison-WesleyPublishingCo. Graham,E.M. (19tal Ofigoplistic lmitdion and EuropeanDirect lnvestment in tho United Sfafes, unpublishedDBAthesis,HaNardBusi. nsss School.

Hughes,J. S., D. E. Logm and R. J. Sweenoy(1975)'CorporateIntornational Diversilicationand MarketAssigned Measuresof Risk and Diversification",Joumal of Financialad QuantitativeAnalysis, November.

Knickerbocker, F. T. (1973)

Oligopolistic fuaEtion aN Multin& tional Enteryrtse,Boston:Divisionof Research,Harvard Business School.

Knight,F. H. (1921)R'sk,Uncertainty and Prcfrt New York: Sentry Press (19d1reprint).

Kobrin,S. J. (1979)"PoliticalRisk:A Reviewand Reconsideration", Journal of lnternational Euslness Sfudies,Spring/Summer,pp. 67-80.

Kobrin,S.J. ('t9tl2lManagingPolitical Risk Assessment,Berkeley,Calitornia: Universityof CaliforniaPress.

Kogut, B. (1983)"ForeignDirectInvostmentas a SequentialProcess," i n C . P . K i n d l e b e r g e ar n d D . A .

Dretsch, The Muftinatb nal @ mpany i n t h e 1 9 8 0 s ,M a s s . :M I T P r e s s , Cambridge,pp.38-56.

Kogut,B. (1983)"DesigningGlobal Strategies: Profiting from Operational Flexibility,' Sloan Management Review,Fall pp.27-38.

Rescher,N. (1983)RiskA Philosophical Intrcd uctbn b ttn Theoryof Risk Evaluation and Man agement, Washington,D. C.: UniversityPress of America.

Robock,S. H. (1971)"PoliticalRiskr ldentification and Assessmont", Columbia Journal of World Business,July-August,pp. 420.

Root, F. R. (1972)"AnalyzingPolitical Risksin InternationalBusiness,"in A. Kapoorand P. D. Grub (eds.),Ihe Multinational Entarpise in Tnnsi'ticn, ftinceton, N. J.: Danrin Press, pp.33l-36s.

Shaked, l. (1986)'Are Multinalidnal Corporations hlerP Journal of lnternation al Eusiness Sfudies, Spring.

Vernon, R. (1983)Organizatbnaland In stitutional Responsos to lntern* tional Risk,Cambridge: Cambridge UniversityPress,pp. 191-222.

11

Mhg tlv rrurltnalanalsd tleb ovvngone...

TheComingof Managerial Capitalism in Malaysia r

capitalismmuch more efficiently createdeconomies of scale,implebyProf. WctorS. Limlingan mentedintegrationand providedacLudo FoundationProfessorof cessto capital.

BusinessManagement Giventhe conceptualpremise,the originof thispaperwasanintellectual Introduction journey which begunwith the most traditionalof historicalanalpis- the fhis paperisbasedon twopremises; attemptto discoverthe presenceof I o n e c o n c e p t u aal n d t h e o t h e r thoseforcesthat nurturedthe coming analytical.The conceptualpremiseof of managerialcapitalisminJapanand thispaperis that professionalmanage- in the Westin a developingcountry ment is a historicalphenomenon suchasMalaysia. rather than a scientificproposition.In As with most travelers,we did not this,the paper is heavilyinlluencedby find what we soughtbut discovered the book, The Visible Hand: The what we havesoughtfor. For we have ManagerialRevolutionin American discoveredthat the powerof an idea Businessby Alfred Chandler.This or ideology such as managerial paper startswith the premisethat capitalisnlsstsnot on theextentofits professional management or appropriateness to varyingeconomic managerialcapitafsm aroseout of conditionsbut moreon its malleabilitv and prevailedover entrepreneurial in servingpurposesother than those capitalism.simplybecausemanagerial intendedby its creators.After all,

12

Marx sawCommurismasfreeingthe laborersof EuropeandMao usedthe sameideologl to free the peasantsof China.

The other purposethat Managerial Capitalismcouldserveis to bethefirst r a t h e r t h a n t h e l a s t s t a g ei n t h e economicdevelopmentof a country.

Historically, entrepreneurial capitalismhasprecededmanagerial capitalismin the economicdevelopment of nations.Entrepreneurglike t h e B i b l i c a l p r o p h e t sm u s t f i r s t prepare the economyfor the coming of the professionalmanagers.

While historicallyaccurate,suchan approachis not appropriateunderthe prevailingconditionsin developing countries: o The developmentand nurturing of entrepreneurs takestoo long for today'spoliticians and

too haphazardfor today'srational economicplanns15. o Existingpolitical conditionsrequire not only the develop ment of entrepreneursbut the right kind (samerace,same political party) of entrepreneur. o Pastentrepreneurialpractices are no longer acceptablegiven today'ssocialconscienceand today'sgovernmentregulations. o Most importantly,in a businessworld now dominatedby managerialcapitalism"the ability of entrepreneurial capitalismto competeis in seriousdoubt.

Our discoveryof a counky attempting to leapfrog to managerial capitalismis the main themeof this paper.Consistentwith our conceptual and analyticalpremises,we shall presentthis attemptas a historical phenomenaldescribingthe settingin which it takesplace,introducingthe actorsasthey enter upon the stageof history speculatingon the forcesthat impelled their actions and lastly reflecting on the part of this phenomenain the greatercanvassof history.

We nowfocuson the countrywhere our intellectualjourney beganMalaysia.

Malaysia fhe nationthat is Malaysiatodayis I a tropical land blessedwith abundantnaturalresources(oil tin, timber, rubber and palm oil) and a sparse populationof 17million people.The 17 million people that inhabit Malaysiatoday are drawn from three disparateraces- Malay (More popularlycallednBumiputrasn meaning nSonsof the Soil" asmostMalays were in agriculture and the rural areas.),Chineseand Indian. They havebeen brought togetherby the worst that is in British Colonial Policy and arestrugglingto unite peacefully within the franework of the best that is in British democratictradition; a parliamentarydemocracyheadedby a constitutionalmonarch.

In a land inhabitedby Malayswho are united by race and religion,the

British colonial policy of divide and conquerhadmseningonlywhenother raceswith other creedswerebrought in. And theywere.The Chinese were brought in to work in the tin mines (from vAere theymovedto the cities to follow their commercialinstincts) and the Indianswere brought in to work in therubberplantations(where they set about forming the labor unions).TheMalaysontheotherhand wereleft to theirtraditionalrice farming. But from their royalty and noblemen,the British fashionedin their own image,an administrative elite which governedthe Colonyof Malaya.

Whenthe sunset on this part of the BritishEmpire,it is to thisadministrativeelitethattheBritishproposedand did indeed transferpower in L957.

But independence that is wonby ae p e a l t o t h e c o n s c i e n c eo f t h e colonizerrather that by defeatof his armiesin thefield of battlecarrieswith i t t h e d e m a n df o r r e s t r a i n ta n d reciprocity.As a requisitefor thewilling transferof power,the British extractedfrom thesoonto bememberof theBritishCommonwealth thefollowing promises: o Adoption of at leastthe form of a padia-entary democracy headedby a constitutional monarch; o Recogpitionof a multi-racial societywhichmeantthe enfranchisementof the Chineseand Indianswho have formerlybeenconsideredtemporary residentsof Malaya; and o Continuanceof an economic policy of free enterprise whichmeantthe'nonnationalizationof Britishownedcompanies.

Of thethreecommitments to Britain, the mostdifficult to implementwas the creation of a multi-racialsociety giventhe historyof mistrustbetween the races. In trying to fulfill this commitment, Malayaof 1957had to be transformedinto theMalapia of 1963.

In the procesqMalaysiasplit offSingaporewith its dominantChinese population from the Federationand invited two former British Colonieg Sarawakand Sabahinto the Federa-

tion despite being separated by 1,000 kilometers of ocean.

In attempting to graft the Western concept of parliamentary democracy into the body of Asian politics, the instinct for consensus(musiawarah) of the Malay; the philosophy of pragmatism of the Chinese and the active acquiescenceof the Indian combined to assure the sharing of power without the bruising confrontation of partisan politics through the formation of a coalition, the Alliance Coalition. This coalition (later expanded into the National Front or Barisan National) which has governed Malaysia since its founding in 1963 consists of three major political parties representing the three races- the United Malays' National Organization (UMNO); the Malaysian ChineseAssociation (MCA) and the Malayan Indian Congress (MIC).

Lastly the traditional British institutions of an apolitical military and a policy-implemslling civil servicewere retained.

The compromise between the races lasted for six years and was only temporarily shattered bythe racial riots of 1!)69.In the aftermath of the riots the f ederal constitution was suspendedfor eighteenmonths.When constitutional government was restored in February of.I97 L, new ground rules and objectiveswere set: o A state ideolog5rwas proclaimed; o Inter-racial matters were not subject for discussionunder pain of criminal penalty; o All the parties were incorporated into the National Front, thus effectively eliminating any opposition party; and lastly o A new economic policywas adopted.

The New Economic Policy (NEP) ln 1971,the Governmentof Malaysia I formallyadoptedinto its five-year economicdevelopmentplans,the New EconomicPolicy (NEP). The NEP soughtto restructureMalaysian societysoasto achieveby 1990a community where all the racial groups consistingof the Malays,the Chinese and the Indianswould participateas

13

full partnersin the socio-economic developmentof the nation. The NEP outlined a two-prongapproachto the attainment of such an objective: povertyeradicationand income equalization.

The NEP objective of poverty eradicationcalledfor a pattern of developmentwhich would permit increasedparticipation and involvement of the poor in the economic prosperity of the nation. This increasedparticipation and involvementwasto be achievedthrough land development:increasedin agricultural productivity primarily through irrigation projectsand the absorpion of the rapidly growinglabor force into higher incomejobs in the industrial and servicessector.

Specificprogrtms rrere undertaken to help specifictarget groups;i.e. small rubber holders,padi (rice) farmers,smallcoconutholders,estate workers,fishermen The urban poor werealsobenefitedby the provisionof public facilities, low-cost housing projectsand evenassistance to petty tradersin the acquisitionof stalls.

The combined effect of the deliberate poverty eradication program together with other economicdevelopmentprogramsof the governmentled to a declinein the incidenceof poverty from 49.3per centin l970to29.2per centin 1980.

trtn t: |t|9rffikikr*rqul{ t$$pqf ltordrp$'pet mor*

The income equalizationprogram wasa more ambitiousundertaking sinceit soughtto eliminatethe disparity in incomeamongthe races.

Table 1 presentsan indicationof the magnitudeof the disparityin income at that time.

The IncomeEqualizationProgram had asits initial stratesr,economic restructuring through increasedincometo the rural sector,increased participationof the Bumiputrain the urban sector,the industrial and servicessectorsand in the professional

14

gestationperiod while political pressureshavea short graceperiod. To solvethis problem,Pernasdeviseda strategywhich reliedteavily on its PerbadananNasional(PERNAS) competitiveadvantage:strongsupport by and unrivaledaccessto the MalaysianGovernnent;i.e. manifestation the s a corporate of Jl Fllncome EqualizationProgram, o PernasWakil, a Pernassub' the thenDeputyPremierof Malaysia, sidiarybecamea wholesale Tun Abdul Razak,suggested the forpurchaserfor the government mation of a corporationwith the of Malaysia,for defenseequip specificpurposeof ensuringthat a ment. larger sliceof the economiccakego to o PernasTrading, anotherPerthe bumiputras.The companycalled nassubsidiaryregulated PerbadananNasionalor the National Malaysia'stradewith the Corporationof Malapia (Pernas)was Socialistcountries,includi"g incorporatedin November1969with a China despiteextensiveand paid-upcapitalofjust overM$11miltraderelations old established l i o n o r U S $ 5m i l l i o n . I t s e n t i r e many trading which Chinese authorizedcapital of M$50 million in Malaysia had with houses was fully subscribedto by various China. governmentagenciesand corporaAnother lucrativeline of business tions.Interest-freeloanswerealsoexdevelopedby Pernaswasto actasthe tendedby the Federalgovernmentto Bumiputraor local partner of multiPernas. nationalcorporationsdoingor planTengkuHamzahRazaleigh,the first chairmanof Pernaswasfacedwith the ning to do businessin Malaysia.Thus taskof formulatingthe appropriate Pernasenteredinto ioint venture with suchcompaniesas agreements strategywhichPernascould adoptto Goodyear,Cadbury,Electrolux,Jarattain the objective of income d i n e , S i e m e n sP l e s s y ,Y a w a t a , equalizatio'n.Basicallythereweretwo Marubeni,Nippon Electrig andNipmajor alternatives: pon Oils andFats. o Pernascould perform the Suchgovernmentsupportis not role of pinentrepreneurial completely beneficialsincePernas pointing possiblebusinessopwasalsorequiredto buyintoor underportunities,establishingthe take businessprojectswhich did not corporationswhich would exprovideimmediateeconomicreturn. ploit suchopportunitiesand For examplePernaswasrequired then transferringsuchcorunder the Third MalaysiaPlan to go porationsto qualified deeperinto the manufactureof fer[umiputras. tilizers, cement,telecommunications o Pernascould perform the role andpharmaceuticals. ofbeing tho conduit through By 1976,Pernashad a paid-upcapiwhich existingcompanies tal of M$l16.25 million. Moreover, could be boughtfrom nonsupportedby interest-freeloansfrom [ 'miputrasandthensoldto the MalaysianGovernment,Pernas qualifiedbumiputras. wasableto spawneightwholly-owned TengkuRazaleighbasicallyopted subsidiaries- PernasConstruction, for the first alternativesincehe was PernasEngineering,PernasMining PernasProperties,PernasSecwities, concernedthat ifPernastook too big PernasTradins,MalaysiaNationalIna stakein a goingconcern,it wouldbe called indirect nationalization. suranceand PernasWakil- which Moreover,the objectiveof Income together'hada paid-upcapitalof Equalizationwassupposedto be M$300million. Theseeight subsidiariesandtheir 37subsidiarieswere achievedthrough a gteatet sharein a greater economicpie rather than in steel,shipping cement,electronics, thtough an increasein sharein the exengineeringchemicals,construction, plantations,trading, warehousing, istingeconomicpie.

The first alternative,however,had a shipbuilding insurance,tin, timber, rubber, titanium, aviation,property, basicshortcomingin the sensethat communications,advertising,public entrepreneurialprojectshavea long and technical occupations, increased ownership of the commercial and industrial and corporate sectors.

relations, financing tire manufacturing, agricultural services and even confectionery.

In terms of its contribution to helping the Bumiputras, Pernas could point to the fact that: o Two-thirds of the corporation's staff of over 6,0(X)are bumiputras and a strong pool of Malay managerial talent has been built at the top. o Through itsioint venture in Malayawata Steel and Goodyear Malaysia" Pernas has been able to give numerous dealerships to Malays.

tainly preferred Pernasto any otherqualifiedBumiputras whosepolitical influence would be personalrather than institutional.

Given this impasse,it would have been logicalto expectthat Pernas wouldmodi$its policywithrespectto the acquisitionof existingcompanies bybuying the numerousBritish companiesoperatingin Malaysia.These companiesno longercarriedtheclout of theBritishEmpireandtheir British s t o c k h o l d e r sh e l d n o p o l i t i c a l l e v e r a g ei n M a l a y s i a nd o m e s t i c politics.

o Pernas Edar, the warehousing company has introduced many Malays into retail trade. o Pernas Engineering and Pernas Construction, through their subcontracting programs have encouraged Bumiputra contractors and machine shop owners.

Despite these achievements,Pernas had its share of criticisms. The three major ones were: o Pernas in its joint venture arrangement had not performed an active managerial role but had merely been content to let the multinational partner perform the more active managerial role. o Pernas had a mixed record of performance, making money on some projects but losing on others. o Moreover, the profile of its financial performance precluded Pernas from handing any of the Pernas companies over to qualifred bumiputras. The companies which were not profitable were not attractive to qualified Sumiputras. The companies relying on government access could not be transferred to the private sector without losing their very attractiveness;i.e. government support. And the companisg where there were Multinational Joint Venturc Partners cer-

Alas,historyhasbeenmademore ironic than logicalin this instance.

Theacquisitionof SimeDarbyby Pernaswasclearlyan exercisein British self-immolation.For the plot to acquire SimeDarby washatchedin British mindsand the deedwasdone

by British hands.

Sime Darby Q i m e D a r b yw a se s t a b l i s h eidn tJMalacca in 1910bv the brothers W.M. andJ.M. Simeind Mr. H.M. Darbywith acapitalof $66,000.

Irs businesswasoriginallythe management of the Sfi)-acreRadellaRubber Estate.It soonexpandedinto general trading and by 1916had openeda trading office in Singapore.By 1954, when new officeswere openedin Kuala Lumpur, Malaysia,Sime Darby's activitiesincluded plantations, generaltrading,engineering and contracting,imports and exports, tractorsand heavyequipment,as-

sembliesand supplies,building materials and shipping. This diversity of activities necessitateda restructuring in 1958 by the formation of Sime Darby Holdings Limited to hold the shares of the major companies in the group.

In the 1950'sand the 1960'sSime Darby's growth was steady but unspectacular. In L959, Group profits before taxeswere about f500,000; by L968,these had grown to f1.49 million and by L97lto I2.9 million.

The turning point in the company's h i s t o r y c a m e i n 1 9 7 2 ,w h e n S i m e Darby embarked on a rapid program of diversifi cation under its aggressive Chairman, Dennis W. Pinder.This program which many financial analysts consider to have been motivated by the company's desire to diversify both its product (agricultural) and country (Malaysia) risks brought the companybeyond its tradi tional plantation-related activities and also led to major investmentsoutside its traditional geographical areas of operation in Malaysia and Singapore.

In1972, Sime Darby merged with R.G. Shaw & Co. u/hosemaior interests were in India. The company also brought substantialinterestsin several Hong Kong-based companies; Harper International, Amoy Canning Corporation and China Engineers Ltd. Offers were also made to acquire (and accepted in 1973) Clive Holdings, Ltd., one of London's discount houses,and Woodward Dickerson, Inc., a US-basedcompanyspecializing in marketing fertilizers and chemicals.

In L973,SimeDarbyacquired Edible Products, Ltd. and Golden Bay Realty (Pty.) Ltd. in Singapore. Through the latter, Sime Darby acquired Orchard Towers, a large shopping and residential complex in Singapore.In the United Kingdom, Sime acquired Faure Fairclough Ltd., an international comrnodity trader and bought substantial interests in Robert Bradford & Co. Ltd., an international insurance broker and Czarnikow Investment Services..Inthe United States,Sime through Ctve lleldings aceuired King and King Foreign Exchange Inc. I n m o s t c a s e sa c q u i s i t i o n s w e r e financed by issues of Sime Darby stock, necessitating an increase in issued capital from f4.5 million in June l97l to f 15.0 million by June of 1973.

As a result, Sime Darby's total resour-

15

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cesexpandedfrom f 11.7million in Juneof L97Lto 1103.1million in June of.1973.Turnover increasedfrom f30.9in 1971to f155.5rnL973.Profits beforetaxroseaccordinglyfrom I2.9 millionia 1971to110.8 millionin 1973.

SimeDarby had becomethe largest companyin SoutheastAsia.

Nineteenseventy-threewasalsoan eventfulyearfor SimeDarby in other ways.The chairmanand chief executive officer of SimeDarby aswell as the driving force behind the company'sexpansionprogrampsnnis Pinderwasarrestedand later jailed for criminal breachof trust involving over M$1.29million in company funds. He was succeede d as ChairmanbyMr.TanChinTuan(also Chairmanof Singapore's Overseas ChineseBankingCorporation)while Mr. JemesB',waterwasmadechiefexecutiveofficer.

Mr. JamesBywaterwhoalsobecame Chairmanupontheresignationof Tan Chin Tuan in Novemberof 1975,pursueda strategyof consolidation.

SeveralacquisitionssuchasClive Discount Holdings Ltd. and Woodward andDickersonweredisposedof while Sime'sinterestin ChinaEngineers (Holdings),Ltd. wasincreasedto 75 per cent.

The net effect of the consolidation strategywasto freezethe diversification movesof SimeDarby and to force Simr Darby to rely on its existing operationsto generatethe balanced incomegrowth the diversification strategysoushtto achieve.

By 1976,a casecould be madethat SimeDarby had succeededin its diversificationobj ectives.Sime Darby'soperationcenteredaround sixmajor areas:i) plantations;ii) commodity trading;iii) hearyequipment, tractors and motor vehicles;iv) property, insuranceand money

16

brokering; v) shipping and general trading; and vi) manufacturing, processing n1d sngineering contracting. Activities in theseareaswere conducted in either subsidiarycompanies where Sime Darby had full managem e n t c o n t r o l , o r a s s o c i a t e dc o m panies in which Sime Darby did not have full control but to whose direction it contributed. These companies, 35 subsidiariesand44 associatedcomp a n i es w e r e i n c o r p o r a t e d i n 1 0 countries around the world.

As an additional diversification move, Sime Darby Holdings which held the shares in the Sime Darby companies was incorporated in London, was domiciled in Malaysia for tax purposâ&#x201A;Źs and was headquartered admini5tlxliysly in Singapore.

To the discerning,however, Sime Darby's operational structure was flawed, its Malapian operation's attractivenessto the Malaysian Government too tempting and its refianceon Singaporestockholdersfor control too imprudent.

The operational structure was flawed becausewhile the Malaysian operations accountedfor only t7 .0 per cent of Sime Darby turnover, it accounted for 72.0 per cent cif its Trading Profits.

The attractiveness of the Malaysian operation could not be hidden from M a l a y s i a n e y e sa s i t c o n s i s t e d o f agricultural production. In 1976,Sime Darby had ownershipinterestsin 180,500acres and managementinterests ilr 10,300acres. Of these, 80,600 acreswere planted to rubber, 97rffi0 acres in palm oil and2,3ffi acres in cocoa. An equally strong element of the Malaysian Division was the distribution and service of Caterpillar heavy equipment, Ford agricultural tractors and smaller agricultural machines,and of implements from

Tabfe3: Domieileof.siqe DarbySlockhoklersin 1976 (Percer*) Sing4pq ilhlayrsia Brftain I Ftcrq f\orq Total

4A 36

ro 'e

r{ff:

Source:Smc OarOy eerffmar other leading brands.Apart from t h e s e ,t h e M a l a y s i a n D i v i s i o n w a s engaged in or expanding into general and technical trading, engineering contracting, manufacturing of foodstuffs and industrial products.

On the financial side, Sime Darbywas developing its operations in money brokering, insuranceand shipping in Malaysia.

The vulnerability of the management in terms of control of Sime Darby can be seenfrom Table 3, where the British Managementhadto rely on the d i v i s i o n o f t h e S i n g a p o r e a n s ,t h e Malaysians and the Hong Kongeseto retain control. While Clive was able to conquer India with lessthan a 100men through the strategyofdivide and conquer, such a strategywithers in the light of day.

The person who brought the Sime Darby situation to the light of day was a British financier by the name of Jim Slater. At an alleged meetingbetween S l a t e r a n d T u n k u R a z a l e i g h ,t h e n Chairman of PERNAS, Slater is believed to have explained the arithmetic of London Tiq a British investment company with substantialholdings in a number of important tin mining companies in Malaysia.

Slater rightly argued that the Malaysian Government could buy control of London Tin relatively cheaplyand eventuallyunlock the substantial cash assetsof its associate companiesin Malaysia.Slater said this money could be used by Pernas to acquire control of Sime Darby.

