The Asian Manager, June 1990 Issue

A PUBUCATIONOF THEALUMNIREIJTIONS AND PLACEMENT OFFICES OF AND OF THE FEDERATION THE ASIANINSTITUTE OF MANAGEMETT ALUMNIASSOCIATIONS

vol ilr No. 2 / JUNE1990

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PTDT fhe ffumtnunicolions Conpony THE ASTANMANAGER r JUNE 1990 3

fumtlueditry-.

Fond Farewells;lllhrm Felicitations fhe Asian Institute of Management beganJune 1 an unexI pected transition in its administration. Despite the risk, AIM dean Gaston Z. Ortigas has for the past two and a half years - following his recovery from a near fatal heart attack - maintained a relentless pace. Noq that pace, and the intensity with which Gasty lives life, have taken their toll, and the "Conscience of AIM" 635lssigned as dean upon the insistence of his physrcrans.

An academic and businessman active in political and development gircles in the Philippines, Gasty is a "non-typical" leader, who seems to apply the casemethod to life as well as the case room. Typically for Gasty, for our first meeting he cameto me... the dean. calling on the hired help instead of summqningthe newman for a formal get acquainted session.As many of you know, he hasalsobeen known to act as a porter for new, unsuspecting students; for his latest meeting with the President of the Philippines, he put on his best pair of sandals.And in all of theseinstances,Gasty's actionswere those of respect - and confidence.

And so life at AIM with Gasty goes. He backstops his faculty without their knowing it; praises behind their backs those with whom he has his most heated arguments;supports champions of new initiatives without their ever knowing that he is there - in the background - practices patience when his younger chargessometimeshave no patience left.

His tenure has seen the introduction of a plethora of new programs such as the Master in Development Management program - the only one of its kind anywhere in the world.

The Institute began publishing this magazine in L988,a potentially costly venture with high risk in the fiercely competitive Asian publishing industry; AIM reached out to its alurnni as never before, and assuredthem that they remain part of its community.

The Institute's facultyhas alsobecomeverydirectly and intenselyinvolved in public issuessuch as agrarian reform and social and economic development, and AIM conducts workshops and seminars for a wide range of government agencies,from provincial organizations to the Congressof the Philippines to various departments in the Executive.

AIM launched an increasing number of programs overseasduring Gasty's tenure, and undertook action research h unexplored realms: women in development, intra-Asian

4 THE ASIANMANAGERo JUNE 1990

joint ventures and family-owned corporations; and strengthenedits interest in 66mmuni$r empowerment, rural development and sinall- and medium-scale industry.

At Homecoming last month, flvl nlumni presented a pla"... he has que to the departing dean which read in part, shown that one man can truly make a difference." Indeed, he has. And will continue to do so: Gasty will remain with the Institute as a senior professor - to enjoy the fruits of his

labors - and provide continuinginspiration.

To try to fill Gasty's shoes,the AIM faculty and trusteeshaveelected associatedeanFelipeB. Alfonso president,and former associatedean and professorFrancisco P. Bernardo,Jr., dean.

Both Fil and Jun have beenwith AIM sinceits founding,like Gasty.On behalfof the AIM family, our congratulationsand bestwishesto Fil andJun astheyassumeresponsibilityfor the Institutein its third decadeeducatingAsian managers.

The Global 90s his issue of THE ASIAN MANAGERpresentsthe I proceedingsof THE GLOBAL 90s:A Focus on the heldduringAlM's annualBoard AsianManagerconference meeting.Therewassomedebate andTrustees of Governors among the editors as towhetherwe would publish the entire proceedings, including the open fora. This was, however, a short debate.

We continued - after several readings - to find the proceedings fascinating. Although we had been present at the conference, new insights seemed to emerge each time we read the copy. In reproducing the proceedings in their entirety, we haveattempted therefore to servethe best interests of our readers. We hope you agree.

Acknowledgement following Dean Michael Maher's fhe acknowledgement I article titled. "BusinessEducationin Canada:Business ShouldBe Concerned"in our December1989issuewasto from theSpring1989 haveread,"Reprintedwith.permission issueof BusrnessQuotterly.Copyrightby the Universityof WesternOntario,London,Canada."It did not due to an oversighton my part,for whichI apologize.I wouldalsolike to expressagainour appreciationto Andrew Grindlayfor permissionto publishDean Maher'sarticle. _MAH

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The Global90s:A Focuson the AslanManager RecentDevelopmentsin Eastern Europe:The Proepectsfor Asian Business byDavidK Newbiging Opportunities in EasternEuropemust be financed and financed heavilyby WesternandAsian businessaccordi.g toAIM governorDavid Newbiggiog.

Neubisging former Taipanof Jardine DaviesHong Kong and current chairmanof Rentokil Group PLC notesthe limited sizeof the EasternEuropean market and its revenueconsumption rather than revenuegenerationcharacter.Theseand otherfactorss 'ggest that therewill not be a substantialshift in investmentfocus from Asia to liberatedEuropein the90s.Journalist David Tinnin and AIM governorand The Bankof EastAsia chiefDavid Li reactto Newbiggingis remarks.

24

didate can smoothenthe campaign trail. Understandingthe intensityof the issuesand "being the right kind of person" are key successfactorsfor incumbentaswell asaspiringpoliticians.

Editorial

The Spirit of CapitralismRevisited byProf.LeonardoR SilosMBM'71 Nards relateswhyorrcare vfiat we are, accordingto MaxWeber.

Inta-Asian Trade and Inv$tment byWasWngnnSyCip AIM chairman WashingtonSyCip agreesthat substantialcredit will be requiredto developEasternEurope,and suggeststhat return on investmentwill be muchgreaterin Asia in the PanPacific Era. SyCipnotesthat the overseasChinesewill play a major role in makingand leadingnewinvestments alongwith the Japanese,and predicts that the Westernomership of many corporationswill be bought out by Asian managersin the 90s.Reactions

by Asiaweek's Hari Bedi and AIM governorandBangkokBankchairman AmnuayViravanfollow SyCip'sobservations.

48

T

Fond Farewellsand Warm Felicitations Articles

THEASIANMANAGER APuuicalion calh.Alumri R.btionsard Pl&.msilOfiic md lhc Fcdcnlion of lhs Asim Insthutc ot Mtragcmcnl AlumniAssialions

Publisher F€lio6 B. Afonso

Editor-in-Chief MichaelA Hamlin

Editors PiaJesusaT.Arroyo AnitaE. Pundol.SalomeA. Flores

DesignEditor Alfonso G. Ballesca

35 JapaneseStyle Management:

T.Dorninp byProf.Rene

To competewith the Japanese, Asian bu-inesses mustbe preparedto match their enthusiasmand dedicationto the corporationand its missionaccording to Rene.

40

Strategies for Person Marketing: The case otthe Political Candidate byProf.EduardoL. Roberto Asia'sforemostmarketingresearch guru providesinsightsinto how a can6 THE ASIAN MANAGER o JUNE 1990

MarketingDhector DeliaGutienez

EditorialBmrd CrastonZ. Ortigas,Gabino A. Mendoza Horacio M. Borromeo,Jr. Sonnv Coloma

AssocrateEditors Effie Goh (Malaysia,MBM'78) lshtiaqQureshi (Pakistan,BMP 77) '82) Gan Cheong Eng (Singapore,MBM TeerachaiChemnasid(Ihailand, MBM'73) PashupatiSingh (lndia, MM 75) ChristinaF. Ferreros(lndonssia,ABMP'82) Copyright 199o by Th. Ads lr/hnagar. Al dgh|3 rc$rucd.

Beprod$tim in my mmncr in rNhobor in partin Englishq oth€r languag€ FohibitGd. Thc Adm tvlanagpr is publishod qutrtedy bylhGAumni FLlationsandPlacmontOfiic6 of lhc Ade lGlitutc ot i,lanagpm.nt.

Edldi.l.nd Adrrl-lng Oik- AlM, 123 Pas dc Roxas, Makati,M.M., Philippin s FAx (8e2) 817-etrc T.t (63-a 87{o-lr

What thefuturewill bring: from shadowto realitY C a s t a s h a c l o w ' t t t ht c w a l l . T r 1 ' t o t t l u c h i t . a n c la l l y o u l ' c c li s t h c tll'a rcality. uall. Thc shaclowis a c1ark.I'latrcprcsetltittitltl S u c h a r c o u r c l r e a r n sU. n r e a l i z e dt.h c l ' a r c l i k e s h a d o w s .B u t t h c y nccclnOt rcrnitinso. We can tllakc our clrcanlsa reality.

I t i s t h i s r e a l i t vw e s e e ka s w e w ' o r kt o l ' u t f i l lo u r v i s i o n - o f ' a bright tolttorrow fbr our children.

So that ourclreantsdo not remain as shadowson the wall.

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THEASIANMANAGERo JUNE 1990 7

STORY ThcGlful !h: A f,ms on tlu '4siotMoager - Fint kssiot

Recent Developmentsin EasternEurope:The ProspectsFor Asian

Business

by David K Newbiging Chairman,Rentokil GroupPLC Govemor,Asian Instituteof Management

Introduction

guesses"at this time. It is a constantly movingtarget,but onethingfor sureis that Europe in the year 2000will be a verydifferentplacefromthat to which we havebecomeaccustomedsince World War II. Thesechangeswill not be confinedto Europebut will havean impacton the world asa whole.

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EasternEurope,it is importantto establish what we meanbv Eastern, Europe.For the purposesof this article I will concentrateon the six "satellite" countriesof Bulgaria, Czechoslovakia, East Germany(the GermanDemocraticRepublic),Hungary,PolandandRomania.Beforethe eventsof the last six months few people in WesternEurope - and I suspectevenfewerinAsia had morethan a hazyideaof what thesesix countriesrepresentedin termsof population,foreignexchange reservesor deficits,tradebalancesand the like. We tended to think of them,with justification, as communist countriesdominatedby the U S S R w h i c h c o n t r o l l e da l l aspects of politics, economics and societv.

Mr. Gorbachet'spoliciesof glasnosf (openn ess) and perestroika (restructuring)havechangedall t h a t d r a m a t i c a l l ya n d w i t h a rapiditywhich few in all honesty canclaimto haveforecast.The net resultwill undoubtedlybea major r e s t r u c t u r i n go f E u r o p e , t h e resultsof which can onlv be "best 8 THE ASIANMANAGERr JUNE 1990

Background omebasic statistics

prepared by the Financial Timeswill help put the sixcountriesin perspective. o The total areais iust under onemillionsq.kios. o The total population is about 112million' o The grossdomesticproduct (cDP) in L988was$533billion. o The total net debt was$73billion.

Within this,thecountriesthemselves vary enormously- Polandhasthe largestarea (305,000sq. kms.),the highestpopulation (38 million) and by far the largestnet debt at $35billion. Romania,which hit the headlinesinsuchdramaticfashionwith the fall of Ceausescu,has the second largestarea(87,ffi sq.kms.),the secondlargestpopulation(23million) but net debt of only $Lbillion (the lowest of the six).

At first blush,therefore,it c o u l d b e a s s u m e dt h a t Romaniais in the bestposition to developeconomicallybut thiswouldbe an oversimplification; it will probably havethe most difficulty in restoring political institutions and stability.Somewherein the middle in termsof area. populationand net debtis theGDR but it will probablybe the mostimportant of the six in terms of development, opportunityand the fears and concernsengenderedby the

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THE ASIAN MANAGER e JUNE 1990 9

prospect of a reunilied Germany.To put these statistics in perspective slongsidethe USSR,that countryhas an area of 22 nillion sq. kms., a population of nearly300million and foreign debt about the same as Poland's(f35 billion net).

RecentPoliticalEvents ; n generalterms thc dramaticevents I of the pastyear havebeenwell ventilated in the world media Gorbachev's major domestic problems, both political and econonic, within the USSR which haveled (perhapshe had little option) to a major looseningof the Russian grip on Eastern Europe. Like many others,I satglued alnost unbelievingly to my TV set as one conmunist leader after another, and the regime he representedbit the dust.But these dramaticchangeshavecatapultedthe countries of Eastern Europe into the 1990sout of authoritarianrule into a kind of limbo. The administrations which are hying to hold the countries togetherhaveneither the previous power of state communism,nor a mandatefrom their peoplevia free elections. President Havel of Czechoslovakiaand Prime Minister Mazowieckiof Polandwere installed in office by the power of popular movements.The othersin generalare "reform communists" of varying degreesbut all walk the tightrope of contemporaryEastEuropeanpolitics.

Each could be dumpedat anytime by demandsfor freedom,food or - asin Romania - blood.

But perhapsthe most visibleand emotivepolitical dimensionis that of German reunification. German nationalismrunsdeeponbothsides of the border and despite all the problemsof linking the ostmarkwith the deutschemark,integrating 16million East Germanswith 60 nillion WestGermansand comparativegross nationalproducts(GNPs) of DM400 and DM2,?55 billion respectively,I suspectsomeform of unification will comequicker than most peoplethink.

A brief chronologyof recent events helps to demonstratethe rate of change o 18 October 1989- Honecker lssigrs and Egon Krenzbecomesthe new General Secretary.

o 7 November- GDR government resigns. o 9 Novenber - Borderswith West Germanyare openedto all GDR citizens. o lji November- [JansModrow is electedprime minister. o 18November- A newgovernment is swornino 28 November- Chancellor Helmut Kohl of West GermanyproposeslGpoint plan for Deutschlandoolitik. o 3 December- The GDR Politburo and Central Committee resignunanimously.

Even over the past month, events have continued to move apacewith Krenzbeingout ofajob and reduced 165sllinghis story to the media.

The specterof a Europe dominated by a reunified Germanycausesgreat oon@rnin both Westernand Eastern Europe,and indeedin the USSR.In practiceformal unionis unlikelyin the very near term but esensive financial support is likely to continueto be forthcoming for the GDR from the Federal Republic and economic[nks will increasefurther. Crucially the GDR is already, in important respects,a beneficiaryofEuropean Comnunity trading arrangements since its trade with the Federal Republicis classifiedasintra-German and consequentlynot subjectto regulation.The FederalRepublic providesthe equivalentof DM850 millioninterest-free credit to the GDR to help financetotal Germantrade. ln a nutshe[ therefore,recentpolitical events- andI suspecttherecould be equally dramatic developmentsin the future - will create an environment providing challenges,opportunities and risks for trade and investment, and this appliesto Asian businessalso. My caution, therefore, would be not to get carried awayby 'hone5moon euphoria" but carefully assessthe realities of the systemsand political structures- suchasthey are - and consider where the finance is gsmingfrom. Hastenslowly,and assessthe downsideas well asthe up side.

CurrentEconomic Realities

10 THEASIANMANAGERo JUNEleeo

s the excitementand euphoria of the pastyearof changein Eastern

Europe movesinto a cold appraisal, severalif not all the countriesmayfind that political revolution was easier than the restructuring and transformation of their fragile economies.

Each newleade6hip facesa different setofproblemsandeachno doubthas a different view on how fast to move towards a more capitalistic system.

Each country has a requirement for Western finance and the capability of each to attract such finance differs.

My earlier data on the level of foreign debt alone 6"-o*631es this.

Abasic assumptionnustbe that the systen in eachofthe six countrieshas

11

...several if not all the countriesmay find that political revolutionwas easierthan the restructuringand transformation of their fragile

economt"".l t t

I

been inefficient, bureaucratic, outdated, cumbersome,probably corrupt, over-borrowed,ulsgmpetitive and consequentlyunable to compete on equal terms in the Free World.

Overhangingthis is the requirement for massiveemountsof foreign money and, while comparisonshavebeen drawn betweenthe Marshall Plan at the end of World War II and current Western plans to transform Eastern Europe,the fundanental differencâ&#x201A;Źis that the Marshall Plan basically provided grant aid from the US while most Western financial support pledged thus far to Eastern Europe has been by way of loans.The possibility of a new debt crisisfor Eastern Europe and the potential for another international debt crisisin the 1990s

areobvious.The Westernbanting sptemhasproved itself tobe remarkably accident-pronein this regard to the e*ent that privatesectorshareholders must wonder what roles banking boards41d rnarragementseethemselves as occupying on behalf of their ownersand depositors.

The key, therefore,must be'olVho is going to pay for it dl?' Realistically, direcf financial assistanceshouldonly come on a large scale from governments and institutions such as the World Bank rather than through private companiesor financial institu-

straint on further foreign borrowing andanyadditiond lendingwill require very careful consideration.Both these countriesare membersof the IMF and World Bank asis Romania(only these three are) which hasno technicaldebt problem and indeed could be described as under-leveraged.However, Romania'sproblem is not so much one of its technicalborrowing ability asthat of a completedearth of decision-makersand infrastructureas a legacy of the Ceausescuregime.

Bulgaria'sdebt is high and it is heavily dependenton trade with Eastern

t

sixbut more so becauseof the direct interest of West Gernany.

Sowhat doesall this meanin termsof availablefinance?In late February the president of the World Bank announcedthat 35 billion wouldbe lent to Eastern Europe over the next fiive years.The Japanesegovernmenthas decidedto grant $2 billion in aid, including government-guaranteed loang and there is ofcourse the financial support for the GDR from West Germany which I have already described.Links arebeingestablished with the Organizationfor Economic -i,-\.

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tions. If the latter do makefinance availableit should onlybe for sound commercialreasonsrather than any senseofpru bonopublico.

The requirementsof eachcountry will differ. Poland is in greatestneed and seemsto havebeen first on the receivingline with overUS$1billion in grantsand loans from industrialized countriesfollowing a standbycredit facility of f725 million from the International Monetary Fund. Hungary's existingforeign debt will place a con-

Europe. Czechoslovakiahas comparativelylow debt and is regarded togetherwith the GDR - ashaving the best ingredientsfor success.Its workforce is reasonablywell educated, its geographicallocation relative to West Germanyand Austria is helpful and it has an infrastructure which could giveit a headstart over its neighbors.The GDR, despiteits high debt burdeq is somethingof a special casenot simply becauseits industrial structure is the most advancedof the

Cooperation and Developmentand institutionssuchas the EuropeanInvestmentBank will probably cometo the party.

Tradeand Investment Challenqesand Opportu-nities l.herapidpace of politicalreformin I EasternEurope hascreatedanew challengefor corporatestrategicplanners in the West. Will this market of

THEASIANMANAGERo JUNE 1990 11

over 100million consumers(or 400 million.includingthe USSR)becomea prosperous region of growth in the 19909or will the attemptsat economic reform fail leavinginvestmentthere unprofitable comparedwith funds investedin more dynanic regions?This is the dilemma facing compenigswfos must formulate strategiesfor trading relationships,joint venturesand strategicalliances.

Sofar East-Westtrade providesfew answers.Volume hasgrown over the past two yearsor so after a period of stagnationbut exportsto the Eastern bloc in 1988of around $50billion accountedfor lessthan2Voof world exports.To put thisin anAsianperspective, thesefiguresare lessthan a third o;lslalimports toJapanwhichitselfis not exactlythe easiestof marketsfor foreipers to penetrate.

Nonethelessbusinessis beingdone, joint venturesare being established and investmentis taking place.Some of the higher profile exampleshave beenGeneralElectric's acquisitionin Hungary of Tungsram,its lamp producer,or GM's deal worth $100 millioq - also in Hungary - with their Rebatruck and enginemanufacturer to produce vehiclesand engines in ajoint venture67Vocontrolledby the US company.

Hoare Govett, a London-based b r o k e r a g eh o u s e c o n t r o l l e d b y Security Pacific Bank, recently produceda surveyofjoint venturesestablishedbetweenWest European countries (Britain excluded) and EasternEurope (USSR included).

Many of the big namesin Europe are shown- Siemens,Krupp, VW and DresdnerBank(goingbackto its roots in Dresden);Credit Lyonnais,Elf and LVMH; EM, Fiat, Olivetti andPirelli; AKZO, Philips and Royal Dutch Shell;and,manyothers.HoareGovett havetraced 116joint venturesin all with the highestnumber(35) being madeby ltaly. On the receivingend,72 are in the USSR and25in Hungary with the remainingfive countriesaccountingfor lessthan 20 combined.

Against this background,what are the prospectsfor Asian business?The Japanese- asmight be expectedare alreadythere and PrimeMinister Kaifuwasrecentlyin PolandandHungary.Japanesetrade with non-USSR Eastern Europe currently runs at about$1.5billion annuallywhic\ put

into perspective,representslessthan 0.SVoof Iapan'strade worldwide.

Nonetheless,the Japanesehavebeen trading in Eastern Europe Ior 20 years;longer than most Western At leasttensop sosha businessmen. (trading companies)havehad offices in eachEast European country since the 1960s.The recentlyannounced $2 billion aid packagewill cause Japanesecompaniesto take the prospectsseriouslybutI doubt if there will be a stampedeto catch the next JALfltht.

31

So, hastenslowly, be realistic, but take EasternEurope, and Indeed Europeas a whole, seriously in the 1990s. , ,

Most of the currenttrade is straight bulog and selling - Czechhopsare usedin Kirin beer,the Polessupply saltedherringsfrom the Baltic, and JapanbuysRomanianoil products.In the other direction,Poland'spopulation and its networkof dollar stores hold someattractionbut the country alreadyowes$1.9billion to Japan.

