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Growth JourneysHelping Asian companies realize the value of their international expansion strategies

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1

Your itinerary 2

Traveling smart 3

International opportunities and new challenges 7

1. Establishing a clear purpose for international expansion 11

2. Differentiating to ensure success in crowded markets 13

3. Building globally scalable operating structures 17

4. Putting in place the talent, leadership and culture for growth 19

Conclusion 25

About this study 27

Contents

Copyright 2013 Accenture. All Rights Reserved.

2

Your itinerary

Asian companies expanding internationally have recently found themselves in a unique and enviable position. Lower valuations of takeover targets, ready access to capital, government support and weakened Western competitors have provided unprecedented opportunities to journey into new markets in Asia and around the world.

However, executives leading growth within Asian enterprises also need to tackle the increasing complexity of today’s global markets. Economic growth rates are down in many countries, markets are more crowded, regulatory burdens are rising, and in many cases, as their presence moves beyond their borders, traditional cost advantages are eroded. As a result, both well-established Asia-based multinationals and new entrants need to carve out new paths.

To help leaders plot their course towards global success, we spoke to more than 250 senior executives within the headquarters and international offices of Asian companies. We found many were disappointed by their company’s performance to date – only 28 percent said their revenues and profits from international markets had fully developed in line with expectations over the past three years.

A major problem has been an inability to master the ‘human’ side of international business: securing talent, building global mindsets and managing cross-cultural communications. Companies are also concerned about their capacity to understand new markets even as many push towards a common sweet spot: selling higher-value products based on local customer insights.

Despite these obstacles, we found that 90 percent of Asian globalizers remain strongly committed to international expansion. Accenture believes achieving these ambitions will come down to each company’s clarity of purpose; ability to differentiate in new markets; adoption of robust operating platforms that can be scaled worldwide; and implementation of a much more mature approach to talent, leadership and culture.

This paper discusses these themes in depth, and outlines how Asian companies should shape their internationalization strategies and carve a sustainable path to global growth.


3

Traveling smart

Asian companies have invested more than US$2.9 trillion in regional and global expansion in the last 10 years.

Ten years of massive growth in Asian international expansion.

2003 2011Investment within Asia

2003 2011

Investment outside of Asia

90%28%

Results have not met expectations but Asian companies remain committed to further expansion.

Just 28% of Asian companies fully met international revenue and profit expectations over the last three years.

90% of Asian companies are committed to continuing their overseas expansion.

Disappointed but not deterred

US$140B

US$91B

Asia

US$49BUS$17B

Middle East/Africa

Australasia

US$9B US$23B

US$45BUS$9B

Latin America

US$12B US$51B

North America

Eastern Europe/Russia

US$17BUS$7B

Western Europe

US$58B

M&A deals Greenfield deals

2011

In 2003, international merger and acquisition (M&A) deals made up 12% of all outbound Asian investment. By 2011, this had increased to 43%.

2003 12%

43%

US$13B

Accenture analysis based on data from Thomson Reuters and fDi Markets, a service from The Financial Times Limited 2013. All Rights Reserved.

Total Asian outbound investment

Rest of world Asia

US$158B

US$383B

2003 2011

US$243B

US$67B


4

1. Confirm the purpose of your international expansion and the fit with your corporate strategy.

Our research points to four critical success factors

4. Put in place the talent, leadership and culture necessary for global growth.

Attracting and retaining talent in overseas markets are the leading internal challenges for Asian companies’ international expansion.

Creating a global leadership mindset while empowering local leadership is a foundation of success.

3. Build the capabilities to execute.

Only 29% say they have the right processes in place to ensure effective operations across multiple geographic locations.

27%

29%Only 31% say they have the right operational capabilities to support international operations.