Schooled in the British tradition of using the natives to fight one's battles; Tungku Razaleigh appointed Rothschilds of London as Pernas' merchant bankers.They were askedto work out a deal whereby Pernascould, with the full approval of the London and Singaporean authorities, take control of London Tin for the least

possibleamount.Rothschilds'second promulgatedby the KLSE wasthat briefwas to getPernascontrol of Sime new issueswere subjectto CIC apDarby. proval.Since59 per centof tradingin The selectionof the Rothschildsas SimeDarby stockwasdone through merchantbankerscould be explained the KISE, the KISE expectedSime by the fact that Tungku Razaleigh Darby to complywith suchrequireknew the Rothschildsexecutives ments.SimeDarby did not. Between throughhis involvementaschairman then and 1975,SimeDarby issued of BumiputraMerchantBankers. about20 million sharesfor acquisiThis Malaysianmerchantbankwhich tions, conversionsand warrants.They wasestablishedin L972,wasa joint were tradedwithout anystampthat venturebetwesaf,ank f,rrmiputra and they{verenot officiallylistedin KISE. Rothschilds.Its managingdirector Late in 1975, the Malaysian was a Rothschilds executive. authoritiesresolvedto force compliancewith the requirement.This, Moreover,the Rothschildsin their previousfinancial incarnationhad they resolvedto do in typicalAsian b e e nm e r c h a n tb a n k e r st o S i m e fashion.

Darby. In Novemberof 1974,Sime The Malaysianauthoritiesrefrained Darbydispensedwith their servicesas from orderingSimeDarby to comply its merchantbank advisers;one year with the regulationbut insteadrelater Rothschildspublicly appearedas questedSimeDarby to decideon merchantbank adviserto Pernas. eithersubmittingto thejurisdictionof In a remarkabledeal announcedin the Capital IssuesCommitteeor April of 1975,Rothschildspersuaded stampingtheir shares"not listed and quotedon the KISE." Insensitiveto theTakeoverPanelinI-ondonandthe Bank of Englandto allow Pernas,in the nuanceof sucha requestand partnership with Charter Cont h i n k i n g t h e y h a d a c h o i c e ,t h e management solidated,tobid for London Tin and of SimeDarbyoptedfor to usethe dollar preminmto artificialthe secondand fatal alternative.The ly increasethe value of the offer(As decisionprompteda remarkby Tan part of Britain's currencycontrols, Sri Ismail,Governorof the Central British residents have to pay a Bank (BankNegara)of Malaysiathat: 'Thereis noplacefor piratesandbusipremiumwhentheybuy foreign currencies,and this automaticallyraises nessbuccaneersin this country...We the cost and valueof foreigp stocksto expectthosewhooperatehereto comply with our regulations.n Britishinvestors.).

For a second With the fall of t ondon Tin" the battime the management of SimeDarby, tle for SimeDarby had begun. missedthemessage thattheMalaysian The date of open hostilitiesbetween Government was sentling and proceededwith implementingits fatal Sime Darby and Pernas can be preciselydeterminedbecauseSime decision.Pernasnow had the support Darby unwiselyprovidedthe apof the MalaysianGovernmentin what propriate incident or casus belli would havebeen a controversial without which no civilizedwar maybe decisionto acquireSimeDarby. fougbt; an affront to nationalhonor.

Neverhassowide a communications Thiswasnot to be merelyaprory fight.

In May of.1976,Sime darby shares stamped"Not listed and quoted on KLSE" (Kuala Lumpur Stock ExMalaysia)begancirculatingin sfuange, the SingaporeStock Exchange.Upon requestfor clarification, the SingaporeStockExchangewasinformed fffiOi !tâ&#x201A;Ź l

by Sime Darby that as a foreign ,. #)i (British) incorporatedcompany,it did not regard it appropriateto submitto thejurisdiction of Malapia's Capital IssuesCommittee.

When the Kuala Lumpur StockExchangewasoreanizedafter the departure of Singaporefrom the Malaysian Federation,one of the requirements

#

gap existed betwsen two Englishspeaking people.

On November 15, 1976,Rothputra Nominees Sdn. Bhd., a wholly owned subsidiary of Bumiputra Merchant Bankers Berhad gave formal notice to Sime Darby of its intention to propose the election of three new non-executive directors to the board. These were: Tunku Ahmad bin Tunku Yahaya, Managing Director of Dunlop Malaysian Industries; Mr. Wee Cho Yaw, Chairman and Managing Editor of the United OverseasBank (Singapore) and Mr. Sixto K. Roxas, President of the Bancom Group, Inc. (Philippines). The proposal if voted upon and approved by the stockholders would reduce the British directors to a minority (5 out of 12) and effectivelytransfer control to Pernas. Moreover, the proposal was a combination of Asian subtlety and British legality. The merchant banker c o u l d a r g u e t h a t t h e t a k e o v e rw a s prompted not by narrow Malaysian nationalism but by broader Asian inte rests as exemplified by the three prominent Asian businessmenonly one of whom was Malaysian. As no Malaysian government official was involved, Sime Darby could not invoke the help of the British government in what was merely a private quarrel.

Beneath the sound and fury of the press releasesand public statements of the combatants,behind the dramas of the stockholders meeting, the relevant events were as follows: o December 611976- The British Commission on Monopolies and Mergers decided against exercising iurisdiction in the dispute over

TY

ffi' 17

the replacementof the directors of SimeDarby. o December7, ln6- The OverseasChineseBankingCorporation of Singaporeannouncedthat it would abstain from the voting. r llecember9rln6- Messrs.

JamesByrvaterand K. Eales resiped asdirectors to be replacedby PernasNominees.

Mr. Bywaterwasreplacedby Tun Tan SiewSin, an old director of SimeDarby and former FinanceMinister of MalaysiaasChairman. o llecember30,1976- The slangeswereratified by the SimeDarby stockholders. o February1977- Dr. Keith Bright resignsasChief Executive of SimeDarby.

On October 22, 1979, Fortune magazinefeatured Sime Darby as Malaysia'sPlantation-GrownConglomerate.In the flattering article, Fortunereportedwhathadtranspired within three yearsof the takeover: o The core businessof the largestcorporation in Soutleast Asia is still its lush plantationsof 200,000acres.

They provide both the profits and the cashfor expansion. o But SimeDarbyhasbeenexpandingelsewhere.As its ChairmanTun Tan SiewSin had stated"Ifwe call ourselves a multinationalit doesn't makesensejust to export primary commodities.nBy 1979,SimeDarby had amassedmore than ZX) enterprisesthat operatein twenty-twocountries,making it Malaysia'sfirst multinational corporation.Its integrated agriculturalbusinessconverts paln fruit to cookingoil and marketsit all the wayto groceryshelvesin the Middle East.This drive towards ndownstreamactivitiesnof processingits crop into finished productshad come from a realizationthat while the price of vegetableoils fluctuates,the prices of soapand margarinehaveremained steady.

18

o SimeDarbyhasbeenacquiring companiesin Western countriesto obtain direct accessto technologr.For example,SimeDarbybought control of a smallAustralian companyto obtain its knowledgefor makingsurfactant,a cleansingagentin detergents.

From this,Sime Darbywasableto use Malaysianpalm oil to makea bubblyconcentratefor soap manufacturers. o SimeDarbyhasmaintaineda policyof retainingWesternexpertisewhiledecreeingthat Malaysiansmusteventually positakeoverall management tions.Thuswhilethe ChiefExecutiveOfficer is a British expatriate,severalMalaysians arebeinggroomedto assume greaterresponsibilities.

For example,his deputywasTunku Dato Ahmadbin Tunku Yahaya,a British educated

Malay prince and nephew of the nation's first Prime Minister.

The significance of the acquisition of Sime Darby did not spread beyond SoutheastAsia. For after all, the takeover of foreign companies by host governments is a common phenomenon. But the take-over of Sime Darby was radically different not only for the tactics used but more so for the obiectives pursued. In the words of the then DeputyPrime Minister of Malaysia, Dr. Mahathir- \ile didn't go into Sime Darby for national pride or to have another Chrpler on our hands,but becausewe need a successful company." Why the Malaysian government would need a successful multinational company can be traced to the difficulties in attaining the national obiective of equality in income between the races.Ten years after the promulgation of the New Economic Policy, the income disparity between the Malays and the Chinese was as wide as ever.

'#f. ffi .'* ;

Table5: Furding for SelectedAgencios (M$ million) DarelornontRan Seconrtlihtayrh nan 1961â&#x201A;Ź{ 10.5 Firsillhlapia P$ir tgGF,7O - i 70.0 Sscoflditalry$hFlafitCfl.Td : 7&0 tu{|!d Seeondl*den*ia Ftan 183.4 Thirdil'H.ysia Pfsnl9t$80 315.0 Rrrrisodlhird frratsFisPlin ; 388,4 ' .196.3 Fourfi MelayticFlffi t$l{6

ffififfi

When the New Economic Policy started,the Malaysian governmentfelt that with the necessaryfinancial, technical and managerial support, Malay entrepreneurs could be recruited, trained funded and nurtured to become the new industrialists of Malaysia. Alas, the development of entrepreneursappearsto be one of those critical variables that cannot be decreed into existenceby national economic planners.

The acquisition of Sime Darby, however, offered the tantalizing prospect that the national economic managers could leapfrog over the entrepreneurial capitalism stage (presently dominated by the Chinese) direct to the managerialcapitalism stagewhere the powers of rational managementwould prevail.

Such changein strategic outlook and in resulting policies is more difficult to document in public (as compared to p r i v a t e ) o r g a n i z a t i o n s .G r e a t e r reliance has to be placed on Government activities as reflected in where the Government proposes to commit i t s f i n a n c i a l r e s o u r c e s ;w h e r e t h e Government places its most able managersand where specific activities are focused.

An indication of the direction of the commitment of govertt-ent frnancial resourcesmay be gleamed from the historyof funding for four government agencies- MARA, UDA, Pernasand PNB as stated in their respectivefiveyear development plans. (Table 5) In Asian society where the choice of a person for aiob reveals more about the role and importance of that position than any formal announcementsr the selection of Tun Ismail bin Mohammad Ali as the Chairman of PermodalanNasional (National Equity Corporation) by Prime Minister Dr. Mahathir stressesmore forcefully than even the M$3.2 billion in government funds in the company,the Government's commitrnent to implement the New Economic Policy through managerial capitalism. For Tun Ismail (The prefix Tun before his name is the highest honor the Malaysian government can bestow) embodies in his person the British tradition for public service and the American respect for modern management.

After completing a course in economics at Cambridge (England)

on a Queen's Scholarship,Tun Ismail was inducted into the elite Malay civil service.In that organization,he rose swiftly (even servingas the country's t r a d e c o m m i s s i o n e ri n t h e U n i t e d States) and finally into the chairmanship of the Central Bank of Malaysia (Bank Negara). In that position, he servedfor 18yearsearning the respect and even awe of the Malaysian financial community for his relentlessdevotion to efficiency and high ethical standards.

The specific activities of the M a l a y s i a n G o v e r n m en t w h i c h a r e proposed to be examinedin this paper may be more fully appreciatedwhen viewed through the prism of a historical development: the rise of managerial capitalism.

Experts on the comingof managerial capitalism like ProfessorChandler h a v e p r o p o s e d f o u r n e c e s s a r yi n g r e d i e n t sw h i c h m u s t b e p r e s e n t before managerial capitalism comes about: o The existenceof mature and integrated companies; o The formation of a cadre of professional managers; o The development of a capital market; and o The stimulus of competition.

The acquisition of Sime Darby brought home to the government economic managersthe fact that even aslate as1980,47.5per cent ofthe corporate sector of Malaysiawas owned by foreigners(Table 6). Viewed another way, there were many mature companiesin Malaysia.

In terms of developing a cadre of professionalmanagers,the Malaysian economic managerscould count on the admirable civil service systembequeathed to them by the British, the i u n i o r M a l a y s i a n m a n a g e r si n t h e British multinationals and lastly on the excellent schools of management in Britain and the United States.

Moreover they were secure in the knowledge that while foreign entrepreneurs are not for hire, foreign professional managerscould be hired to temporarily man the management ranks while the future Malaysian managersare being developed.

It was in the cre ation of a capital market that Malaysian geniusfor creating institutions to serveeconomic

ends flowered. For the Malaysians were faced not only with creating a capital market that would raise fun& but that would also be a good mechanism for the transfer of corporate wealth to the Bumiputras.

The acquisition of Sime Darbybythe Malaysian government did not a u t o m a t i c a l l yr e s u l t i n a g r e a t e r ownership of the Bumiputras of the Corporate Sector. After all while the Bumiputras may control the government, ownership of the government and thus of Sime Darby is theoretically by all the citizens of Malaysia; Chinese and Indian citizens included.

For this radical transfer ofwealth from the public sector to a certain segment of the private sectorwe now turn our attention to a unique set of quasigovernmentinstitutions and instruments of national policy- the Yayasan Pelaburan Bumiputra (Bumiputra InvestmentFoundation); the Permodalan NasionalBerhad (National Equity Corporation); the Amanah SahamNasional Berhad (National Unit Trust Company) and the Sekim Amanah SahamNasional (National Unit Trust Scheme).

Permodalan Nasional Berhad (PNB) abovesetof institutions,Perfitthe Vmodalan NasionalBerhad (PNB) created the most publicity. It announcedits entry into the corporate world in a most dramatic fashion.On September 1981,PNB conducted a "dawn raid" on Guthrie Corporation shareswhich were traded at the Lond o n S t o c k E x c h a n g e .C o n t r o l o f Guthrie Corporation, the second largest corporation in Malaysia after Sime Darby was lost by the British management in three hours. Then slowed by a changein the takeover rules promulgated by the London Stock Exchange (which the Malaysiansin true British fashionhave termed "not cricket"), PNB took six weeks to take over the Malaysia operations of Harrison and Crossfields (167,000acres), the third largest company in Malaysia after Sime Darby and Guthrie.

Fascinating as these corporate m a n e u v er s h a v e b e e n , t h e m o r e relevant questions about this exercise in reverse corporate colonization are:

19

arisingfrom the saleofshares o Where is the moneycoming toPNB. from? o Sharesof companieswhich o How are thesevenerable haveshoumgood performance British companiesto be transare sold by PNB to a mutual ferred into Bumiputra hands? fund calledSekimAmanah For the answers,we shall startwith SahamNational (SASN) that mostboring of books!the governwhich is managedby a PNB mentbudget and shall in the interest companycalledAmanah of clarity proceedin steps: SahamNasionalBerhad e In 1978,the Malapian (ASNB).

Governnent appropriatedan o Sharesin the mutualfun4 initial M$200million (about SASN,are then sold by the US$100million) to the managementcompany,ASNB $umiputra InvestmentFounto qualifiedBumiputrason dation to be usedin promoteasyinstallmentterms.The ing Bumiputra participation in Sumiputrainvestormerelyhas corporateinvestment.The net to invest10per cent of the effect of the transferwasto price of the mutualfund convertpublic restricted funds sharesandhe is guaranteedby into private, more flexible PNB that the dividendsfrom funds.By 1983,this amounted the mutualfund will at leastbe to M$3.2billion(about enoughto pay off the 90 per US$1.6billion). cent balancein nine years. o In support of its plan to Thus 1990is the targetdate evaluate,selectand acquire a for achievingthe objectivesof soundportfolio of sharesin the New EconomicPolicy. companieswith good potential The final ingredientnecessary for and to be held in trust for the the riseof managerialcapitalismis the lumiputra community,the stimulusof competition.Surelythis lumiputra InvestmentFounwouldbe beyondthe scopeofnationdation extendedinterestfree al economicmanagers, but apparentl6ens[s PermodalanNasional ly it is not. For this enercisein equity Berhad(PNB).By 1983,the redistributionhasnot goneunnoticed total outstandingloan was by the Chineseandthe Indians.

M$3.2billion.

The Chinesein Malaysia,unlike o As recountedabovePNB used mostChinesein SoutheastAsia have part of the loan to acquire participatedactively,albeit on a Guthrie and the Malapian minoritybasis,in Malaysianpolitics. operationsof Harrison and The organizationthroughwhiih they Crossfields.Moreover PNB havechanneledtheir political acstartedbuyingsharesof tivitiesis the MalaysianChineseAsprivate conpanies of several sociation(MCA). In 1981,Multi-Purgovernnent institutionsat a poseHoldings, a publjc company good price. Pernas,the governcloselyidentifiedwith ihe MCA anment corporation that started nouncedits formal take-overof a this entire exercisewasadverBritish companycalledDunlop Esselyaffected.Following the tates.This companyinfaithfulemulatransfer of someof its major tion of PNB hasalsobeenon an acassetsto PNB, the after-tax quisitionspree.Not to be outdone, profits of Pernasfellby75.7 the Indiansarepushingfor the formaper cent; its current assetsfell tion of their own investmentcompany by a third and its operating to be calledMAIKA Holdings. profit washalvedfrom M$l.lii billion to M$51X.4million. At Conclusion the net level a profit of M$66.8million the previous f,lalaysia is now set into an era of yearwasturned into a lossof I U I peacefulrather thandestructive M$102.9rnillioaafter taking competitionamongthe races.For into accounta massivee)Craor- once it will not matter who wins,for dinarylossof M$122millisl ' the very act of compbtitionhasun-

20

leashedforcesthat cannotbut help foster economicdevelopment.

We end this paperin contemplation of one final irony of history- the thought that the road to economic developmentmaybestbe traversedby thosetravelersunstirredby callsto self-sacrificeand idealsbut driven by the baseremotionsof personalenvy and racial antagonism.But then, statesmenhavealwaystransmuted throughthe alchemyofleadershipthe raglngpassionsof ordinary meninto the lastingachievementof nations.

AsianInstitute of Management Executive Development Programs

SeaTransport Course For shipping executivesand administrators, ship captains, chief englneers,and chief mates.

August 8-20, L988

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SeptemberS-October14,1988

Air Transport Course For upperJeveland potential airline executives.

November7-December2, 1988 Basic Management Program For frst-level and potential executives.

November7-December2, 1988 Pleascaddressall inquiries to: Executivellevelopment ' hograms Asian Institute of Management MCC P.O. Box t9t Makati, Metro Manila, Philippines TehE74011 Telex 6377t AIM PN Cabls AIMANILA

Totakearyofinleq...

LifeForcesand FntetpriseDevelopment LifeCycle byProf.EduardoA.Morab, fr.

(MBM 72)Don AndresSoiano Professorof BusinessHistory fo get the PhilippineeconomicenI gine going, there must be a deliberateattempt by the government a n d t h e p r i v a t e s e c t o rt o f o s t e r entrepreneurshipand developvibrant enterprises.Our industrialand financial plannersmust discoverwhat spawnssuccessfulbusinesses.What forces influence their birth and growth?What stagesof development do enterprisesgo through?This article discussesthe life forcesthat control the enterpriseand the life cycleit followsto lend ussomeinsightson the nature of this economicbeast.

Lite Forces lnterprises emergeout of the busiLness universefrom the energy releasedby their primordial life force- the entrepreneur.As the life giver,the entrepreneurconfrontsan environmentof friendly and hostile elements.It is thejob of our country to makesurethat andindustryleaders theenviron-ent is moreof theformer than the latter. There shouldbe continuous support given to budding entrepreneursastheysearchfor those elusivenstarsnfrom their galary of opportunities.Theremustbe business a conscious effort to helP entrepreneurscreateorganismsthat beginto havelivesof their own.These living organisms are called enterprises,which are regenerative life forces. Theseenterpriseshavethe reproductivecapacityto feed or frustratethe entrepreneurs'desireto multiply and populatethe consumer world through money,machinesand markets.

The entrepreneuris inspired to createan enterprisethrough manY routes.Sometimesit is a discovered

technology or a prototype machine which motivatesthe entrepreneur to venture into business.At other times a felt market need or initial customer demand propels the undertaking.

Still, at other times, itiust maybe the abundance of capital or even a pool of talents waiting to be mobilized.

The starting mechanismsmay vary but these various elementsmust be organizedby the entrepreneur into a composite whole called the enterprise.

Money, machinesandmarkets represent the critical operational aspects of the enterprise along with other resources.These beget and reproduce more money, machines and markets as the enterprise operates in full gear. But the propeller of enterprise operations is the organization or the inner life force. Men manning the enterprise provide the spiritual engine of growth. Managers and workers are bound by the enterprise's structural network that motivates,moves and controls the organization to pursue a conmon set of goals.

The entrepreneur, the enterprise and the organizationconnive to bring out a product or a serilce that is oftentimes the only visible aspect of the venture as far as consumers are concerned.The product or the service is thus the visible life force, the essenceofthe enterprise around which everythingrevolves.To a large extent, the way the product or service is promoted, packagedand distributed, coupled with its inherent features, appeal and pricing structure, spell the difference between t h e s u c c e s sa n d f a i l u r e o f t h e enterprise. The product's technological or state-of-the-art level determines its life span, which may be co-terminus with the enterprise's own life span.

The product or service situates itself in an environment that affectsits growth or demise. This is the

relevant world ofthe enterprise or the outer life force. The environment allowstheventure to sourceexternal energ5lsuch as new markets, new technologies, new financing, new government incentives and the like. However if the environment is hostile (i.e., competitive products are gaining superiority, laws and r e g u l a t i o n s s t i f l e b u s i n e s s ,t h e economy is depressed,capital is not forthcoming or the market can no longer support the product or service becauseof other alternatives) then the enterprise and its visible life force weaken as if exposed to some kryptonite.

These then are the five life forces of the enterprise:the entrepreneur, the enterpriseitself and its operational components(money,markets, machines), the organization (managers,workers, structure),the product or service,and the environment or the relevant world. These life forces exert an influence on the enterprise in varying degrees at different stagesof its life cycle.

21

Life Cycle The enterprise, like anv living orI g a n i s m ,h a s a d y n a m i c l i f e c y c l e from the infant stageto its golden age.

To be sure, many "conceived" enterp^risesnever find the light of day.

A gr{at number get aborled at thi embryo stage.A large percentage of enterprises born suffer early mortalities.Someat the babyphase.Others at toddlers' age u&en the enterprise is at the sub-commercialphaseof implementation.

Enterprises which grow to be fully mature ommercial operationsstill encounter managementproblems as the entrepreneur tries to cope with complex frrnctions and interrelationships.

And even if he is able to cope, there is that constant changein thE environment qfrich fores the enterpriseto expand, integrate, consolidate or contract.

Some entrepreneursenable their creations to take a quantum leap.

Enterprisesarebrougbt to higher levels of performance even beyond the entrepreneur'sdreams.Others take a nose dive and find themselvesin turbulent waterg fighting for sheer survival. When this happens, the enterprisesddenly finds itself expmed to the mercy of take-over vultures or trigger-hapy banls read to foreclose.

A restructuring package and a rehabilitation program may savethe day.Andif the entrepreneuris alert, he can re-orient enterprise operations before an earlygrarc b met. If not the entrepreneur mayfind it conranient to enit, only to re-enter at a more opportune time. Or, leave the enterprise altogether to amther entrepreneur.

Gircn the highly dirrrgent conditiorn prevailing at various stagesof the enterpise lib cyde, itisindecdveryimportant for the go\Ernment, financial institutiom and investorsto appreciate thesestagesso that policies and fun& can'betailu- madetothe needsof the enterprise at each developmental phase. Infantg toddlerq adolescents, adults and senior citizens require different typesof srstenanc, different ap proaches and solutions, different dmagesof medicine and bocter shots A deeper understmding of the life fores and life grcle of the enterprise can sensitize our planners and policymakers towards better business derrlopment appoaches.

22

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WhMrClasrums

Computersin Manaqement Educfiionin Asia operations, prooess these with the appropriate financial or quantitative techniques to derive the desired information, and output this information in a form usable for decision-making. o While studying at AIM, thc manager needs the comPuter to help him analyzebusiness caseswhich is the school's main teaching material, aPPIY and test quantitative and financial techniques taken uP in class,and prepare management reports and a thesis.

byPrcfessorReneT. Domingo Business schoolscanplay an important role in edtcatingmst agersand secutives in the use and appreciationof comptten so that ihey mcY become more ffictivv decision-maken. This paperfuscibes the qeience and aV proach of the Asian Institute of Management. fte Asianlnstitute of Management I recognizesthe important role computers play in maragement education.