Poland'sjoint venturelawsare said to be complicated, and so far, it seems that the only Japanesejointventures of notehavebeensignedupwithHunctry.

Suzukireccntly concludedthe biggest,a $1,10million carmakingdeal.

Not much hashappenedin the other countriesandjointventurelawsarein their infancy,but theJapanesemaybe perceivedin the five countries(excluding the GDR) as attractive

12 THE ASIAN MANAGER o JUNE 1990

counterweightsto the Germans.

The Japanesemay face competition from Korea which is energeticallyestablishingrelationshipswith Poland andHungary in particular, where$4{X) million and $300million of credits and loan guaranteeshavebeengranted.

Not hugesums,but a start and I would expectthe Korean presenceto grow.

The remainder of East and Southeast Asia may find opportunities for trade (subiectto bei"g paid) andbarter, and opportunities exist.For example,a gsmpanywith which I am associated recently concludeda contract to sell Chinesetextile productsto Poland.In manycases,however,EasternEurope with its cheapbut potentially skillful labor may become a competitor to SoutheastAsia in the light industrial field and,without governmentfinancial support, direct investmentor joint ventureswill need to be carefully, realistically and commercially assessed.

Having said this, the Asia-Pacific region hasgone through a period of dynamic growth in the 1970sand 1980s.Europe maywell be the region of the 1990swith the SingleMarket cominginto the EC in 192 and the intriguing but uncertain prospectsfor EasternEurope over the next decade.

With the dynamismand enterprise which exist in Asia, I would be surprisedif thoseopportunitieswhich emergedlvere not graspedby Asian There will be opporbusinesses. tunities and challengesbut my advice would be to hastenslowly; research carefullyhowyouwill getpaid or reimbursed;and establishEasternEurope realistically in your list of priorities relative to the other regionsin which you either are or expectto be trading or investing.Don't get carried awayby honeymooneuphoria,and ifyou have not beenthere,go.I myselfamheadingfor theUSSRnextweekinorderto try to seefor myself.

Conclusion E asternEurope is a constantlyand E rapidly chan'gingscene.In this article I havetried to sketch- andI emphasize sketch - some of the dramatic changesof the past few months. These have been mainly politically driven and the future economicand socialimplicationsare far from clear. Changeswill continue

THE ASIANMANAGERr JUNE 1990 13

to take place with almost alarming speedand the aspirationsof those1fi) million or so people in the six countriesmaynot be easilysatisfied.

The new political structuresare far from solid. The economicand financial systemsand infrastructure are generallyincompetentand uncompetitive. Bul within the socialsystem there is a clear desireto throw off the y o k e o f c o m m u n i s m ,w h i c h h a s demonstrablyfailed, andto moveeach country towards a freer societyand a freer economicenvironmentwherean individual can be rewardedfor his efforts.

For businesses in Asia - or indeed WesternEurope or the USA - there will be opportunities.Financewill be a major constraintand this can onlybe solvedat a governmentor international level.At a businesslevel,boardsand corporateplannerswill haveto carefully and realisticallyassessthe risk and opportunitiesin this regionof nearly one million sq. kms.with a populationof over1fi) million people.

For the region itself, I wish them everysuccessbut it will not be easy.

Howeyer,I do believeit is in the interestsof the FreeWorld that theyshould succeed- which is where governmentsand internationalinstitutions like the World Bank mustplay their part - sincefor EasternEurope to be rolled back under a carpet of communist dominationwould be a major retrogradestep and an international disaster.

So, hastenslowly,be realistic,but

a balanceof power and a stability and that lasted.

Now Europe is changingdrastically.

The changesare reallyquiteunbelievable.We are returning to a strong FirstReactor: united Germany,and Europe is shiftDavidB.finnin ing awayfrom the Atlantic to the Editor-in-Chdf Billion Magazine heartlandof CentralEurope. We are goingto."s 2 gfuange ofprofound difference. IfI understandthe Chinese 1 would like to commendMr. Newf bisging for a very realistic appraisal charactersfor "opportunity'' correctof a very,very complicatedsituation. ly, the word is composedof both the In coveringworld politics, especially charactersfor "risk" and "opporin Europe, EasternEurope and the tunity" and I think this is what one SovietUnion for aboutthreedecades, facesin EasternEurope todayandI I think that there are two immutable think Mr. Ne*bigging pointed that out rulesthat I canstatewith a fair degree very commendably. of confidence.The first is, that anyatOnegreatquestionis,why didn't we know anyof thesethings?Or why did tempt to createa paradiseturns into a hell. The secondis that anyseriesof you not know anyof thesethingsbeeventsthat besinswith euphoria,ends cause,with all due immodesty,I did in tears.This is not a very huppy know a great deal of it and e4pectedit thought,but it happensto bevery very to happen.I brought alongClarence true. The recentdevelopments in Da GammaPinto, my principal aide, EasternEuropecanonlybejudgedas to attestto the fact that I havebeen extremelypositive,extremelyensayingthat this wasgoing to happen forsometime.gas thingthatis sureis, courag"'gandanyhuman$singhasto applaudwhathashappenedtherein PresidentGorbachevknew,the KGB knew; probably, most of the the causeof freedomand humandignity. bureaucracy or the higher At the sametime, we alsohaveto bureaucracyin the SovietUnion knew. facetherealitythat Europeis in a very I had the greatprivilegeof beinga destabilizedsituation.A destabiliza- Time correspondent.I wasthe senior tion that reallyhasno parallel,except editor for foreign affairsand senior backin the 1930s.Eventhe immediate writer for a number of years and I post-warperiodwasquitestablein the movedbetweenthosejobs to be able s e n s et h a t t h e r e w e r e t w o s u p e r to travela greatdeal.As a corresponpowers- one of which wasworn out dent, I had a very soberingand ennoand the othcr rapidlyds6sbilizingbling experienceof becominga confagingoneanother.Andyet, therewas fidante of AleksandrSolzhenitsvn take EasternEurope,and indeed Europe as a whole,seriouslyin the 1990s.

14 THE ASIANMANAGERo JUNE 1990

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economics... is the area Asia is goingto and can play and probably shouldplay

a very important

role. r,

when he cameout and wasexpelled from the SovietUnion.It wassimplya seriesof accidentsthat took placebut Solzhenitsyntook me into his confidence.I did a seriesof storiesin Time,severalof whichwerehelpfulto himbecausetheywarnedthe KGB off his trail.

The KGB had a great plot against Solzhenitsyngoingat that time. And Solzhenitspusedto tell me,looking me right in the eye,"You know 10 yearsfrom now, I'll be back in the SovietUnion. Therewon't be a Soviet governmentan)nnore.It will be an orthodox country and God will have savedit and everythingwill be fine."

And I would think, "We[ that is very fine to say,but that is just not goingto happen."

But asit turnedout,hewasonlyafew yearsoff. And what'sgoingto happen in the SovietUnion over the next 10 yearsis probablyvery veryprofound.

Soa lot of peopledid know.Certainly, one of the thingsthat broughtabout the changehasbeeneconomics.And I think that is the areawhereAsia is going to and can play and probably shouldplay a very important role.

The "PragueSpring" ofAlexander Dubcekbeganin the fertile imagination of a pint-sizedeconomistnamed Otto Sikhwho decidedthat therehad to be a better wayto do thingsand deviseda schemefor a limited amount of entrepreneurialinitiative in statecontrolled Czechfirms. He presented this to a numberof his confidants,one of whomwasAlexanderDubcek.They talked informallywith the Russians who told them to go aheadand try out

the scheme.It mayturn out to be a good idea, they said, similar to what Kruschev dubbed "Hungarian goulashcommunism."But do not go too fast,1ls f,us5ianswarned.

Of course,it did go too fast,and we know what the solutionwas.We also knowthat in a very veryshorttime, the man cameback. He wasback in 20 years,a short time in a historical framework.

Now,whydidwe not knowwhatwas goingto happen?If Gorbachevknew it, if Solzenitsynknew it, if hundreds and hundredsof peopleknewit, why did we not seethat sort of story in the press?

I think it is probably important for you all assenior m:rnagersand senior managers-to-beto know why these thingsdo not getin the press.The first thing is that accessto information is c o n t r o l l e d .I t i s d i f f i c u l t t o b e a reporterin EasternEurope.You have a governmentlooking over your shoulder,you havepeople following you,you haveto registerwith whom youwantto speak,youhaveto put in a

requestfirst, and so forth and so on.

The bureaucracykeepsyou at bayvery effectively.Somereporters who are stationedin the areafear for their own lives or for their own safety.Perhaps evonmore so for that of their families becausethe harrassmentis not fun.

I haveknoumtoo manypeoplewhose wiveshavehad nervouJbreakdoums simply becausethey knew that every room in the flat was bugged.The American embassywould sendout sweepteams every yoar and if you wantedto, you could havea couple of guyscomeby and sweepyour apartment.In Moscow,they found 35 bugs in the apartmentof aLI FE correslnndent.That is quite a fewbugs.

The next thing that happensis that you havethe visiting fireman, under which categoryI fell for manyyearsthe important man from New York, jetting out, followedby somesubser vient researchercarryinghis attache caseandannouncinghimselfaseditor of this or senior writer of that magazineor newspaper.This ended me up in wonderful state banquets

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only time Timemagazinewas ever outsold by Newsweekon the newstandswas when yourstruly,with all due immodesty,did a very fine cover story on the problemsof the Sovietleadership.

And Newsweekdid one on the 'hotpants'trend. , ,

where I usuallygot indigestion,but also someverynice reviewsat the Red Squarewhere editors were put on the standofhonor and reporterswereall huddleddovmat theotherend,practically under the clubs of the KGB. So,you do havethesepeople coming in andtheywant an interview,andvery often the local guycannot get it. Moscow was alwaysa scandalin that a f o r e i g ne d i t o r o r t h e e d i t o r o f a magazineor newspapercould comein and get an interview with somevery high official on the condition that he did not bring his local correspondent with him. I neverdid that, but other peopledid, includingthat newspaper that has the slogan,"All the news that'sfit to print," exceptthat theyundercut their own correspondent.Incredible.

The worst thing, however,is that the powerful editors sitting behind their desksin Frankfurt,Brussels,London, New York, Manila, and so forth, feel that their readersarenot interestedin EasternEuropeor in anyplacethat is producingbad news.Therefore,they simplyignorethe stories.

The correspondentcan write the best articlesin the world. He canget all sortsof information that is new,that is enlightening,but it simplywill not appearbecausethe editors would think, "We[ it is not going to sell, the readerswon't want it." And at the backof the editors'minds,theyseethe publisherswho would be saying, "Good God, the advertisersdon't wantthis kind of stuff! We'vejust lost threepages."

The only timeTime magazinewas on the ever outsoldbyNewsweek newstandswaswhenyourstruly, with all due immodesty,did a very fine coverstory on the problemsof the

Sovietleadershrp.And Newsweekdid one on the "hot pants" trend.

But let us go back to our subjectof E a s t e r nE u r o p e a n d A s i a . D o e s SoutheastAsia, doesAsia in general, the fastestgrowing and the most dynamiceconomicareain the world, haveanythingto fear from Eastern Europe?I think the answeron balance is, not really.There mayte somecompetitionfor foreigninvestmentbutthe Asia-Pacific area is becomingvery much a self-drivenareaWhat doesthe Asia-Pacificregion haveto offer to Eastern Europe? I would say,greatcaution.The people whoaregoingtomakethestrategicinvestments,where one is willing to write-off a few hundredmillions,are goingto be the WesternEuropeans and thoseare, on balance,sound decisionsbecauseit's muchbetter to havea prospering,huppyEastern Europeonyourborderthantohavean unhappyEasternEurope.I would ratherspendhalf of theWestGerman defenseallocationon soft loansto the SovietUnion than haveto fight the SovietUnion in five yearsbecauseit is a war you are not goingto win or even if youdo, God helpyou afterit is over.

So the type of thingsthat drive the Europeansare considerationstotally apart from what shoulddrive the Asians.

Now, what can you bring? What shouldyou do? Probablyverylimiled measures, but very,very important ones.Perhaps,the mostlmportantis to helpto recreatetheentrepreneurial spirit, training,technologicalexchangethat bringstrainingalongwith it, that showswherehumaninitiative playsa role.That probablyis the very, verybestthing that you cando. And theseshouldnot entail hugemam-

16 THE ASIANMANAGERo JUNE 1990

moth undertakiogssuch asbuilding a new steelmill someplace in southern Poland.It is probablymorein the area of mediumto high technologywith a great deal of humanendeavorand humanintelligenceadded.That is where you have excelledand I think that is whereyou can help Eastern Europe.

SecondReactor: DavidKP U Directorand ChiefExecutive,TheBank of EastAsia, Ltd 1 sharethe view of thi two speakers I beforeme.Soit is veryeasyformeto saythat I agreewith both of them,particularly with Mr. Newbigging.He himself is a very successful businessmanin Hong Kong and in the United Kingdom, and can alsobe carried awaybythe"flavor of themonth."

EasternEurope seemsto be the flavor of the month in much the sameway that lastyear,beforeJune,Chinawas the flavor of the month.

Businessmen,particularly bankers, seemto be easilysweptby theflavorof I think we have the month symdrome. to be very careful not to be caughtin that.What you seein EasternEurope whenyoulift the Iron Curtainaretheir e c o n o m i e s .T h e y a r e v e r y d e a d economies.

I wasspeakingto Rudy Murdock r e c e n t l yi n L o n d o n . H e h a d j u s t returned from an extensivetour of Eastetn Europe with his wife and someof his colleagues.We talkedfor aboutan hour and a half aboutvarious countriesin EasternEurope and he thatoneisdealingwith agreedwithme there.He saidthat deadeconomies with China,you maybedealingon the

THE ASIANMANAGERr JUNE 1990 17

ground level but in Eastern Europe youaredealingsixfeetunder.You are basicallycrawlingup, and he said that it is very difficult to crawl up.

Another thing you are dealingwith, are countries that haveno system,no law and order the waywe understand law andorder.Andyouwill payavery high price for democracy.As we all know, democracyis very e4pensive.It will be very expensivebecauseof two things:the people are not usedto working - people are usedto subsidies- and wherepeoplehaveno initiative, you have to recreate entrepreneurship,create a new system.

Ithink it is allverywellto saythatyou will be selling to 1110 million people.

But are thesepeoplewealthyenough to buy the goodsthat you produce?

Are they trained enoughto havediscipline?To work in factories?They are not. Sobasically,I do not think the curtain has fallen on the Pacific Century as otr Time correspondentsaid.

I basicallythink that the Pacific Basin is still the dymamofor the 21stcentury.

And I still believethat if we can find a wayof harmsnizingpeople's.energies towardsprdductivework rather than havingpolitics divide people,I think we canlead the way in reformingnot only ourselvesbut Eastern Europe as well.

I alsothink that whenyou talk about investment,you must distinguishbetweeninvestmentand aid. It is all very well to throw a few speculativemillion dollars into a venturein an Eastern Europeancountry.This is not investment; I would considerit aid. It is a gambleto seewhetherit paysoff or not. You are referringto real investdent if you are thinking of sinking people'smoneyand time in it.

I do not think peoplein Asia are preparedto do that.And I do not think peoplein America are preparedto do that either. I reckon that most of the venturesthat the Americansare going into in EasternEurope are really "peanuts" comparedto the sizesof their own organizations.I think what they do not want is to missopportunitiesin thosecountriesin'caseit doeswork. They alsowant to showthe world that they are leading.Murdoch told methathejust spentUS$4million nbuyng 50%of a newspaperin Hungary.I asked,"Why did you do that afterwhatyoujust told me?"He said,

"It's peanuts.I haveto makea gesture to the people.'And I reckonall those investmentsfrom corporationslike GM, arebasicallyjustgesturesto show thesecountriesthat theAmericansare behind them.

I think what one shouldnoticein the 1990sis that the whole investment sceneis changing.We are dealingwith real investments.Peoplearelooking at you, people are looking at bottomlines.Peoplewant muchmore return on investment.We are nowseeingdifferent typesof managersbecauseof information technolog;t.We are basically much more competitive.

I wasin Chinarecentlyfor a basiclaw m e e t i n ga n d o n e o f t h e C h i n e s e

a -a

-

t- t -

| think it ls all very well to say that yos will be selling to 140 millionpeople.

But are these people wealthyenoughto buy the goods

that you produce? , , leaderstold me thatwe have to change the Joint Venturc Law. I asked why.

"Well," he said,"becauseof what is happening." He did not saybecauseof whatwas happeningin Europebut because of what was happening in general.

I asked, "What do we have to change?" Hc said we will no longer stipulate that a Chinese national must be chairman of a joiht venture. We must lower our tax rate. We must give taxholidays. He saidwewill have to do these thi"gs to be competitive.

I think ths whole Asia-Pacific is reacting to Eastern Europe. All the countries in the Asia-Pacific are trying to be competitive although they do not sayso.But I think everyoneis trying to be competitive to increase investments in their own country.

I alsothink that sincethe ColdWar is

18 THE ASIAN MANAGER r JUNE 1990

ending,you will seea shift in investmentfrom armamentstoresearchand development,to basically more productiveindustriesthat add to the quality of life. And I think, that for se1[ain,companieswillgo for morerenot inthe arsearchanddevelopment, mamentfield but in the fields of high technology,information technology and pharmaceuticals.

I think that the whole world is being impactedbyEasternEuropeandeach one of us has seenthat we all love democracy.However,we havenot actually calculatedhow much we are all going to pay for democracy,how democracyis goingto influencenot only our own country but the whole Asia-Pacific basin. And I think that I China will definitely have1sgfuange. think China, despitethe leaders' sayingthat they are not going to gfien$e,are alreadychangingin reaction to reality.

OpenForum Question:lwouldlik to addrcssthis questiontoMr. Tinnin.I amwondeing if you think that therewill be a trendin Eastern Europe towards a more egalitariankind of capitalism because of the interaction betweenwhat the Eastern Europeans think are advantagesof socialism and disadvantages of capitalism?

Tinnin: I thinkthat inEast Germany, for example,one finds a "purer German"thanwhatqnefindsin WestGermany.West Germansare incredibly materialistic.There is very oftenvery good human relations prevailingin EasternEuropethat are not characteristic of a highly industrialized Westernsociety.No doubt thereis somethingto be saidfor a harderand morerusticwayof life.I think that alot of thepeoplein EasternEurope,especiallytheyouth,are a bit moreidealistic andare a bit moreinspiredby notions,by philosophy,thanour youthin the West.I think that therewill be a consciouseffort to take the bestof capitalism and keep certain egalitariantype of idealsthat have comeup. If you look, for example,at the record of Solidarity,you will see that the workerswereableto keepthe participation of a very big numberof people in the decision-making process.One finds that very,very encouraging.Certainlythe way events

THE ASIANMANAGERo JUNE 1990 19

are going in Czechoslovakiais also very eircouraling.I think there is a consciouseffort in EasternEurope not to take all of the corrupting elementsof Westerncapitalism,but to try and marry the best of the egalitarian societywith the advantagesof a more efficient, technologically-oriented society.

Nervbigging:If you had been able to watchthe televisioncoverageof some of the eventsin Eastern Europe towardsthe end of lastyear,youwould have been amazedto note the differencein the attitudesof the people in, sayPoland,who had had the experienceof Solidarityand Romania whichhad not benefitedfrom anything under Ceausescu.I think one mustbe a little careful not to generalizeabout Eastern Europe or even the six countriesI havementioned,for they are very different. One of the problems,I suspect,is that none of thosecountries really had any personalfreedom and when people get the taste of personalfreedom,that feelingcangathera momentumof its own which just surgesaheadlike a tidal waveand subsequently,theymay find that it is very difficult to get their act togetheron the economicfront.

They mayfind political revolutiona greatdeal easierthan the economic evolutionin the yearsahead.

Question:Relatingto thecasepaclcs,I noticedthat 25 out of 54joint ventures werein Hungary.I would like to know what factors are responsiblefor Hungary'sgreaterattraction to joint venturesas compared to the other counties?

Newbigging: You are still talking about quite smallnumbers.Out of thesejoint venturesonly 25 were taken. Hungary hasmanyobviousattractions.For instance,it hashad much more commercialcontactwith WesternEurope and the rest of the world than some of the other countries.Take the extremecaseof Romaniafor example,which hashad no commercialcontact,or Poland, whichhashad some.Or you takeEast Germanywhich hastendedto focus more on West Germany.But I think, David Li's commentwasa very valid one.Thesejoint venturesare more of gestures.ThebigUS hrmsdo notwant to missout, theywantto be there.One of them, in fact,wasgiventhe opportunity of controllingover 60Voof a

joint venture.Normally, it is the other way around: if you go in as a foreign party, you haveto take the minority position.