1

4

1

2

6

3

2

3

7

5

31%

2. Carve out a unique and differentiated position.

Low-cost operations

Low-cost innovation

Growing revenue Building competitiveness Diversifying the business and diversifying risk

Supporting government programs

Our intellectual property

Strength of brand equity

Skills of our people

High-value innovation

Asian globalizers will be converging on the same space already occupied by established Western and Asian multinationals as well as strong domestic players.

Asian companies say their most important external challenge is to understand overseas markets and customers, and their preferences.

?

Many Asian companies are also struggling with cross-cultural barriers.

Today: The majority base their international competitive advantage on low costs. This will fall by 60% within three years.

Within three years: Asian companies plan to base their competitive advantage on intellectual property, brand, skills and high-value innovation.

Only 27% say they have the appropriate IT infrastructure to support operations across multiple geographic locations.


6

“Emerging markets provide more opportunities than mature markets.”Chinese company research participant


7

In 2012, there were 172 Asian companies in the Fortune Global 500 – up from 116 in 2001. China led the way, with 79 companies on the 2012 list, including three petroleum companies in the top 10. This was followed by Japan with 68, South Korea with 13, India with eight, and four from the Association of Southeast Asian Nations (ASEAN).

As Asia’s new major companies have grown in size and stature, they have naturally started to look beyond their own national boundaries. At the same time, mature multinationals from the region – such as LG, Panasonic, Samsung and Toyota – continue to evolve and become truly global in the way they operate.

Whether they are emerging globalizers or mature multinationals, businesses across Asia are looking for growth in international markets. Companies from emerging markets have typically taken advantage of cheaper capital and, recently, the availability of distressed targets to build sales, acquire capabilities and gain strategic insights. On the other hand, many Japanese and Korean companies, faced with flat demand and high costs at home, have been looking offshore for new markets and lower-cost business environments.

In the past, Asian international investment has been concentrated within Asia itself; now, the region’s companies and investors are increasingly looking beyond Asia for growth. In

2003, Asian enterprises (including funds) invested US$158 billion outside their home markets. By 2011, annual international investment more than doubled to US$383 billion (see the infographic on page 3).1 Of that, the share of annual outbound investment to countries outside of Asia shifted from 42 percent in 2003 to 63 percent in 2011.2

Looking across Asia, Japan is consistently the largest international investor, accounting for approximately 40 percent of Asia’s outbound international investment between 2003 and 2011. Greater China is a rising global player. Its annual outbound investment more than tripled in the last decade to US$115 billion in 2011, making it the second-largest Asian international investor. While ASEAN’s international investments grew from US$36 billion in 2003 to US$58 billion in 2011, the region’s investment growth has not kept pace with that of China or India (see Figure 1).

Fluctuating growth and disappointing resultsAsia’s enterprises are spreading their wings, but in recent years they haven’t always been satisfied with the results. Economic conditions have become much more difficult in most markets and appear likely to stay that way. In turn, the majority of Asian companies that participated in our study said they had

failed to completely meet their revenue and profit targets in international markets over the past three years.

As Figure 2 shows, only around one-third of companies from China and India had seen their revenue and profits from international operations fully develop in line with their expectations. The figure was particularly low among Japanese companies, at 12 percent. The reality is that many Asian companies are finding it difficult to realize their overseas growth ambitions and create internationally recognized brands. In 2012, only 10 Asian companies made Interbrand’s list of the world’s 100 Best Global Brands.3 This was an increase of just three companies – Kia, Hyundai and Nissan – over the past decade.

As a result, while Asian companies now make up 35 percent of the world’s biggest companies, they represent only one in 10 of the most valuable global brands.

Evolving competition and complexityToday’s globalizers face a far more complex and competitive global landscape than the first wave of Asian companies that built international businesses. Asian globalizers are seeing a change in the competitive landscape. A Korean executive we interviewed believes achieving growth in overseas markets has become more difficult. “Competition is cutthroat due to the growth of local players,”4 he says.