The schoolidentifies three reasons nrhymanagersneedto be educatedin the useof computers: o Ananager needsnminimum level of literacy in comPuter technologr so that he canunderstand,aPPreciateand effectively usethe comPuterresoluces- machineandmen- of his organizationto enhanceits efficiencyand profitabilitY. He needsthis basicknowledgeso tiat he can confidentlYinterface and communicatewith the EDP personnel talk their language,accuratelYevaluate their recommendationsand worh and conveYhis information needsand requirements to them.It is imPortant that he recnglize andrealizethe full potential and limitations of thesecomPuterresourcesat his disposal. o The managerneedscomPuter technologl to Processthe data he hasat his or his comPany's disposalto Producethe proper and relevantinformation he must haveto anive at critical and effectivedecisions at the right time. The computer will ProPerlYcollect and iort the data from the field or

COMPUTERLITERACY PROGRAM hepurposeof includingcomputers I in management educationis not to makethe manageran expertin computersbut to makehim Performasa more effectivemanager.The computer is regardedasa tool and the uliimate goalis how to makethis tool help him make more effective decisions.In his position,the manager can makeuseof the cxPerts.But he needssomelevelof compute4literacy so that he can useand understand theseexperts.The managermustalso be trained to trust the information eivenby the comPuter.This trust f,t"supposesthe capapilityto understandand questionwhat data and programsgo into the comPuterand how theseare processedto Produce information.

manager to use the computer is to let him use it. But manytimes pressure or anxiety prevents from him touching the keyboard. We generate a need to use the computer, say,in a particular decision-making situation in which he recopizes the invaluable role computers could play in helping him make fast and effective decisions.Among other surprises, the manager is impressed with the fact that typing stills are not necessaryto make use of the computer.

Thanks to recent advancesand the increasing affordability of microcomputer technology,computers can now be conveniently and economicallY used for the purpose of management education. With the convenient size of microcomputer hardware and friendliness of microcomputer software, the manager can now see and actually touch the microcosm of bigger computer sYstems and mairrfrarneswhich are usually inaccessible and incomprehensibleto him because of their sanitized and mystifuing environment.

FriendlySoftware

f

I n motivating the manager to use the lcomputer, we recogDizesoftware as more critical than hardwars. It is the software which addressesdirectly his needs. Again, with the availability of high-powEredand versatileintegrated software which incorporates spreadsheet, graphics, file managementand word processing functions, the manager is made to realize that he can actually get useful information from the computer himself at his own leisure without the intervention of layers of EDP personnel.At this point, he learns to aPPreciatewhat

Overcoming Fear of Hardware fl n importantstepin the literacY Flprogram is to remove the manager'sfearof the computer,more specifically,the fear of the keyboard.

With the right softwareand training, valuableinformation canbe extracted from the computerwiththeminimum of keyboardoPerations.At AIM, we believethat the bestwayto teachthe

23

computerpower can actuallydo. It is not so much the speedofprocessing that astoundsthe managerwho is expo,sedto the conputer directly for the first time while studying at AIM, but the fact that the computer can be ordered or nprogrammed" to obeyhim, rather than him obeyingthe machine.

An unwieldyand mpterious tool suddenly becomesan obedient, accurate and efficient slaveat his disposd.

The fastest and relatively painless way to introduce the managerto the use of conputers is to teach him how to usethe electronic spreadsheetin solvingthe issuesand problems in businesscases.Typical applications are forecasting,budgeting,financial analysisand other quantitative analysesof data. The studentactually enjoysseeingbefore his eyeshow the spreadsheetrecalculatesthe valuesof dozensof variablesalmostinstantaneouslywhile doing sensitivity analyseswhichbeforewerealnost unthinkable to him. With computeized sensitivityanalysis,he can investigate more optionsand alternativesbefore makmga critical decision,and he can do more thoroughrisk and potential problem analysesin a short period of time. He evengetsadditional insights as he lets the computergraph the resultsof his sensitivityanalysis.

COMPUTERUSAGEIN CI.ASS n rypicd computer-aidedcasedisFlcussion classproceedsasfollows.

The instructor meet the studentsinsidethe classroomto discussthe issues and problemsof the assignedcase.

After the issueshavebeen argued upon and identified, the students would propose alternative approachesand solutionsbasedon the casefacts and other data, usually quantitative.The instructor then sendsthe studentsto the computer roomswherea computeris assignedto eachcan-group.(A classis usually divided into severalgroups of about six to eight memberseach to work togetheras a team.) AIM has 30 microcomputersfor student use.

Eachgroup discussesthe caseand the group'sapproachto the problem.

Then they formulate a spreadsheet model using their microcomputerto generatealternativesolutions.They print.out the results and discussthem againto verify their position.After an

24

hour or so,thewholeclassmeetsagain in the caseroomwith their printouts and computer-aidedsolutions.Each gioup, (or student)then presentsits solutionto thecase,entertainingquestions and criticismsfrom the other groupsor the instructor.

In somecases,the casediscussionis held entirelyin the computerroom where the studentssit in front of the computerswhile the discussionis goingon. As issues,assumptions and questionsare raisedby the students and instructor,theseare enteredinto the computerandvalidated.The realtime validation of opinionsand assumptionsraisedin classenablesthe classto immediatelyassess thesoundnessof their opinionsandcontributes greatlyto the successand dynamicsof the casediscussion.The instructor's computeris connectedto a large projection screenso everybodycan seethe sensitivityanalysesbeingdiscussed.Also in somecasss,the case factsanddataarealreadyenteredinto the spreadsheet modeland a basic templateprogrammedinto it. Thestudent thereforeentersa minimumof data.

Aside from spreadsheetprograms, we havealsodevelopedstatistical packagesto help solvespecificcases and problems.Theseare usually Prograrnmedin BASIC or someother microcomputerlanguage.Again, the casedata are usuallyinput so that all t h e s t u d e n td o e si s s e l e c tw h i c h processinghe wantsdone:- regression,histograur,standarddeviations, mean,median,modeanalyses, etc.

Havingthe datapre-enteredgivesthe studentmore time to analyzethe resultsand issues.Data entry takes time and is not a managerialjob in the realworld.Besides, theclasshoursare usually not long enoughto allow for this task.

MANAGEMENT GAMES

cal trading company which later acquires production capabilities by entering the team's decisions into the computer. Decisions include pricing hiring advertising production quantity, R and D investment, etc. for each period. Each period is normally a year of operation. After all groups have entered their decisions,the computer processestheseand determinestheindustry demand and each team's or company's market share. The financial statements (P/L and B/S) and other operating performance data are then computed and printed for the period for each company. These then become the basis for making the next period's decision. The computer can process each set of decisions for one period in about five minutes; but we provide about 30 minutes for each group to think throrrgh each decision before entering it into the computer.

The group which comes out with the highestROI or profits at the end of the game,about 12to 20 periods, isjudged the winner.

Most of the computer gamesare now using local area networks. This means each group can directly enter its decision into a microcomputer which acts as the terminal using a systemof passwords.A host microcomputer connected to all the terminals processes the game inputs. The system includes a 10 megabyte hard disk. We have also developed computerized network games for the banking and airline industries which are usedin our bank management course and airline transport course. Aside from aiming to win the game and pize,we tell our students that the major objective of the exerciseis to teach them howto organize the group into an effective management team which can come out with timelyand effective decisions.

Indirectly, the students learn how to appreciate the role of the computer in processing their decisions and in giving them almost immsdhle yet accurate feedback.

To formally integrate computers in managedent studies, AIM has consciouslyincluded themin all its degree and executive programs. In all programs, short or long all professors encourage the students to use the computer for case analysis. Therefore

n IM also runs computerized Flmanagement gamesor business simulationsto train managersin decision-makingand at the sametime exposethem to computers.We have developeda generalmanagement sameinwhichthecangroupscompete with eachotherby attemptingto attain the highestprofitability or market the students'exposure to computersis shareand avoidingbankruptcy.Each practicallyspreadthroughoutthe group is organizedto run a hypothetiaourse.

furcbpnat hwr In KotalCnabal4kfuh bnama awx: Peqb mal<e

andthe Development Orqanization of HunianResources Ma-nagement

By Horacio M. Bonomeo,Ir. (MM 77) Associue Deanfor Mid-Career Programs

lntoduction I will approachmy topic by first I describingOrganizationDevelopment (or OD) from a conceptual standpoint.To illustrate severalkey aspectsof successfulOD, and to bridge OD and Human Resource (or HRM),I will citeexManagement amplesfrom Malaysianand Philippine companieswith which I am familiar. Then I will discussthe key conceptsof HRM and the role of the individual manager.My objectiveis not so much to enlightenyou on OD and HRM, two very contemporary topicsin management,but to giveyou an opportunity to clari$, understand andacceptyourresponsibilitiesto the living, breathing,humanresources that havebeen entrusted to Youas managers.

havioralscienceknowledge."Let us elaborateb,rieflyon the keyelements of the definition.

PlannedChange.OD is a deliberate effort at changrngan organization.It requiresasmuchcareandattentionin its planning,organizing,implementing, and controllingas any other managementactivity (OD is a serious matter). Somevery undesirable results can occur when the OD processis not well managed.)

The changeor Total Involvement. changessoughtin one elementor part

Oroanization I}eVelopment lor a quick overviewofOD, I will I draw heavilyfrom a conceptual franework put togetherby my friend Ricky Gonzales, one of the Philippines'foremost authoritieson the subject. Gonzales'frameworkaddressesthree questionsabout OD: whatis it, whythe needfor it, and how togo aboutit.

What is OD? us a generaldefinition Elatten gives f of OD as nplannedefforts to improve the managementof organizations.nA more thorough statement (from Beckhard) seesOD as na plannedand organization-wideeffort, managedfrom the top, to increaseorganizationeffectiveness,usingBe-

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of the organizationwill usuallyaffect someor all of the other parts (It is difficult to isolate a particular unit of an organizationasthe only object of an OD interventionor exercise.In varying degrees,therewill invariablybe a spilloverin oneor moreunits.).

Managedfrom the Top. OD will surelyfail without top management's knowledgeof, andcommitmentto, the goalsof the OD program,andits support of OD's methods(The peoplein the organizationwill look for the leadership'sstampof approval,if not

their sincerity, before they support an OD program.).

Increasing Organizational Effec' tiveness.At the heart of OD is the objective of improving the organization's performance (Despite its peoPlecenteredness,OD succeedsbest, i.e' satisfies the most number of parties, when tangible performance results are obtained. Fortunately, in many cases suchperformance results are achieved through im proved interpersonal relationships, greater opportunities for participation and involvement, and personal growth.).

Science Behavioral Using Knowledge.The OD practitioner draws heavilyfrom the knowledge and technology of the behavioral sciences in such processesas individual motivation, work group behavior, communications and perceptioq cultural norms and intergroup relations, interpersonal relations and conflict management, to name a few (Unfortunately, not a few OD practitioners havecreated more problems than they have solved. The tools of the behavioral sciences, like any other tools, can build or destroy, depending on the competence and the motives of the one who wields them.).

WhyOD? /l n organizationturnsto OD whelror f{ever changebecomesnecessary desirable(This may be more often than one might imagine,leadingusto wonder if OD should not be a continuous,permanentundertaking.).

An ever-changingenvironmentrequires adaptationsand responses which an organizationmaybe unable to producewithout changingits strucand custures,strategies,sYstems, toms.

Sometimesthe climate in an organization is not conducive to efficiency and effectiveness. Individuals' needs may run counter to organizational goals and priorities. The work

25

forcemayhavelearnedto valuethinss thatare no longerasimportantastfey usedto be. Or groupswithin the organizationmay be competing in ways that are inappropriate,or not cooperatingthe way they should.

among OD practitioners (as earlier mentioned) is that an organization's effectivenesswithin its environment is the overriding concern for initiating change. Without that effectiveness, society will not support the organization's continued existence.

HowOD? Indeed, the more effective the organization, the better it can satisff the I ikeanymanagementeffort,ODre- n e e d s o f i t s o w n p e o p l e a n d t h e Lquires carefulanalysisbeforeplans society. are formulatedand implemented.

Role ofthe ChangeAgent. There are The first phaseof OD, therefore,is external change agents (the OD condiagnosis.The object ofthis exercise sultant) and internal changeagents. is to discoverwhat is wrong with the Becausechangemust often begin with organizationand what are the needs the managersthemselves.(whoinitialfor change. ly desired, or identified the need for, This is followed by the next phase: the change), it is useful to secure the the developmentof an actionplan or services of an (external) OD consultstrategyto achievethe desired imant. The internal consultant provides provement.The mostimportantparts the day-to-day support to individual ofthe plan arethegoalor directionof managers,and servesas the link bethe change(or changes),andthe varitween the subunitsof the organization ablesthat needto be addressedto efthat are not alwaysdirectly accessible fect the g[enge. to the line managers.

In the third phase(interventionor Coping with Resistanceto Change. implementation),the plansare carThe word'resistancenis too facile and ried out.While there aremanyspecific does not consider the fact that an OD interventiontechniquesborindividual's behavior, no matter how rowed from the behavioralsciences, seeminglyirrational or dysfunctional, two broad categoriesincludeteam- makes a lot of senpeto that individual. building and managementby objecProposed changesshould make sense tives.Both require two-waycomto those who will be affected by the municationand participation,which change. are necessary for bringingaboutatYiew of the ChangeProcess(es). titude changes.

Changeoccurs on severalfronts at the Like any managerialundertaking, same time, and at a different pace.

OD's final stageis evaluation.Results The overall changeprocessis a someare.compared againstplansand,if what disiointed political and oppornecessary,a new cyclebeg.,s. tunistic process.It needs a multi-year time frame, during which (he orMajor lssues in OD ganization will move forward to new ways and, sometimes, backward to the AD hashad to deal with several old. The latter is not necessarilybad Lfmajor issuesand"in the process, becausethe organization can then see hasevolvedcertain key concepts. how inadequate the old ways are. But Nature of the Entity to be Changed. in the final analysis, it is best for an organization to understand and develop Sociologr and anthropologl gaveOD its own theory or model of the change theconceptofthe organizationasasoprocess. cial slntem.Consequentlyitis useful

when attempting organizational change,to considerthe properties, characteristicsand redities of anyso cial system,which the organization will therefore possess.The mostimportant of theseare the feeli"gs that memberswill havefor eachother, and the interactions through which they expressthesefeelings.

Reasonsfor Initiating Change.OD hasbeenaccusedofnany dubiousand deviousnotives. The consensus

26

SomeOD Etforts ln the late seventies,Mr. M was the lmanaging director of the Malapian operation of an American multinational firm. Hehadbeen known at corporate headquartersasa hatchet man.

His previous postings had been in the Middle East and Europe, where he would either be closing down an operation, or installing a local CEO

after he (Mr. M) had successfully turned the operation around.

In K.L., however,he feared that after he left, another expatriate, not a local, would take his place. The local staff, resigned to the facts of multinational company life, and the comings and goingsofexpatriate bosses,had lost all initiative and drive. Mr. M did not want the local staffto feel that they had no influence or control over the company'sfuture. So he put his department managersthrough a series of special seminars,the obiective of which was to prepare them to formulate a five-year strategyfor the conipany.

To no one'ssurprise,the department managerswere able to put together a sound strategywhich the management i m m e d i a t e l y i m p l e m e n t e d .S o o n afterwardq Mr. M was assignedelsewhere, and another expatriate took his place. The new M.D. discoveredthat he had inherited a managementteam that knewwhere theywere, what they wanted to do, and how to get there. To this day, that managementteam has remained virtually intact and highly motivated. Mr. M had instituted a change in the organization whereby local managerscould make long-term decisions and commitments without fe ar that the next expatriate M.D. would re-make everything in his own fashion.

Today Mr. M heads the regional office of the same multinational company. What he did for his department managersin Malaysia he is now doing for his country managersof the Asian and Pacific Rim operations. Where country managers would allow corp o r a t e h e a d q u a r t e r st o d i c t a t e t o them totally, now they are beginningto infl uence corporate-level thinking.

How did Mr. M do it? Basicallythe same way he did it in K.L. He built a team- a team with a commoil lahguage, a common set of goals, and a common set of values.Where before he built a team of department franagers, now he has built a team of country managers.Now these country managersare doing for their management staff what Mr. M has done for them.

In 1978,Mr. A established a service company. His dream was to be the

Number One companyin his industry in Malaysia.Beinga youngandsmall firm, however,he did not havethebest

people possible.He didn't evenhave enougbpeople.After two yearsof barelysuniving Mr. A decidedit was time for a change.He invited a couple ofconsultantsto help him bring about this change.The developmentof the organization,the changesthat were sought,took more than threeyearsto bring about.Somechangeswerequick and drastic,otherstook longer,still otherswere mere cosmetics.But changeit did, and now that company is numberone.

In the caseof Mr. M, he had come upon a sleepyorganizationand correctly diagnosing its problem, awakened it by changing the They managers'viewof themselves. wereno longermerelocalswhohad to bow and bend to everyexpatriatethat came and went; they were real managers,and captainsof their and their company'sdastiny.

Mr. A, on the other hand developed his organizationby eryerimentation, applyingchangeshere and there,until the mi*ure wasright. Like Mr. lvl, he waspersonallyheavilyinvolved and committedto the changeprocesses Both of and the changesthemselrrcs. them usedexternalconsultants,but personallyimplementedand directed the changeefforts.

Oneof Mr. A's clients,a multinational marketingoompany,found out, too late, that its key people (namelyits marketingand salespersonnel)had acquiredvaluesand behaviorsinconsistentwith the changestakingplace all aroundthem.The companyculture (evolvedfrom manyyearsof near-mo. nopolisticmarket dominance)could not copewith stiff competitionfrom innovativeJap:rneseproducts,changesin consumerpreference and lifestyle,and economics.Everything around it was changrng,but the companyanditspeopledidnot. Theflnining programsthat managementimplementeddid not addressthe core problen, namely,that the peoplehad lost their competitivespark.

HurnanResource Management It is not enoushto initiatechangesin lan organization,its systemsand structures,its culture, its processes.If OD seeks to improve an organization'sperformanoe,one very quickly discoversthe needto inprove

i t s p e o p l e ' s c o m p e t e n c e .H u m a n resource development (or HRD) is the term used today to capture this general idea. Many companies now have human resource departments, headed by senior managers to signal the importance of its function.

Concern for the hrrman resotrrce is not new in management. As early as 1890, economist Alfred Marshall noted that "the head of abusinessmust assure himself that his managers, clerks and foremen are the right men for theirwork and are doingtheirwork well." Since then managers (with the help of behavioral scientists) have been searching for ways to match the individual to the job or the job to the individual, the specffic direction tending to suit contemporary conditions and events.

In the earlypart of the twentieth century, Taylor and his friend Gantt

boom that saw companies growing through expansion and diversification.

Into the sixties, with the demands and fall-outs of space technolog5rand the people-centered awakening brought about by the Vietnam War, the response focused on management training. The behavioral scientists, who had continued since Mayo's time to search for explanations of why and how people are motivated to work; contributed much to the content and methods of managementtraining.

Finally, h the Seventies,such prosaic and seemingly inadequate words as nmanpowernand npersonnelneventually gaveway to the supposedly more psaningful and comprehensive term: human resource. And the muchp u b l i c i z e d s u c c e s so f J a p a n e s e lifetime employment convinced managersthat people could, and should, have a career of continued gowth and development (a belief undoubtedly reinforced by the high cost of recruitment, training, and replacement). All these gave birth to a new concept: career management.

The focus of HRD in the 1980shas not departed radically from Marshall's advice back in the 1890s.

However apropos the current fashion of strategic planning, HRD has assumed a strategic dimension. Today n s t r a t e g i ch u m a n we can talk of rssouroe management.n The basic model for integrating HRD with strategic planning begins with the formulation of a company's mission statement, in which management defines what business the company is in and will be over a petiod of time. Looking at the future as defined by that statement, the following questions are asked: o What kind of people does the company need to fulfill that mission?What should these people be good at?

idofed at improving efficiency throughwhat hassincebeencalled, nghtly or wrongly,scientific management.Taylorwasprobablyoneof the first to systematicallyaddresssuch humanresourceconcernsaswork procedures,selectionand recruito Does the company have such ment,cooperationwith workers,and people? If so, what will it do divisionof responsibility. to prepare them, and for what Before the SecondWorld War, positions and responsibilities?

Elton Mayo openedmanagement's Ifthe company does not have theworkplace, eyesto thesociolog5lof such people, can it recruit its influenceon motivation,morale them? and,ultimately,on productivity.The I remember when the co-founder war itself madeproductivity a lifeand honorary chairman of Sony Corand-deathpropositionand highporation, Mr. Masaru lbuka, was a lighted the shortageof qualified and competentmanagers.This shortage member of AIM's Board of Goverbecamemore acutewith the post-war nors. My colleagues and I asked him

27

whatwasthejob of an honorarychairman(after all the famousAkio Morita wasthe chairman).Mr. Ibukareplied that one of his major taskswasto look at the youngpeoplejoiningSonyand decidewheretheyshouldbe in the organizationten, fifteen, twenty years downthe road.He would then plan a careerpath that would wind its way alongthat road sothat theywouldbe readywhentheir time came.

Strategichunan resourcemanagement,therefore,is the processofensuring that the organizationwill have the right people,at the right place,at the right time, with the right competencies,experienceand qualification to managethe companytowards its strategicgoals.Once a company hasdecidedwhereto go, it needsto carefullymanage thehnmanresouroes it needsto get there.

Managersdon't needconsultantsto t e l l t h e m t h a t t h e p l a n n i n ga n d developmentof the humanresourceis important to, and goeshand in hand with, effectiveshategicplanningand inplementation. The two are sointerrelated that nowadaystop-level managersdo not talk of one without t o u c h i n gt h e o t h e r . S a d t o s a y , however,talk is cheap.

The situationis best describedby a mrnagementeducator,Henri-Claude de Bettignes,asfollows: nHumanresource management (HRM) providesthe keyto increasing corporateeffedivenesqparticularly ln times of rapid changewhen today's competitive advantage may be tomorroCs liability. a n.. . chief executivespreach that peopleare the most important, the key resourceof the corporations,and urite it in the forefront of their annsnl reports. However,only a few 'excellent'companiesput HRM into practice.

"In the Asia-Pacificregion, while there are people in abundance, managementskills are often in short supply.Though humanresource development(HRD) shouldbe of primaryconcernto corporateleaders, it is rarely the case.Only a handful of large local and regional corporations seemto have thought through an HRD strategy.For mostlarge firms, peoplemanagementis the personnel function entrustedto a well-inten-

28

tioned managerassistedby a few too have their horror stories about the clerksto administerrecruitment,com- lip service paid to human resource pensation,retirementschemes and development. Typically, top manageother personnelpolicies.He is the ment will tell them, and anyone else trustedtechnicianwhosejob has who caresto listen, how important the grovm alongwith governmentregulatraining function is. Then when the tions and the sizeof the firm. In the Training people try to carry out their smallfamilyfirm, peoplebelongto the programs, they are told that the owner;he manages themin a paternal managers are too busy or too impormannerthat variesfrom autocracvto tant to be releasedfor training or even benevolentlaissez-faire.In both cases, to help in the design of the programs!

HRD is not strategicallymanaged.

Often, to justifythe training programs "HRD is consideredto takeplace on that have treen committed, lower level the job asa slowprocessof skill acpeople, who are not yet in the pipeline quisition and enhancement,possibly for training, are recruited at the last fosteredby the bosswhosetechnical minute. It also happens often that competencesomehowpercolates w h e n a l i n e m a n a g e r i s h a v i n g down.Attendanceat both internal problems with a subordinate,he will and externaltraining coursesis rare, ask the Training people to put that and whereit occursthey are expected problem subordinate in some training to be short and shouldpay off improgram or other. Afterwards he will mediatelythroughthe quick acquisi- ask if they have solved his problem. tion ofbusinessrecipes.It is a very Too infrequently will a line manager' pragmatic,doum-to-earthapproach, seek out the Training people and ask perhapswith an effectiveness com- how he (the line manager) can more mensuratewith its cost:minimal. effectively manage his subordinates. nWheneconomic conditionsare If at all, it is while he himself is attendgood,whenmarketdemandpullsthe ing a training program which his boss supply,inefficienciesmaybe absorbed insisted he should attend. a n d o p p o r t u n i t yc o s t su n d e r e s I have been involved in many int i m a t e d ,i n a s h o r t - t e r md r i v en house seminars.There I would learn management.