I think one other interestinganglein the US interestin EasternEurope is that there are quite a number of significant communitieswithin the United Statesfrom EasternEuropean countries.Manyof thesepeoplespeak the languagea great dealbetter than peoplein WesternEurope do. So the emotional desire to reforge linl$ with their homelandsnow that this hasbecome possiblemight, in somecases, relegatehard commercialsenseto the backeat. The heartmight actuallybe ruling the head! When you look

11

People inevitably will look back to theiroriginal homeland and if they thinkthey can get involvedthere, thev will do so. , ,

around,thc sameevenappliesin Australia asSir Gordon Jacksoncan c o n f i r m . S e v e r a lo f t h e l e a d i n g businessmenin Australia todayare what I would describeas ex-Hungarians.And thereis more of this in the United States.Peopleinevitably will look back to their original homelandand if theythink they can get involvedthere,theywill do so.

Li: Ifyou go to Chicago,abouthalfa million peoplethereareof Hungarian orlgn.

Question:lcually I wE goingto saY that perhaps the 25 ioiit ventures involve ethnic Hungarians and I was goingto sugest that perhaps one of the things that the Eastern EuroPean countries should do is to institute some ki n d of a balikbayanp rograrn.Balikbayanare Filipinos from the United States or sotne olher part of the world

20 THE ASIANMANAGERo JUNE 1e90

who come back to the Philippines.

Peoplelikc thesete prob&ly themorc Iogical sources of technologlt, entrepreneurshipand capital for the Eastern European countries than people from Asia or even Western Europe.

Question:I'd lil<etofocas on thetrode angle. Frorn my point of view, the foreign investmentpolicies of the United Statesare undergoingsertous changesand rethinkingbecauseof the recent developments in Eastern Europe.Theseseemto imply thot there will be a shift awayfrom the PhiliY pines. Is therea basisfor this implication oris thisjust amediahypothesis? finnin: Well asthe media expert,I saythat I would really want to seethe changesin the United Statesfirst. The Philippines from the American standpointis in an extremelyimportant strategicareaand thesedecisions are not going to be madein the next monthor so.I thinkwhatoneisgetting nowis a great deal of speculatioq with people havingto fill up a certain amount of spacein the magazinesor in the newspapers.I would not take any of theseseriouslyright now. The amountsinvolvedin EasternEurope so far are so small and essentiallyyou are goingto haveto loan the Eastern Europeansmoneybeforetheycando This contrasts anythingthemselves. sharplywith Asia which is basicallya self-sustainingcapital-creatingenvironment so that the commercial equation- whichat theendof theday is the more important one than what the US Senatedoesor doesnot do or thinks about or doesnot think about - is simply so tilted in favor of the Asia-Pacificareathat althoughthere will be someinvestmentand someinterestin EasternEurope,theyare not goingto be 6vsrwfielmingfactorsthat would changethe face of the earth.I think that it is very important to keep this in perspective,that it is, so far, much more a political eventthan it is an economiceventand will 16pain5s for the forseeablefuture.

Newbigging:I agree with that very much.I do not think anybodyshould assumethat a group of six countries with a populationof only ll2millionis goingto transformthe world'sbusinessand economyovernight.I think sse 6f1[s thingspeopleareup against at the momentis that veryfew PeoPle know much about EasternEuroPe.

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THE ASIAN MANAGER o JUNE 1990 21

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because us say a lot of things do not work and that is a pgggibility_ not know how to organizethings,they do not the EasternEuropeans-do know how to work sincethey havebeen living for manyyears in Never-NeverLand. , ,

Earlier this week in London, I was havinglunch with a colleagueof mine who is on the board of one of our major banksand I told him I was preparinga paperon EasternEurope.

As a matter of interest I askedhim what he thinks is the population of thosesix countries.His first reaction was,"I don't know." When I told him to take a guess,he said it mustbe at least250millionpeople.11sldhim he waswrong by a wide margln.

So I think it is very important to get thefactsright astowhatwe aretalking about.You havea potential market thereof 112million people.What does of Asia?Thereare that meanin 1e1ms countries in Asia which havepopulations a great deal more than that. I rememberwhattheyweresayingwhen China startedopeningup. Theywere salng that ifyou could sell one razor blade to everyChinesemale oncea month,think of what that would do to Gillette's profits. Well, I havenot noticedGillette'sprofit doubling tripling or quadruplingas a result. So, onehasto be realistic.

Question:'Willthe vacuumfollowing the removal of strong-manrule cause economicchaosand bringbacktheold system,bearingin mind that it was poveftythat in largemeasurehelpedto install theold systemin theearly 1900s?

Newbigging:I will counterthat question with a question:How old is old?

What do you meanby the old sYstem?

Is it the early systemafter World War II or the turn of the century?How old is old? finnin: If it is communismYouare referring to, I will be glad to answer your question.I think the overwheLning dangeris in the SovietUnion, that Gorbachevwill [ose,that the military will comebacktopoweror that acom-

bination of the hard line party plus the hardline mili1xry,whichmaymeanall sorts of schismswithin the military itself (the Sovietmilitary is no more united than the Chinesemilitary) will take over. There is alwaYsa great dangerof inter-military rivalry. I thinlq the worst casescenario,which is not an unlikely scenario,is that Gorbachevandthe reformerswill lose,the hardlinerswill comeback in with the support of the military and then they will try to roll backthe clock.Well, the first thing you do is fo occuPY Lithuania and shoot10,000PeoPle. Then you look at Poland,sendbact troops that went out, rearm their tanki, and sendthem in againand againwheneveryou havePoPular upnsrngs.

The possibilityof the hardlinersatis, themselves temptingto re-establish I think, very veryreal.I usedto knowa numberof SovietdiPlomatsunder Khrushchevand under Breshnev. in Gromyko'ssonwasin the embassY and years Washingtonfor a numberof I helpedhim with a book he waswriting, called Through Russian EYes,aboutthe United States.I alwayshad accessto Gromykobut on an off-the"We lost recordbasis.He usedto say, 20 million pcoplein that war andwe will neverlive Uackthat land." And the Russiansusedto joke aboutthe old Bismarckiansayingthat thereare a lot of thingsyou can do with the bayonetbut you cannotsit on it. The Russianswouldsay,"Yes,butyou can your teethwith it." pick Thire is a possibilityof a backlash but you wouldget economicchaos.

Let us saya lot of thingsdo not work and that is a possibilitybecausethe EasternEuropeansdo not know how to organizethings,theYdo not know

22 THEASIAN MANAGER r JUNE 1990

how to work since theYhavebeen living for manyyearsin Never-Never Land. If thingsdo not work, thenYou are going to get a backlashand then what sort ofthings do Youget?You probablywill havethe Russianstrying Io protect themselvesand holding their own country together.Gorbachevis taking anenormousrisk. The reasonthe SovietUnion hasbeenso repressiveis that it needsto hold country. togethersucha non-cohesive breaking you have thiugs when So apart, anythingcan haPPen.Yes,the military circumstancesbrought communisminto beingsinceyouneededto haveobedientgovernmentsin place.

That wasthe basicallywhat happened.

That canhappenagain,yes,definitely.

Question:If that scenariothat You descibed everhappens,and if by that time, one of thecountries,namefi East Germany,has becomea memberof NATO, how would the geo-Politics workout then?How wouldYouthink the US would resolvethat dilemma?

Tinnin:We are now in the area of political speculation,of course,but that soundslike the makingof World War III. The greatdangerin EastGermanyhas alwaysbeen that Germans would start shootingGermansor that Germanswould not shootGermans.

Thatis whyyoualwayshavetheBritish troopsor the AmericantrooPsuP front. That is why we alwayshavethe very heavypatrols.It wasto prevent thai situationfrom everhappening' Thatiswhythesizeof Berlinwasnever cameat changed.Sowhenshowdowns Checlpoint Charlie,theyhavealways involvedRussiansagainstAmericans' The two powershavebeenverywisein keepingthe Germansout of thoseexploiive situations.The samething Lappenedat theWall whenthat young

man died. f,t was an American lieutenantwho unstrappedhis pistol and walkedtowardsthe youngman.

The Germanswerekept backto keep the emotionalfactorfrom brildingup.

If Russiantroops start rolling into East Germany,asthey did whentheY put downthe first two revoltsinBerlin in 1953,and the WestGermansstart hringbackwith theirflat bore 120-millimeter cannonfrom the Leopard II, the Germansare goingto blow to hell everyRussiantank around.The Russiansknow this. It is very dangerous andthereis no doubtaboutthat.Samb thinggoesin Czechoslovakia.

I think you would do Newbigging: well to look at Mrs. Thatcher'sattitude towardswhat is happeningin EasternEurope.Many peopleregard her asbeing over-hawkish,calling her the Iron Lady,etc.,but shehasbeen firm in her beliefthat, now is not the momentto withdraw forcesfrom mainlandEurope and for NATO to getweakerand so on. Not, I suspect, becauseshefearsthat the Russians are goingto comerolling overinto WesteruEuropebut preciselybecauseofthe sortofscenariothat might happen.

I think whatonehasto realizeis that within EasternEurope,amongordinarypeople,it hasbeentheir desireto getrid sf ssmmunismfor quite sometime.But the Russianbear hasbeen sitting on them very firmly and it was

only when the messagegot around pretty rapidly that Gorbachev was prepared to loosen up that things began to change. And he was prepared to loosen up, not becausehe had suddenlybecome a nice chap, becauseI do not think he is a nice chap.

You do not get where you are in Russia if you are a nice chap. It was because he does not have many alternatives.He has major problems internally in Russia which have simply made it impossible for Russia to continue to dominate Eastern Euiope as it has done in the past. Whenyou get to look at the demographic make-up of Russia, it has the largest population in the world. Less than 50Voof the population is Russian and all those problems, political and economic at home, left Gorbachev with virtually no alternative and as soon as the word got around, that is when the move started.

Question: Because of the massive capital infusion needed to upgrade the economies of Eastem Europe, would it be reasonable to expectthst the 1990s will be a peiod of high interest rates? "low" are relaLi: I think "high" or tive terms. In the past few weeks we saw the German foreign market fall basically becausepeople expected consumerismfever to sweepEast Germany, with the West Germans having to pay for the modernization of East Germany. Such a situation will keep interest rates high and, I think, if

people e4pectthis to happen, then that iswhat may happen.I personally think that interest rates around the world "high" I will stay high. When I say mean roughly abott9Vo or more and I think Japan may have to move up its interest rates as the yen continues to drift downwards vis-a-vis the US dollar. Also, the Anericans are very consciousofthe fact that the Japaneseare enjoying low interest rates so that their industries can expand and they f,ave a competitive edge over US manufacturers and companies. So, they have been forcing the Japaneseto adjust their rates upwards. I think interest rates are now becoming a very political issue.

Newbigging: Let me add onePoint to that. I think it is a basic assumption in Europe at the moment whether You talk to bankers or, perhaps more so,to those who have to uso money' that interest rates in Germany are going to rise. And they are already rising, for the reasons that David Li has described. Whatever happens in Germany is bound to have an effect on whatever else hapPens in Western Europe. That, in turn, is going to have some effect on whatever happens in the United Statesandso on. I don't think anybody should assumeif they have a heavy loan that interest cost is going to go down. I would work on the assumption that they are going to stay about the same.

#. *v-

David Newbigging Formerlardine Davies head" Mr. Newbigingis the Chairman of the Rentokil Group PLC and is a member of the Hong Kong Executive and Legislative Council. He is also Chairman of the Hong Kong Touist Association, Director of Bitish Coal Corporation and is sn AIM govemor.

David IC P. Li A member of the AIM Board of Govemors, Dr. Li is the Director and Chief Executiveof the Bank of East Asia" Ltd. He also serYes H ong Kon g's Iaw-making bodY, the Executive Council, and is the Executive Chairman of the Hong Kong M an agementAs soci ation.

THE ASIANMANAGERo JUNE 1990 23

nc GIfuI9h: A f,Mts m tu ,4siolMowger - kcmd kssiot

lntra-Asian Tradeand lnvestment byMr.Woshingan SyCip Chairma4 SGVGrutp Chairman,Asian Instituteof Management ; nthe lastZ)yeargI havespentquite I abit of my time in EastAsia. ByEas Asia, I am referring to the countries from Japanin the north to Australia andNew Zealand in the south.I'm not surewhetherI am correct or not in including Australia and New Tnaland but I think thesetwo countriesare originally a part ofthis region,at least, spiritually.

In Januaryof this year,I hadthe good fortune of visiting alnost all the other countries in this region except for three. Up-to-date figureson intraAsian trade and investmentare not that readily availablesowhat I will give are largely my impressions.Someof the indicatorsI haveseenare quite clear. One, is that intra-Asian trade and investmentare increasingmuch faster than US and European trade and investmentin the reglon. Second

if oil and gas investmentsare excluded, new investmentsfrom the US and the rest of the Westernworld in the region are rather small, I emphasized"investments'becausethere are many existinglarge investments from Europe and the United Statesin this region. Thesecompaniesare still continuing to expandtheir regional operations.

The new companies from the Westernworld are mainly going to Hong Kong and Singapore.I suspect that quite a bit of thesewill be in the financialareaand in certainhigh+ech industries,particularly in Singapore, while newinvestmentsin Hong Kong willbe mainlyfor monitoringactivities in China.

Meanrvhile,large US companissar't 6akin! major investmentsin Europe to establishthemselvesbefore L992.

LatelS there are someindications of US companies,aswasmentionedby David Newbiggingshowinginterestin Eastern Europe. Even before the remarkablepolitical developmentsof the pastsixmonthsinEasternEurope, we in East Asia were already con-

24 THE ASIAN MANAGER r JUNE 1990

cerned whether or not Europe would becomemore inward-lookingafter 1992,would becomemore busyforming what is termed'Fortrqss Europe."

My European friends tell me that Fortress Europe will not take place and that Europe dependsvery much on international trade. However, someof the rules that theyhaveformulated, particularly the rules on local content for the car industry certainly do not reflect global thinking.

I think manyof usin Asia are familiar with the word "local content" because theseare the two words we useto protect small domesticindustriesto allow them to grow before we open our doors to foreign competition.So when Europe, the most mature and developedareaofthe world"usesthe word "local contentr"I cannothelp but think that this is indicativeof the movetowardsFortressEurope.

With theopeningof EasternEurope, and possibly,the SovietUnion, large amountsof capital credit will be neededto developthesedifferent countries.For instance,one earlyestimate saysthat US$10billion will be

required for East Germanyalone.But this estimateftaslatelybeenincreased to US$40billion or US$50billion just for East Germanywith its 17 million people, notrrithstanding the fact that this country alreadyis supposedto havethe highest standard of living in EasternEurope.

Whatever is neededin Eastern Europewill naturallybe a concernfor Western Europe, particularly for West Germany.Eastern Europe also - and this is where it may affect East Asia - may lure away Western European companieswhich want to sourceproducts at lower costs.A European businessmancan fly back and forth to EasternEurope within one day, as many of the Asian businessmenare finding out that, within this region,they can fly to one country and comeback in a day.

But with regard to the unification of Europe,I think the Germanmonetary unionwill probablyprecedethe establishmentof the Europeanmonetary uruon.

Japan'sRole Turning to intra-Asiantrade,Japan I is now the largestinvestorin this region, havingsurpassedinvestors from the Westernworld. The increase in Japaneseinvestmentswasgreatly acceleratedfollowing the meetingthat took place at the PlazaHotel in 1985

1a

SoutheastAsia will supply lower cost componentsto Japanso Japanese end-products can be exported to the Western world at lower cost. , ,

when the finance ministersof the developedcountries agteedthatthe yen had to be revalued.And as many of you know after that meeting Japan in its very logical and cohesiveway, (almost'agfeed.

In order to bring down the cost of their end-productswhichwentup asa result of the yen revaluation,the Japanesedecided to sourcecomponent parts from "lower-cost" countries.This wasthe beginningof the flood of Japaneseinvestmentsthat went into SoutheastAsia, pafiicularly Thailand. The flood of Japaneseinvestmentsinto SoutheastAsia further intensified when,under strongpressure from the United States,the Taiwan dollar and the South Korean won were revalued,greatly increasing costsin thesetwo countries.The m o v e o f t h e U S t o r e m o v eG S P preferences from the four NICs SouthKoreq Taiwan"Hong Kong and Singapore - combinedwith labor shortagesand increasedlabor costs prompted a very rapid transferof industriesfrom theseMCs to Southeast Asia where costs are lower and populationslarger.

I would like to bring up one point at this time. If we were to define"overseasChinese"asall ethnic Chinese living outside Mainland Chin4 investments of thesegroups of people within EastAsia mayevenexceedthat of the Japanese.In other words, if we combine all ethnic Chineseinvestmentsflowing out from Taiwan,Hong Kong, Singapore,Thailand, Indonesiqthe PhilippinesandMalaysia, the total maybe evenlarger thanthat of Japan.Actual figures,however, would be difficult to determine especially sincethe largestchunk of these investmentsnow comefrom Taiwan.

I rememberoncewesenta partnerof our firm in Taiwan to Johannesburg (Taiwan hasexcellentrelationswith South Africa). According to the recordsof the Taiwanesegovernment at that particular time, therewere four companies from Taiwan with r e q i s t e r e di n v e s t m e n t si n S o u t h efiica. Whenour partfier arrivedin however,the figures Johannesburg, there showedthat there were 92 Taiwanesecompanieswith investmentsin SouthAfrica. Taiwanalsohas a very logical policy of permitting companiesthat export to automatically setasidea câ&#x201A;Źrtainamountfor ex-

port promotion. Theseamountscould be in Hong Kong, so the companyin Johannesburgcould actuallybe a subsidiary of the Hong Kong operations.

And the Hong Kong operationsmay not be listed anywhere.So, to try to trace how much noney or how much of the investmentsoriginally came from Taiwan may not be easy.

For instance,the outflow of Taiwan investmentsto Fujian province, right acrossthe straits 25 minutesby air betweenTaipei andAmoy (if anyairline is flying that route), continueseven after the incident on Tiananmen Squarein June 1989.This is to be expected becausethe dialect spokenin thesetwo areasis the same,in much the sameway that investmentsfrom Hong Kong tend to go more to the neighboringareaswhere the language is the same.

The ne* point on intra-Asian investment I would like to raiseis that South Korean capital is anothermajor factor, althoughmanySouthKoreaninvestmentsare in resource-based countriessuchas Australia and the United States.Labor-intensiveindustriesthat frnd South Korean labor cost to be too high, particularlythe shoe,textile and applianceindustries, havegoneto SoutheastAsia,mainlyto Indonesia,where labor cost is lower than that in the Philippines, Thailand or Malaysia.

The future seemsto indicate the following scenario:the harmonizationof manyof the economiesof this region under Japaneseleadership.Southeast Asia will supply lower cost componentsto Japanso Japaneseendproducts can be exported to the Westernworld at lower cost.

I have been asked often by Westernerswho do not know this region well if Southeast Asian countrieswould readily acceptinvestments from Japan. I alwaysanswer, "Of course,they would. How could any country object to suchinvestments?"Technologyis transferred, capital is transferre4 and asa result, exportstake place.Sothereis technology,there arejobs, there is inflow of capital, and no one usesup what in somecountries is considereda scarceresource, namelyforeign exchange.So, theseinvestmentsare of oourse,very much welcome.

Japan'sadvantagesare technology, capital and I must emphasize,

THE ASIAN MANAGER r JUNE 1990 25

iust to a different cultural environmanagementusedto working abroad. -ment.

If the cultural environmentis In addition, Japanesecompanieshave there is no Problem; again Chinese, a worldwide export market, and type of cultural if it is a different is but the nation, as a that, Japan, beyond environment,then it becomesa problargestaid donor now throughout the lem. For instance,there are manY region.Theseare greatadvantagesfor good Chineseengineers.But theydo you have to Japanand theq ofcourse, iot know how to deal with laborersin considerthe increasingimportanceof anothercountry.

Japanesefinancial institutions.As you I would like to submit this observaknow,the 10largestbanksin the world now in terms of assetsare JaPanese tion to you and someof YoumaYdisagreewith me:while manyof tle overbanfs. seasChinesehavebeenvery successEastern If Europe focuses on ful in industries,in storeg and in difEurope and becomesmore inwardferent kinds of activities, the post looking after 1992,andif the United II period hasseenthe rise WorldWar own Statesand Canadaestablishtheir cornmonrnarket,workittg more close- of verysuccessfulChinesefinancialinlywith Mexico astheir low-labor-cost stitutions. If you were to look at the larsebanlsinthis areathatareof ethally, and if L,atinAnerica succeedsin nic-Chineseorigin, you will seethat current of.its getting over some most of them are Pre-WorldWar II problemsandtakasits rightful placein the North-South America Partner- banks,like David Li's Bank of East Asia. If you look at the major S!nship,it becomesevenmore inportant gaporeanbanksthat are successful foiJapan to becomea leader in this tit<-e the OCBC, the OverseasUnion part of the world East Asia.

Banlq the United OverseasBan\ You will find that theseare all bank with OverseasChinese ore-warorisins. The bank that is most lnvestors iucce'ssful-afterthe SecondWorld "overWar, the DevelopmentBanb is a Sinlook at the I et us now take a bank.

Lseas Chinese."One advantage qaDoreanGovernment-owned the exceptionto this, is probably,the working for thesepeople is their very good nosefor profit. They alsocan- Bangkok-Bankin Thailand (actually its eisential structureevolvedafter [akeveryquick actionbecausea lot of their managementsare familY- World War II).