International opportunities and new challenges

Asia’s increased growth over the past decade has fueled the emergence of significant new enterprises on the world stage. Foxconn, Haier, Huawei, Larsen & Toubro, Posco, Tata Steel, United Breweries Group, Wilmar and others now rank comfortably among the largest companies in their industries worldwide.


8

Figure 2. Percentage of survey respondents whose organizations’ revenue and profits in international markets have fully met expectations over the past three years

Q: Have your company’s revenue and profits in international markets developed in line with expectations over the last three years?

All respondents ASEAN Greater China India Japan South Korea

28%

23%

37% 36%

12%

23%

Figure 1. Change in sources of outbound international investment (US$ billion)

Note: Numbers in columns may not add up to the total due to rounding.Source: Accenture analysis based on data from Thomson Reuters and fDi Markets, a service from The Financial Times Limited 2013. All Rights Reserved.

2003 2011

US$115B

US$53B

US$142B

US$29B

US$45B

US$383B

US$63B

US$36B

US$35B

US$158B

US$15BUS$10B

India South Korea Greater China ASEAN Japan

In addition to strong local players, Asian companies must also contend with an increasing number of multinationals from mature and emerging markets.

The number of transnational corporations operating worldwide has almost tripled since 1990, from 35,000 to almost 104,000 in 2010. Furthermore, international companies are now more widely distributed across global markets. Over the same timeframe, the proportion of transnational companies from emerging markets increased from 12 percent to 30 percent.5

Another factor is that when Asian businesses step beyond their national boundaries, their cost advantages change – especially if they move from exporting products from home to manufacturing locally in foreign markets. Furthermore, operating complexity increases as companies expand beyond regional markets to more diverse markets outside of Asia. A number of issues can take a toll on the bottom line, including more intricate management structures and the need to maintain a global workforce; longer and more complex supply chains; and new and unfamiliar tax and regulatory environments.


9

Still committed to international growthDespite these obstacles, Asia-based companies remain committed to global growth. In our survey, nine out of 10 Asian companies planned to continue their overseas expansions. Of those businesses, 37 percent planned to grow aggressively. The numbers are particularly high for Chinese companies, with close to half planning aggressive expansion (see Figure 3).

Charting a path to successWhile a majority of Asian companies continue to make significant investments in international expansion, not all investments are yielding the expected returns. In the quest for sustainable growth, Asian enterprises

are seeking new paths appropriate for the realities of today’s global economy.

Many of the companies we surveyed, especially those from emerging Asian markets, wanted to reduce their dependence on cost advantages. Their goal is to offer innovative products and services to increase the skills of their people, and build intellectual property. However, it isn’t a one-way street; a number of respondents from high-cost, mature-market locations such as Japan are looking for cheaper production locations to increase their competitiveness. What we are witnessing is a convergence among Asian globalizers towards a common sweet spot of selling higher-quality, innovative products and services at reasonable prices.

In the next sections, we explore these trends in more detail and outline how Asian companies can shape their internationalization strategies to support a successful journey. These four themes have emerged from our research:

1. Establishing a clear purpose for international expansion

2. Differentiating to ensure success in crowded markets

3. Building globally scalable operating structures

4. Putting in place the talent, leadership and culture for growth.

Each theme is relevant to organizations at all levels of global maturity – from companies that have long-established international operations to those just starting out on their global journeys.

Figure 3. Overseas expansion plans among Asian companies

Q: Which statement best describes your company’s overseas expansion strategy?

37%

35%37%

47%28%

39%

We plan to rapidly accelerate our overseas expansion

53%

55%55%

45%62%

48%

We plan to continue our overseas expansion at its current rate

We plan to reduce our overseas operations 2%

0%1%

0%4%

10%

We plan to slow down the rate of our overseas expansion 7%

10%7%8%

6%3%

ASEANAll respondents Greater China India Japan South Korea


10

“We need a new growth driver as we are operating in a saturated market.”Korean company research participant


11

In this section, we explore the factors driving Asian companies’ international expansion.