Today,the under-use, about other consultants whose serthe misuse,of humanresourcesis a vices my client had contracted preseverehandicapwhich firms are viously.I find that consultants'learnprogressivelybound to realizen. ing objectives and theoretical foundaIt is appropriatethat the abovecomtions are practically identical. Even mentsshouldcomefrom a manage- the materials we use are the same in ment educator.Management.schools, many instances. It makes me wonder and the trainingfirmsandconsultants why companies use different consultthey spawn,havebecomea backtop ants to tell them the same things. for companie5'6ainilg and ddvelop The answer,I suspect,lies in an erment needsand concerns.I mvself roneous perception and application of haveseentoo manystudentsandparthe training function. Senior ticipantsin our programswho had managers and even training managers only the vaguestideawhy their comare guilty ofthis. I havealreadycited panieshad sentthem'fortraining. thosemanagerswho feel that a trainQuite a numberdid not evenexpectto ing program will cure all of their be askedby their superiorswhatthey problems,yet they themselves are learned from the program they atreluctant to participate in these tended, how the companycould programsor fail to follow up on benefit from their learning exresults.More often than not (and perience,or whatnewresponsibilities maybewe shouldadd this to Murphy's theywereexpectedto assume . I recall Law), traiping programsare givento a classicencounterwith a Training that levelof managementat leastone Managerwho,whenI askedhim why level below that of the managerwho he neededa seminarfor his company, initiated it in the first place.This is a repliedwithaverystraightfacethathe commonpattern:"Thepeoplebelow had to spendthe balanceof his trainmeneedthis seminar,I don't.n ing budgetsoonor he would not have As a result,participantsfeel that a training budgetthe following year! llaining is not all that important.FurWhich bringsme to anotherback- thermore,theyfeel helplessto implestop:the trainingdepartment.They ment what they havelearned anyway.

I amoftentold at the endof 3 5emin31, 'That's very good,Professor;nowwhy don't you teachthat to r'ry boss?n I onceaskeda British expatriatein Malaysiawhat he had learnedabout management after spendingmany yearsin this part of the world. He said "Nothingbeatssincerity."I canagree with him completely.I havemet and listenedto hundredsof practicing managersin the courseof my teaching careerand I haveconcludedthat in nine out of ten people-problemsthe fault "liesnot in the starsbut in ourselves.nFar too manymanagersare soset in their waysand their thinking to acceptinnovationin the areaofpeoplemanagement.

If, throughlleining and OD programs, they realize the shortcomingsaswell asthe potentials of their subordinates,they are then facedwith their own superiorswho,in turn, havetheir own setways.Yet, if managerscan showthat they are genuinelyinterestedin thegrowthand welfareof their subordinates,theycan reapa windfall in terms of cooperation, enthusiasm andproductivity.

Unfortunately,manyorganizationwide initiatives(Managementby Objectives,ParticipativeManagement, QualityControl Circles,and other formsor shapesof OD) havebeenintroducedamid skepticismfrom the sAmepeoplethat suchprogramswere meantto benefit.Theseactivitiesare invariablyperceivedas more benefic i a l t o t h e c o m p a n yt h a n t o t h e workers.Oftenthisis the faultof overzealouschief executives, anxiousto adoptthe latestin managementthinking from the West or, more recently, fromJapan,anddesperatefor miracle ills. What they curesto organizational overlookis that the organizationmay be so steepedin a culture which the workershavelearnedto live with that they cannot help but view any proposedchangewith suspicion.

Middle managerscontributeto resistance,too. Either theythemselves are so wary of any innovationor changein managementthinking style or philosophythat they showlittle enthusiasmor, through their own deeply-entrenchedbehaviorand attitudeg fail to transmit the full benefit and meaningof changeto their people.

How, therefore,will subordinatesassessthe sincerityof their managers?

Even in companieswho haveatformof OD,I find that temptedsome

thereis sometimes too muchlip-service and not enoughcommitment,action, and follow-through.In fact, the trainingcomponentsare often implicitly presentedasa rewardfor past performance, ratherthana deliberate, well-thoughtout preparationfor greaterresponsibilities.

On the other hand,participantsare sometimesadvancedtoo rapidly,in the mistakennotion that a two- or three-dayseminar is adequatetraining.

This bringsus to the issueof career I frndthatlinemanagers development. andtrainingstaffrarelygettogetherto plot a proper careerpath for subordinates.Sucha prooessshouldideally i d e n t i f y i n d i v i d u a lt r a i n i n g a n d developmentneeds.But evenmore t h a n f o r m a l t r a i n i n g ,I f i n d t h a t managersdo not give their subordinatesthe full benefitof on-the-job training.My definitionof on-the-job trainingis coaching.To my mind, coachingis a managerialfunction equallyasimportantasHenri Fayol's planning leading organizingandcontrolling.I believe,further,that coaching andcareermanagement shouldbe c l o s e l yl i n k e d .B u t f a r t o o m a n y managersdo not appreciatethe differencebehpeencoaching(whichrequirestheir personalcommitment) and training (whichcanbe, and usually is, buck-passed to the training department).Coachingis a process whereby the manager sharcshis knowledge,skillsand experience with his subordinates so that eventually t h e y c a n m o v eu p t o h i s j o b a n d beyond.Sharingrequiresselflessness, a genuinecon@rnfor the other person, his welfare,his growth and development, andhis future.

I started this talk by sayrngthat my real objectiveis to giveyou an opportunity to reflect on humanresource management,and on yourselvesas managers.Now I will saj that human resourcemanagement is the responsibilityof all managers.The moreeach managertakesa directhandin human resourcedevelopmentthe better and more meaningfulthe resultswill be.

Too oftenthis responsibilityis passed on to TrainingDepartments,consultantsand managementschools.

But I shouldalsoask,if managers havebeenremissin this responsibility, to what extentare theyaccountable?

To answerthis question,we need to askhow far down the organization

does the top managemsal commuriicate its long-term goals and strategies.

It is unfortunate when line managers are not fully knowledgeable about their own company's strategies and directions, becausetheywill not know to what long-term obiective they are leading their people. So just as strategic plnnning begins from the top levels of management,so too must strategic human resource management. When managersknowufiat the people need to do for the company, those same managers will knowwhat the company must do for the people.

Many of you f 'm sure have been directly involved with strategy formulation and implementation, and setthg goals.Let me now ask you. Do you know what your company's longrange goals are? Do you know what kind of people you need, and what skills and competenciesthey should have, to achieve those long-range goals? Have you identified those people?Are you personallydoing anything to ensure that when the time comes, those people will be ready?

You cannot delegate that responsibility. The training departments, the managementschools,and the consultants can and will help you, but they cannot take over from you. Human resource development or, if you will,

is a dayhumanresourcemanagemenr, to-dayjob. Itjgrour job

29

FEATI.RE @tdaqin

is$qingiwwhotwenelitmos-.

ManaementCommunication: Perspective W Prcf.Gloia S. Chan AssociateProfessor nmanagement comfhe two words I munication"in the title of this article can be looked at in two ways:in the first and alsothe broadestsense,it refersto all forms of communication emanatingfrom management;in the secondand not necessarilythe narrowestsense,it refersto that bodyof knowledgewhich constitutesone of the subjectsin the Masterin Business programattheAsianInManagement stituteof Management.This article talks about managementcommunication asa subiect.

Management communication soundslike an esoterictitle for a course.Webster'sDictionary,second edition, definesesotericas ntaught only to a selectnumberand not intendedfor the generalbody of disciples.nIf we look at the kind of MBM studentsatAIM, esotericisa mostappropriate adjective,for thesestudents haveundergonea thoroughand rigid processof selectionwhich includes admissiontestsand personalinterviews;theyare a selectgroup andthey cometo AIM with the expectationof being trained as professional managers.

The objectiveof managementcommunication(MC) is to developthe student'sability to comm.unicate clearly,logically and persuasivelyas professionalmanagers.Communication comesin variousforms - written aswell asoral, verbalas well asnonverbal.The coursedoesfocuson these forms but in varyingdegreesof intensity. Managementcommunication stressestleyerbal more than the nonverbal.

TheAsian studentwalksinto the MC classconlident that he will be able to communicatewithout havingto learn how to do it. Suchan attitude comes from the simplistie aotion that he

30

speaks one native language plus English as a second or foreign language, and therefore, can communicate. He is not aware that communicating effectively as a manager involves certain processes that will transform the ability to communicate into a skill.

Managerial communication does not just happen; it has to be developed and worked at like any other skill. After the skill has been acquired, the professional manager will instinctively know what to communicate, when to communicate, and most importantly, how to communicate.

33

The Asian managerwho has had a chanceto developthe skill of effectivelycommunicating

in Englishis a rarity in this part of the world whereirenicallyEnglish proficiencyis deteriorating as trade is beginningto

nologl from the Westis transferredto the East.It is the linguafrancaofthe world. English asthe trade language of the world is an inevitability that has to be reckonedwith.

Irt us nowexaminethe implications of the useof Englishin managenent communication.

Thereis a schoolof thoughtin the area on the useand the teachingof English as a second/foreignlanguage that languageand culturego handin hand, that learning a languagenecessitatesfamiliarizationwith the culture that usesthat specificlanguage.

Hence,usingEnglishas a modein managementcommunicationmeans that the Asian management student must be acquaintedwith either the Americaa or the British culture.Obviously,the student cannotimbibe everythingabout the Americanor Britishculturedueto timeconstraints.

He shouldat the very least,therefore, understandthe culturalunderpinn i n g s o f t h e b a s i c p r i n c i p l e si n managementcommunication.

One suchbasicprincipleis that of brevityandclarity.In 6pmmrrni6sfi6a" an idea,a this meansthat a message, to the request,etc.shouldbeconveyed audienceor recipientin asfew,but clear words, as mandatory.One shouldnot wastehis audience'stine by dwellingon the irrelevantand the unimportant.Beingbrief and clearis part of beingefficient and efficiencyis of utmost importance to the American/British culture.

The Asian managerwho doesnot know that sucha principle existswill continueto communicateaccording to his own cultural influences.If he happensto.becommunicatingwith an American,then a misunderstandingis likely to foilow.A goodexampleof tlhis is the Ginzbergcase.

Ray Ginzberg was an American graduatestudentat StandfordUniversity.He had lived for a coupleof years in Indonesiaon a study-relatedgrant.

During this time, he learnedto speak

, ".r,

growin unlimitedglobal proportion

The developmentof the skill to communicatebecomesdoublydiffi cult for the Asian studentfor whomEnglishis not a nativr language.As the levelof English proficiency in Asia deterioratesin countrieswhere Englishis usedasa secondlanguage (suchasthe Philippines),the acqriisition of theskillbecomesmarkedlytlis4 tant.

It is rrot possibleto dissociate Englishfrom the courseon management communication.It is the global languageofbusinessand management.It is the languagebywhich tech-

Bahasa Indonesia and became familiar with the Indonesian culture.

After his Indonesian experience, Ray resolved to live and work in an Asian country. He decided to apply for work as a researcher in a leading graduate school of businessin the Philippines.

The school found Ginzberg's credentials excellent but could not offer him a position mainlybecause it could not pay him Stateside wages. Yet, it did not explicitly turn Ginzberg down; it hinted to Ginzberg that he could look for his ownfulding from an American donor agencybyway ofsubsidizing his stay at the school. To Ginzberg, however, the school had offered him a job and was going to help him locate a source of funding. Ginzberg was naturally excited by the thought of coming to work in Asia and wrote severalfollow-up letters when he had not heard from the school for months after the initial letter. In the meantime, the school underwent some organizational changes and the Ginzberg file went to another administrativeofficer.

Realizing that the only way the misunderstanding between Ginzberg and the school could be rectified was to be direct, the new officer wrote to Ginzberg in no uncertain terms: "We never offered you the position of researcherin our schoolbecauseyou are over-qualified for that position. Furthermore, if we did offer you a job (which we did not), you will probably not be interested sincethe salaryis, as n y o u p u t i t n d e p r e s s i n g .G inzberg stopped writing after that.

From'the first letter of application written by Ginzberg to the last letter written by the new officer, a period of six months had elapsed.This certainly was an inefficient way of saying nno."If an American had responded to Ginzberg's application, he would have said no immediately. The Ginzberg case could then have been subtitled: howto sayno and still make friends.'

If Ginzberg were a Filipino, he would have immediately gotten the message; in this instance, the case could have been subtitled: how to sav no without even saying it.

Another basic principle of Management Communication is the use of

[p\ fh8

friendly and personal (as opposed to impersonal) language.The literature in this area is unanimous irt urging readersto usesuchpersonal pronouns as you, I and me; some have even encouragedthe use offirst namesevenif the communicators are mere acquaintances.The obiective of this principle is the establishmentof rapport between communicator and audience.If there is rappor! ideas and messages flow smoothly.

The cultural underpinning,specificallyAmerican,is the lack or absence of socialstratification.Americanssee themselves andothersasequals.Thus, there is no needfor pompous,empty languageto reinforce the superiorsubordinaterelationship.Much lessis therea negdto addresspeoplebytheir professionaltitles. All malesare Mr. andall femalesareMs.,a neutraltitle.

The Asianbeingaskedto communicatein a friendly,informal and per-

This sameideawasdiscussed

by Kermit Rollandin "LettersCanSayNo But Keepor Make Friendsnn Strategies for Businessutd TechnicalWitW, edited by Kevin J. Harty, New York: Harcourt BraceJovanovich,1,980,pp. 161-165.

31

sonalwaywillhaveto adjuslfiis mindset;he is usedto refer to the personhe is communicatingwithasnyourgood self or lyour good office;" he uses melodramaticlanguageto ensurethat his request,for instance,doesnot get turneddown:nwewill foreverbegrateful to your good or kind office."The useof titles is his way of showing respectfor somebodysuperior- in age,economicstatus,education, profession;the superior-subordinate relationshiphas set sociolinguistic ruleswhoseviolationdoesnot reflect well on the violator or offender.

In the Philippines,for instance, rememberingto addresspeopleby suchtitles as doctor, attorney,judge, commissioner,professor,etc. determinesthe kind of receptionone gets from the addressee; one is boundto getthe "coldshouldern treatmentor to get a requestdeniedif one forgetsor doesnot bother to find out the appropriatetitles first. In the caseof the useof the titles Mr., strangers, Miss,or Mrs. is used;if the stranger happensto be a female,thereis always a curiousinsistenceon finding out w h e t h e rs h e i s a M i s s , o r a M r s .

Womenin the Philippineshaveto be categorlzedinto either sittgleor married, much to the chagrin of any' fsminist!

Speakingof feminists,the movement i n t h e S t a t e sh a s c r e a t e ds u c ha widespreadimpact that even Americanwriters haveto be careful that theydo not usesexistlanguage.

This bringsus to anotherbasicprinciple in managementcommunication- extremecareshouldbe taken that sexistlanguageis not used.

Evidenceof the increasingstresson non-sexistlanguagecomesin the form of entirechaptersin recenttextbooks on businessor managementcommutticationinstructingreadersto stay awayfrom suchwordsas chairman, spokesman,statesman,workmanship, craftsmanshipand manyothersin their comnunication.The McGrawHill Book Companyhasevengoneto the extentof publishingGuidelinesfor Equal Trcafinentof theSqcs whichadvisewriters to treat men andwomen 'as indiidtal people,not pimaily as membersof oppositesexes'(italics mine); further on, it statesthat nneithersexshouldbe stereotypedor arbitrarily assignedto a leadingor secondaryrole.n

32

In Asia, the impact of the feminist movementon languageuseis not as extensiveasthat in the United States.

Asian womendo not getjolted or offendedifthey arereferredto aschairman rather than chair or chairperson, businessmenrather than businessperson, wives rather than spouses, housewiferather than homemaker, etc. A valid explanationfor this is the view that Asianshold of the English language:it is a functionalrather than one.Hence, a socio-psychological Asiansarenot sensitiveto the nuances of Englishoutsideof the purposefor in which it is intended.Nevertheless, the managementcommunication class,studentsare sensitizedto the urgencyof non-sexistlanguagebecausethey haveto be updatedon global trendsin communication.

Managementcommunicationaimsultimatelyto makethem world-class managers with world-class capabilities.

Therearelessonsto be learnedfrom the foregoingdiscussion.First, an Asian manageris at his nativebest hisAsian whenhe communicateswith counterpart;he canbe indirect and roundaboutwithout fear of losinghis central mâ&#x201A;Źssage.He is the masterof his ownlanguagewhenhe usesthe appropriateeuphemisms to conveyhis tho'rghtsandhis ideas.

Second,becausethe Asian mAnaget is undoubtedlyinfluencedby his own culture, he carries into his communicationmodethe culturaltraits and practiceshe hasimbibed.To interactwith his Western,especially American counterpart,he hasto shed thesecultural traits and practices.

Finally,he mustlearn the waysand masterthe techniquesof effective communicationin Englishwhenhe usesthe languagefor global trade.

This meansthat he hasto abidebythe

ffih?

DRLIM,

nonns and standards Bnglish on tle users of the language.

The Asian managerwho hashad a chanceto developthe skill of effectlvely communicatingin Englishis a rarity in this part of the world where lronically English proficiency is deteriorating as trade is beginningto grow in unlimited global proportions.

He is in a sensemore blessedthan his Westerncounterpartbecauseby virtue of being a multilingual person,he is closer to being a world-class managerthan the latter.

Ie a MIMT: botd rnotry*rwtt btimelns ame in Thiwot-..

for Opportunities in BrandMarketing Tdlirvan Eleorters W hof.fose M. Fanstino(TMP'79) GoodyearTireand Rubber CorporationProfessorof Business Management I astyear,the Taipei World Trade bCenter launchedthe Taipei InternationalTextile and Apparel Fair. I visited the textile and apparelbooths, attendedthe Hongkongfashionshow, thenwalkedall floors of the World TradeCenter,studyingthe export productson display.The experience confirmedto this writer an observation andconclusionhehasheldfor the pastfewyears: o Taiwanexportersare for the mostpart still subcontract manufacturers;and, o ManyTaiwanexportershave excellentopportunitiesin brand marketing.

The textile and apparelfair in the World Trade Center revealedhow muchmore advancedthe Hong Kong businessmen werein brandmarketin& especiallyfor garments.While many Hong Kongbrandswereimmediately recognizable,virtually all Taiwangarmentbrands,if indeedtheycarried brands,were unknown.

It wasevidentthat manyHong Kong garmentmanufacturers hadmadethe transitionin the past20 yearsfrom beingmeresubcontractorsmaking what marketingpeople call commodities,to beingmakersof branded, co--only recognizableproducts.For the typical Taiwanese export manufacturer,anybrand carried by his product would belongto the overseasbuyingorganizatioqnot to the Taiwanmanufacturer.

Taiwan-OwnedBrands faiwan exportersare still verymuch I in the etegory of subcontractorg makingunbrandedmerchandise.The

typical Taiwan export manufacturer has not yet made the transition to become the manufacturer of products with Taiwan-owned and managed brands.

Fortunately, Taiwan has exporting organizations that have found the value of and competencein, develop ing world-recognized brands. Two fine examplesare Kennex for tennis equipment and Multitech for personal computers. These exporters now experience the excitement and purpose that their own brands havegiven their organizations. Let us examine the benefits of brand marketing which have helped dramatically in making these two Taiwan companiesamong the top leadersin the world in their industries.

Brand Marketing

that is, a strong establishedbrand serves as an effe ctive banier to entry to all other businessmenwishing to enter the industry. Ask our friends from Multitech how difficult it has been even for US billion dollar organizations to succeed in the personal computer industry unless the new entrant follows the IBM standard. A successful brand with a clear disthctive image provides favorable differentiation from all other products in the same category. We all want to be different from our competitors. The brand makes that possible.That leads us to the next benefit: o In Anerican and European markets, which contribute the dominant portion of Taiwan's exports, consumersand buyers are brand aware and brand conscious.

In other words, American and European consumers have grown up believing that one can put greater trust and confidence in a product that has an established brand over another product that has an unknown name.

That consumer loyalty for a specified brand is known as thebrandfranchise, a high level of awareness and acceptance for a product that usually translates into a price premium, a higher price that the target consumer comfortably pays, even when there are lower-priced products readily available. The branded manufacturer enThe secondadvantageofbrand ioys this brandfranchrse both at the marketingis that the manufacturer trade as well as at the user level. How onmingthe brand hasgleatercontrol many Taiwan exporters would like to overhisproductfrom the timeit leaves stop worrying about competitors comhis plant to the time it is bought and ing into their market with lower usedby the consumer.A strongsuc- prices? cessfulbrandcommands respectfrom The last benefit we are looking at thechannelsoftrade,from distributor maybe themost important of all to the to wholesalerto retaildealer.A strong Taiwan export manufacturer. This brand wouldbe goodprotectioninbenefit is the favorable impact brand deed for a Taiwan exporter from marketingwill have on the Taiwanese threatsand difficult conditionsimorganization. Having one's own posedby overbearingoverseas buyers. brands motivates the human organizaControl over the exporter'sbranded tion, especially the managers and suproduct leadsus to the nextbenefit: pervisors, to make a commitment to its

fhe benefitsof brand marketing I beginwith profit margins.Every studyof brandedproducts,namely productsthat havebrandssupported by marketingactivities,revealsthat theyare significantlymoreprofitable per unit thanunbrandedcommodities of the samecategory.One ir4portant r e a s o nf o r t h i s i s t h a t b r a n d e d productscommandmuchmoreloyalty from the buyer.We will seeother reasonswhy brandedproductscan commanda price premiumoverunbrandedcommodities.'

33

product line that doesnot end when the product leavesthe island.The entire organizationrealizesthat its brand responsibilitytravelswith the product to the overseasdistributor and trade channel and endsonly with the satisfaction of the overseasend user.

Managers,employeesand evensuppliersfeel a senseof pride whenthey seethe presenceof their b'randin internationalpublications,in overseas retail stores,in advertisingabroad.

Now let us turn to the Taiwanexport manufacturerswho havethe opportunity to create,developand sustain their own brands for overseas markets.InOctober1987,mEnglish languagenewspaperin Taipei carried a smallar.ticlenamingZ) productsfor which Taiwanis the numberone in termsof world market share: Theseare the products:

produc"ts Forconsumer o Umbrellas " Suttglasses o Foo-tweat o Bicvcles 'Hafs o Wool sweaters

Pu-p uptoys

IHandbae^s o Tennis ricquets

Householdproducts o Electric fans o machines Sewins o -

o rlmps carjacks

CIficeequipment o Personal computer CPU's o Video disolaymonitors o Computei terminals

Industdalproducrts o o Sma[ motors "oPlvwood " Polnrethane Leather (PVC) -] rotyvinyt chloride I-eather With the possibleexceptionof plywoodand the PU and PVC industrialmaterials,it is obviousthat all the other 17 export products offer brand marketingpotential.

Thereis no doubtthat theTaiwanexport manufactureris today one of the most efficient producersin the world

34

of light consumerand industrial goods.His strengthsare many.He is a hardworkingand resourcefulopportunity seekerand risk taker,who has not hesitatedto apply the latest productionprooesses and equipment to his business.But, except for a handful,the Taiwanexportmanufacturer still remainsa manufacturing subcontractor.

F i r s t w h a t d o e sh e n e e d ?A n d secondly,what doeshe need to becomea brandedmanufacturer?

The Erport Erand Manufacturer fhe first step the Taiwanexport I manufacturerhasto take is to realizethat to build what we called earlierthe brand franchiseis to accept the fact that building the Brand no more Franchiseis an investment, no less.Buildingthebrandfranchiseis the sameas addingstateof the art equipmentto his productionline, increasinghis inventoryor constructing anotherplant.Like theseinvestments, however,the brand franchisealsobeoomesanasset,eventhoughthebrand asan assetis not in the balancesheet.

An establishedbrand is a definite .asset,whichfor somecorporateacquisitionsmaybe the primary asset beingbought.For example,Chrysler boughtAmericanMotors primarily to acquirethe Jeepbrand name.Heinz Foodsacquiredthe companyWeight WatchersInc. becauseof that sstablished self-sellingbrand, Weight Watchers.Thus,the brand growsin value from year to year- if it iswellmanaged.