But againstthat there havebeen oriented and they are willing to take many Chinese-organizedbanksthat less concerned risks. They are also about political factors.For instance, havefailed. Theseincludebanksin Hong Kong and in MalaYsia'I amsure about three weeksagoI wasin Taipei with the great increasein the that talking with one of the major textile number of banksin Indonesiain the groupsthere with 3,600people which last few years,following relaxation of wanted to trensfer their operationsto the Philippines. When somebodY Indonesianbankingregulations,there willbe failuresof banksownedbyethmentionedthe attemptedcoupd'etal nic Chinese. last December,the head of the comI find that in manYcases,a Personof panysaid""Then this is the time when backgroundwho is in a hotel, maY Chinese we shouldgo in, becausethings in an insurancecompany,in a trading not be as expensiveas it would be if everythingis in good shape."These company,or in a bank,cannotdistinpeople,as I said,are willing to take- guisL other people'smoneyfrom his own mooey. And this is where the iiski. another advantageof manyof failures stemtime and time again. the overseasChinsseSusintssesis tlat they are often many small- and medium-scaleindustries which fit RecentTrends readily into the economiesof manyof ow, let uslook at the other trends the countriesin the region.

The weaknessof the overseas lUi" tne region.For instance,milY large regionaland multinatiory! com; Chinese,however,is management.As puii". ire nowgoingPublic.Here, I smalt it is longasthebusi1s551e6ains ihink we will [s 5esingan increasingly all right. But if it should becomea largenumberof Indonesiancommajoitype of businesqit is usuallydifpaiies that will be sPreading adcan that management find ficult to

26 THEASIANMANAGERo JUNE1ee0

1a

... I think we will see an increasingly large numberof lndonesian companies that will be spreading throughout the region. , ,

ft1srrg&out the region. Indonesia has a large population bTg' Mor-e than half

ott-ne totat ASEAN population is in Indonesia.And therefore,quite correctly, ASEAN cannot make anY decisionwithout the concurrenceof Indonesiawith its populationbaseof about180million.

Indonesiais also the onlYcountry that hasa lot of surplusagricultural land. Everyonethinks of Indonesia's Java,a denselyPoPulatedarea,but there are still a lot of open spacesin Sumatra,in Sulawesi,in Kalimantan.

Indonesiawill play an increasingly important role and evennow,we do seethat someof the largeIndonesian groupsarealreadymovingaroundthe iegion. The one that hasmovedmost of course,is the Salim aggressively, Grbup.The Astra Group is alsostarting to moveand in the latestreportI teld, it will be raising,if I havemY fisurescorrect,aboutUS$240million aJan additionto its capitalbase.This isiustfor onemajorIndonesiangroup' Y-oucan seethat its sizecould dwarf manycompanieswithin the region'ThLnyouhave,of course,comPanies tike SimeDarby from MalaYsia,San Misuel from the PhiliPPines,the Kw6k Group,whichis from MalaYsia, or Hong Kong, or SingaPore;it is everywhere.The HongliongGrouP, whiih is in both Malaysiaand Singapore,maYbe two separategroups iow. You alsohavetheBangkokBank Group which is alsofound throughout the region,the SiamCementGrouP, FormosaPlasticGrouPfrom Taiwan,

Far Eastern Group from Taiwan"not to mention the large Japaneseand Australian companiesthat are alsoactive throughoutthis region. With the increasinglabor costin SouthKoreq Koreancompaniescanbe expectedto moveto the south and to China.

The areasto watch are China and Vietnam. Right now, the British and French oil companiesare alreadyin Vietnam.Japaneseand French companiesare there for varioustypesof activitiesand evenwithout diplomatic relations,missionsfrom SouthKorea and Taiwan are visiting Vietnam with the intention, of course,of starting businessactivitiesthere.Westerninvestments,in my view would probably be very much concentratedin oil and gas,chemicals,pharmaceuticals,computersand software,plus servicesand distribution.

The regionwill alsoseea lot of changesin corporate ownershipsfrom Americanto other nationalitiesasa resultof a lot of theseleveragedbuyouts.Firestoneis now Bridgestone.

Goodrich hasbeen split apart. In the Philippines,Goodrichis SimeDarby.

Hilton is Livebrook.Intercontinental is now omed by Xavier. CPC, a large US food products company,is now half-oumedby Ajinomoto. Del Monte is in the stageof passingthroughdifferent groups,one of which will be Kikkoman.Manufacturer'sBank of the US is novt5.1Voownedby Daichi Bank.Even Hong Kong Bank (this is whatyou haveto watchclosely)where

shareholdersare not permittedto hold more than lVo of.totalshareghas not been spared.In the Pastfew months,three Japaneselife insurance companieseachpicked uplVo of Hong Kong Bank. So if you have 10 companies,you can havel0Voof the bank.

The nelc point I wantto emphasizeis that US political influence,which is still very strong in the region, may diminish as the American military presenceis reduced following the declineof the Sovietmilitarypresence and the discreditingof communismas an alternative political and economic systemfor the region. At the present time, we allrealizn that the prevailing economicinfluenceis Japanese,but the dominantpolitical influenceis still the US. But astime goeson,whenthe Russianthreat wanes,US political influencemay,tomymind" alsoweaken.

Of course,much dependson the future political direction Chinatakes.

Conclusion

o

o

o

o

11 gainst all thesedevelopments, Atherefore, what shouldthe Asian managerbe thinking o[ in the years ahead?Here are someof my suggestions: o Travel more e:Censively aroundthe region(withyour family preferably,so they will alsoget to know the region well). At present most Filipinos still travel to the US.

o

o

Other SoutheastAsiansalso travel to their former colonial rulers. I think there shouldbe and probably will be much more regional g'xYsling.

Learn about the history and culture of the countriesin the region. A lot of Filipinos know everythingAboutthe US but know very little about Thailan4 Malaysiaor Indonesia.Of course,the other way around is true, too.

Have your children study Japaneseor Chineseaside from your native languageand English.

Considerstudyingin the graduateschoolsin the region, particularly in Japan. Unfortunatelyfor the MBA side, Japaneseuniversitiesarejust starting to put up graduate schoolsbecausecompanies havebeenllnining Japanese bachelor degteegraduatesso efficiently.

Get your children to acquire work experiencein the region.

Arrange for an exchangeof staff with companieswithin the region.

With due apologiesto Mr. Tinnin, t ead,Asiarryedlr insteadof Tlme. Readmore of the other regional publications.

Finally, and this is somethingI would like to see,enoourage regional newsin televisionsta-

THE ASIAN MANAGER e JUNE 1990 27

theseemergingprofessionalAsian My secondpoint concernspatterns againstUS$147billion in the previous year,or an increaseof aboutDVo.By managersarefacing.Thenewsandthe of manufacturing.Mr. SyCip did go televisionagenciesthat supplynewsto comparison,Asia's trade with North 61e this. He talked aboutbanks,but it the newspapersand televisionstations seemsthat Asian manufacturershave America, though still larger at $258 in the region are all foreign-owned. found it more expedientto produce billioq grewo nlyby ta% n 1987.Over 4OVoof. Asia's imports come from Theytell the youth daily how to look at goodswhich are meantonly to meet within the region. Thesestatisticsare eventsin their ownhomes,in their own the demandoutsidethe region. So regioq in their own countries.And it much of the region's manufacturing staggeringconsideringthat economic could be said that perhapsin the c o o p e r a t i o ni n t h e A s i a - P a c i f i c talentsandexpertiseis cryingout tobe minds of our young people, Boston is startedrelativelylate comparedwith sharedwith one another that one other regions. closer than Bangkok.A trashybit wonders about the continuing lure of joint ventureswith foreign investors.

This brings me to my third and last about Ivana and Donald Trump's point. Are we ready for a dramatic divorceenjoysa better chanceofbeing Old patternsof trade enjoymore atincluded in the eveningnewsthan the shift in world trade and investment? tention than regionalcooperationin The emergenceof tradingblocselseopeningup of Vietnam and Kammodern manufacturingproj ects. puchea.

One seemsto take note of each where or a suddenwaveof protectionism could makeintra-Asian trade One leading Asian correspondent other'spotential onlywhen foreign inandinvestmentamatfor a European ter of survival,not a magazine that sells choice.But it seems about two million to me that North copies was heartAmerica and Europe broken. He spent havebuilt a greater several hours with cultural infrastrucHun Sen"prime miniture for themselvesin ster of Kampuchea, AsiathanAsianshave travellingwithhimina been able to do for private plane, and he themselves.Learning thought he had an inAsia simply Europeanlanguages, credibly interesting does not exist aswas mentioned,is exclusiveinterview. in the consciousnessof the still morepopular He filed his'interview learning Asian than but his magazinedid averageJapanese._ _ languages.One needs not useit. His friend, to do manythingsto who is also a jourmakeup for the past nalist,tried to console , , and Mr. SyCip has him and said, "Well, mentionedmanyof I'll tell you what, if you these- suchastravel wantsucha storytobe published by your 3nd exchange.

One possiblething magazinenext time, that businesscould why don't you try and do is to havecrosssenda picture of Hun vestorsbeginto expresstheir recognishareholdingsby leadingbusiness Senin abikini."

The problem is that that perception" tion of the potentialof the region. companiesin Asia. That could be one step which would go a long way in to a very large extent,affectsmedia Much of Asia is interpreted to Asians creating an Asian managerialconcoveragein the region. The same by foreigners.If it were not for the visiting dignitaries daily declaringthe Another positivestepis to problemseemsto applyin Japan.Asia sciousness. createa number of Asian institutes simplydoesnot existin the concious- dawnof the Pacificcenturyor reminding Asians about the emergenceof coveringa wide rangeof subjectssuch nessof the averageJapanese.

ASEAN membersas the rising new as science,technolog5l,art, architecIn a letter to thefapan Times,a economicpowersor pointing out that ture, accountin&communicationsand Taiwaneserecently pointed out that intra-Asian trade now accountsfor medicine,with eachAsian country manyJapanesewere surprisedthat he llVo of world trade and that it will hostingat leastone Asian institute. could usechopstickssowell, and they One could go on. There would be no expectedhim to speakin Korean. eventuallysurpassthe level of trade "Why do they think Taiwan'snative betweenAsiaand NorthAmerica by dearth of such ideas if one actively the turn of the decade,mostAsians promotesa conceptthatAsia mustget languageis Korean?" he cried in anwould stillbe livingin a stateofblissful readyfor a levelof intra-regionaltrade guish, adding that it is time the and investment,the likes of whic\ we Japaneseunderstandtheir neighbors tgnorance.

Of course,the statisticsare impres- could never dream of. This is the first better. Australia is probably worse, sive:intra-Asiantrade,lngludingthat time that Asia hasthe freedom to havingjust started to emergefrom its with Japan,is estimatedto have dream. Demand that media,parlong-held illusion that it is really part reached US$1.89billion in 1987 ticularly television,stop relying on ofEurope.

3a

30 THE ASIAN MANAGER r JUNE 1990

slowestmoving part in the formula.

And in this case,we are all heartened that Indonesia,which is the biggest brother in ASEAN in terms of size, has nore than 50Voof the total population and has all the ASEAN Dr.Annuay Mravan potentials and resourcesthat can propel the region to greaterheights.

Chairman of the Executive Boar[ lndonesiahasinitiated the processof BotglcokBu* Limited deregulation and economicreform.

The country hasbecomemore and previous speakers' 1 sharethe two more active as an ASEAN Partner I enthusiasnandoptimism regarding an4 to that efent, onecanseeabetter the prospectsand future of the Asian future and better prosPectsfor region. The only question which "tn ASEAN. comesto mind is howwill the people However,the political and economic the the sixASEAN countries react to environment, in and outside the this prospect,to theseopportunities? region, has changed significantlY Often we havediscussedthe posduringthe past decade.Whatwehave sibilities of the Pacific comnunity, conceivedin the'70s mighl 1et !s as Asian and Pacific economiccooperarelevant today. Do we still need nowbeing spearheaded which is tion ASEAN economiccooperationfor by manynations, especiallyAustralia and Japan.Reactionsfrom many our development?For our prosperity? bureaucratsin the ASEAN nations Or haveour economiesbecomeso interdependentthat the globalization seemto center on whether this would undermine regional economic phenomenonwill force us to look more towards the widest basesin the cooperationwhich hasbeen nurtured and developedfor the past 14years. Pacific or the world at large?

We havefearsthat EuroPeand the Ever sincethe first ASEAN $rrmmi[i1 US nightbe more protectionistin the Bali in 1976and ever since the first '90s,while Japanprobably night be ASEAN Economic Minister Meeting more open, relatively speaking comin 197 inKuala Lumpur, tle question pared to the'80s. CertainlY,Asiathat continuesto fascinateis that, if Pacific is under the threat of Fortress region one were to step outsidethe just for a minute and look back,would Europe and free-tradeAmerica. All theseprobably force us to review our the countriesof ASEAN havemoved as far economicallyand socially position.We no longer haveto look in terms of ASEAN in the narrow scoPe without the ASEANumbrella? This is of regionaleconomiccooperation.We a question for all of you here. The all know that within ASEAN, our answerprobablyis yes.There would economies,becauseof the realignnot be much difference becausewhat ment of currenciesand becauseof the wehaveconceivedin termsof ASEAN relocationof industriesfrom Japan preferential tariff arrangementsor and the other East Asian nations,are ASEAN industrial projects or becomingmore e$ernal related.This ASEAN industrialjoint venturesor ASEAN industrial complementation developmentis nationallydriven' that is, bronghl aboutby the count4/s own p r o g r a m s ,h a v el i t t l e i m p a c t o n entrepreneursor driven by overseas region. economicactivitieswithin the However,I havewitnessedsome Chineseentrepreneurs.

The movementhasbeenverYcondevelopmentsduring the pastyearor structiveand evident.The multinasowhichhaveencouragedmany,many tionals from both Europe and the US people. I have alwayslooked at are also significantpartiesto this regionaleconomiccooperationas process.Therefore,weprobably have somethingthat would be dictatedby I momentumgoingon that in itself the slowestmoving part of the elewould createintra-Asiantrade andinments.You may haveheard of the vestmentmuch more rapidly than any sayingthat someparts aregreaterthan machinerywhich the region'sgovernallthe partscombined.Thatis not true in terms of regional economic mentsthemselvescan Put in Place.

What I am sayingis that PerhaPsIncooperation.

The speedof regional economic donesiamighl SsSlazinga trail - that by giving the opportunities, the cooperationwill be dictated by the frivolous news and programs from abroad.One's own region should receive,if not priority in the overall soverage,at leastequal time.

economicfreedom, and the comPetitive environmcnt within cach economy,ASEAN enterpreneurswho are very quick to grab opportu"ities and assessand take risks' canbe@me the real driving forceswith or without the government umbrella in terms of preferential arrangement.These Lntrepreneurs can be the economic and businessforces which will make us move nore rapidly towards developmentandgreatertrade andinvestnent.

Before ending,I would likc to emphasizethe need to look at our neighborsin the north: Vietnarn,Burma and otherIndochina states.Nothing would make us feel better than to have a peaceful region with peaceful neigbbors, and a peacefulsharingof our borders.This is somethingthat the countries of SoutheastAsia would greatly benefit from, not just becaEe of the stability it would create and its indirect impact on the socio'economic condition within the SoutheastAsian nations,but the economicopportunities that might presentthemselves through the processof economic rehabilitation and economic reconstruction of Burma and the statesoflndochina.

Commentfrom the Audience:Two of the speakershave said that we Australiansare a bit confusedabout wherewe live. I should point out that more than one out of everYfour Australians were born outside the country. And what it meansto be Australian is a verymixedso6 ef thing thesedays.We do havemore Vietnamesethan we do haveHungarians, but it is a fact that the teachingof Asian languagesin Australia is really quite highly developedboth in the schoolsand universities,and it is very co--on for children to be taking one or more Asian languages.In New SouthWales,the statepremier who is a Hungarian announcedthat it would be compulsoryfs1 all high schoolstudentsto take at least one Asian languageasa secondlanguage.

I would like to take uP the Point about movesbetweengovernmentsto foster trade and investmentin the region. I think the outstandingthing that hasnot beenmentionedis that no matter how you define the Asian region or the Asia-Pacificregion, trade in the region is growing much faster than world trade. That is the

THE ASIAN MANAGER o JUNE 1990 31

crcteaanples of whatyu termedthe wouldprefer not tobe involvedpolitioutstandingfhing we haveto focuson. "frozenpattern" of overseasChinese It is a curious thing that movesto cally. They would prefer to retain businessutivities? build institutions on a wide scale lawyerson both sidesof the fence.

Bedi: I am afraid not, becauseto be acrossthe region havebeen pushed This is not only a Chinesetrait. I I would have to give you concrete Vic WatWatson and rememberTom veryhardbybusinesspeoplefor a long n.mes. But I can explainrvhatI mean. time. We havethe PBEC that has son, the two brothers of IBM fame. exIt is a pattern where,businessmen beengoing on for more than 25 years. Tom wasa staunchRepublicanwhile pand their businessesalong a familiar After a while, that organizationwhich Vic was a Denocrat. This is usually line. They have to feel comfortable done where the businessis identified was initially made up totally by busiwith their investment.They invest nesspeople wasjoined, to someexwith the family to ensuretlat the busiwheretheir relativesare. Ifyou look at nessdoesnot fall apart if there is a tent, by academicsand then very tenthe history of SoutheastAsi4 you will changein administration. tativelyby governments.And it is only see that is how investmentswere I emnot awareof ralliesthat wereorvery recently, that there hasbeen the made. They may havestartedin one ganizedsupportingthe President,but idea of formal meetingsbetween country and expandedto another governmentsacrossthe region.

I do think that, at least,in terms of country. The point I am trying to Foreignministersmet last November, sympathies,the people of ethnic make is that Asia is much bigger now I believefor the first time, in a verylow Chinesebackgroundwere for her as and there are great key style to discuss opportunitiesright what could be done. I on its doorstep. So do think this is a hiswhy not take a fresh toric and quite siglook? I am quite nificant development. awareofthe fact that There were 12 there are daunting countries present and rules and regulations of as course, in the emerging everybody knows developingcountries there are a lot more ('The of Asia and perhaps, region countriesinthe point I am trying to make I em more conscious than that. Nothing of thefactthatthereis much came of the is that Asia is much bigger now sucha thing asSouth meeting ofterthan to great opportunities and thereare Asia than most of the arrive at a common righton its doorstep speakershere. We feeling that it will be havelimited ourselusefulfor foreign ninves to SoutheastAsia. isters to continue ,, We have not been meetingonce a year. referring to the vast 4 6sstingwas set for countries of South Thailand at the end of Asialike Pakistan,Sri 1990and the most inLanka Burma, India. portant topic on the I am awarethat there agendawillbe low-key are rules and reguladiscussionsto identi$ tions but it seemsto barriers to trade and me that if we are talking about Asia, were most businessmenat that time, investmentin the region.There are favoring Marcos, by we havetotake intoaccountthe openmainly because quite a few, andvery likely, by discussing up of thesecountrieseventually. certain "cronies," demotivatedthe ing someof those they might be overBut as far as giving namesof comother businessmenwhether they were come. I think that is quite important. paniesis concerned,I do not think that Chinese,Filipinos,Japaneseor what.

Question: Regardingri sk4aking by just not there be proper. would Motivationfor themwas to be there seems Chinesebusinessmery of becauseonly a few were favored.I SyCip:We seea lot of businesses aperceptioninthe Philippinesthat thq ethnic Chinesebackgroundfrom difue osafe"investon.Theyorc therefore have alwayspointed out, with due ferent countriesestablishingoperaperciived by some as investment apologiesto my Thai friends, that the good part about Thailand is that it tions abroad. Let's seewhat kind of leoderc.An intercstingnotehercis that practices"democraticcorruption." In theyusuallyputup.Hotels, businesses at the time of the snap electioncamyou can hire a manager so costs yes, if words, something because other paign, PresidentAquino wassaid to and there are a lot of international havewon wer manyfence-sittenwhen much, whoever is willing to pay the hotel managers.The Japanesehave price, getsit. In the Philippinesunder Chinatown started to organizerallies get you something very successfulin establishing only been Marcos, could supportingher. WouldMn SyCipcuz is the And that operationsabroad. you manufacturing if were a crony. on this seemingcontadicto comntent The ethnicQhinsss,sysa1ftsrrghtley worst demotivationfor business- a tion? mayhavebeen successfulin manufacplalng field that is not level.

SyCip: My generalobservationhere please give you conCan turing, let us sayin Taiwan,havenot is that the ethnic Chinese-Filipino Question:

32 THEASIANMANAGERr JUNE1990

been so successfulabroad unlessit is in manufactirring where the end product is suppliedtotheir factoriesin Taiwan.

Recently,a companyin Taiwan purchasedtrro largeplans in the US. One of the conditions was for the old managementof thosetwo plants to staybecausealthough the Taiwanese had the technicalmenthey could send to the US to run the plants,they did not havethe people to do the marketing andhandlelabor relationswith the union there.