Government programsNumerous Asian companies, especially those that have begun to internationalize in the past decade, have been encouraged by their governments to expand overseas. These governments are keen to develop their economies, establish global prestige, secure resources and build commercial power through the success of home-grown businesses that have the potential to become national ‘champions’.

For example, the Chinese Government established its ‘going out’ policy in 2003. This policy has heavily influenced companies across the country, including the car maker Chery. Since the introduction of the new policy, Chery has focused on growing both at home and internationally. In the past decade, Chery has become a competitive brand in emerging markets outside of China, with international sales now accounting for around one-quarter of total sales.6

Diversification and risk reductionAsian companies are also expanding overseas to become more resilient and

diversify risk, by securing different sources of income or ensuring sustainable access to resources. Singaporean agribusiness Olam, for instance, has grown internationally to expand its commodities portfolio and reduce risks in a cyclical market. Starting in 1989 with one product in one country, Olam has built a global business across 70 markets, offering 54 products and a host of value-added services.7

Companies in Asia have a particular need to secure natural resources to meet the region’s growing energy needs. For example, China National Offshore Oil Corporation (CNOOC) is acquiring Canada’s Nexen oil group to increase its oil reserves. This takeover, which has recently been approved by the Canadian Government, will be the largest overseas acquisition by a Chinese group to date.8

Meeting the needs of home customersAnother motivation for international expansion is to serve the needs of existing domestic customers as they move to overseas locations, rather than the urge to acquire new customers in foreign markets. While the initial focus is domestic, this can often be a first step towards a more substantial globalization strategy.

China Construction Bank (CCB), is China’s second-biggest lender by assets, although most of its assets remain within China. The bank is now increasing its focus on overseas expansion to better serve Chinese clients who require banking services around the world as they become more international.9

Accessing new growth marketsSeeking new markets is a common growth driver across Asia. Globalizers from Japan and Korea are particularly focused on acquiring new customers given the slow growth of their home markets. A Korean executive we interviewed stated that his company has increased its focus on overseas expansion as a growth driver because the company is operating in a saturated domestic market.

When it comes to targeting new markets, Asian companies are emphasizing emerging markets in Southeast Asia, Africa and the Middle East to drive future growth. A common theme that has emerged from our executive interviews was that “emerging markets provide more opportunities than mature markets”. These markets are perceived to have lower barriers to entry, less competition and higher growth potential. An executive we

1. Establishing a clear purpose for international expansion

Every journey should have a purpose, yet our interviews with senior executives suggest that one of the biggest challenges for Asian companies seeking to grow outside of their national boundaries is a lack of agreement and communication on the reasons behind such expansion. This lack of clarity can undermine the successful execution of strategies by creating a misalignment between expectations and resources.


12

spoke with at a Japanese company stated his company is prioritizing alternate markets such as Southeast Asia to make up for shortfalls due to the slowing business in Europe and the United States (US).

Building home-country competitivenessSome Asian companies are seeking to grow outside of their national boundaries to build their competitiveness at home. This is particularly true for companies from China and India where the domestic markets continue to open up and expose previously protected firms to more intense competition. International expansion allows these companies to acquire advanced skills, own more of their value chains, and acquire strategic assets and technology that help bolster their position at home.

Take the case of another Chinese car maker, Geely. Its holding company, Zhejiang Geely Holding Co., bought Volvo Cars from Ford in 2010 for US$1.8 billion. The deal expanded the scope of the group’s business while giving it access to knowledge, technology, expertise, and a suite of brands to increase its competitive position inside China.10

Another example is India’s Fortis Healthcare International. “When you are within a country, and you look at everything from a country-specific delivery point, you tend to be restricted in your approach because you benchmark yourself against what’s best within that space,” says Balinder Singh Dhillon, Executive Director, Fortis Healthcare Group. “If you go beyond that and eliminate geographic boundaries and start benchmarking yourself against global best practice, you start focusing on outputs, and you start focusing on teamwork as a value system and innovation.”