Secondly, the Taiwan export mustunderstandthe businessman c o n c e p t sa n d p r o c e s so f b t a n d marketingmanagementin order to be ableto be as effectivewith his brand managementashe is with his production investment.Is brand marketinga difficult field to learn?If he hasnot begunto learnit, brandmarketingmay appeardifficult. But with experienced marketingstaff assistinghim, the Taiwanbusinessman shouldbe fairly conversantwith brand marketing within ayear,The reasonthe Taiwan himselfmustunderstand businessman both conceptand practice is that marketingis nowhereaspredictable as his production process,where a given input of direct matcrials,direct labor anddirect overheadwill resultin

a given number of finished units plus someshrinkageor wastage.

Becausethere are so manyfactors that can influencethe saleslevelsof a branded product, some factors beyondthe marketer'scontrol, the Taiwan export businessmanmust understand what his organization can and cannotdo, what risla at anymG' ment confront his bran4 what brand opportunities he can develop or exploit inthenarketplace.If hedoesnot developa minimum level of understanding, he runs the unnecessarY risk of underspendingor overspending for the support of his brand.

In 25 yearsof marketingPractice, this writer haswitnessedmanyinstan_ cesof grossbrand mismanagement.

He has seenfor examplecertain Japaneseconsumerbrand companieg spendmillions of dollars (US) long afterreachingthepoint 6f diminishing advertisingreturns.He hasalsoseen companiesfoolishly stop all advertising at the first sign of weak sales profits,a66lsalizingthat their brands werethebestassetsandthxl slimin2ting all advertisingprovidedtheir competitors the best opportunity to gain market share.And who losesthe marketshare?The withdrawingadvertiser.

ThirdlS the Taiwanexporterneedsa competent,disciplinedbut innovatiw marketingteam that knowshow to managethe brand in international markets.

My 2O-yearexperiencein Taiwan, hasconvincedme that the competent and experiencedmarketingmanager for internationalmarketsis a rare kind. You will not find this person looking for a job.

The need is so great now, one will seeking soon seeadvertisements marketing managersfor Taiwan export businessin placeslike Singapore or HongKong.

There are manywhowould research advertisingand promotionprograms without the leastnotion of whatbrand marketing is' and what it requires asa discipline.

Eflective Brand Management fhere havebeeninspiring storiesof I smallJapanesecompaniesthat grew into giantsin their industries,

partly because of effective brand m a n a g e m e n t .O n e o f o u r b e s t e x amples is a company that was an obscure calculator company. This company decided to go for big businessand a high market share. Brand management and innovative product development has made this formerly obscure company an industry giant.

The brand of this company is recognized by l00Vo of its target market.

This.brand is CASIO. Let me recount another successful and evenmore daringexample. An established Hong Kong garment company used to fill its huge U.S. quota with hundreds of thousands of unbranded garments- very much like our Taiwan exporters. The ambitious and shrewd son of the owner talked his father into making the biggest gamble of their family business history. This young son in his late 20's carefully designed a specially fitted garment for the U.S. woman, paid a well-known American US$2 million to use her name as a brand name and launched the brand (her name) in New York City. On the daythe US$3 million TV campaign broke in New York, this man had store orders for only 2,000 units and he had 300,000units more in two warehouses. You will know how this gamble paid off as soon as you hear the brand name: GloriaVandcrbilt- Ieans by Murjani. The young manwas Mike Muriani of Hong Kong and now MurianLs salesin the U.S. is over $5fi) million/year.

Yes, frand marketing needsbrand discipline.Like his state of the art equipment, the brand must receive enough power, attention and maintenance to continue to be productive.

Let us briefly look at an example of brand discipline from the world's best known brand of any product category.

You will see some of the reasonswhy this brand is number one among all top brands.This brand ladies and gentlemen is Coca-Cola.

Coca-Cola long ago defined how their logo would be written and/or drawn- in exact engineering detail, including angles and distances.The two logos, Coca-Cola and Coke, must be reproduced exactly as defined. The Coca-Cola Company strictly screens printers and other suppliers who will carry the brand name. The purpose is to determine before appointment whether or not each potential supplier

can fulfill the strict standards for reproducing the brand name and the exact red color.

Coca-Cola will never allow an old sign carrying the brand logo to continue to stand with fading colors, peeling paint in generally rundowq shabby condition. The companywill spend moneytoremove thesign or paint over it.

The Coca-Cola Company will not allow the brand to be used for any questionable activity or sponsorship which does not conform to the brand image carefully defined by the head

office. This is whyevery brand image study reveals that Coca-Cola's actual brand image stands only for wholesome, positive values and situations, like happy young people , happy families. Brand managementis a critical reason why Coca-Cola is not only the most profitable soft drink company but also one of the most profitable of any industry in the world. The brand Coca-Cola as an assetis not valued in the company's financial statements. If you were to buy the No.l brand in the world, how much do you think you'd have to pay for it? US$z)0 million, $500 million?

A billion? One thing is sure- only Taiwan can afford it.

Before we go on, are there Asian organizations we can learn from, in

terms of successfulbrand marketing?

Of course there are. The majority of the world renowned Asian brands are Japanese.We mentioned earlier that some Japanesehave a tendency to overspend,but many others are doing an efficientiob inboth imrge developing and cost control.

When should the Taiwan export manufacturer begrn his trade inbrand --u1"s1uring?

The time to begin for the Taiwan export manufacturer is now.

Three major developments are changing the operating environment

of the Taiwanexportmanufacturer: o The continuingappreciation of the N.T. dollar o The pressureon Taiwanto buyAmerican/buyEuropean to try to reversethe lopsided trade o And the threatof traderestrictionsif the latter fails Sincewe know that brand marketing results in better margins of profitabilityto the Taiwanexporter, now is the best time to begin.With that,we bid the Taiwanexporterbest wisheson his marketingjourney, a continuousjourney but one which is most fulfilling and satisfyingfor Taiwan.

35

He'sduqtlwt)nuthink-

fortheAsianManager Searching Prof. GabinoA. Mendaza DonAndresSoiano Distinpished Professor of M anagement

TheSeeking fhere was a book, published a few I years ago - its title was The Seeking- which tsld ef x min6r kingdom in the uplands ofthe Indian subcontinent "the whose people called themselves great people of the horse."Once in a while, these people would find in their teeming herdg a perfect horse, strong and swift, and maiestic.Theybelieved that this perfect horse was god-inspired. And so, when he reached maturity, they would let it loose, to wander where he would, to seek the godhead.They assigredan armyto follow the horse, led by the King's most manlyson.

Wherever the horse led, they followed. If he led them into a hostile kingdom, they tried to conquer that kingdom- by threats, when they could; by stealth and cunning if the enemy had a bigger army or high, strongwalls around their city; byforce, ifnecessary.Ifthe horse led them into a friendly kingdom, often more civilized and more cultured than theirs, they stayed a while, for as long as the horse stayed,in order to rest, to recuperate, and to learn.

After about a year or so, the horse would eventually return to the kingdom and the Seekingwould end.

For many years now, we have been on a similar seeking- the search for the Asian Manager.

Modern management as we know it todaywas nlnventednabout a hundred years ago by an American engineer named Frederick Taylor. It flourished greatly for about sixty years in the United States, accumulating knowledge and gathering momentum.

It proved its efficacy and its power during the 1940's,during World War II when America transformed itself into the arsenal of the democratic

36

powers and after the war when the American multinationah invaded the markets of Europe and the rest of the world. So powerful were the effects of modern managementthat a Frenchman named Servan-Schreiberwrote a book, The Arnei can Challenge, which warned the Europeans that the American multi-nationals would com pletely dominate the economiesof the continent if the Europeans did not learn and adopt this American managementtechnolog5l.

During this period, it was generally believed that American management technology was a universal technolog5i;that it could be transferred to any country in the world, and with some minor fine-tuning, it would work equally well. So convinced were the Americans of this that during the 1950'sand the 1960's"missionariesnof American management technology from Harvard and Stanford and other similar centers roamed through the world - Europe, Latin America, Asia - preaching their gospel and helping to establishschools"in their own image and likeness". IMEDE in Switzerland, IESE in Spain, INSEAD in France, INCAE in Central America, IIMA and IIMC in India, AIM in SoutheastAsia, to name a few.

DoubtsAboutAmerican Management Technology

If management technology works differently for the Japanese,then for us - who are so different from the Americans as well as from the Japanese- it seemsinescapablethat we require a different kind of mffiagement, an Asian management technology. From tbis, I submit, springs the need to search for, to discover the Asian manager.

Before we launch into our search however, I would like to essaysome deFrnitions and clarifi cations: First,let usbe clear that when-ve talk about the Asian Manager, we really are talking only about the manager in Southeast Asia, and not those from Mainland China, nor Japan, nor the Indian Subcontinent.

Second in trying to define the Asian Manager, we shall borrow a technique from the physical scientists,that oftriangulation. By this technique they are able to locate the unknown position of an object by measuring its relationships with the known positions of two other obiects. In this casewe will use American management and Japanese management to determine what Asian managementis- or should be.

Finally, we shall examine the Asian manager in his three essentialfunctions, namely: as e ntrepreneur and strategist;asresourcemanager;and as motivator and leader of men.

Entrepreneurs and Strategists I t wasonlyin thesixtiesandthesevenI tiesthatdoubts abouttheuniversality fhe managerasentrepreneur andas of American managementtechnolog5l began to form. These doubts arose from the successofthe Japanese.In trying to find the causesfor Japan's great success,Western academics began focusing on the way the Japaneseran their businesses.And they realized that the Japanesehad developed an entirely different system: a systemthat useddifferent principleg different processes, different managerial patterns from thce used in the West; a s'4stemthat was internally consistent;a systemthat worked for the Japanese.

I strategist performs three essential tasks: first, he scanshis environrnent and determineswhat opprortunitiesare available to him and his enterprise; second, he determines what resources are required to take advantageofthese opportunities and marshals these resources; Frnally,he setsrealistic obiectives that will enable hirn to optimally use the resourceshe has in order to take advantage of the best oPPortunitie.s available to him.

The greatnessof the entrePreneur and of the strategist is determined by how big the opportunities are that he

seeghow abundantthe resourc€sthat he can gather, and how grsat the objectivesthat he setsfor hinself andhis enterprise, Henry Ford revolutionizedthe technolog5rof car making and inventcd massproduction and masssellhg bccauseof his visionofa nation ofworking-classAnericang not just the riclL travelingaroundin cars.

JohnD. Rockefellercreatedthe biggest.familyfortune and the biggest companyin the world by rccognizing veryearly in his careerthat cheap transportation- railroads,initially, thenpipelinesandtankers,eventually- constitutedthe cssentiallogic of the oil industryand by realizingthat the marketsfor oil and its products were world-wide. He built up the

What did theseAmeric:n managers havein common?Thesemenhadbig visions;their world wasvery large; their horizonswerefar-reaching.And ID theybecamegreatentrepreneurs, part, the breadtb of their entrepreneurialhorizonsstemmed from their historyand their environment.America is a vastand resourcerich country.And the Americans,descendedfrom immigrantsfrom all over the world, havemuch l€ssir the wayof rootsin particularplacesor communitiesthanmostotberp€ople.

They are pioneers,frontiersmen.

They canmoreeasilytransplantthec selvesfromonemilieuto another.Itis this nobility andabilityto adaptto a n€wplaceor to a newcommunitythat permit.s the Americanto expandhis

ing a wide-spreadneedin this fastpaced tirne-consciousandincreasingly tecbnologicalworld in whichwelive.

Ibuka ofSony and the Hattoris of Seikohad one thing in commonbesidesbeing Japanese.They built up multi-national businessesbecause they had broad horizons;what they w e r e l o o k i n ga t w a si n d e e da b i g world.

One may argue that Japan,unlike America,is perhapsoneofthe most culture-boundand tradition-tiednations of the world. The Japanese, clearly,havefirm roots in their society, a s t r o n gs e n s €o f i d e n t i t y , a n d a perspectiveon life which is uniquely J a p a n e s eH . o w t h e n d o e ss u c ha societybring forth such talented e t r t r e p r e n e u rw s ho, Iike their

horizon beyondthe boundariesof his town or city, and even,beyondthe shoresof his country.

On the otherhand,let usta-kea look at the Japanese.

TakeSonyfor example.Sonywasfoundedby Masaru Ibuka in a smallgarage.He startedoff by makinga few electrica[products.

Eventuallyh , o w e v e r ,h e s a wt h e potential in producingelectronic productssuchastransistorradiosand televisionsets,first for the Japanese market but ultimatelyfor the entire world. This point of viewwasshared group,the Hatby anotherJapanese tori family. They foundeda compaay, S e i k o .w h i c h h a s n o w b e c o m ca householdword all over the world.

Unlile the Swisswho produc€dhandcraftedwatcheswhich,like jewelry, only the rich couldafford,theymass producedclectronicwatches,thusfill-

American courterparts, havepushed the frontiers ofbusinessfar beyond their shores?I submitto you that part of the explanationlies in the resource constraintsthat Japanhasahrap had to contendwith. The lack of natural e n d o w m e n t sh a s c o m p e l l ed t h e Japaneseto constantlylook beyond his community, beyond his province, beyondhis country for the rhingsthat he needs.This hasmadethe Japanese adept at scanninghis environment, spottirg w.herethe mostprofitableopp o r t u n i t i e sl i e , a n d h a r n e s s i n g to atwhatevermeansare necessary tain his goals.

a3

...theAsianManagerhas limitedhis areasof involvementto thosethat are linked to his own community,to his own clan,to that segment of societywherehe feelsa senseof belonging. , , originalStandardOil Companyon the basisof his monopolypowerover railroad rates;andasearlyas1885,only 15yearsafter he had incorporated StandardOil, 70 percentof its businesswasoutsidethe United States.

Consideralso someof the other legendary entrepreneurs and strategistsof America- JamesJ. Hill ald E.H. Harrima4 who spannedthe UDitedStateswith their railroads; An&ew Carnegiewho built the foundationsof U.S.Steel;J.P.Morganwho utilized capital from England to consolidateboth the railroad andthe steel industryof the United States;PierreS. du Pont who traDsformedthe family gunpowderplant into a chemical multi-nationalconglomerateand revivedGeneral Motors by inventing the conc€ptof product-marketnichiag h the automotiveindustry.

Olr Orlgln! rnd Colonial Pa3l I et usnowturn our attentiotrto the LAsian Marager. In SoutbeastAsi4 entrepreneurscomefrom oneofthree

37

backgrounds:the first are the Malayg or as our neighbors in Indonesia and Malaysia call themselves, the npribumi," the bumiputra,n the sons of the soii; next come the Nanyang Chinese,the overseasChinese,most of whom have humble besinning- and are immigrants or descended from immigrants from Southern China; finallX we have the Indians from the subcontinent, very similar to the Chinese in origin and background In any case,the forebearsof our entreoreneurswere normally small farmers or pettytraders with strong ties to a particular clan or to avery closely-knitsmall communiry What are their resources? The nations of SoutheastAsia are rich in resources.

For a large part of our histories, however,these resourceswere not controlled by us. They were controlled by our colonial masters- the Spanistl the Dutcb the British, the Americans.

And becausewe did not control our resources,we did not know them; we did not fully understand and appreciate the natural wealth of our countries;it is only in the reient past that we have become consciousof the vast potential that lies, very literally, beneathour feet.

Why have I chosen to focus on these two points: our origins and our colonial past? It seemsto me that if we look at ourselves closely, we will find that most of us still tend to be very provincial in our view of the world; most of us tend to have very narrow horizons. We have been too insular in our thiqking too inward looking. One of our Filipino sociologists a few years ago had a very interesting comment about Philippine villages that are situated near the sea. nHaveyou ever noticed,nhe asked,"how the housesin most of these villages face landward, awayfrom the sea?Howmost of them facethose oftheir neighbors?nInstead of looking outward to open horizong we look inward at nipa huts, small patchesof rice land and nearby coconut groves. We, as a people, have chosen to involute rather than to expand and diversify. In much the seme way, the Asian manager has limited his areasofinvolvement to those tbat are linked to his own community, to his own clan, to that segment of society where he feels a senseof belonging.

The Asian Manager, like the dweller beside the sea, needs to develop a much wider horizon in his own mind.

38

He needsto look at the world beyond our shores and see it as part of his world, his territory his market. I realizn that most of ow nations are starting to try to open our minds to this. In the Philippines, our present economic crisis has forced us to be much more export-oriented; and in Malaysia, Prime Minister Mahathir has urged the businesscommunity to "look Eastn, to look for opportunities beyond Malaysian shores.But perhaps,even more than ryorld markets, we need to explore the horizons of technology.

We have been very remiss in this. We have concentrated on producing lawyersand politicians; we have overlooked our greater need for engineers, technologists,and scientists.We have t o d e v e l o pt h e m , w e h a v et o m a k e them interact with our entrepreneurs, our businessmenand our managersso that these men may have a broader view of what is possiblewith regard to modern technology.

Productivity f\ mericanproductivityisbuilton the faprinciples of rationalityand of Takea job- anyjob. specialization.

Analpe it scientifically anddetermine theonebestwayof doingit. Theq take a man- anyman.Train him to be a specialist at thatiob.Makehimworkat it overand over,dayafter day.He will masterthatiob.He will becomeanexpert at it. And inevitably,his.productivity will improve.By applyingthetwin p r i n c i p l e so f r a t i o n a l i t ya n d o f specialization, the Americanlmade massproductiona reality;and with it camethe benefitsof economies of scale.The Americancar,from Henry Ford'sModelTonward,istheproduct of rationalityandspecialization.

Coca Colahaslitteredthe entireglobewith its instantlyrecognizable bottleson the basisof the sameprinciples.And certainlythe succassof McDonald'shamburger empireis foundedon the sanr principles. Everyhamburgertheysell is designedto very precisespecifications.The basicmachine-cuthamburger patty weighs1.6 ounces, measures 3.875inchesin diameter,and hasno morethan 19percentfat; the bun is exactly3.5incheswide; the fi nishedsandwichcontains0.25ounces of onions.French fries are thrown awayifafterser,en minutestheyare still unsold,hamburgersafter ten minuteg

and offee after thirty- becausethese are the timestheyturn stale.All the in a McDonaldsoutletare employees carefullytrained;the countersalespersons,for example,are drilled so that they canservean order of a hamburger,a milk shake,and frenchfries i n 5 0 s e c o n d s .R a t i o n a l i t ya n d specialization.

The Japanese, on the otherhand, build their productivityon two different principles:flexibility and frugality.Of coursetheydid not try to re-inventthe wheel.They lookedat what the Americanswere doing.They modifiedit to fit the Japanesewayof doing things:theyinfusedit with the spirit of flexibility and frugality.

One big differencebetweenthe

33

Western man thinks like an arrow, straight and to the pointl Eastern man thinks like a circle,looking at a point from all angles,

envelopingit, seekingto understandit in its total reality. ,, Japanesefactoryand the American factoryis flexibility.In the American factory,eachworker hashis ownjob andit's theonlyiobhedoes.A pain[6r, for example,is not supposedto carry a bucketofnails; he canonlypaint.If you makehim carry that bucketof n a i l s ,y o u r i s k t h e p o s s i b i l i t yo f provokinga strike.The Japanese, however,treasuretheir flexibility. A group ofworkersin Japancanbe doing one thing this hour, but if they were neededsomewhereelsein tbe plant,theycaneasilybemobilizedfor a newor d different taskin the next hour.

The productivityof the Japaneseis alsobuilt on their spirit of frugality, of their senseof the preciousness thingsin a resource-poorland.The Americanslive in a land that is large and rich ... and wasteful.Theirsis a nthrowawaynsociety.McDonald's

"throw away"policy is only one ex-

differently,their patternsof thought to say"this andthat", insteadof Slack ample.Doctors in the U.S. are accus- are different, their thought processes or white" it sap "blackand white" and tomedto throwingawaya lot oftheir work differendy. blue andbrownanda rainbowof othsr medicalinstrumentsafter only one colors."In addition, the Japanese use.The Japanese,however,are a very Two Mindg belongsto a veryhomogenousculture, frugal peopleand theyhavecarried a cultureofgroups ratherthanof inthis frugality into the designand f h e A m e r i c a n m i n d h a s b e e n dividu.'s. He thinls of himselfmoreas I shapedby Europeanpatternsof operationof thei production systems. a memberof a group than asatrinThe Americanproductiooline keeps t h o u g h t w h i c h a r e f o u n d e d o n dividual.He is essentiallya teamman. movingfastbecauseat manydifferent rationality,on linearmodesof thinkIt is becausethe Japanesethink of pointsin the line theycarry in-process itrg.It tendsto thirk in termsof "is or is themselvesasmembersofa teamthat inventories.If there is an interruption not","thisor that,"blackor white,yes theycan be flexiblein how theyconpart in anyone ofthe line, the other or no. 11is alsoinlluencedby the histribute to a team effort, Moreover, parts of the line can still keep moving tory of the Americanpeoplg a history theyhavebuilt a systemthat sustains becausethey candrawfrom their inthat hasemphasizedthe primacyof the teamnatureoftheir productionby ventories.The Japanesetook a look at ruggedindividualismas a trait that i n s t i t u t i n g ,a m o n go t h e r t h i n g s , this systemand said to themsefues, Tf would ensuresuccessin a highly lifetime employmentso that each we follow what the Americansars p l u r a l i s t i c s o c i e t y .R u g g e d i n worker can feel securein his place in doing,we will haveto investa lot of dividualismaccormtedfor the suc.€ss the schemeof things.Not havingto worry about keepinghisjob, he cao pay wholeheartedattention to contributing to attainingthe firm's objectives,to being loyal to th€ company.

The Americans and the Japanese havebecomeproductive;they have becomeefficientproducersof goods a n d s e r v i c e sb y b u i l d i n go n t h ei r strengths.The Americansbuilt on their individualism,their rationality, their single-mindednessT . he Japanesebuilt on their grouployalty, their cohesiveness, their frugality.

Optimizersof Resources et us tak€a look at the Asian Manager as conservator and op-

moneynot only in the inrcntoryitself but alsoin the spacewhich we will needto storethe inventoryin. There mustb€ a bett€r wayto do it." And so, theyinventedthe 'Just ia Tiure"system- perhapsthe mostfamousversion of it is the KanDazsystemof Toyota- whichenabledthemto practica.llyeliminlls ;-process inventory.

Theyalsosetup total qualitymntrol systemswhich madesure that their productswould come out right and that theywould haveno lvaste.There were no piecesthat neededto be redone;no piecesthat neededto be tbrown away.

Whyis this so?Why are theJapanese andthe Arnericanproduclion systems so different from one another eveu though they produce much the same things?

I suggestto you that the difference springsfrom thc fact that theythiuk

timizer of resources,What are our strengths?What can we build ou? I ofthe earlyAmericansettlersin consuggestto you that there are several queringtheir Westemfrontiers.In the possiblebasesfor buildingproducworkplace,individualismhascometo tivity on. I will mention only two of m e a nt h a t t h e A m e r i c a nw o r k e r them this evening.The first springs shouldcarvehis own niche.define his from the natureof theSoutheastAsian" own territory by specializingin one Oneofthe things*.e cansayaboutourthing masteronejob thatwould b€ his selvesis that we have a very strong contributionto the complexproduc- senseof the wholenessof things.We tion proccss. seeourselvesvery positivelyasinTheJapanese,on the otherhand are dividuals;at the sametime, being children of anothercivilization,one membersofgroupsisveryimportantto that is infusedwith Conftrcianpatterns us. In the United States,you can "hire offtougbt tbatemphasize theprocess a hand."The companyemplop someof synthesismore tban of analysis. oneto wak for themandtheydealwith Westernman thinkslike an arrow, tbemon airarmsJengthbasis;theypay straightandto the poirt; Easternmatr him c/hathisworl is worth,*hat is due thinks like a circle, looking at a point to him injustice, a.udtheydo oot interfrom all angles,envelopingit, seeking fere with how he lir,eshis life outside to urderstandit in its total reality.This the workplace.They respecthis inmodeof thinkingfocusesnot on the dividuality by keepingtheir distance. separateness of tbingsbut on their The Japanese,on the other hand,are identity,their hter-connectedness; innore consciousof the group rather steadof sayiag"this or that,nit prcfers thanof the individuaLTheyemphasize

39

the collective identity rather than the ffierentiated or heterogeneous one.