Most Chinesebusinesseshavebeeh able to crossnational boundariesin the region becauseeveryChinesein SoutheastAsia hasa relativesome-. where. I havefound peoplewith the samesurnameas I havein almostall the SoutheastAsian countries.If you ask them from what village in China theycamefrom, you will find that they often camefrom the samevillage.So for the Chinesecornmonrelationship is not just a joke but is actuallya fact and manyof them are in someway related. But if you do not haverelatives to rely on, how do you manage?That iswhereAlM comesinto play.But for any company,if you haveto manage and establishoperationsin another country,the most important thing to rememberisnot to manageinyou own cultural conterdonly. You mustknow the other countr/s cultural context.

This is a problem that we encounterat the present time with the Chinese.

The Japanesehavealreadyovercome this problem, and the Koreans,with their large group companiespatterned after the Japanesemodels,are gradually overcomingit although there is still a fairly large gapbetween the two of them.

Question: Quite underctandably,the focus of all thepresentationssofar hos beenon thesixASEAN countries.Since the themeof the sessionis intra-Asion tradcand investment,I waswondeing whetherany of thespeakenwould care to commenton whetherthereis anyrole of relevance for theothercountriesruch as India, in the conturt of intra-Asian tradcandinvestment.

SyCip:I havetold manyfriends in India that they know I-ondon so we[ but know very little about Southeast Asia.Thetravellingpatternagainis alwaysfor large Indian businessgroups to goto theWest.I think the exception istheBerlaGroup,but theTartars,for

instance,alwayslook more to the West. There are a lot of Indian businessmenthroughoutthe region in Malapia particularly. I thint there is a very major role for Indian investment in the region except that India hasalot of exchangecontrols,too.Wg had an Indian missionvisit the Philie pines once and I pointed out that the difficulty is Filipinos do not travel as muchto India asI rhink they should- I think India is a good souroeof labor for labor-intensiveventures.But unfortunatelythe cataloguesare printed on newsprint and when you compare that with a glossyJapanese catalogue, you, more often than not, buy Japanese.

Viravan: Indian business conmrrnitiesare quite prominentin other partsof Asia,with the exceptionof few countries.Perhapsthe cultural differenceis so great that it makesit difficult for Indians to do businesselsewhere.But evenin Japan,they still havesomesipificant Indian business existing.The feeling, however,is that there are not manygroupslike the Berlas who are agressive.Indians tend to shy awayfrom joining with other partnersandtheyseemto prefer wholly-ownedactivities. It is likewise difficult for the other Asian groupsto go into India and investthere because of somerestrictionsand constraints.I thinkwe needto openup bothwaysso that intra-regionaleconomiccooperation can really take place.

Question: Both Mr. Bedi and Mr.SyCiprefenedto the lack of news 6out otherAsioncounties. Therehas beenno attempt to relate this to the levelsof tradc.Ithinkweneedtolookst the relstionship between media coverageand theamountof commercial linkagesthot exist.It seemsto me that thereis not enoughappreciationof thisby the commercialinterestsof particular counties. Thereis not enough appreciationof ihe valueof establkhing a familiaity with the cultureand the historyof apatticubr countryin ordcrto laytheb asisfor commercialrelations.It seemstome thatthisispqrhapsonarea that businessmight look at. For example, I could seethe Republic of Korea sponsoringsomeprograms about South Korea on Philippine televisionso that a kind of association may be establishedbetweenthe tenn uKorean"and theproductsthat they will atpresentandin thefuture ry b sell

h thePhilippincs. Perlups, thercis nd enoughfomard-laking on he put of Asian businessabout establishing berchheadsandfaholds h the alrcr countriesof Asia to take advomge of heAsiaPuifucenry.

Bedi:I cannotagreewithyou nore.I thinh it is not only that we are not doing too much forward-looting but in somewaln we haveevengonebackwards. It seemsto me that the images that we haveof eachother are,in many cases,a hundred yearsold. You arc right in sayrngthat we are living with thoseimages.That is not to saythat all the bordersareopeninAsia andthere are no cultural problems. The problems are there. But I refuseto believe that there is lesserdifference betweenan Asian and a European than amongAsians. If we can feel comfoitablein the US and Europe,I refuseto believethat we crnnot be as equally comfortable in Bangko( Singaporeand New Delhi. It is a mind set, we havebeen brainwashed.

Question: Mn SyCipmentionedthat one of the distinctivea&antugesof the regionis low labor cost.How long can wekeepup this low laborcost logicfor ur indtstries ond whatwill it dofor the development of markets within the region for industies in the region?

Second whotwill happenin thercgion if China becomesanother low labor costarea?

SyCip:First of all" I would like to see the end of low labor cost.I would like to seethe daywhenyou cannot get a servantin the Philippines,because they are not available.That will be the 66s1thing for the country.From a selfish viewpoint, I personallyam glad that we are still not at that stage.But I would like to seethe time when labor cost becomesso high that it would be difficult to maintain evenone or two domestics.

As far as Chinais concerned,China is alreadyvery very muchcompetitive as a low labor cost area.The estimate is that the population of HongKong is about 5.6 million, out of which about 800,000people are in the factories.

But the Hong Kong manufacturersare employingthreeto four million people in China in factoriesthat they haveestablishedthere. For everyHong Kong worker, a Hong Kong manufacturer employs, approximately four are employedin China. Soit is alreadya factor.Without doubt, the Tiananmen

THEASIANMANAGER. JUNE1990 33

incident did interrupt this, but it is going to continue. When I was in Taiwan, I heard about the nunber of Taiwaneseconpanies that havebeen establishedin Fujian province cven after the Tiananmenincident because ofthe low labor costthere and the unavailabilityof labor in Taiwan.China's labor cost is much lower than that of the Philippinesor evenIndonesia.

That is avery veryimportant factor to consider in terms of the long run economyhere.The onlything that may result from the Tiananmenincident is for large Western buyers of goods from Hong Kong and for people with factories in China to diversify.They want to open new sourcesor newfac' tories in other countries in casethe Western world decidesto boycott "made in China' products.

Question: Two pointsihat I thhk an quite significantin the intra-regional trade issueare first, the question of hiring professionals within theAsian region.Wearc now seeingInbnesion groups, Singaporeangroups, and a number of othergrcuPsbeginningto hirepofessionak ondmanagercquite extensively.whoare not of their own nationality. I think this most certainly will influenceurd has,in facl begunto influencethe mind set of a lot of these companies.Examplesare many' you conseethemin theInfunesian gnoups, patticululy, and in otlrergroups aswell.

Thcsecottdpohg whichis moreof ut elementof infrastructury inwlves the markets themselves - the equitY ma*ct At a timcwlwntlu maior eryity madcctsaretenihtyrt rstoble'oE of the hottesteqtity na*cts is Thailan4 witlt Inbncsb openhgup h abettcr,acithg sortof way,whilc Malcysb is doing 3firemely we$ to tlu &ent that hveston oe beginnhgtolook at it asar,anea for fusfrutbnal hvestuEnt ryA aryt from justdircct invcsotPnl.Thatapin is another elementthat will go a long way in encouragingcapital flows. In Taiwan and the PhiliPPines,wehove seenthat mechanism.So' it is mY opinion that thereis a function to be performedby liberalizingand enobling annberof tluse brncsticmodcctsto accommofol e effective$ and fftcie ntly,andwith asliftlebureancratyutlnssible, the movementof capitalflows within thatrcgion.

Bedi:I mnot ane4pertintheequitY andstockmarkets,but I would saythat the emergenceof the professional Asian manager in the next two decadgs,perhaps,would be the most singleimportant factor in the development of irade and investmentin this part of theworld alongmodernlines.I ihink theseemergingmanagerswill not usc the Adam Smith cliche of cheaplabor. Theywill respectAsia's ambiiionsand aspirationsto raiseitself and not go back.

Washinglon Sycip Foundcrutd Chaiman of the SGVGtoup,Mr. Syipis otod' visorand metnberof theIntematiualAdvisory Butd aswell as Chairmanof theEutAsion Cen' ter.He is also the Chailman of theAIM BwdolGwemon utd Boadof Trustees.

Hari Bedi Bomin Delhi Mn Bedi is heAssociateEditor of Asiawer,kond contributesa weeklYcolumn called "Good CornpanY."He oncewodcedforEsor\ ltolding theportfolio Managerof CorporateAffain for theAsia-Pacific rcgion.

34 THEASIANMANAGERr JUNE1990

Quecdon:Iust a comment, I keeP rememberingwhat GabYMendoza wote h lfte World Executive'sDrgest sevemlmontl$ ap, wherche soid hat aveshanldnotbeafmi4we shanldbe uncfraid" Perhaps,Asions havebeen colonizedand hary beendor+'nfroMen forsolongthatwe orcscarcQscuedof being exploited again. Therefore,we closeow doon. Weput uPa lot of rules, we build bureutcmciesbecauseof the hiswical qeicnce of hwing beenupbitedThqtis pastwe ho,egrownuP. Thebestwayto 0ttact copitolis to open up. Asia should grow uP. Weshould tnle anrpbce in theworl4 and rctbe afraid I*tus be competitive,In Hong trbng 1mt cancomeiry it daesnot matterwhatcoWltan arc;it fues not mstter what coloryour moneYis, You can comein and competewith everybodY. As a result,you have 4 veryvibrant economy. I would like to invite mY counQ to considcrhat. Beunafui{ let uscompetewith theworld Weco4 tooSyCip:I fully agreewith the lastcom' ment ibout free comPetitionand I think that in manYAsian countries, likethe Philippines,the protectionhas been more for the families that own the companiesrather than for the labor. Ifyou open up your market the employeesbenefit morefrom moreefficient management.And this protection of fanilies, to mYmind doesnot makesense.

ARTICLE FnliglttstutSsharfrs...

Management:JapaneseSUle byPtof.RencT.Donhp SimcDuby @cssuh Manufrcurhg lapanese managementtook a rl hundredyearstodevelop.I do not think I canadequatelydiscussthis subject matter in one brief article. But I will trymybest.

I nmsureyou haveheardof thebooh In Searchof Ercellence.

After readingthe boob I had mixed feelings.

The first feelingwasadmiration becausethe book describesvery well the best-managed companiesin America.

The othcr feeling was pity- pity for the authors becausethey had to searchfor excellencein Anerica. Had they written that book inJapan,theywouldnot havehad to do anysearching becausemost 6pmpaniesthere are, in my opinion, excellent.

They would have tumbled and tripped uponthemin anydirection they fell.

Infact, everyJapanese companythat we hear aboutseemsto be quite successfuland a world leader-Sony, Toyota, Hitachi,etc.Infact manyoft[6 things we oxrnand usedailyare madeby the Japanese- thewatcheswewear, the carswe drive, the TVswe watch.

Sowhyare we interestedin Japanese management?Becausethis seemsto be the cornmontheme,the common denominator amongJapanesecompanies. As you may have read, companiesin Japanese-managed America tend to be more successful than American companiesmanaged byAmericans.Goodexamplesare the "transplants,"the car manufacturers

in America managedby the Japanese.

The Americansthemsclvesadmit this fact. These companiescan oPerate well without unions. The Americans are quite surprisedhow the Japanese can manage Anericans without unionsand comeoutwith qualitycars.

I tend to disagreethat it is the Japanesewho are the common successfactor. I would rather think that it is the Japanescstyle of nanagement.

When you sayit is the Japanese,then

In this article, I will share with you someof mypersonal eryeriencesand observationson Japanesemanagement - the fruits of my four-yearstay in Japan, studying in a Japanese university and working in a Japanese company.I thougbtthat the bestplace to sludy their secret is in their homebase.Of course,I experienceda lot of culture shock Somepeople do not like to e:rperienceculture shock but I do, becauseI believe that the strongerthe shock,the more learning takes place.Here are someof those enlightening shocts.

Hl?b*orkinq,, Meansto thd Japanese

thereis nothingto talk about.We cannot imitate the Japanese,becausewe will neverbe Japanese.So let us talk about management.

Unfortunately,in spite of the manY articles and books on Japanese management,it is still not understood very well. Peopleare curiousabout thisbecauseitseemstobe thesecretof theJapanese.You alreadyknowabout thetraits oftheJapanese- theyare hardworking they are loya! theylove their employees,they haveteamwork, theytend to makedecisionsin groups.

he Japaneseare hardworking. But that doesnot meanthat if you work hard, you will be as successfulas the Japanese.In fact, many people who work hard still fail. So what does it mean to be hardworking in the Japanesecontext?Let me give you one personalexperience.

When I was training with a subsidiary of Toyota in Japan, I joined a group of manufacturing managerswho were conducting a study ofthe production line. Late in the afternoon, at about 'A\ Rene, four o'clock, they told me, we are going to study the third shift.

We will observethe third shift and determineis problemsin quality and efficiency and compare it with the secondshift."

As you may know the third shift works during the wee hours of the morning. But I decided to take the challengeand join the group. At 5:00 p.m.,I askedthe teamleaderif I could

THE ASIAN MANAGER o JUNE 1990 35

go homeand rest first. But the team leader said,"No, no, we will not go home.We will proceedright awayto observethe secondandthird shift, and checkthe changeover."

That wasmy first shock.We went on to studythe third shift, the transition from the secondto the third, eating just a few biscuitsto lastus until the morning.Finally,we finishedour observation.

By the way,whenI say"observation" I do not meansittirg down on a chair or stayingin the office.I meanstanding up for eight hours watchingthe third shift, takingnotes.And this was doneby all of us,the membersandthe leaderof the team,withoutexception.

Had the membersof my teamnot beenas excitedastheywere, I would havefallen asleep.But I seemed to draw energyfrom them.

At 7:00 a.m. we finishedthe observation. So I told my boss,"Sir, we have been working 24 hoursnow,'canI go home and take a rest?"He said,"No, no, I orderedbreakfast.We will prepare the report now."

Sowehadbreakfast which sort of woke me up a little. We preparedthe report in one hour. Then I told my leader,"Ah, sir, we ate breakfast and frnishedthe report, canI go home now?"t alreadyfelt veryweak.But he was still excited and was still going strong.He said,"No, you cannotgo home becausewe will presentthis report at 9:0Cla.m.to the directors."

We had to givethe impressionthat we were not sleepy,that we were excited about tte report!

After a successfulpresentationat 10:00a.m.,I askedthe leader,"Can I go home no-rv?"And he finally said, "Okay, you cango homenow.You can sleep,take your lunch, but please comeback at l:fi) p.m." When I came back that afternoon I asked the secretarywheremy teammateswere.

Sheanswered,'Oh,they are working." I againasked,"What time did

ft#t

they come back?" She said, "What do you mean come back? They did not go home. They are still working."

Now, that gives you a real perspective of what is "hardworkihg" to the Japanese.Do you think many Asian managers, even highly-paid executives would do that? And these Japanese were just ordinary managersin an ordinarycompany. Ourteam waswhat is called a productivity SWAT team.

And this happens every day, every week in every Japanesecompany. No complaints, no "buts." Nothing but pure hard work! So you want to be as hardworking as the Japanese?Think first of what it takes tobe hardworking in their senseof the word.

family. When he reached his home at 5:30 p.m. his wife was shocked.She said, "I am so surprised that you c:rme home early. You have to come inside because our neighbors might see you.

They might think that the company does not need you anymore so it sent you home early."

In Japan, ifyou are inefficient, you are not given work. You do not have "What do overtime. The husband said, you want me to do - go back to the office? I haveno more work to do there."

And the wife said, "You cannot stay here. Just go away, see a movie or play pachinko (pinball). I don't care what you do. Just come back later, at 9:00 p.m." Do you think other wives would

^}il WorkingEfficiently I et me sharewith you anotherstory workingnorm..

Labout theJapanese This is one aboutJapanesesalarymen or white-collar employees.In Japan, salarymendo not go homeearly.They usuallywork overtime.That is why they havethesebarswheretheycan drink and unwind after working very late.This meanstheyrarelyget home earlyenoughto havemealswith their wrves.

One dayone salarymandecidedto surprisehis wife by coming home early.He decidedto work harderin themorningandafternoonsohecould finish hiswork early,leavethe office at 5:00p.m. and havedinner with his

36 THE ASIAN MANAGER r JUNE 1990

treat their husbandsthat way?In Japan,thereis a strongsocialpressure for the Japaneseto work hard andfor his familyto makehim work hard.

Producttoyalty 1 1 n o t h e r t r a i t o f t h e J a p a n e s ei s Many of us may profess flloyalty. loyaltyto our companies,but that does not mean we understand the meaning of the Japanesetype of loyalty. Let me give you a few examples.

Mitsui and Mitsubishi arc archrivals in Japan,just as Toyota and Nissan or Sony and Matsushita are . So if two brothers are working for differe nt companles- say,one $ a manager ln Mitsui, one a managcr in Mitsubishi -

andtheyare stayingin the samehouse, they will eat together,they will play together,they will talk about many things,but theywill nevertalk about their work or about companymatters.

Theywill never exchangenotesabout Qf course, theirrespectiveoompanies. thereisno pressurefrom the company for one not to talk to one'sbrother about his work. How shouldthe company know? But Japaneseloyalty to the companyis so strongit transcends fanily ties.

Here is anothercase.I wasthen training in Toyota.At the end of the day, there was nobody to take me homesoI requestedthe guardto cdl a taxi that could take me to mv dor-

1i

Havinga Matsushita radio is a "crimg"for which he could qet fired.

Y

,

,

mitory, which was about five kilometersaway.I overheardthe guardtalking to the taxi companyover the phone,"This is Toyota Corporaherewho tion. We havea passonger wantsto go to the city. Could you pleasesendover one Toyota taxi?"

True enough,the taxi that arrived wasaToyota.If aNissancarweresent, it would neverbe allowedto enter the premisesof ToyotaCorporation.

When suppliersdeliver their goods to Toyotathey alsohaveto useToyota trucks.They cannotuse any other truck or theywould not be allowedto u"loador evengetpaid.You couldimaginethe expenseof the supplierwho musthavethree or four setsof trucks to transporttheir suppliesto different

gf course,itis usual,when companiss. you enter the house of a Sony manager,to seeeverythingtheremade

by Sony - from the radio to the televisionto the video cassetterecorder. Havinga Matsushitaradio is a "crime" for which he could get fued.

and Responsibilitv Ultiftate Qualitv Assurance 11ow, letustalkaboutaveryimporI I tant thing- responsibility.The Japanesetake their responsibilityvery seriously.Peoplecommit suicide or resign after assumingresponsibility f o r c e r t a i n d e e d so r d i s a s t e r s .

Japaneseprime ministsl51s5ignfrom the highestpolitical post in the land over a simple lossof confidence.This aboutresponsibilityis also seriousness found at the corporatelevel.

In 1985,a Japan Air Lines 747 crashed, killing more than 500 Japanese.It was the worst singleplane disasterin aviationhistory.The Japaneseare very safetyconscious and very nationalistic.They would neverfly any plane exceptJAL. The only time they will agreeto take anotherairline is whenJAL is fully booked.Sowhentheir favoriteplane crashed,the Japanesewere shocked.

Managementhad to think fast..The 6151thingtheydid wasresign- the entire managementfrom the chairman down -before the resultsof the investigation were completed,or even before an investigationwascalled.

They said,"We are acceptingresponsibility regardlessof the investigation's results."

Managementwaschangedthree timesbecauseof the incident,but still the Japanesepassengersdid not want to takeJAL. Theystilldidnot trustthe aidine.

Finally, the investigationresults camein. It turned out that the crash wasthe fault of Boeing the maker of the747plane.It wasthe fault of the Boeingtechnicianswho repairedthe JAL plane. Actually, the causeof the crashwasfaultyrepairof the fuselage.

Boeing admitted the responsibility andwaswilling to paydamages.Shortly afterwards, the newspapors reported that the JAL employeewho certified the adequacyof the Boeing repair committedsuicide.Everytime a Boeingrepairmancomes,a JAL

counterpart checkshis work. Although he did not actuallyrepair the plane,this JAL employeefelt responsible for the crashand so he committed suicide.Of course,this wasnot a shockto Japanesesociety.But the suicidewasstill not enoughto change 1[s mind of the public.

Managementfinally cameout with a drasticallynew set of policies.First, it decentralizedmaintenance.Previously, maintenancewas centralized - anybodyin the maintenance department could repair any aircraft.

Managementscrappedthis systembecauseit could not pinpoint responsibility.Under the newpoliciesthereis a dedicatedmaintenancecrew to look after each airplane.If a plane encounterstrouble, then it is the responsibility of that particular maintenance cr9w orderedthat Second,management the namesof the membersof the permanentmaintenancecrew be posted in the plane for the passengersto see, rigbt upon boarding,sotheywill know who to blame in caseof trouble.The third poljcy wasthe clincher.After everymajor repair or overhaulof the aircraft, the entire maintenancecrew will board the plane togetherwith the passengers,regardlessof destination.

That is the ultimate quality assurance.

With those changes,everybody regainedconfidencein JAL. That is In responsibility,Japanese-style. other countries, including the Philip pines,manyplaneshavecrashed,yet no one hasresiped and the pilots involved are still flying. This situationis disturbing.

Hands-onLearning Itou have heard of hands-on You haveheardof I management.

MBO or managementby objective.