“Why go overseas? Demonstrate growth and build a global brand.”Indian company research participant


13

Asian companies believe their future competitive advantage will be based on innovation, brand, skills and talent. While only 18 percent felt intellectual property assets such as patents provided an advantage today, that number will more than double in three years time. Moreover, in the future, 44 percent expected to compete on the strength of their brand equity and 47 percent on the skills of their people (see Figure 4).

Carving out a unique positionWhat we are witnessing is a race among Asian globalizers towards a common sweet spot of selling high-value, high-quality, branded, innovative products and services. With so many companies converging on this position, competition will only intensify.

In a digital world where products can be quickly copied and commoditized, Asian globalizers will need to identify and protect their unique points of differentiation by investing heavily in localized marketing, customer insights and intellectual property protection.

However, many Asian companies currently lack the expertise and data to take such a market intelligence—based approach. Sixty-one percent of companies feel their largest external barrier to international expansion is a lack of understanding of overseas markets and customers, and their preferences (see Figure 5). Furthermore, only 27 percent of companies systematically track competitive dynamics in the countries where they have interests.

Learning from social mediaOne piece of good news is that it is now easier for companies to gain an in-depth understanding of local markets and customers by tapping into social media.

In Indonesia, for instance, Philips’s healthcare equipment unit created a crowdsourcing website to solicit input from communities on ways to address local healthcare challenges. Over 80,000 unique visitors commented and voted on 600 submitted ideas over a period of nine weeks. Based on the success in

Indonesia, Philips has also launched sites to source innovative product ideas in Thailand and Singapore.11

LG has also raised its brand awareness in Indonesia by connecting with the community through Facebook to support young sporting talent. Through a campaign called LG Support Future Stars, the company created links with other Facebook communities, including the national soccer team. LG also made donations to sporting facilities at schools based on the number of ‘likes’ received on its page. The company attracted more than 50,000 Facebook fans through the program.12

2. Differentiating to ensure success in crowded markets

When companies such as Panasonic, Samsung and Toyota started their international expansions, they based their competitive advantage on lower production costs. Over time, they shrugged off these low-cost origins and became known for innovation and premium products. The same scenario is playing out today with Asia’s more recent globalizers, but at a much faster pace. In our survey, a majority of executives said low-cost operations were a primary driver of competitive advantage today, but only a small minority thought it would still be an advantage in three years time.


14

Figure 4. Drivers of competitive advantage for Asian companies in international markets – today and in three years time

Q: With regards to the products or services you provide in international markets, what do you see as the primary drivers of your competitive advantage today, and what do you envisage them being in three years time? Please choose the top three. (Percentage of all respondents.)

In 3 years

Today54%

45%

18%

32%

39%41%

55%

20%

29%

37%

44%47% 47%

55%

Low-cost operations

Low-costinnovation

Our intellectual property (patents,

trademarks)

Strength ofbrand equity

Skills of our people

High-value innovation

High-quality products/services

Figure 5. External challenges faced by Asian companies operating in international markets

Q: What do you see are the two biggest external challenges that your organization currently faces in successfully executing its global expansion? (Percentage of respondents.)

Weak brand or reputation in overseas markets 35%

31%29%

36%44%

32%

Lack of understanding of overseas markets and customer segments, and their preferences

61%

60%

60%62%

65%

65%

Inability to navigate complexities associated with operating in overseas markets, including government regulations, and local policies and procedures

53%

54%48%

45%50%

71%

Inability to build trust with local stakeholders 22%

21%23%

30%12%

23%

Strong market position of our global competitors 30%

35%35%

26%34%

10%



15

Some Asian companies have carved out a unique position in foreign markets by exploiting local knowledge and tailoring their offerings.