TheSoutheast Asian emphasizesthe wholenessof things. He, therefore, insists on bei.g viewed as a whole person, not iust a hired hand nor an undifferentiated group member. Accepting a job is not merely a contract or a transaction; it is a relationship, one that goes beyond payrng a salary in exchangefor performing a job. It implie s viewing a person as an individual, as distinct from others in the organization. It implies, above all, a "personalnrelationship;it isnot a commitment between a faceless organization and a worker but an understanding between two individuals who will give loyalty and take loyalty from one another; it is a relationship that is akin to that of family members to one another; it is a relationship that we can build on to achievehigher productivity than we have attained so far. The best Asian managershavetransplanted the e s s e n c eo f k i n s h i p a n d f a m i l y centerednessand have integrated thesevalueswithin the culture of their organizations.They demand loyalty, obedience, respect, trust, and diligence but spare no effort to ensure that all the needs of their people are adequately met. The importance of these two values- personal relationships and a family orientation- can provide for a stable, harmonious, and humane environment which may well release our creative potentials and promote greater productivity.

Anotfter possible strength that we have is our women and the role that they play in our lives and our society.

A famous Filipino sociologist has pointed out that the Malay man is raised very differently from men in other parts of the world. If you take a look at the Malay fanily, she pointed out, you will notice that the girls are given responsibility very early in life.

Even when they are still quite young thOgirls are asked to help out in the kitchen, to take care of younger brothers and sisters. The boys, however, are pampered. They are asked to do very little responsible work; they are allowed a lot of time to themselves,to wander outside of the home,to explore theirworld, to tryout their capabilities, to learn what they can and cannot do. Sometimes,this sociologist even claims, we become spoiled incapable of controlling our-

40

selves.Men, she saysachieve responsibility onlywhen they have grown up.

Girls have responsibility thrust upon them even when they iue young.

Someyearsago,I had a very interesti n g e x p e r i e n c e .I m a d e a t r i p t o Thailand and then to lran. While in Bangkok, one of my Thai friends remarked to me, "Have you noticed that all the stores owned by Thais are never tended by men? All of our stores, except those owned by the Chinese, are taken care of by women.

Thai men will never stand behind the counter becausethey arewarriors and it is beneath their dignity to do that kind ofwork." I looked around and he was right. The men were sitting outside the stores, solemnly discussing what, I do not doubt, were earth-shaking topics; the women were doing the work. From there,Iwent ontoTehran.

33

The nature of the follower in Asia, our Asian worker, is not only uniquebut also unimaginably complex. ,, As I went through the great bazaar, which is their public market,I noticed that there were no women around. All the shoppers were men; all the storekeeperswere men. It wai really a profound contrast to the situation in B a n g k o k . I t s a i d s o m e t h i n gt o m e about the indigenousSoutheastAsian; the Thai, though he is not a Malay, acts very much like us. In oiu homes,while it is the men who worry about obtaining resources it is our women who worry about the useofresources.They a r e t h e o n e sw h o h a v e t o p r e p a r e budgets, to economize, to pinch pennies to make sure that the budget hts, to cut corners when necessary.They are the resource conservators,the resource adminishatorg the resource optimizers- not the men. They do this verywell in the home. And given the chance, they do it verywell in the businessworld. In the Philippines, the most prestigious department store is run by a woman; one of the most profitable res1uurilil sfiains is run by a

woman; the most successful bus company is run by a womaq the country is run by a woman. It is possible that we have here the seed of a very unique business idea: that of bringing greater numbers of womenmanagers into our companies, not just into office management situations but also into production managementin order to raise the level of our productivity. It maywell be an idea worth exploring.

l.eadership I et us now move on to the next vital Lfunction of the Asian managerthat of leadership.The leader of any organization has two fundamental tasks: first, he has to convince his men that there is a congruence,there is a consistencybetween what the worker wants for himself and what the company's objectives are; that by achieving one, he will also be able to achieve the other. So there must be an appeal by the manager to the head, to the mindof hisworkers. Secondly,and perhaps more important, he has to make them enthusiastic about their work, he has to inspire his workerg he has to touch their hearts.

I-ooking at these fundamentai tasks, let us then examine how they are carried out in the United States and in Japan.

Thomas Watson, Sr. is a very famous man. He was the man who made IBM the colossusthat it is today. When he was just starting, in the early days when IBM was still called CTR, he used to fire up his salesmenby grving them impassioned speeches,and they would during these sales meetings, sing a song which I would like to read to you because,among othsl things, it sounds so very quaint and so nAmerican.n This is the song: 'Mr. Watson is the man we're wo*ingfor.

He is the leader of the CTR. He is the fairest, squarest manwe lotow, Sincere and nte.

Hehas shownus howto ploy the game Andhow to make the daugh.'

Mr. Watson's biographer tells us that he demanded from his workers hard work, dedication, and loyaltynot only

becausethese traits would make the firm prosper, but more important, because the successof the firm would mean prosperity for the individuals who made it possible. He used to say to his men, "In putting forth your best efforts, do not feel that you are working hard just to build up the cornpany and to make money for the stockholders. You are really working for yourselves.nThat is how Thomas Watson, Sr. thought.

In coqtrast, here are some excerpts from Matsushita's seven objectives: "Our purpose shall not solely be to gain wealth or display industrial strength but to contribute to the progressand welfare of the community and the nation. Alone, we are weak;togetherwe are strong.We shall work together as a family, in mutual trust and responsibility. An association of talented men is only an unruly mob unless each member is imbued with a spirit of harmony and cooperation."

If we look closely at the thoughts of Watson and Matsushita and compare them, we begin to discern how their two nations differ. The United States wasbuilt on the individual.It is the individual who makesthe country move.

Watson's appeal is very much to the individual's mind and his self-interest.

It says,"If you help the company to prosper, you will become prosperous yourself." The Japanese,on the other hand, emphasizesthat people must work together if the company, the society,'thenation is to succeed.He appeals to the group-centerednessof the worker knowing that this is what will motivate him. We can see very clearlyfrom this that it is the nature of the follower that determines how the leader leads them. Watson leads his salesmenby their self-interest.Matsushita leads his workers, who are group men, by an appeal to their group loyalty and their need for solidarity.

Let us ask ourselves the question, then, of how the Asian Manager can best lead Asian workers. I suggestto you that on the basesof the American and the Japaneseexperienceswe can conclude that it is in this area that the manager must be most Asian, where his management technology must be most indigenous. The nature of the follower in Asia, our Asian worker, is not onlyunique but also unimaginably complex. He is shaped by our many

religions,by the traditionaltechnologiesthat havesustainedour peoplethroughthe centuries,.by our peculiareconomics, by our uniquesocial arrangements, by our diversehistories,by the civilizationsthat have sweptthroughAsia imprintinginto us our deepest-feltneeds,fusinginto us our moststronglyheldvalues.

How then can the Asian manager leadsucha uniqueandcomplexcreature? He leadshim and his fellowsas a fatherwouldhisfamily.He praises and rewards,not by publiclyidentifying thosewho do betterthanthe rest and singlingthem out asmodelsfor emulationor byopenlygivingthembig bonuses- this only fuelsjealousyand distrust.He signifieshis approvalin quiet,personalways,with gestures that conveyunderstanding, warmth,

l1

You must develop yourselvesinto trusted and inspiring managerial leaders , ,

affection, and trust, for he knova that theseare of greater value to the Asian, that theymotivate him more powerfully than flamboyant protestationsand dramatic posturing. He sanctionsand a d m o n i s h e sh i s p e o p l e i n s i m i l a r ways- by appealing to the Asian's senseof shame,his fear of lossof face, his need for close personal relationships. And he does this subtly, for Asians can conveyand perceive these signals with great import and sensitivity.

National ldentity

lf you look at what the different I countries of Asia are thinking you will realize that all of them are caught up in a ferment of seeking to find their national identity. There is a great debate going on in each of these countries, with their intellectuals trying to define what, for them, constitutes the gmd lifg the life worth living. It is

the subiect of numerous articles in the newspapers,the Sundaysupplementg the weekly magazines.It is the subiect of papers and monograpbs in learned iournals. And in many ways, it is a' search not for something that already exists but for an ideal, for a national identity that we nould like to have.It is nnearer a processof shapingoursel'rcs to the heart's desire."

The Asian manager, if he is truly a leader, must keep track of this search for a national identity. In fact, he must participate actively in defining what kind of a people we want to be, in speci$ingwhat shouldbe the most important values that we as a people should hold, in determiningwhat constitutes the good life for our people, what successin businessreally means, and what good government should ep compass.These arevery important questionsthat our societieshave to decide; and I suggestto you that the Asian Manager shirks his duty if he does not participate in the on-going dialogue that is shapingthe answersto these all-important questions.He will also- perhaps with greater impacthave to participate in trying to determine how we will achieve this national identity, once we have agreed on what it is; in trying to determine what strategieswe should adopt for our social, political, economig technological, and moral development.

I started this talk with the storyof the Seeking;with the "people ofthe horse" searching for the god-head, trying to find god's messageto their tribe. You may well ask if they ever found the god-head. Well, when the army returned after one year ofwandering about, they sometimes came home with a dead prince who had been killed in battle; at other times, they returned with a defeated Prince, unsure of himself, broken, discredited, his followers no longer willing to take his lead; but everyonce in awhile, the army came home with a victorious Prince, a new King, one worthy to take over his father's work. Though still young, he would be wise in the ways of the world; his strategic powers fully developed,he was skilled in deploying and using the resources, the troops, the weaponry that he had, and preeminent in his ability to lead men, to inspire men to follow him into battle, to dare death in his sight.In away, you might say that when the army came

41

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FEAruRE Wonm Motqm in fusinrssOtgmizdionsCaselIisary I

MctoriaN.* With relatively little efforg Victoria excelled in school so that she was consistently emong the top ten percent of her class. This motivation to excel was internally generated.

byProf.Victoia BantugHoffarth BanlcAmeic a Foundation Prcfessor of BusinessManagement *I think that for most jobs, a basic, stron& common sensicalapproachis reallywhatis veryoftenthe wcyto success,'insistedWctoia who,at 35 was ManagingDirector of SMC Merchant Bank l.td., owned by Swissand American concerns. Wctoria was likzwise a member of the Board of Directonof anumberofsubsidiariesof SMC,both in Asia and in Europe.She earnedan incomein thehigh sixftgtres in Singaporedollan and.wasa member of theYoungPresidentsOrganimtion,a worldwide organizationof corporate presidentswho attained their post beforethq reachedtheap of 40. il | arried to a seniorpartnerof a law lUlfirm and mother of two small children,Victoriasaidsheappliedthe samecommonsensicalapproachto settingher priorities betweenher careerand family life: o There are times,for example, whenyour children take pribrity and other timeswhen your job takespriority. You mustneverset a concretelist of priorities becausethen ss6sthing alwayssuffers.

And eventually,that section that you'vegot right at the bottom, is goingto turn out to be a real cancerspot.You've got to keepjuggling your priorities so that something getsgood attentionregularly.

This flexibility in changingpriorities accordingto the demandsof the situa tion, sheclaimed,wasthe key to her effectiveness both in her career.andin *

o I got attention from mY parents but not on a daily basis as my mother was working. She wasn't there every afternoon when I came back from school to make me sit down and study. She did not supervise me that way, so I was left very much on my own.... (But) if I failed in anything, I would be so crushed by my failure that I would not be able to sleep....

balancing the demands of hcr office and her home.

EarlyChiHhoodExperiences f fictoria was the eldest among three U children and the only daughterof an upper middle-class family. Her father was a dental surgeon who was heavily involved in public servie. Her mother worked as company secretary.

There were servantsin the houseand both parents made little demarids on their cbildren.

With her brothers, Victoria led a very carefree life. They spent a lot of time in swimming clubs, socializing and meeting different people. Her father used to have numerous social activities and the children were always encouragedto participate in theseactivities. She learned how to ask questions from the people she met.

Victoria was a naturally curious child and her father abetted her curiosity. In her own assessment,her "horizonnexpanded early asshelearned howto associate with grown-ups.

Accordingly, she won an award as the Anglo-Chinese Book Prize Top Scholar for A Irvels during secondary school,and after graduation, agovernment merit scholarship which gaveher full scholarship throushout her stay at the National University of Singapore.

Already then, Victoria wanted to prove herself, to earn recopition of sorts. Exactly for what and how she was not clear. She maiored in English literature becauseshe found the fieid "interestingn graduating in 1973with an honors degree.A government scholarship, however, required her to work for a number of years in the government service. She was offered a iob as a teacher but teaching did not appeal to her at that time. So her father paid off the government bond, a move which enhanced her flexibility in planning for her future career.

CareerHislory in her choice of a fhe main.criteria I career was nI wanted to be in the sector which had real potentiaf" and at that point in time, she decided it was

The names of persons and companies in this case history have been disguised. The case history was developed by ProfessorHoffarth aspart of a researchproject on Women Managersin BusinessOrganizations(WMBO) of Southeast Asia. The research was made possible by a grant from the Canadian International Development Agency (CIDA).

43

the financialsector.This wasin the early 1970's when Singapore's economywasbooming.

Mctoria heard that the main branch in Singaporeof a large commercial b a n k b a s e di n L o n d o n , n e e d e d graduatetrainees.Eventhoughtherequirementswere for thosewith businessadministrationor economics degrees,she,with her liberal arts degree,decided to apply, anyvay.She wasaskedto comefor an interview during which shehad to makea fiveminuteextemporaneous speech.She wasaccepted.Again,sheascribedthis to her ncommonsense,nas she answeredquestions,madeher speech, etc.

Victoria would neverleaveher first iob. The succeedingL2yearswould witnessher rise in the companyladder from officer-traineeto managing director.Shestayedwith the company evenasthe shareholderschanged.She claimedshewasat the right placeat the right time with viewswhich contributed to the growth and development of the oompany.

In 1973whenVictoria startedasofficer-trainee,the Singaporeoffice of Merchant Bank was alreadyvery large,conservative,and in her wordg "established.n There, shewasassiped to variousdepartmentsdoingvarious tasksfor one year, then sent to the headoffice in London, and again rotated to various offices and branchesfor anotheryear.By the time shewasfinishedwith her training period, shehad passedthe examination for a diploma in Banking.

Backin Singaporeasajunior officâ&#x201A;Źr, shewasassiped to do credit work at the headoffice.After anotheryear, shewas movedagainto assistin the managementofone of the branches.

After still another year, shewas offered a choice betweena branch all her own to manage,or taking charge of a largedepartmentin the mainoffice. Victoria assessed the bank situation thus: o (The personnelsystemin the bank wasthat) everybodyhad a scale:a grade,and a rank, and everyyear,one progressedonestep.Ifyou were exceptional,you may at most,get a doublejump....It did not preventme from tryingto do better....

By this time,shehad identifiedthe merchantbankingsectorasa field that wasnew,with a lot of growthpotential.

Additionally,it wasideal becauseit wasn'tasyet a stratified sector.Insteadof acceptingone of the two posi tionsbeingofferedher, shethusrequesteda transferto the merchant bankingsubsidiarywhich shejoined in 1977.This decisionwouldhavea long term impacton her career.

True to her assessment, the merchantbankingsectorin Singapore ntookoff.nVictoria wasideally positioned.Within twoyears,shewouldbe appointedoneof the executivedirectors, a position sheheld until she r e a c h e dh e r c u r r e n t p o s i t i o no f managingdirectorin 1983.Inthe meantime,the bank had changed shareholders and namebut Victoria remaitted.

PresentPositionand Management Style director.of SMC,Vicf\ smanaging

Fltoria hadthegeneralresponsibility for the profitability of the bank,while servingon the board of severalsubsidiariesin Hong Kong and llndon.

Sheplannedthe marketingof existing productswhile developingnew ones.

For instance,seeinga verythin credit market becauseof the economic

downturnin Singaporeand the sur,rounding areasduring the mid-1980s, shepredicted that private banking would be the areaof opportunityfor mostof the late 1980's.Her opinion wasthat this shouldbe SMC'smain product for the next coupleof years.

Shethereforeestablishedan asset penagementcompanyin 1985.

She directly supervisedseven departmentheads,relying on their support and spirit of teamwork. o We're verymuchlunning on a committeebasis.We havea loan committee,an investment commi11e6, and so forth. Most ofthe decisionsare takenacand tuallyby my subordinates ratifiedby me.

Victoriawasproudof her competent staff,andsawherrole not assomeone who would duplicatetheir function but asthe provider of the'broad picture,nthe visionthat the bank should follow if it were to grow. o I could neverwrite a credit proposalwith the depth that my presentcredit manager can do, or a foreign exchange report that my foreign exsfoangemanagercan do. The specialistsare far better in their slotsthanme,and I'm veryhappyto saythat.But .... the directionand planningso that the bank goeson asa whole I can neverdelegate.

Her participativestylewaslikewise consistentwith her personality.She sawherselfasgenerallylow-keyedand non-confrontational,althoughshe claimedshecould be aggressivewhen the situationwould demandit. o If I were to comeinto an office beingtough and langing on tables,I won't feel happy with myselfbecausethat's very nnnaturalto me.I takethat stanceonlywhen all elsefail and onlywhen that is really the last resort.

Aspirations A t 35,Victoria could aspireto exFlpand her responsibilities to includethe Asian region.Howercr, consideringadding another child to her fanily, shehad placedthesepossible aspirations in abeyance."I know I

coulddo a lot more....n shesaid,nl'm not willing nowbecausethat would dip too muchinto mypersonaltime."Since her familywasfinancialbcomfortable, additionalincomedid not play a significantfactor in her careerplans.

In the distantfuture,shedid not even discountthe pcsibility of looking for an alternativecareer,suchasbecoming a teacher.Motherhoodhad attractedher to the ideaof trainingthe young.Who knows,shespeculated, shemigbtyet comefull circle:from a rejectionof the teachingprofessionto crowningher careerwith that same profession.

Back-tothe-Person \fictoria wasfacedwith strongtime Y demandsequallyfrom her career aswell asher homelife. Shewouldbe out of the houseby 8:fi) a.m.on ordinaryweek-days.Additionally,an averageofthree nightsper week,she wouldalsohaveto spendat cocktailor dinnerparties.Entertainingwould oftenspill overto sit-downdinnersshe hostedat her homeduringrrcek-ends.

Thesedemandswere compoundedby thefrequentneedfor her to travel not onlyaroundAsia but alsoto Australi4 Europe,andthe U.S. Her husband,whohimselfwasavery busylawyerdid not mind her late hoursand frequent travel: o I think he'd go bananasif I wasa naggingwife becauseI wasbored and neededhis ccnnpany.With his line of work and the wayhe works,he needsa wife who is extremely independentand who can survive without him havingto entertainher.

On the other han4 he did not activelyhelp in therrrnningof thehousehold and the supervisionof the children.

Their eight-year-olddaughterand two-year-old-sonwere,however,used to the heavyschedulesof their parents andVictoria madeit a point to keepin touchby telephonewhenevershewas away.

Still, effectivetime managementwas verycritical to her.Sheretainedawelltrained and competenthousehold staff consistingofa cook, a cleaning woman,and an antah.Shelikewise cultivatedadditional supportnetwork in the personsof her nother-in-law,

and friends. Her secretaryat work coordinatedthe activitiesof these varioushelpersand providedthem with necessary logisticsupport.

On her part, Victoria delegatedas muchof her responsibilitiesto them while "designing"systemsof appor-

tioning specific tasks.On extremely busyweeks,thismightevenmeanthat late into the night, after a dinnerparty, shewould haveto sit down and set up programswith schedulesandaccountabilities.Sucha schedulecouldlook as follows: o I neverstayawayfor more than two weeksat anygiven trip. But before I go, I makea timetablefor the children for eachday of the week.fuainst eachday,there is an entry of who's supposedto be taking themwhere,who'sgetting them back, or who'sgoingto remind them of what. This is dayby day.It's got thingslike Monday- swinming;Tuesday- gmnastics,and soon for the restof the week.

At the bottomof the schedule,there is a list of all thephonenumbersof the variousteachers,the school,doctors, andeveryonewhomI canthink of. The list is circulatedto my secretary,my husband,my maid in the house,and their grandma.So there are alwaysa lot of peoplewhom they can call on.

Part of her andher husband'sjob was to entertainfrequently.The sameattention to detail wasmanifestedin the way sheplannedfor her dinner parties. o The cook doesthe cooking but neither shenor the others can set the table asI want it set.You know,I want to match the decor,the china, the tablecloth,etc.,with the kind of guestsI have....and thesethingsI find difficult to delegate.

Thus, with a bit of juggling of her time and cutting cornersin her activities so that shecould accomplish two objectiveswith a singleactivity, Victoria believedshehad reacheda happy compromisein balancingthe conflictingdemandsof herjob andher fanily. During schoolholidap, for exarnple,whenevershecould not avoid taking businesstrips, shewould try to combine thesetrips with familyvacations by bringing her children, and wheneverhe could makeit, her husband,with her. The key to Victoria wasflexibilityin settingher priorities.

Thus, when her children neededattention becausethey were going

45

through a difficult period, she would say, definitely no evening engagements. Other times, when they were happy and doing well at school, she might havebeen out everynisht ofthe week. Victoria relied on her ncommon sensenwhen faced with a choice between a sick child and a board meeting.

PersonalAppraisal did one define ncommon lJo* | lsense,nand could ncommonsensen be acquired? If so, how did she do it?

T o V i c t o r i a , n c o m m o ns e n s e nw a s knowingwhat to do in a given situation in a decisive way. It could be the completely rational thing to do, or it could b e n s u b - e m o t i o n a l . nI t c o u l d b e a decision or an application of a decision. In short it meant doing the right thing at the right time. In terms of whetber ncommonsensenwas innate or acquired: o I don't think that there is going to be any specific training that is going to ever cover all that we are going to have to encounter in our life, be it personal or our career. What we have to have is the underlying string of common sensesthat is going to see us through for whatever is going to come by....

Since "whatever would come by" were varied, however, exposure to a variety of situations would broaden one's horizon and make one see the "broad picture.n Again, seeing the 'broad picture" was absolutely necessary if one were to acquire common sense,becausethen one would understand how a specific task would fit into the general scheme of things. Only t h e n c o u l d s o m e o n e s e p a r a t et h e grain from the chaff. Victoria cited the problem with many women who would get involved with all kinds of details and after a while would forget what the details were for. Thus, no matter how hard theyworked, they could not advance becausethey didn't work 'smart.' Knowing how to work by applying a lot of oornmon sensewas even more essentialthan working hard.

Again, how could one get to see the "broad picture?n Victoria felt one had to search for it as she had- the kevin her case was corporate curiosity. o (One can see the "broad pic-

46

turen)....by being curious and by not being just satisfied with knowing one portion of what you're facing....but wanting to understand why it's there and how it fits into the complete picture.

Thus, when she was a management trainee.... o ....I didn't sit at my desk and iust fill in pieces of paper. But I would fill in my piece of paper and take it to where it's supposedto go myselfand frnd out what happens to it next rather than putting it in the'out tray' and letting the messengerdo it. I probably filled in less pieces of paper than someonewho sat there all the time. But I think I ended with a far deeper knowledge of my job.... becauseeverlhing is interlinked with one another to form an organic whole.

BecauseVictoria sawthe nbroadpicturen and could separate significant details from the insignificant ones,she was able to releasevaluable energy and time to concentrateon other tasks. o I remember that when I just came to the Merchant Bank, they wanted somebodywho would do five different things and I think they selectedme becauseI was the sort of person who wouldn't mind doing five different things. I didn't say,'that'snot my job'.... In an organization, nothing is not your job. You may have your own priorities but you can't say it's not your job,'and that's something I've never said.

This attitude made managementassign increasingresponsibilitiesto Victoria. She sat at the money-dealing desk, in on treasury operations, did credit control, credit analysis,and cledit marketing aside from collecting bad debts.

She,however,had a clear view of her priorities. o I do not lose sight of the main . things I have to look after. But I'm the one who is losing pens, forgetting to balance my cheque book. I'm disorganized

that way. But I have a clear vision of what I have to do. In that way I could say that I'm not organized but I'm effrcient.