The Japanesecounterpartis MBWA management-by-walking-around. synonlmlfor that is hands-onmanagement. The Japaneseare bottom-up managers:theytend to be morein contact with front-line operationsasopposedto Western-typemanagerswho arehands-offmanagers,whojust sit in their offices and give orders.You might think that hands-onmanagement for the Japanesesimply entails visitingthe factory and then going back to their airconditionedoffices after30 minutes.Irt me tell you what

THE ASIANMANAGERr JUNE 1990 37

h a n d s - o n m a n a g e m e n tt o t h e Japaneseis like.

After graduation,my Japanese classmatesand I parted ways.They stayedin Japanand I cameback to Manila to work. After a year I wasinvited to visit somefactoriesin Japan.I t o o k t h e o p p o r t u n i t yt o v i s i t m y and my professor. school,classmates, He arrangedfor me a visit to the factory where someformer classmates were working - a blg manufacturing companythat suppliesparts to different car manufacturers.When I saw my classmatesI washorribly shocked.

They were wiping the machines,getting rid of the dirt and the oil. They were servingthe workers, supplying themwithparts.I couldnotbelievemy eyes.And to think thes.ewere the honor studentsin my batch!

I askedmy guideto explain what wasgolngon.

He said that in Japan, onceyou enter a company,you haveto really "feel" the situation hands-onand should know the peoplein all departmerits. My former classmates were management trainees andweresupposedto be exposedto problemsnot only in finance and marketingbut also in production.That was why they had to know t h e p r o b l e m so f t h e workers,the problems of the machines.But my guide saidnot to worry.

After 20years,theywill becomedirectors and presidents.That easedmy shock.He did not say"they might be" but "theywill be" directorsand presidents.That wasa guarantee.Then I jokinglytold him thatif he promisedto makeme companypresident,I would also be willing to clean all the machinbs.

ConsolidatingStrengrths 11 nother important principle of flJapanese managementis teamwork. We may define teamwork as workinghand-in-handto attain a common objective.But the Japanesehave a different conceptof teamworkaltogether.

When I wasin Japan,I worked in an office doing paperwork.One day I heardmybosstalking to someoneover the phoneandhebecameveryexcited.

It turnedout hewasnegotiatingwitha managerof one factory who wasborrowing workersfrom his factory.In Japan,it is averyfluidsituation.There is no suchthing asloyalty to a factory.

You areloyal to the entire company.If one factoryneedsyour workers,then you lend them out. No questions asked.The other managerwantedto borrow workersfrom our factorybecausedemandsuddenlypickedup and in therewasa highrateof absenteeism his plant.

I thoughttheproblemwasoverwhen the phonerangagain.Another factory neededmorepeople.But therewere

p e r i e n c ei n r u n n i n g s p e c i a l i z e d machines,but I wasgiventraining to be able to do the job right away.I thought that was real teamwork.

Everybodywasloyal to the company.

Not to their boss.Not to their section.

Not to their function.Not to their expertise.This type of teamworkis probablyuniqueto the Japanese.

Elsewhere,there is often too much politics,too much intrigue to achieve anythingof this sort.

ConsensusBuildinq and Responsibility I et us focus on another JaPanese Ltrait - consensus-building.This is group decision-making or democratic decision-making, when everybody is

+--

no morepeopleto sendoverfrom our factory.All the extraworkershad alreadybeenlent out to thefirst factory.

But we had to help this particular fac-, tory. So my bossstartedcalling up the marketingdepartment,the accounting departmentand the personnel departmentto borrow people.There wasno resistance,no angryremarks from the different departments.The chief accountantsaid,"Okay, I'll lend you five accouirtantsto assemblecars, to run your milling machines."The marketingmanagersaid "I havefive salesmenherewho are not busy.I'll sendthemoverto you."

And for the sakeof knowingwhat Japaneseteamworkreally was,I also volunteered.I had no previousex-

38 THE ASIAN MANAGER o JUNE 1ee0

consulted regarding companY decisions.Let me giveyou one incident showingJapaneseconsensus.

One day,a certainbank overpaida client.The client casheda $1,000 checkbut the teller paid him $10,000 instead.Whenthe clientleft thebank, herealizedthat hehad$9,000more.In any other country,that client would probablyhavejust walkedaway.But ihis wasJapanand the client did not walk away.He went back to the bank and tried to return the money.

But the point hereis not the client.It is how the companydealt with this kind of situation.The clientwentback to the bank and tried to returnthe monevto the teller.If that incident happined in any other country,the

teller would haveprobably accepted the moneyand thankedthe clientmaybegiven him a letter or some token of appreciation.But it happenedin Japanand so thingsturned out rather differently. The teller did not acceptthe moneyright away.He told the client, "Could you pleasewait for a couple of minutes while we dis, cussthis matter?You hold on to your money.I'll discussthis with myboss."

In the backroom"the staff, the supervisors,the branch manager,computer operator, the signatureverifiereverybodyinvolved in releasingthe money - assembledand held a short meeting.In other words, the management, the whole bank, not just the teller, took action.That waswhya consensuson what to do was needed.It wasnot a simplematter of returning the moneyto the bank.It is more than that. Releasingthe $10,000wasconsidereda group decisionand the teller just happenedto be the last person who carried out that decision.

Finally the branchmanagerwent to the client and told him the bank's decision- theycould not acceptthe moneythat he wasreturningand that the moneywashis.Another culture shock!The branchmanagerexplained that he wasgiving the moneyto the client so therewould be a problemin the bank.If the client returnedthe moneyand the bank acceptedit, then therewouldbe no problem.Thebooks wouldbalance,and the peoplewould forget this incident becausethere would be no problem.There would be n o p r e s s u r e t o i n v e s t i g a t e ,t o reprimand,to anaTyzn.

But the bank preciselywantedto investigatesb it wantedto havea problem. The branchmanagerfurther explainedthat $9,000mightbe big to the client but to the bank it wassmallbecausethe bankwasa billion-dollar concern."We considerit an investment in experience,becauseif the bank doesnot discoverthe causeof thismistake,thenextmistakemaycost $1million.We wantto knowwhetherit wasa computererror, an error in procedures,or an error in judgment.I would rather lose$9,000now than $1 million later." The client wasconvincedwith the explanationand took the moneyhome.

Now,who paid for the $9,000delicit in thebank?In mostcountriesitwould be the teller. In Japanit wasnot the

teller alone.Everybodyin the bank who paid in proportionto his or her salary. The biggest amount was shoulderedbythe branchmanager.

This is group decision-making And this is how the Japanese-style.

Japanesebecomevery efficient. With that kind of system,you canbe sure there will be no more overpaynentin the future. Becausenobodywantsto have his salary cut, everybodywill make sure the incident will not be repeated.

Inmost societies,thereis a tendency to cover up problemsso mistakesare uevercorrected.They are repeated overand over and,in the long run, lossesbecomebigger.In Japan,you make amistakeonlyonceand,after that, it is not repeated.Evenifthe discrepancy is small saythe books do not balance by $1 or one cent,the Japanesewill spend$100to find the cause.Theyinvestnow for the future. This discipline is partly the reasonwhy the ten biggest banksin the world are Japanese.

Conclusion I et me end this articlebygoinginto Lwhat we cando to improvetheway Asyou can wemanageour companies. see,manyof theseJapanesepractices are not really culture-bound.There aremanywe canadaptor copy.This is what the Koreansand the Taiwanese are doing. We do not have to be Japaneseto understandtheir objectivesand logic.It m4yseemharderto understandand copythe Japanese than the Americans.But it can be done.

JapanadaptedEuropeantechnologywhenit wasstartingto industrialize.TheJapanese did not knowhowto speakFrenchor Germanand they hatedand fearedthe Europeans.But and theywentto Europenevertheless Theywentto copiedall its technologSl. America to copy everythingthere.

And they did not know how to speak Englisheither.

History hasshownthat there is no cultural or racialbarrier to the transfer of technology.This is all in the mind. It can be done.Unfortunately, veryfew realizethepotentialof learnis ing from Japan.All the technolog5r thereand it is right herein Asia.

Let us learn from the Japanese.All t h e N I C s ( n e w l yi n d u s t r i a l i z e d countries)are copyingfrom Japan-

SouthKorea,Singapore,Taiwan,even Thailand.Thailandis fastbecoming anNIC partlybecauseof theJapanese investmentsthere.We do not haveto beatthe Japaneseor copythemlDVo if it is not practicalto do so.But the fact that we can not copy them I00Vo doesnot meanforgetting them.altogether.It is not an all-or-nothing proposition.We canlearnmanythings from Japan.

Onewayto start is to focusour attention on Japanesebusiness.Let us visit Japanmoreoften"ratherthanParisor New York. Irt us visit Tokyo and see what theyare doingthere and learn a little Japanese.That is the only way.

They will not learn English for us.

Theyareproud of their language.Why shouldthey learn English to teachus?

We shouldlearn their languageif we want to learn from them.

When I wasin Japan,I learnedtheir languagethe hard way, adaptedto their societyand to their culture. And theywere opento me,theytaughtme many secrets.I found out that the Japaneseare helpful, not secretive. a That they are secretiveis nonsense, m i s c o n c e p t i o n .I f y o u d o y o u r homework,they will open up to you.

Theywill sharewhat they knowjust as they sharedtheir knowledgewith the Koreansand the Taiwanese.The initiative to learn from the Japanese shouldcomefrom us.The nextmoveis ours.

THE ASTANMANAGERr JUNE 1990 39

HowdoI ga eleaed..

Strategiesfor PersonMarketing: The GaseOf The PoliticalGandidate EduardoL. Roberto,Ph.D. Coca-Cola Founfution Professor of IntemtionalMa*aing g111lhatis narketing doing in as UU sacred an institution as democracyand its popular expression in the citizens'voting behavior?The simple answeris that incumbent elected governmentofficials and political candidateshave asked marketingto help themout. Consulted on how to effectively sell a political candidate or how to promote to their target constituenciesthe incumbents' prograrns,marketingbeganto understandthe votlng market and its voting behavior.To the governingand their concern to continue governing,it is this understandingof the governed's publicbehavior that is crucial.

Over the past 11 years,I havedone surveysofvoter attitude and behavior to help a ruling of6cial assesshisor her performance in the eyes of the governedor to assistpolitical candidates planning their campaign strategytoget electedor reelected.

Five of the 14studiesI havedonewere onaprobono basis.I gavemyconsulting servicesfree with the understandingthatI could usethe datalater for my publication and teaching.I will usethe data from three of thesefive studiesto discusspersonmarketingas a technolog5lfor influencing citizens' political behavior.

I am,of course,awarethat political and socialscientistshavelong studied voting behavior. My work in person nil'ftsting addsto the existi"g pool of knowledgefrom thesescientists,particularizes someof their more important findings in the setting of a Third World democracylikethePhilippinss, and, at tines, comesup with some surprising but practical insights.This is my rationale for writing on a subject that political oqpertstell me offers little room for breakingnew ground.

I will addresstwo typesof political personmarketing.One relatesto the caseof an aspiring new political candidatewho wantstobe elected.There are two variantsof this type: 1) where the rival candidateis not too strong with the voting market; and"2) where the rivalcandidateholds adistinct advantagewith the voters.The second t'"eis aboutthecaseof anincumbent electedofficial who, after one or two yearsin offrce,wantsto get thepulseof his or her constituenciesregarding their reactionsto his or her performance.The motivationfor seeking feedbackis the desireto be reelected.

"How Do I Get Elected?"

1950s,a socialscientist I n the early I asked,"Can you sell brotherhood like you sell soap?"(Wiebe,1951).In the caseof a new aspiringcandidate,

o JUNE 1990 40 THE ASIAN TTIANAGER

the equivalent marketing questionis, "Canyou sell a newcandidatelike you sell a newbrandof soap?"

I havetwo contrastingcasehistories to provide a qualifredanswer.Oneinvolves a new candidatewho won and another one who lost. The winning candidateis awonan who successfully ran as representativeof a district in Metro Manila. The losingcandidateis anotherwomanwho did not makeit in the mayoraltyrace in a city in Metro Manila.

The plenningfor personmarketingin both of thesetwo casesstartsfrom an analpis of the candidate'skeymarketing problem.The problem assessment usesdata on the voting market's decision-makingprocess. Person marketingoperationalizesthis process asa seiluenceof votingmarketresponses.One versionof this sequenceis a simple linear hierarchythat is con-

c""a-ii.I"iH"H,ll"#f"""Til?Hi",

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venientto representasfolloun: This sequencerefers to the voter

andnottowhat is happenvoter. So it should ing to an individual rlividualvoter. readthisway o How manyof the total voting market havebeenmadeaware ofthe candidate? o How manyof thosewho are awareelevatedtheir awarenessto the ne* stageof liking the candidate? o flsu/ manyof thosewho like the candidate,convertedtheir liking into s[oosing Orpreferrng the candidatefor the elective position?

The responsoor responseswherea candidate is low define that candidate'snarketing problem.

'Lou/'of courseis relative.The comparison point should be that candidate'sleadingor closestrival.

Let us go to concretesurveydata to

clarify theseconcepts.

11 Tactically speaking, the candidate had to be seen. , ,

Casel: The Successfttl

resswoman idate 8sfis

r xhibit l shonathe pertinent survey Eduta on the sequenceof voter market responsesgivento our con-

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gresswomancandidate together with thosefor her rival.

4scolding to the data in rhis exhibit, our congresswomancandidate stood as having: 1) only 54Voof.thevoter awarenesslevel that her rival candidate had attained for this voting marketresponse;2) 9Vo of the voter liking or attitude level that her rival candidate had earned in this voter response;and,3) 62% of.the voter thather rival choicefor a congressman candidategarnered.All theseimplied that just to be at parity with her rival cancandidate,our congresswoman didate neededto raise: o voter awarenessfor herselfbY 46Voi o voter liking for herselfby tlVo;and o voter choicefor her by$Vo. Clearly, to win she had to target beyondparity and therefore do more.

Our candidate'sperson marketing problem waswhere shewaslowestin voter responseversusher rival's.From the exhibit,thiswasin her voter awarenesslevel. The major marketingprob' lem wastherefore to get votersto see, hear or read about her and to remember having done so. Tactically speaking, the.candidatehad to be seen.She neededexposureto her target constituencies.Sheneededto move around and do sorepeatedlyand consistently.

What aboutthe qualityof this awareness?What wasit that votersshouldbe made aware of regarding our congresswomancandidate?What wasit that theyshouldfeel goodor like about her?

When the surveyaskedvoters oPenendedlywhattheylookedfor andliked in a political candidate,they indicated that they felt good about a candidate for either or both of two reasons.One setofreasonswasaboutwhat the candidate hasbeenableto accomplish.

Examplesof such "performance" re:Nonswere: o "Mo.ratningnatulungansa dis' trito niya." (Has helPeda lot of people in his or her district.) o "Maratningproiectsna . nagawengmaganda sa lugar niya." (Has introducedmanY good projectsin his or her place.)

The other set of candidateexpectationswasaboutthe kind of a Person the candidatewaslike.Votersdefined

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THE ASIANMANAGERo JUNE 1990 41

thesepersonalcharacterreasonsby suchdescriptionsas: o "Matulungin " (Helpful.) o "Magalingmagnlakad. " (Manageswell.) o "Mahusaymakisama."(A goodteamplayer.)

The elementsin thesetwo setswere related.A pair oftenjust lookedlike two differentwaysof expressing the s6s thing. A candidatewho had had projects"that helpeda lot ofpeople" might alternativelybe characterized as"a helpful person."

Turning now to our congresswoman candidate,where did shestandin this regard?For whatwassheknom and liked? Whenvoterswere asked,they gaveanswerswhich snggested that to thosewho knew and liked her, our congresswornan candidate'sknown and likeablepublic contribution was in the field of recreationincluding recreationalfacilities and neighborhood parks.

In termsof influencingvotingbehavior,wasthis imageenoughto raise voter awareness, liking and voting preferenceto the targettedwinning levels?The surreydesignportion pertinent to this questiontook a classical behavioralprinciple as its basis.The principle saysthat the more a candidate representsthe answerto the

voters'need,or the more that candidateis ableto deliverthe felt needof thevotingcomnunity, the morevoting prefcrencesheor shewillgain.And so the surveymeasuredthis priority need.

The surveymeasurement definedthe voters'priorityfor a needasthe multiplicativeproduct of a felt problem and the perceptionthat the government was not doing anythingabout the problem. Thus, felt problemswere equatedwith felt needsand their priorities were in effect madea function ofhow votersperceivedgovernment neglectof the problems. The more voters perceived that the governmentis not doing anything abouta problem"the higher a priority problemor a priorityneedit becomes.

The surveymeasuredthesetwo components.Therewere21felt problems or needs.Thesewere 21 city services.

Exhibit 2 presentsthe obtainedsurvey measurementsand the computed priority needinder T h e s u r v e yr e s u l t si n E x h i b i t 2 revealedthat the votersperceivedthe following as the top four city services needs:1) vice control services,2) lowcosthousing,3) garbagecollection; and,4) flood control. Where did our congresswoman candidateand her performance image fit into this

priority schedule?

It wasclearthat she wasnowherein the top four. According to E:rhibit 2, recreationalcenters andneighborhoodparkswerecity servicesthat voterssawas:1) aboutonly one-fifth as seriousa problem asthe first top priority city serviceneed;and, 2) a little overhalf asunmetasthecity servicesneedwhich they perceived the city governmentwasnot doing anythingabout.This answeredthe original questionofwhether her performanceimagewasenoughof a rallying point to pushher to a winninglevel.

It obviouslywasnot.

So how do we explainher getting elected?On hindsigbt,thereseemed to havebeen two setsof factors that worked in her favor.One waswhatshe did about voter awarenessand attitude.To startwith,sheusedhergood looksand youthfulappearanceto advantage.Shelearnedto speakthelocal dialect well and dressedherselfout of her upscalestatus.Shevisitedand r e v i s i t e dp r e s e l e c t e db a r a n g a y s everydaytalking the voters' language, eatingtheir food and drinking their drinks. Shedid this without let-up until electionday.To saythe least, thoseshemet,talkedto, ateanddrank with were impressedand liked her for the sincereattention.All theseraised her awareness and attitudestanding

Exhibit 4 voters' Satlstaction :j*"tl; ** ,"""u,i[Ti*]"tt?i;;'n""::

Exhtblt 3 Hlerarchy of Voter Responset to the Lady Mayor Candidatd vs He. Riyat

Fortady Mayor Candidate

Sequence of VoterResponses

ForRival Candidate

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68

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00 42 THE ASIAN MANAGER r JUNE 1990

Definitevnotsatisfed Generaltynotsat'rsned

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with her ysling constituencies.

But did she stand for the voters' needs? For this particular contest, the indications were that this factor was inoperative. First of all, voters were unsure what a congressman was responsible for. In fact, most were not only unsure but ignorant of a congressman's responsibility. The Philippine constitution was no help. It did not provide any job description for congressmen.So voters really did not know what to expect of a congressman.

Political scientists characterize this election situation as being without an "issue orientation" (Abramson et. al., 1986). It is a condition where there is no question about governnent policy which divides voters and causesconflict. It is a situation where "issue voting is weak." An election that has no issueorientation is decided bv candidate image and/or by "retrospictive voting" (Fiorina, 1981). When voters cast their ballots according to how they evaluate the performance of the incumbent official, what takes place is retrospective voting. Ifvoters see the incumbent as having done well, they vote for him or her. If they percieved an inferior performance, then they vote for the rival. In this case, there was no incumbent congressman. The election came right after the EDSA revolution and Congresshadjust been restored. So just one voter behavior determinant was operative: candidate image.Our congresswomancandidate attended to this well. In a sense.it was a lucky combination of circumsiances.

What lessonsfor political candidate marketing does this case highlight? I will address the lessonsas if I were directly advising an aspiring candidate.

First, be sure to start with an accurate and objective, research-based understanding of your candidacy'skey marketing problem. This may be in voter awareness, attitude or preference.Focus your campaign efforts and attention on solving what the data from voters will indicate as vour key marketing problem.

Second,obtain a correct measurement of the voters'critical priority needs.Then check ifthe voters consider the top priority critical need an electionissue.Ifnot, then the election is without an issueorientation and you do not havc to include this considira-

tion as a major element of your c^-paign plan.

Third, check on the voters' perception of the incumbent's performance for the likelihood of retrospective voting. If there is no incumbent for the elective position, then you can take your strategizing mind away from retrospective voting and concentrate on other matters.

Fourth andlast, attend toyour image as a candidate before your target voters. Get a quantitative measureof it and as the song admonishes, "accentuate your positive and tone down your negative."

.-

.-

I I

... be sureto startwith an accurate and objective, research-based understanding of your...key marketing problem.

, ,

Casell: The p-nsuccpssf.ul.

Lady MayorCandidateI et us now shift to our losing canL d i d a t e e x a m p l ea n d l e a r n o t h e r strategy insights.

This casewas a mavoraltv race. Our lady mayor candidatL wasi widow of an "old hand" in city politics. She had a well-known name, and was elderly in b o t h a g e a n d a p p e a r a n c e .S h e w a s running againstan incumbent appointed OIC (officer-in-charge) mayor. This was again in a post EDSA revolution setting.