Fast Retailing (Japan) developed a highly localized strategy to support the international growth of Uniqlo — its casual clothing manufacturing and retailing subsidiary. After some trial and error in its initial expansion, Fast Retailing has established flagship Uniqlo stores in key shopping areas supported by tailored marketing campaigns that use local celebrities to attract customers. Since then, Uniqlo has successfully expanded to major cities such as New York, Paris, Seoul, Shanghai and Taipei.13

United Spirits (India) is modifying the composition of some drinks to achieve success in regions such as Southeast Asia. Vineet Chhabra, Executive Vice President of Emerging Markets at United Spirits, says his company is altering its bottle, blend and alcohol content based on consumer feedback. “We understand that our biggest brands are going to be changed for emerging markets,” he says.14

Chery (China) has grown strongly in emerging markets by targeting highly price-sensitive, entry-level buyers who are looking for alternatives to the used cars, motorcycles and low-end vehicles they may have traditionally purchased. While the company exports cars to more than 80 countries, its primary focus areas are high-growth markets in Latin America, Eastern Europe, Russia, the Middle East and North Africa. This targeted positioning strategy has paid dividends for Chery since it began exporting in 2001, with foreign sales reaching 160,200 cars in 2011, representing one-quarter of the company’s revenue.15

Panasonic (Japan) is investing in developing unique and highly specialized products for sale in Asia. Panasonic created the China Lifestyle Research Center in Shanghai to enable locally oriented product development. In addition to conducting traditional market research and interviews, the group visits consumers’ homes to gain first-hand insights into product use and constraints. For instance, a local study revealed a need for sterilization in washing machines. While Chinese companies did produce machines with these capabilities, sales were low as consumers did not trust the technology. A collaborative project between the local lifestyle research center and research and development teams in Japan led to the development of a washing machine that uses silver ions to sterilize clothing. To gain consumer confidence, Panasonic’s product launch included testimonies from a local university on the product’s effectiveness. As a result, Panasonic’s market share in China for front-loading washing machines grew from 3 percent to 15 percent.16

Differentiating for success – some examples


16

“Competition [in overseas markets] is cutthroat due to the growth of local players.”Korean company research participant


17

3. Building globally scalable operating structures

To enable successful global expansion, companies need to create the right platform to support international growth and differentiation. However, Asian globalizers have little confidence in their ability to execute their expansion agendas.

According to our survey, only 31 percent of respondents fully believe their organization has the operational capabilities needed to carry out its international strategy (see Figure 6). Further, only 29 percent of respondents believe they have all the right processes in place to ensure effective global expansion, and just 27 percent believe they have the required set of IT capabilities.

Building regional and global operating modelsTo drive their international expansion, Asian companies must design and implement effective regional and global operating models. For each company, the operating model should articulate

how the company will organize itself to deliver its international strategy. It will also lay the framework for coordinating operations between the company’s corporate center and overseas business units.

First, organizations need to define the required capabilities and gaps that need to be filled across its operations. The operating model should also take into account the business models chosen for execution in each of its overseas operations. Some key questions to address are:

• What capabilities are critical to delivering our customer value proposition and achieving differentiation in our target markets?

• How can we leverage our existing or shared capabilities to serve new markets?

• Where do we need to improve our capabilities to become competitive or a market leader?

Once structural design has been established, companies need to decide how to implement each required capability. In determining the execution strategy, Asian globalizers will need to consider how to source and build the right talent across geographies; the degree of process standardization or customization needed; and the governance structure required to manage overseas operations.

Figure 6. Asian companies have significant concerns about their execution capabilities

Q: Does your company have the capabilities it needs to translate its international strategy into action?(Percentage of respondents who strongly agree.)

My company has the operational capabilities it needs to translate its international strategy into action

23%16%

38%43%

23%

31%

My company has all the right processes in place to ensure effective operations across multiple geographic locations

13%20%

36%38%

26%

29%

My company has the right IT infrastructure in place to support effective operations across multiple geographic locations

29%16%

30%29%

36%

27%



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One way to grow quickly is to acquire firms with the right infrastructure and capabilities to complement a company’s operations and extend its presence in the value chain. This has been the experience of companies such as India-based aluminum manufacturer and producer Hindalco, which has used merger and acquisition (M&A) activity as the key to its strategy to become a global leader in the aluminum business.