Over the years, her successesgave Victoria the self-confidence which was critical to her job. Banking in her opinion was essentially a marketing job and one was selling one's credibility.

To those women who would be equally desirous in advancing their careersin a corporate setting,Victoria had this to say o I think we start with a slight handicap, but that handicap can become a real advantage, because if we do manage to prove ourselvesand establish our credibility, then we get a lot of visibiliry and in many cases,we become a rarity. I can think of a number of conferences where I was one of the very few women, or even the onlywoman. I have had a speaker addressthe crowd as 'Lady and Gentlemen.' Of course, then we are often called upon to do or say something and we better not make a fool of ourselves.... o A lot of women don't take themselvesseriously as they often get sidetracked in their careers by other concerns or by a real or perceived inequality, which is entirely unnecâ&#x201A;Źssary....

l

-ALUMNI

NEWSANDFACI.JLTY

ADB'r Fqiiol@Awoilblqot Fundklnloship

Address NineteenthCommencement industrializationis constrainedby the lackof middle-levelmanagerial skills.

I wasalsoimpressedby the structural

By MasooFujioka President,Asian DevelopmentBank changesin manyof the economiesin Asia. The changeis epochmakingin post-wareconomichistory in thatit is Mr. Fujioka chose the occasion of leadingto a changein thepatternofinAIM's nineteenth graduation ternationaldivisionof labor in the ceremoniesto announcethe aword of region.Somecountriesare exporting tenannualscholanhipsprovidcdbythe more manufacturedgoodsto Japan I apanesegovemmentandadrninistered and receivingmore privatedirect inby the Asian DevelopmentBank The vestmentnecessarvfor their inis repinted here. tut of his.address dustrializationThisispartlydueto the maturingeconomiesof somecountries promptedby the appreciationof the I amvery honoredto participatein I thisgraduationceremonyof the stuyen.The dawnof theAsia-Pacificera d e n t so f t h e A s i a n I n s t i t u t e o f is fastapproaching.

The trip reaffirmedmy previous Management.Two decadeshave passedsinceAIM and the Asian beliefthat educationandmanagerial DevelopmentBank wereestablished. skills,are morethanever,vital factors for economicdevelopment in theAsiaIn that period, in particular in the last Pacificera.It is with thisbackground few years,many changeshavetaken thatI especially appreciate thisopporplacewithin the Asia-Pacificregion.

Before discussingsomeof these tunity to addressthe graduatesand changegI wouldlike, firsl to congratu- facultyof AIM. AIM and the ADB sharea regional late you who are graduatingtoday.To perspectiveaswell asa developrnental havecompletedthe rigorousprogmm perspective.Both institutionsservea ofsuch a prestigiousinstitutionis a greatachievementandcongratulations regionof diverseand dramaticcontrasts.Asiais avastregionof theworld areverymuchin order. by.avariety Onethat is characterized Last March, I visitedPapuaNew of cultures,traditions,naturaland Guinea,Korea,Pakistan,India, I:os andThailand.In eachcountry,I was humanresources,developmentapandpleased proachesandpriorities enthusiasticallywelcomed Therefore,it requiresusto beflexible to see,first hand, that the ADB's and sensitive,to ensurethat our reputationwasrisinghigher. At the sadletime, I noticedtwo remarkable programsremain relevant.AIM and the ADB alsosharea developmental changes.

The first wasthe changein people's perspective- to dei'elophuman pcrceptionof economicdevelopment resouroesasa meansof promotingthe policy.I metmanygovernment leaderq economicgrowthof the developing countries. and bankers.They are businessmen story We all know aboutthe success now more concernedabout economic efficiencythan political ideology. of the newlyindustrializingcountries of Asia - Hong Kong,Korea,SinReligion, too, doesnot seemto be gaporeand Taiwan.Thesecountries hindering economicgrowth. And in ofJapan andthe historicalexperience emphasizingeconomicefficiency, peopleinvariablystressedthe inporshowthat onationbuilding"requires manymotivatedindividualswho are tanceof education,training and management.In some of these willing to work diligently and with incountries,economicdevelopment genuityfor society.And amongotherg managerialskillsis essential.The fuprojectsare not adequatelyimpleture prospectsfor socialandecmomic mentedbecauseof a shortageof growth in the region will largely trained personnel.In other countrieg

GraduationDay 6raduation Day for the \lltvtgtvl and MM class of 1988was on Sunday,May 8, 1988at five o'clockin the afternoon at the Jaime V. Ongpin Quadrangle,NM campus.This year's guestspeakerwas Mr. MasaoFujioka,Presidentof the Asian DevelopmentBank. He wasintroducedby Fr. Edmundo M. Martinez, S.J.,Executive Vice Presidentof Ateneo de Manila University and member of the AfM Board of Trustees.

The Invocation was given by B r o . B e n e d i c t ,F . S . C . ,V i c e Presidentfor Developmentand A l u m n i R e l a t i o n so f D e L a SalleUniversity and a member of the AIM Board of Trustees.

Eighty-fiveMaster in Business Management(MBM) and 36 Master in Management(MM) graduatesparticipatedin the graduation rites that Sunday afternoon.Eachyear the Institute awards distinction honorsto studentswhohavedistinguishedthemselvesby outstandingperformancein the courseof their studies.The Distinction Awardeesfor this year's graduatingclasseswere: Jose Marvin C. Beduyaand Antonio N. Abaya, Jr. for the two year MBM program and SureshM. Krishnan and Merlita M. Pajarillo for the one year MM program. The LeadershiP Award wentto JesseG. Clamor, this year's StudentAssociation Chairman.

Cocktailswere servedfor the graduatesand their guestsafter the ceremonies.Various other guestsand trusteeswere also present

47

dependon the degreeof successin developinghumanresourceqregardlessof political ideologies,religions andcultures.

This points to the needfor a growing cmperationbetweenAIM andADB whichI find veryencouraging.Both of our institutionshavewitnessedtwo d e c a d e so f e c o n o m i ca n d s o c i a l developmentin Asia. When the ADB andAIM openedtheir doorsfs businessin the Sixtiesit wasnot easyto visualizewhat the face of Asia would belike today.Progressin theregim has b e e n c o m m e n d a b l e .H o w e v e r bundredsof millions of peopleremain poor and hundredsof millionsmore desirea higherliving standard.

AIM, asa schoolof management, has asits main responsibility,the task of educatingprofessionalswho can operateeffectivelyin a wide range of in governbusinessand management ment agencies,private and public institutionsand otber orgaaizations.

The processof economicdevelopmentrequiresa nrcll-educatedpopulation sothat the productir€ assetsavailablefor developmnt ca.nbe put to the verybestuse.As graduatesofthis presligious instilutiotr, I expectyou to becomefuture leadersin the privateaad puHic sectors.Iraders whoseresponsibilitieswill requiremanagerialexcellence,hard choicesandwisdom.The economiesof the regionare changing Theyare becomingmord complex.

Theyareexposedto morecompetition Their managementrequiresmore knowledgeandbetterjudgnent.The

48

challengeI wantto placebefore1ous to do yourbestto helpmakethisregion the rnostdynamicin the world. You, the leadersof tomorrow,mustbe able to apply your training and experience to quicker the paceof socialprogress and economicgrowthby managingefficiently thosehumanand technical resourcesyou are responsiblefor.

The ADB, for its part, hasa! adive programof lendingandtechnicalassistanceto develoDhumanresources.

The rarge o[ our educationprojectsis wide and focuseson vocationaland scienc€educationanddevelopmentof tertiary institutions.In additionto our specifrceducationprqiectg v'e ensure that appropriateeducationand traini n g c o m p o n e n t sa r e i n c l u d e di n prcieas in all sectors.We are increasing our cooperationwith nationaland regional training institutesto develop humanresources.We havetakenan important step.with the establishment ofa schdarshipprograr4 thefirst to be undertakenby the ADB. T h e p u r p o s eo f t h e s c h o l a r s h i p programis to provideopportunitiesto individualsfrom the ADB's mernber countriesto undertakefurther studies at nationalor internationalinstitutions r e u o w n e df o r t h e i r p r o g r a m si n Eanagement,technologyandderdop ment-relatedfields.We haveprepared a list of suchinstitutionsand I am pleasedto inform you that AIM is amongthem.

At eachof theseinstitutionsthc scholarshipprogramwill iponsor a numb€rof students.Fundsfor this

Programhavebeenmadeavailable-by the GovernmentofJapan and adminisration will be carried out by the ADB. Scholarstrained under the programwill be expectedto retum to their countries to apply their knowledge to help accelerate economicand socialdevelopment.

We are quite pleasedwith this newinstrumentat our disposalin the field of humaaresourcederrclopmentald enpect that the Programwill benefit tbe scholarsand their countries.

In the comingmontbsI would like to think about what further measures couldbetakento meetthechangingreq u i r em e n t s o f h u m a n r e s o u r c e dewlofent of the region.It is impctant not only for economicdevelopment,but alsoit is a basichumanright of eachpersonto havethe opportunity to fully develophis or her potential.

You who are graduating today, have beengiventhe opportunity to benefit from an outstandingeducational progran. A firm foundationhasbeen laid on which to build your future caf€ers. meonceagainconln conclusion,let lgratulateyou the graduates ofthe AsiaoInstitute of Management,oneof tbe mostoutstandingschmlsof businessin the region.As leaderspu will be expectedto providethe crucial managerialcomponentin the process of soci4 political,technologicaland economicdevelopmentof Asia. I wish you every success,

Rqqt

TheWalkabout:

l(ota Kinabalu,Sabah, Itllalaysia

Besidesthemonapment resesrch repo4 MM sUdentsmust demonstratetheirmanageial comrytenceby dcsiping and succes sfultyimplementinga project.Thisprocessis managetnent calledthe.Walkabout.Below,Emy de Veyrareportson a Wallabout that took her and otherAlM officialsand professonto Kota Kinabalu, Malaysia fhis trip waspart of the Walkabout I project of Ms. HelenaLiew, an MM'88 studentwhoseproject5p'rght to (1) promotevisibilityand quality aw:renessfor AIM and (2) establisha branchof the AIM GraduatesAssociationof Malaysia(AIMGAM).

Ms.Liewwasa participantin theioint Boardof Governors,Trustees,Faculty, Alumni andStudentWorkshopin Fetnuary,1988duringwhich sheidentified thesetwo needs.The focusof Ms. Liev/s project wasa whole-daysy-posiumsponsoredbyAIMGAM with thetheme:"Sabah- TowardsanAgro BasedEconomy.n The first activityscheduledfor us uponarrival wasa dinner hostedby Encik Kamal Quadra,Principalof GayaTeachersTraining College, which is one of three suchcollegesin Sabah.EncikKamalexplainedthefumat of Dean Horacio BorromeoJr.'s (MM'77) talkbeforesome40teachers scheduledfor the following6spning.

He notedthat thiswould be goodexposurefor the teacherssincethereis verylittle opportunityfor themto listen to teachersfrom other countries.

Thefollowingmorning wedroveto tlre CollegewhereDean Borromeogave his talk on motivation,time management,and the teachingpofession.An openforum followed.

From the College,we then madea courtesycall on Dr. Max Ongkili,actingseniorassociate directorof theIn(IDS) stitutefor DevelopmentStudies, Sabah(IDS Sabahis a private and independentprofessionalorganization setup by the Sabahstategovernment to undertakeresearchon economic, social political and public administra-

tive developmentprogramsand make policy recommendations for possible implementation.).We were then usheredinto a room wheresome50 fromIDS hadassembled to economists listen to a talk by Prof. Mario Lopez MBM '70. This wasfollowed by an openfaum andlunch.

At 2:00p.m.,we wentto paya oourtesycall on the StateSecretaryof Sabah,Y.B. Tan Sri Datuk Abdul Hamid Egohwhoseofficewason the (Sabah Zithflmr of theYayasanSabah Foundation)Buildingoverlookingall of Sabah(SabahFoundationis the governmentagencytaskedwith imprwing the educationalopportunitias Tan Sri andfacilitiesfor Sabahans.).

Hamid had issueda circular to all governmentoffibesencouragingtheattendanceof governmentofficialsat the AIMGAM symposium.

From therewe calledon Assistant Director SalimiMaralim (SabahBMP) of the SabahInstituteof AdministrationandResearch(SINAR).

ThenweproceededtoSabahGasIndustrieswherewe paid a courtesycall on EncikSuianSinghKalsi,theActing ManagingDirector. Dean Borromeo deliveredthelastscheduled talkfor the dayon "Managingin a Turn-around Situation"beforeSGI executives.

That eveningan alumnidinnerwas held at the KimanisBallroomof the HyattKinabaluInternationalHotelattendedby somefifty AIM Alumni.

Prof.GabinoA. Mendozadelivereda Manager talkon'The Entrepreneurial Ms. andtheAdministrativeManager.n Effie Goh MBM '78,presidentof the association spoke briefly on AIMGAM's objectivesand activities and encouragedthe SabahAlumni to be actively involvedin formingthe AIMGAM SabahBranch.

MM'85; Titus T. K Wong BMP'80; and Leonard Chiq MDP'81-.

Two weeks earlier some of the alumni fromSabah had met to form a committee charged with planning new activities for their branch. The initial activity they decided upon was a symposium-dialogue for top government officials, government-owned companies and/m agencies,the private sector and the alumni on Wednesday, April 20 at the KimanisBallroomof the Hyatt Kinabalu International Hotel.

There were four resource speakers, namely: Dr. Ti Teow Churtt, associate director for economic development programs of the Institute for Development Studies, Sabah (IDS), who read a paper on the nRole and Prospect of Agro-Based Industries in Sabahf Prof.

Mendoza, whose topic was nEntrepreneurial Strategiesfor Success;" Dean H. M. Borromeo, Jr., Associate Dean for Mid-Career "OrganizaProgramq who talked on tion Development and the Management of Human Resources";and Prof. lapeq whose topic was "In Search of Be$er Hanrcsts."

The professors'visit was made possible throug! the generosity of the following people: Mr. Stan Golokin of YayasanSabah,Mr. Thomas Willie, MM 85, of Hyatt Kinabalu International Hotel and Mr. Thomas Majanil, BMP 81, Permanent Secretary, Ministry of Agriculture and Fisheries. All o t h e r e x p e n s e sw e r e c o v e r e d b y revenues from entrance fees.

The next day Prof. Mendoza gavea talk on nCorporate Culture" to the executives of Korporasi Pembrngunan Desa (KPD or Rural Development Corporation). KPD is the most important agency created bythe government to innovate and accelerate rural development in Sabah. It is headed by Someof the alumnipresentwere Mr. Felix Golingi, the General Tengku7-ainalAdlin, DeputyDirecManager. Then, Dr. Richard Gunting TMf â&#x201A;Ź1; Dr. tor, SabahFoundation, Deputy General Manager, PDM 87, RichardGunting,DeputyGeneral hosted a field trip to KPD's cattle, Managerof KorporasiPembangunan flower and asparagus farms and tea Desaor KPD (Rural Development P l a n t a t i o n i n K u n d a s a n g o n t h e Corporation),PDM'87; Datu Jack southern iide ofSabah.

Maiks,MM '80;FranciscoPascua, The activities were well covered by GeneralManagerof YadekaSdn. the media, and the speechesof the Bhd.,MBM'79;Yera Chin, Sales professors were printed in the local Managerof theRegentKualaLumpur, papers over the four-day period folMBM'82; WongCheeKiong Depug lowing the seminar. Prior to our deparManagerof ChungKhiawBanh MBM ture, the AIM contingent was treated '82; ThomasWillie, SalesDirector, to a formal, and sumptuous Chinese Hyatt KinabaluInternationalHotel dinngs.

49

TheClasaof'6971

WherearetheynoW? B eginning with this issue,THE ASIAN MANAGER will publish the nunes and addressesof alumni which have been updated by the Alumni Relations Office. The editors have chosen to include this information in the magazine because a comprehensive list of this sort has neverbeenmade available to those outside the Institute before.

Names which do not appear are those forwhich updated information has not yet beenobtained.If your name or the name of someoneyou know who . is also a member of the AIM family faik to appes4 please wite us with the updated information.

1969 - ATC Cervantes,CononJr. S. ATC'69 AVP,CustomerServices Group Inc. Philippine Airlines, LegaspiStreet Makati,MetroManila Te|.8177659 Dlaz,ElenltaATC'69 Inc. Philippine Airlines, VernidaBldg.,LegaspiStreet Makati,MetroManila Medlna,ilarlo Sr. ReyesATC'69 Simulator/lnstructor Airlines, Inc. Philippine NicholsField,PasayCity MetroManila Tel.83393s3/8323332 1 9 7 0- M B M Cam,JoscLG. MBM'70 Chairman/President Cam& Co..Inc. 55&57Sta.AnaAvenue DavaoClty Tel.72831n6'65 Caragay,ManuelBanzonUBM'70 Sr.McePres.,Manufacturing FilipinasSyntheticFiberCorporation 12thFloor,BA-Lepanto Bldg.

Paseode Roxas,Makati,M.M, Tel.8159319

50

Castillo, Leonclo Jr. Solomon MBll 70 AVP/Manager,ExternalFlels.

San Miguel Corporation MagnoliaDivision Mercado, Jose Jr. Abano ilBltl '70 Te!.7212041 '70 Colayco, Mary Anne Busuego ilBll Asst.Mce Pres.- Treasury PurefoodsCorporation Bo. San Roque Marikina,MetroManila Te|.9471201 Cosme, Ellas UmalettfBM'70 7 Scout Bayoran cor. ScoutTuazon,Mandaluyong Tel.972676 Cruz, EdgardoM. MBM'70 GeneralManager,Mktg.Opns.

Caltex(Phils.),Inc. 540 Padre Faura Ermita,Manila Tel.5213501/5210584 Cruz, Elfren SicangcoMBM'70 Governor MetroManilaCommission MMCBuilding,EDSA Makati,MetroManila Te|.8191285/8191287 Cuesta,Conrado tampa MBM'70 Presidenl ConquestLinkagesCorporation Rm.210,FirstCitylandCondm.

RadaStreet,Makati,M. M. Tel.8164769 Deles,EmmanuelTlrado MBM'70 ManagingDirector LDL & AssociatesLimited 205 Singga CommercialCenter Hong Kong Tel.$473184 Galang,Jesus B. MBM'70 PetroleumAdviser Dept.of Petroleum& MineralFlesources Box739,Aman UnitedArab Emirates Jazminez,Alan ValeraMBM'70 SecretaryGeneral Partidong Bayan 89 West Avenue QuezonCity Te|.993380 Leon,Cesar Mata de MBM'70 Managea Product Mgt. Consultants,Inc. 704 State FinancingCenter OrtigasAve.,Mandaluyong,MM Tel.721042418160908 Lopez, Marlo Artonlo Guatelara MBM ?0 Professor AsianInstituteof Management Paseode Roxas,Makati Metro Manila Tel.817401 1-19

Lorenzana,Noel PascualC. MBM'70 Office Manager AssociatedMerchandisingCorporation Jaycem Building, Bada Street LogaspiMllage,Makati,M.M. Te|.8171391 Luciano, Victor Jose Ines MBM'70 ManagingConsultant lnter-technicalPhil. Flesources,Inc. Fbom 236, Asian PlazaI Bldg.

TordecillasSt.,Makati,M.M. Tel. 8152436/815.3552 '70 Mercado, Jr. Jose Albano MBM Accountant Cit) rride RealtyCorporation North CentralAvenue Chicago,ll., U.S.A. Tel, (312)626110O Padilla,Luisito Balane MBM'70 President PhoenixOmega Development& Mgt.,Inc. 3rd Floor,PobleteBuilding 17 Sen. Gil PuyatAve., Makati Tel.884141 '70 Rublo, Cesar Afrlca MBM Sr. Mce Pres.- Staff Group RizalCommercial BankingCorporation 33i| Sen. Gil J. Puyat Ext. Makati,Metro Manila To1,863061/8182342 Sunlco,RenatoC. MBM'70 Mce President,Finance RepublicCement Corporation RetelcoDr. cor. E. Rodriguez Bagongllog, Pasig,M.M. Tel. 693ri191 8/6936872 Torre, Rlcardo M. de la MBM'70 Mce Pres.- ConsumerFinancc BPIFamilyBank 8753 Pasâ&#x201A;Źo de Roxas Makati,Metro Manila Tel.818373218177936 Vera, Hermeniglldo illsa de MBM'70 Country Manager TexasInstrumentsAsiaLtd. 1lth Floor,BA-LepantoBldg.

Paseode Roxas,Makati,M.M. Tel.8176031/81760s0 Verde-Cuesta, Lenl MBM'70 Vico-President& Treasurer Jerdine Davies,Inc. c>t.*n. Gil J. PuyatAvenue Makati,Metro Manila Tel. 86143?856011

1970- ATC Gelaug, Rafael T. ATC'70 Manager,OperationsControl PhilippineAirlines,Inc. PTCBldg.,MllamorAr Base PasayCity, Motro Manila Tel.8316541/txt161z

Cartro, Roborto A ATC'70 Consultant- Airport Services PhilippineArlines,Inc. ManilalnternationalArport PasayCity, Metro Manila Tel.8il22963 Lozon, Ramon C. ATC'70 Sr.Mco Pres.,Fin./Treasury PhilippineAirlines,Inc. PALAdministrationBuilding LegaspiStreet,Makati,M. M. Tel.8180111/8171593 Padrigon, Felipe A ATC'70 OperationsControl - Manager PhilippineAirlines,Inc. OperationsControl Center MllamorAirbase,PasayCity Tel.8:|l61ZZIX,I4916

1971- MBM Andag,Daniel Gonzales MBM'71 Deceased Ansaldo,RobertoWhitaket MBM'71 Undersecretary Departmentof Agriculture EllipticalRoad Diliman,QuezonCity Tel.97818s/966434 Apacible,Tomas Vllladolid MBM'71 Director DevelopmentBankof the Philippines Sen.Gil J. FuyatAvenue Makati.MetroManila Tel.818951U8170640 Aquino, HerminloS. MBM'71 Congressman- Tarlac3rd Dist.

Room N-416,BatasanPambansa QuezonCity Tel.8189111loc 747 Avancena,Antonlo Mondonedo MBM'71 Group Manager/OperationsHead JVA ManagementCorporation 505 Aguho Street Matina,DavaoCity Tel.41961-9 Awa, Llclnlo Y. MBM '71 Dean,Gollegeof Eng'g.& l.T. Don M. MarcosMemrl. Poly. State College Lapasan Cagayande Oro Tel.3zt80 Batac,GulllermoJr. N. MBM'71 Mc€ Presid€ntfor Finance Apex MiningCo., Inc. OrtigasBldg., OrtigasAvenue Pasig,MetroManila Te].6731,O1{8 Baudsta, Franclsco Hernandez MBM'71 Deputy Manager MitsuiOSK Une (HK)Ltd. AdmiraltyCenter,Tower2 Hong Kong Benltez,Conrado ll L MBM'71 President Unlad ResourcesDevelopmentCorporation UnladCondm., Gen. MalvarSt. cor. Taft Avenue,Manila Te|.502104

Calderon,Don P. MBM'71 756C Boni Avenue Mandaluyong,MetroManila Tel.789584 Carino, Danilo Posada3 MBM'71 Mce President- Finance FlepublicGlassCorporation Pinagbuhatan, Pasig MetroManila Te|.693350G5 Colayco,Jose Jr. Borja MBM'71 Vce PresidenVAgent Bank PhilippineComm'1.International World Trade,350 So. Figueroa U.S.A. Tel. 626-0461 Echevarria,RicardoS. MBM'71 GeneralManager EuroTherapeutic ChinabankBuilding Paseode Roxas,Makati,M.M. Te|.8181660/8189607 Estacion,OctaviusRaymundo MBM'71 ComputerOperalionsManager Caltex(Phils.),Inc. 540 Padre FauraStreet Ermita,Manila Tel.5213501 Ftancisco,Jesus AirgustoP. MBM '71 Sr. Vice Pres./Head.Tech Serv ManilaElectricCompany LopezBuilding,OrtigasAvenue Pasig,MetroManila fel7219777n21W99 Gaffud,Miguel Jr. T. MBM'71 GeneralManager/Director Inc. Caltex(Philippines), Caltex Refinery San Pascual,Batangas Tel.5213501 Gallardo,LeonardoJr. J. MBM'71 Manager Exec.Mce-Pres./Gen. NenacoSalesCorporation GAMIBldg.,Mandalagan BacolodCity Tel. 2-0265 Garcia,FlorendoJr. R. MBM'71 VicePresident CulturalCenterof the Philippines RoxasBoulevard Manila Tel. 8323680/8321 125 Gomez,Pedro S. MBM'71 Deceased Guzman,RafaelV. de MBM'71 Mce-President& Exec.Officer United Laboratories,Inc. 66 UnitedStreet,Mandaluyong MetroManila Tel.7216501 Jalandonl,Antonio ManuelV, MBM'71 Vice-President/Treasurer CiiibankLtd. No. 1 MargaretStreet Australia Tel.2399S15 '71 Juliano, Godofredo Victor A MBM Mce President-Corporate Serv.