The base line surveyindicated that if the voting were to be held at the time of the survey, the incumbent would win with 2lVo of the votes in his favor and only 4Vochoosing our lady mayor c a n d i d a t e . T h e r e w e r e Z O V ou n decided and the rest of the votes were scattered among sevenother likely candidates.Our lady mayor candidate was a poor number sevenwhile the

closestrival of the incumbent had L6Vo of the votes.

What was the key person marketing problemof our lady mayorcandidate and what accounted for the incumbent'sleading position?To answerthis question,we usedthe sequence-of-voter-responses approach that we appliedin the precedingcongresswomanexample.Exhibit 3 presentsthe analped surveyd6tafor this responsesequence.

What was immediatelyapparent from Exhibit 3 washow much more superiorthe incumbent's"conversion ratios" were comparedto our lady m a y o r c a n d i d a t e ' sT. h e s er a t i o s referred to the two chainsof stepsin the sequenceand showedhowvoters who were awareof a candidatetranslated this awareness into liking, and how thosewho liked translatedthis into a voting choice.As shownby the datain the exhibit,theformidabletask confrontingour lady mayorcandidate washow to match and ultimatelvexceedtheincumbent'ssuperiotcoou"rsionratios. Specifically,just to match and be at parity with the incumbent, our ladymayorcandidatehad to raise

by L76%the level of voter awareness for her, upbyTVothe liking for her amongthoseawareof her, and get 70Vomore of thoseliking her to vote for her.

I havesaid previouslythat the point wherethevoterresponsesequence for the candidateis lowestis wherethe keypersonmarketingproblemlies.In the foregoingdata,this wasvery conspicuousin the awarenoss response.

That wasour lady mayorcandidate's keymarketingproblem. Her political strategistsacceptedthis. They therefore madeit the primarytargetof her campaignplan. Similarto our congresswomancandidate,an intensive, rlgorousvoter exposureprogremwas setup and scheduledfor her.

The responsedata and conversion ratios shown in Exhibit 3 also answeredour questionon what accountedfor the incumbent'swinning position. First, voter awarenessfor him wascloseto LffiVo.Hewasmuch morewell known.Second,the voters' liking for him was of the type that voters implementedthis into the favorableaction of voting.His ability to convertvoter awarenessinto liking washigh but this wasnot that superior to our lady mayorcandidate's.

THE ASIANMANAGERr JUNE 1990 43

Were theseincumbent'ssuperiority points responsiblefor our lady mayor candidate'sdefeat?They wereundeniablypart of the causebut theY were not the major part. The incumbent'svoter awarsnesssuperiority washigh but not insurmountable.The plannedvoter e:rposurepro' gram for our lady mayorcandidate wasintenseenoughto haveovercome this handicap.But asit turned out, our elderly lady mayorcandidatedid not havethe physicalsleminxto standthe rigors of a field, house-to-house, campaip. seven-days-a-week surroundingthe The circumstances incumbent'sperformanceand the election'sissueorientatioq two determinant factors of voting that we discussedin the previouscase,were also tipped in favor of the incumbent.

Whenaskedhow satisfiedtheywere with the incumbent'sperformance, the voterssurveyedrespondedas shownin Exhibit4.The majorityvoter sentimentwasone of indifference.To be exact,6OVoof the votersfelt that way. Sucha ratingof the incumbent's performancewould not influence what we called in the previouscase retrospectivevoting. In other words, voterswould not vote the incumbent out of his office becauseof what he had or had not done as mayor.In-

cidentally, the dominant incidenceof the "don't knon/' responschascharacterizedPhilippine political behavior surveys(see,for svample,Philippine SocialScienceCouncif 1985).

What about the Presenceof an issue orientation in this election?

Were the city votersdivided over a critical city problemor felt need?The surveyaskedvotersto rate eachof 32 citv servicesin terms of how seriousa oroblemthevperceivedeachto be and then to whai irent theybelievedthe governmentwasdoing something about eachproblem.Once more,we usedour previousconceptofa priority critical problem:onethat votersseeas seriousand at the sametirne one that they believe the governmenthas neglected.When the multiplicative combinationof thesetwo ratingswere computed the top threemostcritical prioiity problemsthat the citt's voting populationsawwere: o First, the "garbagecollection" problem; "holdo Secondthe problemof up and theft crime control" "iltied with the problemof legal drug trafficking control"; an4 o Thir4 the "road and street repair and nrintenance" Problem.

None of theseproblemsemergedas an electionissue.In fact, the more vocalofthe voterssurveyedexplained that the reasonthe city government did aethingaboutthe garbagecollection problem,the perceivedtop rated critical priority problem, wasbecause the city governmentsimplycould not do anything.It did not havetheneeded hardwarefor the task.The'Metro Manila Commissionownedthe garbagetrucks.

Similar to the congresswoman candidate'scase,this mayoraltycontestwasreducedto a candidateimage determinedelection.But whatwasthe winning candidate'simage?To have an objectiveanswer,the surveysought to measurethe winning imagebYasking votersthe followingquestion: "Sa kasalularyangpanahonpo natin at ayonsa tingin ninyo saktlagayanng ating lunsod, alin Po ss mga sumusunodangsa inyongpalagayang noruapat at bagayna marnunodito sa atinglunsod?

1. Isangpihikan, kilala at subokng politician.

2. Isangbotangleaderna maYmga bago at magagandangideYaPara sa ikabubuting atinglunsod.

3. Isang magaling magPalakadat matagumpoyna businessleafur4. Isang mahusaYat matalinong ExhlbitI

Volsrr' F€odbscklbout an Incumbent I Yo8rAtler Electlon Congressman

Exhiblt 5

Statistics

lJf"?31'o "ffE:l'J;il""[f *.-aru*t-u*nown'prcvenpolitician lortne ideas andanrac{ive o r*.n baderwithnew gciodoflhecttY

leader business e pertoming,st'ccessful publicadministrator o n"-n*"ut*Uprolessiooal Pres'Aquino uprigil leaoertike A sincerermorally

25 I

4 53

% of total votors who kno,v who thgk congressrnan ls

67

* bt tnose wno *no'v who th€lr congr€ssrnanls, who sald they know wtEt congr€ssmenare responslbl€lor

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% of those who kno\r \rrhat the congrsssman is responsible tor, who b€ll€vetheir current congressrnanis dolng: -

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definhelywdl gen€rallywdl neither wsll nor poorly

% ol those who kno , who their congressrnanls, who know of a prol€ct that thls congrossmanls sponsoring

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44 THE ASIAN MANAGER r JUNE 1990

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professionolptblic adrninisfrstor.

5. Isang sincereat moral na leader kotulodni PrcsidcnkAEtirw.

(Basedon the conditlons of the tlmc and on howyou seethe sltuatlon of our dty, nho amongtte folloying do you feel ls right and suitablc for this cityas lts leader?

1.An expcrt rell- knorm and proven polificlrrn.

2. A young leaderwlth newand atlracdvc ldeasforthe goodof ourctty.

3. A pcrformlng and successfulbuslnessleaden 4. A good and Intelllgent professional publlc arlministtator.

5. A slncere and morally upright leaderllke PnesidentAqulno) Exhibit 5 showsthe voters' c.hoices.

The clear winning imagewas'the sincere and norally uprrght leader like PresidentAguino." At that time, the incumbentmayor projected himself right on target. The public sawhim as a good persoq religious, sincerewho "doeshis best." In appearalse,some media people described him as "spnrting a hound dog pitiful look." It was hard to hate him. While often criticized asinefficient he did not suffer on this account.Someof thevoters surveyedsaid of this: 'We're tired of intelligent,smartleaderswho arelikely to be crooked.Look at where that type of leadership brought us. Efficient administration can be left to a moral leader's technical support staff.'And so he won and our lady mayorcandidateloet.

Now to the marketing strategylessonsof this casefor the aspiring new candidate.

First, if you arerunningagainstanincumbent, check if you can ride on a retrospectivevoting possibilitybecauseof clear, high v6fsr dissatisfaction with the incumbent'sperformance.If there is no suchvoter dissatisfaction,then shift to someother strates/.

Second"measureyour keymarketing problem accurately. Then, rationally assessif the incumbent's superior position in this voter responseis surmountable.If it is, then bring your campaignfocus to this direction.

More importantly, be faithful and religiousin implementingthis focus.

Thir4 checkif the electionwill or is takingan issueorientation. Follow our strategyadvice No. 2 in our analpis of the previouscase.

Fourtb, if thc electionis reducedto a candidate imagedeterminedcoilesq makesureyouhaveacorrect quantitative measureof your and your rival ""o6i64ers imnges.Build on the positiveangleof your imageandmakesure this angleis distinct from the rival incumbent's. Remember,a nondistinctive positioningwill lead to aumetoo' image and in marketing, me-too products havehad a disastroushistory.

a1

...thetop opinion wasthatour was congressman neitherdoing hlsfob well nor poorlv.

, ,

'How Do I Get Reelected?" fr onsidernow the caseof an elected lrofficial wishing to assesshow his or her constituentsregard his work and perfornanoe a yearor so after assuminghisor her office.Tlpically, this with a official wants the assessment view toward gettingreelected.

The specific casefor which I have in Metro datais a district oongressman Manila. He is young and aggressive but hasa calm, collected dispositioq especiallywhenfacing his public. He was a relatively successful businessman beforeturning to apoliticalcareer.It wasa po6tEDSA revolution electionand hewas therefore not runningagainstan incumbent.Elractly one year after his election,he wanted to obtainthrougha surveyan objective reading of how his constituents regardedhis work and the projectshe had sponsoredand undertakenas their district representativeto Congess.

Exhibit 6 has the surveydata on tle district voters' awarenessand knowledgeabout our incumbentcongressman.They were eye-openers

an4 as our oongres$nanhimselfsai4 "shocling and unsettling" voter feedback. Consider,for example,the first row statisticin Exhibit 6. It saysthat as manyas a third of the district's voting population did not evenknowwho their current congressmanwas.Since 1rye s'e talkinghere ofjust plain awarenessofaname'the33Vounawarerepresenteda large pocket sf ignorant, unknowingvoters.In our sequential stepwisemodel of voting behavior, awarenassformsthegroundbasefr om which voting behavior in favor of a political candidatestarts.Low awarenessbascleadsto lowvoting nunbers.

All this meanssomethinghasto be done about awareness.

Somequarters may not at all be arc ratio. In surprisedby the 33Voumiaw fact, theymaysaythey expectit in light of the assumedlow turnout of voters on the actual voting day. Political scientistshave long debatedthe causesand meaningof low electoral participation (see,for example, Cavanagh,1981;Ladd, 1978;and Dawsonef.a1.,1988).For our purposegit is not necessaryto ge1inls this issuefor two reasons. The view suggestingthat voters did not know the name of their congressmanbecause many of them did not vote during the election for this congressrnanseemed a remote connection.

The other reasonchallengesthe assumption of low voter turnout. The Philippine SocialScienceCouncil surveysindicate that electoral participationin the Philippinasisnot at alllow.

It is in fact onthe{)Vo level This contrastswiththeUS figureof abouthalf.

In fact, it was 49Vof.or the 1988 presidentialelection(Dawsonef.c/., 1988). If the low voter turnout wasindeed an invalid assumption,then the lowawarenessfor the incumbentcongressmanhad to be traced to other factors.

Returning to Exhibit 6, we can also seethat amongthosewho claimed they knew who their district congressrnanwas,about a fifth could not saywhat a district representativeto Congresswasresponsiblefor. Those who saidtheyknewwere,however,not one in defining thoseresponsibilities.

The definition ranged over manydifferent natters suchas: 1. Responsibilityfor the district's problems and its poverty segment.

There were26Vowho talked of such

THEASIANMANAGERo JUNE1990 4s

responsibilitiesin this way o Tingnan,ayusin,asikasuhin angmgasuliraninng distrito.

(Look at, solve,attendto the district'sproblems.) o Asikosuhinangmgamahihirap sa distrito. (Attend to the district'spoor.)

2. Responsibilityfor protectingthe district's population and looking after their needs.Here is how23Vospokeof. this: o Pangalagaanangmgatao dito." (To carefor the people here.) o Bigan ngprotewon angmga tao ss distrito. (To give protection to the district'sresidents.) o To maintain peaceand order. o To takecareof the needsof the district. o Intindihin ongmgakailangan ng nasasalatpan(To attend to the needsof the constituents.)

3 . R e s p o n s i b i l i t yf o r e x e c u t i v e projects.Somet4Voof the responthis kind dentsconcernedexpressed of opinion.For example: o Pag-aayosngkalye,imbumal.

(To maintainroads,sewage.) t Papapagandau papapalinis ng kalye.(Beautifyingand glsaningup streets.) o Ayusinongmgabagay no goya ngeducationaI housing.(Solve problemslike in education and housing.)

4. Responsibilityfor law-making.

Only8Voreferredto thisjob of a congressman.The termsthey usedwere, for example: o Taga-gawa ngbatas. (Making laws.) o Bumabalanglasng batas.

(Framing of laws.) c Nagle-legklate.(trgislating.)

Plusseveralother defrnitions.

The conclusionwas clear.Votersdid not really know what their representativeto Congressshouldbe accountablefor.Only4Voofthetotaldistrict voting populationappearedto job is knowthat their gongressman's legislativework.' This indicatespoor qualityawareness of our incumbent If he expectsto stayin congressman. placeand do well in his intended

1

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reelectionobjective,he obviously s a g e o f t h i s f e e d b a c k i s s i m p l e . I f voters are to appreciate action and acneedsto raisethis quality and do complishments,they must be told his constituencies' somethingabout what is being and has been done. No political literacy. one will tell the voters. The media will Becauseof the dilfused characterof v o t e r k n o w l e d g ea b o u t o u r c o n - not. Doing one'sjob in governmentis gressmanand hisjob responsibilities, no news. What this saysis that part of it is not surprisingto find that among the congressman'splan for a project is thosewho wereawiueandwho knew, a communication component for dist h e r a t i n g o f h o w w e l l t h e i r c o n - seminatingto his constituentswhat is gressman wasdoingin hispositionwas going on.

J u s t b e c a u s em o s t v o t e r s d o n o t lacking in intensity.As the third row what the primary responsibility know statisticin Exhibit 6 shows,the rating congressmanis does not mean of the In other midpoint. the wascenteredat that they do not have any idea of what words,the top opinion wasthat our he should be or what a good conwasneitherdoinghisjob congressman is. Voters do have expectagressman poorly. well nor The next and fourth row statistics tions. The surveymeasuredtheseexpectations by asking respondents who suggestwhy. Exhibit 6 statisticstell us knew who their congressmanis, to that very few of thosewho knewtheir degree they expect their conwhat were (llVo exact) to be congressman awareof a project that their con- gressmanto: 1) attend all House sesgressmanwassponsoring.The mes- s i o n s , 2 ) b e a c t i v e l yi n v o l v e di n t h e

This 4Vowascomputedasfollows: job) x (67% sayingtheyknew jo6 waslaw-makng) x (79Voclaimingknowledgeof a congressman's (8Vo5g1yngthe -4Vo. was) incumbent congressman who the

46 THE ASIAN MANAGER r JUNE 1990

district's political activities, 3) be physicallypresent in the district's social life, 4) be able to prepare and sponsorbills and laws;an4 t be able to help in the district's economic problemsand programs.

The first colurnn of statistics in Exhibit 7 revealsthe voter ranking of theseexpectations.The highestexpectation wasthe "ability to help in the district's economic problens and programs.' The legislativeability was only the secondhighsstexpectation.

According to the data, the voters expectedthe good congressmanto: o First, help in the district's economicproblemqand prqgrams; o Second,prepare and sponsor bills; an4 o Third attend all House sessions.

How did our congressmanfare againstthesepriority expectations?

The satisfactiondatain E$ibit 7 (the secondand third columnstatistics)are usefiilfor ananswer.The"yes-sahsfied' columnsapthat thehighestsatisfaction ratingfallson anaspectv/hichis outside the voterdpriorityeryectationsof what a goodcongressman is.In addition,and more retâ&#x201A;Źilingly, the percentof voters unable or unwilling to rate their congressman on theftre opectationsall exceededthe percent gviog a satisfied 16ting.In fact theproportionsshonmindicate that most of the district voters simplydid not knovwhat wasgoingon withtheir congreqqrnan with lsspectto: o Preparationand sponsorship of bills (63Voofthem); o Helping out in the district's economicproblems(57Voof. them); and, . Attendance of housesessions (49Voof them).

So once more, ignorancerears its ugly head.

On thehigbest expectationof help ing out in the district's economic problemsand progranrs,the lowvoter satisfactionwith their incumbentcongressmanhad another source.The surveymeasuredthe voters' perception of the district's most critical problems. As in the previous examples,this surveyalso defined the critical problem asone tlat votersnot onlyperceivedas seriousbut alsosaw asbeingneglectedby the government.

The analyzedsurveydata indicated that the district's three most critical

problems in the eyesof its voting population were: o First, the problem of "hold-up and theft crime control;" o Second the "squat'terscontrol" probleml and, o Third the problem of "conhsling indecentbold shovn and prostitution."

Thesewere problens that voters perceivedas most seriousand at the sametime the most neglectedby the government.Tackling then tlerefore holdsthe mostpotentialimpact onthe cit/s voring residents.

In his first year in office, however, our incumbent congressmanfocused hisprojectsand sponsoredbills on the problem of "control of illegal drug trafficking." While no one will argue that this is a problem worth addressing it happensto be, at this tine, outside the voters' priority of perceived critical problems. Voters did not see our oongres$nan'sefforts in this area asbeing truly responsive.This neans he ougbt to changedirection.

For all the abovecircumstancesof low awareness, poor knowledge,indifferenceand off-the-mark targetingof projects,it becomesunderstandable why, of the voters who knew the presentconglesbman,only32Vosud theywouldvote for him again.A small 7Voout of this 32Vowere certain or definite about their intention.

The strategllessonsfor an incumbent from this caseincludethe following First, take a regular reading ofyour constituents'political pulseand learn abouttheir awareness, knowledge,expectations,satisfactionand voting intentions.It paysto feel the pulseof your constituency.The datawill he$ you define your crucial relationship problemwith them,and will lend pertinence to the direction your projects are taking or shouldtake.

Second,if your constituencyor a good segmentof it is politically unxwarsand Tnlmorvledgeable, improve your public information program.

Make it anintegralpart ofyour project plan and budget.

Third, make sure you are abreastof your constituents'priority critical problemsandfelt priority needs.If you arenot youmayfall intothetrapthatour incnmbent songressrnanexamplefell intq namely,pickingasthe focusof his projecfsaproblemor a needufiich is not aroterprbrity.

References Cited $1ams6a, PR., J.H. Aldric\ and D.W. Rohde (1986),Changeond Continuityin the 19&4Elections. lryashington,DC: Congressional Quarterly Press.

Cavanagb, ThomasE. (1981),'Changesin American Voter Turnout, t96L7 6," Politicol Science Quaterly, VoL 96 (Spring).

Converse,Philip E. (1988),"Perspectives on the Democratic Process;"Mlblrigon Quotterty Review(Spring).

Daunoq M.C., D.R. Kinder andSJ. Rosenstone(1988),"Voter Registratio4" Institutefor Seial ResearchNewsletter,Vol. 16:p3 Fiorina, Morris P. (19f31),Rewspective Votingin Anericot National Eleaions. New Haven,Conn.: Yale UniversityPress.

I-add, Everett Carl (1fi18),lilhere HaveAll the Voten Gone?The Fracturingof America'sPolitk al pa.nies,New York Norton.

Philippine SocialScienceCouncil (1988),report on the PSSCNational Opinion Suvey of September 1985.QuezonCity: PSSC. Wiebe, G.D. (1981),"Merchandising Commoditiesand Citizenship onTelevision " Public Opinion Quoxerly,Vol.15 (Winter): pp.

67949r.

THE ASIAN MANAGER o JUNE l99O 47

ClassicalWrity...

The Spirit of GapitalismRevisited byProf.Leonailo B. SilosMBM'71 PLDT Professorof Business Management 7he term..spirit of capitelism"was I coined by Max Weber, aswasthe term "Protestxlt sthig" in his famous study, TheProtestantEthic ond The Spiit of Capitalism.'Thetermsstood for historical concepts,and therefore referred to unique realitie3that could not be defined in abstracttermsbut only through understanding"a complex of elementsassociatedin historical reality which we rrniteinto a conceptualwhole." Weber 1"sgfeldngto his methodof "ideal types."We are here interestedin understandingthe spirit and the ethicof which heworked out ideal types.Managementauthors

1

often refer to thesetermswith a pride of ownershipthat accompaniesa celebratedheritagebut often enough also without further elaboration asif their meaningswere perfectly clear.

Someauthorslike to seethe Protestant ethic or its ersatz at work whereverthere is successfuleconomic development,evenin a country like Japan that is neither Protestantnor knom to haveanyreligion at all. It is instructive to know what Weber himself meantby them.For to Weber,the spirit of capitalismwasso irrational andrrnnaturalthat its propagationrequiredthe help 6f lsligiousdogma.