During the 2000s, Hindalco made a series of acquisitions, first among small and local companies, before

acquiring Novelis, a large global player. Each acquisition added a valuable competency, including managing price fluctuations across countries, operating a global supply chain and running companies in developed markets. In particular, the acquisitions of Indal and Novelis enabled Hindalco to extend its presence to downstream operations. This reduced its dependence on a commoditized upstream business, increased the company’s ability to manage risk and achieved a more reliable income flow. As a result of these

two acquisitions, Hindalco also built capabilities in product development, selling value-added products and forging customer relationships that enabled the company to increase its international competitiveness.

Hindalco has grown its revenues from US$1.3 billion in 2003 to US$16.8 billion in 2012. Today, Hindalco is the world’s largest producer of rolled aluminum product and holds the largest market share in Europe, North America and South America.

Using strategic M&A for global growth: Hindalco’s acquisition strategy17

“Building capability is like changing tires while you are going down the motorway.” Taiwanese company research participant


19

Some of the biggest challenges for Asian businesses seeking to expand internationally involve people, culture and communications – issues that could be collectively called the ‘human’ factors.

4. Putting in place the talent, leadership and culture for growth

Figure 7. Internal challenges faced by Asian companies operating in international markets


Q: What do you see are the two biggest internal challenges that your organization currently faces in successfully executing its global expansion? (Percentage of respondents.)

Lack of global mindset in top leadership teams 32%

26%32%

38%34%

32%

Inability to attract and retain talent in overseas markets 51%

45%45%

58%54%

58%

Inability to manage foreign workforces 37%

43%39%

36%20%

45%

Cross-border cultural barriers 46%

52%45%

40%42%

45%

Uneven or unclear governance structures 23%

26%23%

19%30%

10%

While these are not new obstacles for globalizing companies, they are more difficult to overcome for Asian companies. Strong home cultures with a high degree of acceptance of hierarchy increase the complexity in bridging cross-culture communication gaps and managing foreign talent.

The prevalence of family-owned businesses and state-owned enterprises in Asia also presents hurdles.

Family-owned businesses, which make up 50 percent of publicly listed companies across 10 key markets in Asia18, often intertwine ownership and management which impacts the ability to attract and groom talent. Creating compelling career paths and building diverse leadership teams is challenging in some state-owned enterprises where identifying top leadership can be politically influenced.

When it comes to internal challenges faced by Asian globalizers, executives are most concerned about difficulties in attracting and retaining overseas talent; overcoming cross-border cultural barriers; managing foreign workforces; and instilling a global mindset among the company’s leadership (see Figure 7).


20

While cultural gaps are difficult to conquer, we can learn from the experience of successful organizations.

Fortis Healthcare, based in India, operates across nine countries in the Asia-Pacific region and is seeking to create a common ‘language’ that reflects its corporate culture. Fortis Healthcare Group Executive Director Balinder Singh Dhillon says Fortis is developing a unique and unified way of working across locations. “Language plays a part,” he says. “Not the spoken language, but the commonality of terms and understanding and values. This includes the softer side of things such

as how you address a patient. That will become part of our entity as a whole.”19

A leading Indian pharmaceutical company has built its international presence through a string of acquisitions across the US, Japan, Europe, Brazil and South Africa. To facilitate integration and enhance cultural understanding across geographies, the company made a commitment to conduct town hall gatherings, site visits and frequent face-to-face meetings. For example, its quarterly strategic business review meetings enable exchange among senior leadership on local market business challenges. In addition, top leadership

from India frequently travel to meet with overseas senior management. These in-depth meetings include site visits to plants and distribution centers to gain first-hand insights into local operations and challenges.20