GeneralElectricPhils.,Inc. 2291 PasongTamo Extension Makati,MetroManila Tel.8158761-70

Kedgbak,NlcolacO. trlBM'7t President Philippine Fuji XeroxCorporation Gallardocor. AlfaroStreets SalcedoMllage,Makati,M.M. Te|.8173781-5 La'o, Manuel Jesus MBM'71 Oivner KawilihanFarmer Sitio Halang na Gubat Tanay,Rizal Te!.7221981722m55 Uchauco, FranciscoTamora MBM'71 Special ProjectManager Phil.PhosphateFertilizerCorp.

4th Floor,GlassTower AlvaradoStreet,Makati,M.M. Tel.8179431 Macapagal,Arturo R. MBM'71 Director.Finance,Adm. & H.R. SpraguePhils.,Inc. Km. 16,SouthSuperhighway Paranaque,MetroManila Tel.8282911 Macapanpan,Tristan Hollero MBM'71 Treasurer/Spec.Asst.to Pres.

PagdananTimberProducts,lnc.

3rd Floor,ODC Building 219 SalcedoSt.,Makati,M.M. Te!.815426518184744 Mallari,WenceslaoC. MBM'71 FinancialController Caltex(Phils.),Inc. 54OPadre FauraStreet Ermita, Manila Te|.5213501 Malonzo,RobertoS. MBM'71 43 WashingtonStreet MervilleParkSubd.,Paranaque Te|.8201308 Medina,Jose Jr. C. MBM'71 Deputy Manager Socieie Genetale Ground Floor,CorinthianPlaza Paseode Roxas,Makati,M.M. Tel. 856061-5/867691 Nazareno,Melvln B. MBM'71 Sr. Asst.Vice Pres.,Mktg.

DasmarinasIndustrial& SteelworksGorp.

Km. 15,SouihSuperhighway Paranaque,MetroManila Tel.7995,16 Orobia,EustacloJr.8. MBM'71 Administrator lntramurosAdministration Palaciodel GobernadorBldg.

Intramuros,Manila 188 Tel. ,187325/,161 Pangrnlban,ElenltaCarpio MBM'71 SeniorVice Pres.,MedidMktg.

PhilippineMvertising Counselors,Inc. DominionRealtyBuilding PasayRoad, Makati,M.M. Tol. 888331/880592 Parcu!, Rlcardo Sanchez MBM'71 ManagingDrector First Pacific Bank Limited 29th Floor,2 Square Exchange Hong Kong Tel.5€424388

51

Perez,Agusdn P. MBM'71 Vice President- Mgt. Services RepublicGlassCorporation Pinagbuhatan,Pasig MetroManila Tel.69335m-05 Revilla,Jose Ramon Fernandez MBM '71 Sr. Mce President,Acct. Mgt. Phil.CommercialIniernationalBank De la Costa St., MakatiAvenue Makati,Metro Manila Tel.81710211817.3982 Salakl, lfgsn Bert MBM'71 Director MobilOil Indonesia,Inc. RatuPlazaOffice Tower lndonesia TsL711211 Samson,Artonio Reye! MBM'71 FirstVice President PhilippineLong DistanceTelephone Officeol the President MakatiAvenue,Makati,M. M. Tel.8168121/8188fi) Santor, Aloyslur Fodriguez MBM'71 DeputyCommissioner NationalTelecommunications Commission DavidGutierrezBuilding Scout FleyesSt., Ouezon City Tel. 988857/988943 Santos,Jose Feliciano MBM'71 Sr.Vice President,Operations RizalCommercial Banking Corporation 333 Sen. Gil PuyatAve. Ext. Makati.Metro Manila Te|.863061/8741 13 Silos,LeonardoRlgo' MBM'71 Professor lsian lnstituteof Management 123 Paseode Roxas Makati.Metro Manila Tel.87401 1-19 Suaco,Rodolfo Sunlco MBM'71 26 Times Street QuezonCity Te|.9980511 Subang,PominadorA MBM'71 ,181-3L.M. Guenero Street DavaoCity Tan, RamonAbella MBM'71 FinancialController SanofiPhilippines,Inc. 1sthFloor,GhinabankBldg.

Paseode Roxas,Makati,M.M. Tel.8189231 Valencla, Renato Cruz ilBM'71 President UnionBankol lhe Philippines Pasay Road Makati,Metro Manila Tel.8s0011/8187409 Mllegar, Marlo P. MBM ?1 Deceased Vlnco, Jerus Aranâ&#x201A;Źtt MBM'71 Consultant MalayanWood Products,Inc. UniversalMotors Building 2232PasongTamo, Makati,M.M T6l.8573328191130

52

Xerez-Butgos,Alfredo Jr. A MBlr'71 President PropertyManagementCorporation GreenbeltCinemaSquareBldg.

Paseode Roxas,Makati,M.M. Tel.8102031 Ysmael,Ricardo C. MBM'71 Bus.Mgr.,ConsumerServ.Grp. Citibank.N.A. 8741 Paseode Roxas Makati,MetroManila Tel. 8157000/8157520 Zabaljauregul,Luls-MarlL ilBM'71 ExecutiveVice President FilipinasAquacultureCorporation lAh Floor,StrataBuilding EmeraldAvenue,Pasig,M.M. Tel.67%47716731078

1971- MDP Alas,Jacinto Orijolade las MDP'71 VicePresident,Engineering MeralcoTransitOrg.,Inc. AuroraBlvd.,LRTCompound PasayCity, Metro Manila Te|.8323141 Alba, FranciscoAcevedo MDP'71 President PrudentialLife Plan.lnc.

118GamboaStreet LegaspiMllage,Makati,M.M. Tel. 881906/856509 Anson,Antonio Gamboa MDP'71 6 P. TuazonBoulevard QuezonGity Tel. 798558 Arias, EpitanioPalas MDP'71 GeneralCounsel/Director BelfastSuretyand InsuranceCo., Inc. #333 FordhamStreetcor. EDSA Mandaluyong,MetroManila Te!.7O2784n8724 Aujero, Hypte R. MOP'71 Asst.Mce-President,Finance Phil.Communications SatteliteCorp.

11thFloor,TelecomsPlaza Sen.Gil Puyat,Makati,M.M. Tel.8158406 Avellana,FelixV. MDP'71 SalesManager ForemostFoods,Inc. Box 8560Tamuning

u.s.A.

Tol.81688599 Barretto,EduardoMascardo MDP'71 President SignetDistributors, Inc. 79 E. de los SantosAvenue Mandaluyong,MetroManila Tel. 780002f/8891 Cabreros,Camilo Cabili MDP'71 Mce President,Operations FortuneCement Corporation EnzoBuilding 399 Sen. Gil PuyatAve,Makati Tel.8159121/8175915 Capistrano, Marlo Baromoo MDP'71 President MBC ConstruclionCompany Villa Sta. Maria ZamboangaCity Tel.32'lO

Carague,Guillermo Narciso MDP'71 Secretary Dopartmentof Budget & Management Complexlll, MBM Building Gen.Solano,San Miguel,Mla. Te!.407744 Chan Tal-Win,ArchibaldJ.. MDP'71 Manager,Int'1.Services GaltexOil Hong Kong Ltd. Shun Tak Centre,2SthFloor Hong Kong Tel.5-4O24Og Chlco, ReynaldoPugeda MDP'71 GeneralManager ShoemartInsuranceBrokers& Services Room426, MSEBuilding AyalaAvenue,Makati,M.M. Tel.8181208 Claudlo,FranciscoJr. Revllla MDP'71 21418BloominglieldAvenue#18 lakewood, Calilornia90715

u.s.A.

Cruz, NlcanorCruz dc lt MDP'71 MarketingDirector Tesco Services.Inc. SheridanStreet,EDSA Mandaluyong,MetroManila Tel78n,245 Davlla,Ramon H, MDP'71 President RamieTextiles,lnc. sth Floor,CombankBuilding AyalaAvenue,Makati,M. M. Tel.8163301/8194433 Dayri! Manuel Kadgbak MDP'71 SVP,Office of the President Far East Bank & Trust Co. l.l.-A.1.

Building 1175PasongTamo,Makati,M.M. Daza, Tlto Ma. Ortega MDP'71 GonlidentialAssistant c/o Gov. EduardoFlrdriguez Lucena Quezon Dloko, LeonardoC. MDP'71 Deceased Donelan,Jameg F. MDP'71 Protessor Asian Instituteof Management 123 Paseode Roxas Makati,Metro Manila Tel.87'1011-19 Epes,Wllllam F. MDP'71 President& GeneralManager PeterPaul PhilippineGorp.

6th Flr., FlongkongBank Genter San MiguelAvenue,Pasig,M.M. Tel. 6735613/6737057 E3cuetr, Ramon D. MDP'71 Vice President Asia PacificBus. & Ind'1.Systems Inc. SarmientoBuildingll PasongTamo Ext., Makati,M.M. Tel.87N1-AAN1 E3tcban, Romco Clemente MDP'71 Vice Pres.,Budget & Fin. Plng Phil. Long Dstance TelephoneCo. RamonGojuangco&rilding MakatiAvenue,Makati,M. M. To1.8171ru

Ectrada,fuigel Gonzaler MDP'71 Deceased Evengelista,Diadoro Fellx MDP'71 Philam HomeownersAssociation.Inc. PhilamHomes QuezonCity Te|.994098 Feliclano,Lupo Vizcarra MDP'71 GeneralManager PhilippineCementManufacturer Corp.

E. de los SaniosAvenue Greenhills, SanJuan, M.M. r91.792827 Fernando,lsaias Jr, Morelos MDP'71 President& GeneralManager SilahisMarketingCorporation 215Sen.Gil J. PuyatAvenue Makati,Melro Manila Tel. 889957/8818m Fuentes,Rene R. MDP'71 Principal,ProjectServices SyOip,Gones,Velayo& Company 6760AyalaAvenue Makati,MetroManila Tel.819301 1 Gotina,AlexesGa MDP'71 Deceased Guevara,Conrado Palma MDP'71 President MASCO Philamlife Building lliganCity .

Guevarra,Oscar C. MDP'71 Manager VicePresident/General PhilippineElectricCorporation KaytiklingRd.,BarrioDolores Taytay,Rizal Te|.6950682 Guilaran,Alfonso Jr. Posadas MDP'71 Asst.Vice President Phil.Long DistanceTelephoneCo. M.C.C.P.O.Box 852 Makati,MetroManila Tel.8173503/8168555 Henson,Tomas Paras MDP'71 ExecutiveVice President TarlacAgri'1.Systems& KontractorsInc JCFBldg.,119DelaRosaSt. cor. AlvaradoSt., Makati,MM Herbosa,Enrlque Mendoza MDP'71 President UnitedCoconutPlantersBank UCPBBuilding,MakatiAvenue Makati,MetroManila Te|.8188361/859669 lsidoro, Rene Roque MDP'71 VicePresidenVComptroller Tamaraw9ecurity Services,Inc. VictoriaHouse 1853 E. RodriguezSr.,Cubao,Q.C. Tel.97664649 Javler,RenatoJose Mariano MOP'71 Partner,AJdit Division SyOip,Gorres,Velayo& Company 6760AyalaAvenue Makati,MetroManila Tel.8193011 [.acaon,Crlspln Jr. Barrera MDP'71 FirstVic€ Pres.,Finance PhilippineLong OistanceTelephoneCo. 8/F, RamonConjuangcoBuilding MakatiAvenue,Makati,M.M. Te|.8168568

Leon,Cosme Matoto de MDP'71 Director- CorporateRelations Caltex(Philippines), lnc.

52K)Padre FauraStreet Ermita,Manila Tel.5213501 Magtalas,EdgardoMendoza MDP'71 Pariner MagialasLaw Otfice Room4l1, MadrigalBuilding Escolta.Manila Tel. 408658 Matienzo,Rodolfo Ramos MDP'71 PracticingLawyer AirworldTransport,Inc. Room 55, Cargo City NayongPilipinoComplex,Pasay Tel. 8330304/8321 355 McMohen,James Patrick MDP'71 Deceased Monthienvichienchai,Chainarong MDP '71 Director St. John'sCollege Ladprao Thailand Tel.5121238 Palmiery,ReynaldoPastorfide MDP'71 Head,lnvestmentGfoup SocialSecuritySystem SSSBuilding QuezonCity Tel. 988077 Pestana,BrianMaurice MDP'71 Pestanaand Company 9l-8,51200KualaLumpur,Jalanlpoh Malaysia Puno,Eduardodel Rosario MDP'71 AreaDirector,SoutheastAsia GeneralFoods '101ThomsonRoad Singapore Tel.2503331 Rejante,CesarV. MDP'71 ManagingDirector AurumResourcesDeveloomenlCo. 33 West Maya Drive PhilamlifeHomes,QuezonCity Tel.978804 Rigor,RodrigoG. MDP'71 ProjectDirector Inc. Caschrome, Suite103Wack-WackCondm.

Mandaluyong, MetroManila.

Tel.704081-82 Romana,JeremiasVillatuya MDP'71 GeneralManager Kil.Bayansa Pangangalakal ng Laguna CRBLBuilding,Callos Sta.Cruz,Laguna Tel.6452091 Saddul,Jose Jr. Allado MDP'71 President& GeneralManager MultipartMotors UnitG, 1othFlr.,Strata100 EmeraldAvenue,Pasig,M. M. Te|.6938733 Tlerro,Camilo Cruz MDP'71 Partner SyOip,Gorres,Velayo& Company SGVDeveloomentCenter De la RosaSt.,Makati,M,M. To1.8170301

Tlolengco, Avellno S.M. MDP'71 Managing Direc'ior ConcordeVenturasand Services GrepalifeBuilding Sen. Gil J. PuyatAve., Makati Tel.87(830 Ty, Wellington D. MDP'71 President WellingtonInvestment& Mfg. Corp.

PinedaStreet,ShawBoulevard Pasig,Metro Manila Tel, 6734052 Valdes,Eduardo Losaca MDP'71 PresidenVStationManager Westwoodl. Radio Network #63 10th Street New Manila,QuezonCity fe!.722o80p.n218867 Velarde,Romeo Perez MDP'71 Asst.Mce Pres./Div.Manager FilipinasLifeAssuranceCompany 6786 AyalaAvenue Makaii, Metro Manila Tel.816051 1 Velasco,Josefa Baltazar MDP'71 Div.Mgr.,SpecialStudyStatf NaiionalElectrif icationAdministration 1050OuezonBlvd.Extension QuezonCity Tel. 968481/992471 Verzo,Vlrgilio V. MDP'71 Pres./Chairman of the Board PolyestersPhilippines,Inc. 1st St.,Sta.MariaEstate Bagumbayan,Taguig,M.M. Te!.82'0€7218220,222 Vlllanueva,Antonio de Guzman MDP'71 ManagingHead,Corp.Planning Phil.Amusementand GamingCorporation RoxasBoulevard Manila Tel. 585301 Zarate,Ricardo Rosales MDP'71 Exec.Vice Pres.,Fin./Admin.

PhilippineLong DistanceTelephoneCo. 6th Floor,CojuangcoBuilding MakatiAvenue,Makati,M.M. Tel.816840s/8176410

1971- ATC Navaro, ConstancioJr. ATC'71 Captain - 8747 PhilippineAirlines,Inc. NicholsField,PasayCity MetroManila Tel. 8323332 Paloma,Ricardo ATC'71 Sr. Vice Pres.,Customer Serv.

PhilippineAirlines,Lld. Building PALAdministrative LegaspiStreet,Makati,M.M. f el.818o11'118174214

53

MalnyStdq/...

Attempts To Dehne "MalaV'

Manaberial Svstetr Piemature fhe intensiveeffort by the governI ment,academicand privatesectorsof theASEAN countriesto define andarticulatea Malaymanagerial system is prematureaccordingto Victor S.Limlingan of the Asian Instituteof Management(AIM).

In his study of the Chinese managerialsystemasa doctoralcandidateat Harvard BusinessSchool, Limlingan suggeststhat to define a Malay managerialsystem,the Malay first bedefined. business strategymust This intermediatestepin understandingthe indigenousmanagement systemwithin ASEAN is necessary becausebusinessstrategydetermines the managerialsystemwithin particular cultural contexts.

The study,entitled THE OVERSEAS CHINESE IN ASEAN: BusinessStrategtand ManagementPracaces,proposesa definition of the ChineseManagerialSystemas a system with the ncorporatevaluesof grouporientationand closeinterpersonalrclationshipsbasedon respect for authority.This systemhasbeen fashionedto implementthe distinct businessstrategiesof the Overseas Chinese.n

nlt is these distinct business strategies,actingon the Chineseculture of the OverseasChinesein the ASEAN region, which havecreated the distinguishingcharacteristics of the Chinesemanagerialsystemin the ASEAN region:family control of the focuson entrepreneurship business, asthe distinct areaof family competence,astuteplacementofnonentrepreneurialfamily membersin custodialpositionsand a willingness to delegateto professionalmanagers the administrativefunctionsof the business.n Limlingan differentiatesthe OverseasChineseManagerialSystemfrom

54

News Releases other regionalsystemssuchasthe Japanese,Korean,and ASEAN. The JapaneseSystemis describedas, " p r o f e s s i o n a l m a n a g e m e n ti n entrepreneurship and administration,nthe Koreanas,nintransition from businessgroup to Japanesesystenr,and the ASEAN asexempli$ing a, "commodity-oriented domestic markethighturnoverstrategS/."

The East Asia Systemis characterizedasa "production-oriented, global market,labor-intensive strategy,"while the SingaporeSystem is a ncombination of EastAsia and ASEAN systems."

While acknowledgingthat managementis culture-bound, Limlingansays that the results of his work demonstrate"howuniversalthe businesspolicy frameworkcanbe."The basicpremiseof the businesspolicy hypothesis,the AIM professorstates, is that firms with better formulated and better implementeds(rategies performbetter thanotherfirms.nSo long asno Malay businessstrategies are defined and tested'in the marketplace, definingandarticulating a Malay managerialsystemwould be difficult to achieveand meaningless evenif achieved.

"As one possiblestartingpoint for definingtheMalaybusiness strategies, one couldpoint to the difficult strategicposturein which Malay find themselves.

Definbusinessmen ing themarketin termsof two characteristics,commodity/product andlow margin/highmargin,onewouldfind in themostuntheMalaybusinessman competitiveposition.In effect,if he dealtin a commodity,his pricewould b e t o o h i g h w h i l ei f h e d e a l ti n a product,his qualitywouldbe too Limlinganconcludes. cheap,n The resultsof Limlingan'sstudyare importantto the ASEAfT[se66rrnity

because they suggestan alternative approach to the development of indigenous managerial systems.Multinational firms operating in ASEAN, ASEAN governments,and local companies have all been concerned with determining the most effective manner to manage developnent in recent years.

Further research,the AIM professor nmayalso provide a basis for states, correcting the built-in bias (in favor of the Western managerialsystem)of the comparative management analysis approach. By evaluating managerial systems in relation to the business strategiesbeing pursued, comparative management analysis could have an alternative bias-free method of evaluatingmanagerial effectiveness.

fuWkefuniwCon&tda:

Strateqic Must Manadement ReflEdCultural

Values

of regional non!lepreseotatives flgovernment organizations (NGOs) meeting in Bangkok concluded that strategic management cannot be divorced from the cultural environment according to Asian Institute of Management (AIM) associate dean Felipe Alfonso.

Alfonso moderated the four-day seminar which was attendedbyNGO representativesfrom Banglades\ Indonesia,Pakistan, Malaysia, the United States,and the Philippines and AIM professors Victor Tan and Eduardo Morato.

Tan saidthat cultural valuesdiffered not only from country to country in varylng degrees, but also noted significant differences between regions within countries as well as between formally aligned religion-affiliated groups such as the Muslim communities in Bangladeshand Indonesia. These differences require different development strategies the seminar participants said.

It was also concluded that NGOs must develop a better understanding

among the constituents they serve of equity, or the opportunity to be productive and to have a fair share of rewards asa result. This issuew:rsseen to be closely related to other issues that the organizsliels should address such as corruption, employment generation, decentr alization, conscientization of politicians, and inefficient government bureaucracies.

While most participants considered NGOs agencies working with the citizenry to bring about governmentsponsored development, Tan noted that NGOs should be expected to be 6ansitory entities only. Only people's organizations are able to sustain services provided by NGOs, a gradual fading out of the participation of NGOs in strategic development management will be seen.

Alfonso said after the seminar that it is also important for NGOs to work together to most effectively bring about the development of services to benefit the general population and enhance the standard of living in Asia.

Crincalrcnaint arclimitingry&.

Eryort Successfnl Development (Asian Institute of Management, Makati, Metro Manila) - "Complete interdependencenbetween large exporting firms and smaller subcontracting firms is a characteristic of s u c c e s s f u l e x p _ o r td e v e l o p m e n t projects according to a study directed

by Quintin G. Tan of the Asian Institute of Management (AIM).

However, critical bnergy,technology, capital, regulatory and other restrainl5 are limiting export development.

The study examinedthe garment, furniture, food, gift, toy, and h o u s e w a r e si n d u s t r i e s a n d w a s financed by a Konrad Adenauer Foundation grant for action research to benefit entrepreneurs and managersof small- and medium-scale enterprises.

Successfulexporters are those with well-establishedlinks with suppliers who maintain good relationships with their employeesaccordingto the AIM professor. nSmaller companies seem to be better at concentrating on providing the labor-based production capacity,n Tan said, "while the larger exporters provide the marketing and product development.

"Large exporting companies and their small and medium scalesub-@ntractors form a network that is therefore interdependent,"Tan concluded.

The study also identified restraints to export development. nFor example," the AIM professor said, "the main problems that hinder the growth of the garment industryare inadequate raw material supply, high power rates, labor militancy, lack of modern technology, protectionism in foreign countries, lack of market diversity, and inadequategovernment support.n

Because of inadequate domestic p r o d u c t i o n o f e x p o r t g - r a d er a w materials, local textile fabrics are more expensive than imported fabrics. Garment manufacturers in countries where these textiles are produced therefore enioy a more adequate and less expensiveraw material supply than Philippine garment manufacturers.

Tan also noted that industrial power rates are more than twice as high as those in other Asian countries. In the area of technology, the study noted that the bulk of the production capacity in the Philippine garment industry is being performed by machines imported from developed countries between I97 | and 1980,and in many cases,machines acquired prior to 196Oarc still being used, adversely affecting production capacity.

Because the cost of local credit is twice as high as the averagegarment exporter pays in other Asian countries, the Philippine garment exporter is forced to continue using an"Generally, the tiquated technologl. industry needs an effective mediumand long-term export financing scheme to generate more funds at reasonable rates for garment manufacturers and exporters," Tan said.

To disseminate the information, recommendations and businesscases on successful exporters obtained during the course bf the study to individuals and fums considering entry into an export-intensive industry, AIM will conduct a development of exports seminar June 6-1L. Representatives of export firms will participate in the seminar, which will focus on financing, promotions, markeiing, and regulatory concerns involved in exporting according to Tan.

55

l !

3 z' = z o

MCC P.O. Box 898 Makati,Metro Manila,Philippines