TheSpiritof Capitalism ED ecausehe wasdealingwith a hisEDtorical concept,Web6rbeganhis investigationwith a historical docu-

ment which he believedcontainedthe spirit of capitelism"in almostclassical purity, and at the sametime... free from all direct relationshipts rcligion, being thus, for our purposes,free of preconceptions."For by that time its religious basis had died away.The author of the documentwasBenjamin Franklin. Weber quotes famous sayingsof Franklin" someof which we reproducehere: o Rememberthattimeis money.

He that canearntsa shillings a day by his labor, and goes abroad"or sits idle, one half of that day,thoughhe spendsbut sixpenceduring his diversion or idleness,oughtnot to reckonthat the only expense;he hasreally spent,or rather thrown away,five 5hillings.

That is whatbusinessmen

The ter( we shall useis from the I9?n edition: Max Weber, TheProtestantEthic and the Spiit of Capitalism.

Translatedby Talcott Parsons.New York: CharlesScribner'sSons,1958.

48 THEASIANMANAGERr JUNE1990

todaywould call an opportunity loss. o Rememberthis saying,Tfte goodpaymasteris lord of anotherman'spune. He that is known to pay punctually and exactlyto the time he promises,mayat anytime, and on any occasion,raise all the moneyhis friends can spare.This is sometinesof great use.After industry and frugality, nsthing contributes more to the raising of a young man in the world than punctuality andjustice in all f,is dsalings;therefore never keep borrowed moneyan hour beyondthe time you promised lest a disappointment shut up your friend's purseforever.

That is called establishinga good credit record. o The most trifling actionsthat affect a man'scredit are to be regarded.The soundofyour hammerat five in the morning, or eightat night,heardby a creditor,makeshim s25ysix monthslonger;but if he sees you at a billiard table, or hears your voice at a tavern,when you shouldbe at work, he sendsfor his monevthe next day; demandsit, before he can receiveit, in a lump.

The abovepassageand those following draw the imageof a good credit risk againsta poor one. r It shows,besides,that you are mindful of what you owe;it makesyou appeara careful as well asan honestman, and that still increasesyour credit. r For six poundsa yearyou may havethe useofone hundred pounds,provided you are a manofknown prudenceand honesty.

MaxWeber went behind the sayings to capturetheir "spirit." In no uncertain terms, he sawavariceanimating the passages.

But if that wasall there wasto it, therewouldbs n6lhingmore to be said about it. Weber, however, sawsomethingspecialabout this avariceand madehis point. o ...Thepeculiarity of this philosophyof avariceappears to be the idealof the honest

man of recogDizedcredit, and aboveall the idea ofa duty of the individual toward the increaseof his capita[ which is assumedasan end'in itself.

Trulywhat is here preachedis not simplya meansof making one'swayin tle world, but a peculiar ethic. The infraction ofits rulesis treatednot as foolishnessbut asforgetfulnessof duty. That is the essenceof the matter.It is not merebusinessastuteness, that .o.1 ef thingis common enough,it is an Ethos. This is the quality which interestsus.

denial.Writes Weber: "the surnmum bonumofthis ethic, the earningof moreand moremoney,oombinedwith the strict avoidanceof all spontaneous enjoymentof life, is aboveall completely devoid of any eudaemonistic, not to say,hedonistic,admixture."By this frugality, the modern capitalist wasableto accumulatecapital,sovital in capitalism. o He avoidsostentationand unnecessaryexpenditure,aswell asconsciousenjoymentof his power, and is embarrassedby the outward siensof the social recognitionwhichhe receives.

His mannerof life is...distin-

I

It.to appearhonest was sufficient, then to be honest was superfluous and wasteful. , ,

Weber could not be clearer about the object of this ethos."To earnmore and more money," "amasswealthr" accumulate "great material load of money and goods," are some of the terms he uses.This avarice had several peculiarities. First and above all, making more and more moneyw:rs an end in itself. This is described as a major deviation from tradition which had always considered wealth as but a means for a variety of ends. Second, this avarice was an expression ofvirtue, a duty that comes from a calling.

Third, it was a rational ordering of one's life and work, a calling to be pursued systematicallyand methodically.

Fourth, it was ascetic, a pursuit of wealth that was accompanied by self-

guishedby a certah ascetic tendency...It is, namely,by no mennsexceptional,but rather the rule, for him to havea sort of modesty...He getsasthing out of his wealth for himself, exceptthe irrational senseof havingdone his job well.

It was,lastly,strictlyutilitarian.Virtuesrequiredby capitalismsuchas h o n e s t y ,p u n c t u a l i t y , i n d u s t r y , frugality,were virtuesbecausethey wereuseful.[Jnnecessary surplusof virtuewould appearto Franklinasunproductivewaste."According to Franklin,thosevirtues,like all others, areonlyin sofar virtuesastheyareactuallyusefulto the individual,and the surrogateof mere appearanceis al-

THE ASIANMANAGERe JUNE 1990 49

wap sufficientwhen i1 ngcomplishes the end in vi6r." If to appearhonest wassufficient, then to be honestwas superfluousand wasteful.

Briefly, then, asWeber describesthe spirit of capitalism, it is avaricebecomemethodicaland ethical.

The mostimportant opponentof this spirit, "in the senseof a definite standard of life claimingethical sanction" wasthe attitude and reaction to new sitriations which Weber called "traditionalism." Weber thus distin-

tions is found in all ages."Absolute and consciousruthlessnessin acquisition hasoften stoodin the closestconnection with the strictestconformity with tradition." But why,havingmade material acquisitionan end in itself, the modern capitalistwould not be as ruthless,Weber doesnot explain.

A profound difference betweenthe traditional and the modern capitalism was that in the traditional world, avaricewasstill avariceandtle t''ilssing of wealth was never for its own

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a naive point of view, is evidently as definitely a leading principle of capitalismasitis foreign to all peoples not under capitalistic influence."

What distinguishedthe modern capitalist spirit from the traditional wasthe "attitude that seeksprofit rationally and systematicallt'' asshown by the exampleof Benjamin Franklin.

Economicacquisitionwasrational, ascetig ordered and disciplined. This rational character of modern capitalismis not merelythe result of a

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guishedthis spirit of capitalismfrom other kinds of capitalismwhich he subsumedunder a rfuordthat we keep meetingin his writings asthe opposite and opponentof the rational:tradition. Traditioncl capitalismwhich "existed in China,India, Babylon,in the classicworld andin the Middle Ages," wasnot the samecapitalismof Benjamin Franklin.For in all thesecases, the "particular ethoswaslacking."

Enterprisesby privateentrepreneurs utilizing capital to make a profit, purchasingthe meansof productionand sellingthe product,in short,a genuine capitalisticstructure,may at the same time havea traditionalcharacter.The greedforgoldofthe adventurerwhois not constrainedby ethicalconsidera-

sake.To earn more and more money as an end in itself "seemsto the precapitalisticmanso incomprehensible and mysterious,sounworthyand contemptible.That anyoneshouldbe able to makeit the solepurposeof his lifework, to sink into the graveweighed down with a greatmaterial load of moneyand goods,seemsto him explicableonly asthe product of a perverseinstinct."The moderncapitalist, on the other hand, "is dominatedbY the makingof money,by acquisitionas t h e u l t i m a t e p u r p o s eo f h i s l i f e .

Economicacquisitionis no longer subordinatedas the meansfor the satisfactionof his materialneeds.This reversal of what we should call the naturalrelationship,soirrationalfrom

s0 THE ASIANMANAGERe JUNE 1990

generalprocessof rationalizationof Westerneconomiclife. It derivesfrom "the peculiarrelationship6f a manto his calling asa task." In this idea of a calling, Weber finds the influenceof Reformation Christianity.

The ProtestantEthic 11 gain,we aredsalingwith a historiAcal concept.We neednot go into theprocessby whichWebertracesthe sourceof the Protestantethic.We know that he found it in "ascetic" Protestantismof the Calvinisttradi"sention, as distinguishedfrom the instance, timental" Protestantism,for of Luther.Nor areweinterestedin the accuracyofhis interpretationeitherof

Protestantdoctrine or the influenceof the Protestantethic on capitalism.As in the spirit of capitalism,we are here interestedin howWeber himselfconceivedthis ethic.

Weber found the link betweenthe Protestantethic andeconomicactivitv in the Protestantconceptof a "calling." The "rationalizationof conduct within this world, but for the sakeof the world beyond,was the consequenceofthe conceptofcalling ofascetic Protestantism."Thus,this spirit

methodicalnesg to fashion it into a life in the world, but neither of nor for this world.

The dogmatic foundation of the Protestant ethic in Weberk account is the doctrine of predestination. The doctrine included the statement:"Bv the decree of God, for the manifestation of His glory some men and angels are predestinated unto everlasting life, and others foreordained to everlasting death." Since God's decrees cennot change,divine graee is "as impossible for those to whom He has granted it to lose as it is unattainable for those to whom He has denied it."

From this doctrine would flow the characteristics of the ethic.

It is individualistic. An effect of the doctrine of predestination was the "deep spiritual isolation" of the individual. No one and nothing could help him, no friend, no family, no priest, no sacraments,no church, not even Christ, for his destiny had been predetermined from eternity. Since , , people could not help him and he could not help them, religion became o f c a p i t a l i s mr e f e r s n o t e v e nt o an exclusive affair between God and Westerncapitalismat largebut to a the individual. particularWesterncapitalism,which r {n its extreme inhumanitv this Weber calls modern, and which he doctrine must above all 6ave identifies more specificallywith had one sonsequencefor the "WesternEuropean and American Iife of a generation which surcapitalism."CatholicEuropewasnot rendered to its magnificent the proper soil for its propagation.In consistency.That was n fssling order to spreadeffectivelyand definiof unprecedented inner lonelitively, modern capitalismneededa nessof the single individual. specialbasefor launching.The spirit In what was for the man of the of moderncapitalismwassoirrational age of the Reformation the and unnatural,it neededa certain most inportanl thing in life, fanaticismthat only a religion might his eternal salvation, he was p r o v i d e .A s c e t i c P r o t e s t a n t i s m forced to follow his path alone providedthe numbersaswell asthe to meet a destiny which had spirit necessaryfor moderncapitalism been decreed for him from to establisha beachhead in a traditioneternity. al world.

The logic of predestination inevitabo Christian asceticism,at first ly led to the overriding concern that fleeing from the world into made all others irrelevant: "Am I one solitude,had alreadyruled the of the elect? How can I be sure of this world which it had renounced state ofgrace?'It is in this search for {rom the monasteryand certainty of one's salvationthat Weber throughthe Church.But it seesthe sigrificance of worldlyactivity had,on the whole,left the as a calling and a duty. Since, on the naturally spontaneouscharacone hand, traditional and emotional ter of daily life in the world unlsligious activities are suspectto Caltouched.Now it strode into vinism, and on the other hand, since "theworld the market-placeof life, existsto servethe glorificaslammedthe door of the tion of God and for that purpose monasterybehindi1,and unalone," everyday tasks become the dertookto penetratejustthat foreordained tool to further the glory daily routine of life with its of God. "Works" do not cause salva-

The individualhad now to reckonwith, not his conscience, but the market.

tion. Humanmerit or guilt funslething to do with the determinationof one's destiny.It is an inscrutableGod who da-tts or saves.Everything,including damnationand salvation,is meantto servethe glory of God. But to the believer,successin worldly commerce becomesa signif not a causeof election.

This ethic is thus about everyday tasks,distinguishablefrom sacramental or ecclesialactivity of traditional Christianityor sentimentalProtestantism. Even brotherly love "is expressedin the first placein the fulfilment of the daily tasks"and,Weber adds,apparentlyto showthe link with the impersonality of modern bureaucracy,"assumesa peculiarly objectiveand impersonalcharacter, that of servicein the interestof the rational organizationof our socialenvironment."

It is ascetic,a life of self-denial.Hard w o r k i s d i r e c t e dn o t t o w a r d t h e individual'swordly comfortbut solely toward an end beyondthis world, his salvationand the glory of God. It is rational in that it is systematic andmethodical.Becauseaimedsolely at furtheringthe glory of God, this work mustbe rationalized."The God o f C a l v i n i s m d e m a n d e do f h i s believersnot singlegoodworks,but a life of good works combinedinto a unifiedsystem." o For the wonderfullypurposeful organizationan arrangement of this cosmosis, according both to the revelationof the Bible and to naturalintuition, evidentlydesignedby God to servethe utility of the humanrace.This makeslabor in the serviceof impersonalso-

THE ASIANMANAGERo JUNE 1990 51

cial usefulnessappearto promote the glory of God and henceto be willed by Hin. It was thesecharacteristicsof the Protestantethic that furthered the causeof moderncapitalism.Catholic asceticismfilled monasterieswith selfeffacingmonks who, though in the world,didnotwant tobe of theworld.

Modern capitalismcould not tbrive in suchan immaterial world. Ascetic Protestantismmarched out into the world spurred on "to a restlessand systematicstrugglewith life." Tb the eyesof Calvinist faith, thesewere the elect,who were driven to securein materialsuccessinthis life the certainty of their electionin the next.To the eyesof the world, they were the e n t r e p r e n e u r st,h e v a n g u a r do f moderncapitalism.They worked for materialgain asif it were an absolute endin itself, a calling. "But suchan attitudeis by no mernsa productof nature. It cannotbe evokedby low wages or high wagesalone,but can only be the product of a long and arduous processof education."Weberrelates, asanotherexample of the slmbiosis of the Protestantethic with modern capitalism,how Calvinismopposed politicallyprivilegedmonopolyindustriesunder the Stuartsand advocatedinstead"the individualisticmotivesof rational legalacquisitionby virtue of one'sown ability and initiative.'

The spreadof moderncapitalism demandeda specialpersonality.It was religionthat shapedthe characterthat c a p i t a l i s mn e e d e d ,a r a t i o n a l l y orientedpersonalitythat would pursueits objectivemethodicallyandsyst e m a t i c a l l y ,w i t h o u t e m o t i o n a l d e t o u r s ,s t r a i g h t l i k e a n a r r o w .

Religionwasthe primer of modern capitalism,an inversionof Karl Marx, ashasoften beennoted.Onceit had rewed up, capitalismcould cut the religiousconnectionand proceedon its own power. But in the end, the materialusedthe spiritualfor its own ends,asin Karl Marx. In more contemporaryterms,the religiouswas secularized.

A SecularEthic The questionhasbeenaskedthat if I thecapitalistspiritwassoirrational and unnatural,how could it have survivalvalueafter the religiousbasis

disappeared?The questionapparently did not occur to Weber. Adam Smith, a contemporaryof Benjamin Franklin, explained the matter differently and more "naturdy," so that the question did not even arise.

Amassingwealthis not an endin itself, evento the modern capitalist.What moveseverycapitalist ii self-interest.

Weber did not disagree,for he wrote that avarice moved the modern capitalist.Wealth indeed satisfiesin a multitude of waysthe interestsof the self. What differentiates modern capitalismfrom the traditional is not

not save,if theywereirrelevantto eternal salvation, then worldly activity as suchhad nothing to do with religion.

The significancefor the processof secularizationwasthat humanactivity (asdistinct from fait\ whichwasgrace rather than nature, divine rather than humaninitiativ* wasliberated from religion by religion.The believercould now pursue worldly interestswithout other-worldly scruples.Unfettered and unboun4 self-interestwasfree to motivatethe capitalistof Adam Smith.

The individual had now to reckon with, not his conscience,but the

t h a t a m a s s i n gw e a l t hi n m o d e r n capitalismis an end in itself and in traditional capitalismit wasnot. The difference,asAdam Smith'stheory would haveit,lies in the role that market forcesplay asthe integrating mechanismof the capitalist economy.

What Protestantismin general and not only the Calvinistline, contributed to hastenthe transition to the modern secularsocietyin general,andnot only to moderncapitalism,wasits central doctrine offides solc. Faith alone saves,not works, not evenethical work. For the other sideof the coin of this dogmaimplied that if works did

market.He abandonedthe common wealnot to the providenceof God but to the invisible hand of economic theory.The processfrom the Protestant ethic to the spirit of capitalism that Weber describedalso describes the secularizationprocessitself.

Weber'suseof the word "spitit" was apparantlyborrowed from Christian literatirre which is filled with referencesto the divinespirit animatingthe Christian. Reformation literature was afterall thebasicmaterialof hisstudy.

The spirit that animatedthe Christian also animatedthe Protestantethic.

This spirit becamein Weber, oncethe

52 THE ASIAN MANAGER r JUNE 1990

leligiousbasiswasremovedthe spirit of capitalism!'gimilsly, whenWeber claimed that this spirit wasnot a product of naturehe wasborrowing the language of Reformation theologianswho preachedthat the spirit wasdivinegracenot a product of nature.But whenWeber saidthat the spirit wasthe product of long education rather than of nature, he had againsecularizedthe terminologyof the theologian.It would havebeen heresyfor orthodox Reformation theologians1osaythatthe "spirit" was a product of a long education.No

lf we wereto describe a characterthat personifiedthis capitalistethic, EbenezerScroogeof CharlesDickenswould qualifywell as BenjaminFranklin. , humaneffort couldproducethespirit, not evenlong education,only divine grace. Having secularizedthe spirit, Weber also secularizedits source.

A word about Weber's useof the w o r d " e t h i c " i n d e s c r i b i n gt h e capitalistspirit maybe in order. The Protestantethic had a religiousmotive. Material success wassoughtby the Puritansif not ascauseat leastas sip of election,not for its own sake.

But the capitalistethic is saidto have cut the religiousconnectionleaving the amss5ing of wealthasan end in itself.So used,the word "ethic" meant no morethana senseof duty,an internalizedstandardof conduct accompaniedby asceticism.Apparently it hadno inherentconnectionwith what is generallyknown asmorality. For Weberdescribedthe capitalistethic asavaricewhich is not generallyconsideredto be avirtue,evenin capitalist 2

societies,beingan inordinatedesire, A quality of somethingexcessive. moral virtue hasalwaysbeenin medio, in moderation.But the virtuouselement is finally nullified *vhenvirtue is understoodto be strictly utilitarian.

That is to say,the ideais not to be virtuousbut to appearvirtuous. The imagewithout the reality is more important than the reality without the lmage.

For aslong aswe understandwhat it means,there shouldbe no quarrel with the word, ethic. Avarice would thenbe asethicalin a capitalistsociety as aggressionwould be ethical in a head-huntingsociety. There is alsoin the latter a senseof dutyandsomeasceticisminvolved.We mightevenassumea methodicalsystemof searching for, capturingand separating headsfrom their bodies,whichwould need apprenticeshipand form a unified systemwith the head-hunting culture. As for the asceticismthat Weber attachedto this ethic,it does not differ essentiallyfrom the selfdenialthat a JaneFondarequiresof women who would stay light or Japanesetradition demandsof a Sumowrestlerwho would stayheavy.

If we were to describea character that personifiedthis capitalistethic, EbenezerScroogeof CharlesDickens would qualify equallywell as Benjamin Franklin. Hewas avaricious,he accumulatedwealthfor its own sake, he washardworking,emotionless, ascetic, did not enjoyhis wealthin any hedonisticway,and amassedwealth from a senseof duty to his profession.

Only,BenjaminFranklinwasreal and EbenezerScroogewasfiction. And yet thefictitiouscharacterofthe "sentimental"Englishauthorapparently remainsto thisdaya lessonto children of capitalist families,not becausehe had the capitalistethic but becausehe got rid of it in the end and becamea normal,humanbeing.

As for BenjaminFranklin"he hashis critics,D. H. Lawrencebeingonly one of the morefamousones."Now if Mr. Andrew Carnegie,"wrote he,"or any othermilli6aaire,hadwishedto invent a God to suit his ends,he could not havedonebetter.Benjamindid it for him in the eigbteenthcentury.God is

the supremeservantof menwho want to geto4 toproduce. Providence.The provider. The heavenlystorekeeper.

The everlastingWanamaker. And this is all the God the grandsonof the Pilgrim Fathers$ad left. Aloft on a pillar of dollars."o Ironically, Max Weber himselfmight haveinitiated suchcriticism for he concluded his study rather ambiguouslywith what could easilybe construedas a critique. Material goods,he wrote, "havegainedan increasingand finally an inexorable power over the livesof men asat no previousperiod in history. Today the s p i r i t o f r e l i g i o u s a s c e t i c i s mwhetherfrnally,who knows?- hasescapedfrom the cage." And whatwas the cage?The original;religiousview wasthat "the care for externalgoods shouldonly lie on the shouldersof the 'saint like a light cloak, which canbe thrownasideat anymoment.'Butfate decreedthat the cloak shouldbecome an iron cage."

Besidesaniren gur[ain,then,thereis an iron cage.

The next time we read about the Protestantethic and the spirit of capitalismit begot, we might also rememberthe iron cageit becarneand the spirit that flew away- according to MaxWeber.

D.H.I"ar*renre, BenjaminFranklin:A Collectionof CriticalEssays.Ed. Brian M. Barbour, EngiewoodCliffq New Jersey:Prentice-Hall,lnc., 1979,64.

THE ASIANMANAGERT JUNE 1990 53

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54 THEASIANIIANAGER . JUNE19st

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