Fast Retailing sees itself as ‘born and bred in Japan’ and aims to preserve its Japanese core values through employee universities in key geographies. However, it also understands that Japanese employees will need to adapt their ways of working as the company goes global. As a result, the company is gradually implementing English as its language for international communication.21

Overcoming cultural gaps: stories from the front line

“Our international image is not attractive enough for local talent, especially management personnel.”Chinese company research participant


21

Figure 8. Actions taken by Asian companies to attract local talent in overseas locations

Q: What are the actions your organization is prioritizing to ensure it can attract and retain the best local talent throughout its overseas operations? Choose the top three. (Percentage of respondents.)

Providing competitive training and development programs

Offering higher salaries than overseas competitors

Creating clear and compelling paths for professional growth and advancement

Improving our brand reputation

Partnering with local education providers to develop the talent pipeline

Promoting overseas hires to senior positions at headquarters

Promoting overseas hires to top positions within or among overseas operations

Increasing autonomy for overseas operations and allowing local decision making

None of the above

All respondents Within headquarters Outside headquarters

2%5%

3%

17%23%

19%

30%25%

29%

23%33%

26%

29%35%

31%

42%47%

44%

47%41%

45%

52%37%

47%

55%44%

51%

Securing and retaining talentAsian globalizers can no longer rely on sourcing key talent from their home countries to drive success in foreign markets. Companies must also have comprehensive strategies in place for building and retaining talent in both home and international locations.

Asian globalizers see clear benefits in building overseas talent. For example, a Korean executive we interviewed says that his company aims to nurture local talent to better understand local markets, culture and language. Another executive we spoke with at a leading Japanese company said that his organization leverages local senior talent to build relationships with stakeholders overseas.22

A number of Asian companies are changing their human resources management practices to recruit top talent around the globe. Their approaches are often a hybrid of traditional, home-country methods and global practices. For example, Samsung has moved from appointing managers from an internal pipeline to actively bringing in new international talent at numerous levels. These international hires spend two years in Korea before managing overseas operations, often in their home countries. The company has also hired outsiders to fill key senior management roles in Korea.

To promote ownership of and accountability for the new talent strategy, Samsung Chairman Lee Kun-Hee has established metrics

around attracting and retaining talent across the organization. While this transition has taken time to develop, Samsung has benefited from fresh perspectives and is now better equipped to manage its global operations.23

However, our research suggests companies like Samsung are an exception and that many Asian companies could do more to attract and retain talent in international markets. Only around half of the companies we surveyed are undertaking initiatives to attract foreign


22

Figure 9. Cultural obstacles faced by Asian companies in international markets

Differences in working style and work ethic between local and expatriate staff

Difficulty establishing shared corporate and community values

Inability of foreign staff to speak the local language

Language barriers due to overseas staff not speaking the language spoken at headquarters

Difficulty embedding respect for different cultures and backgrounds

General lack of respect for foreign managers

Inadequate company training for expatriates

Resentment over salary differences between expatriate and local staff


45%

41%

45%

42%

39%

18%

24%

18%

43%

37%

40%

44%

33%

20%

19%

17%

46%

43%

48%

40%

42%

17%

27%

18%

Q: What are the biggest cultural obstacles that your company faces in overseas markets? Select all that apply. (Percentage of respondents.)

talent. Furthermore, the focus of talent management efforts varies between home and foreign markets (see Figure 8).

It appears leadership teams in overseas offices usually focus on tactical issues such as providing competitive training and offering higher salaries. Back at headquarters, leaders are more concerned with strategic elements such as building the organization’s brand, creating career paths and forming recruitment partnerships. We believe all these areas are critical if companies are to secure the workforce they need today, while making the investments required to retain and build talent.

Managing cross-border cultural issuesAs the world becomes more interconnected and Asian companies derive greater growth from international sales, globalizers need to overcome cross-cultural barriers. This will mean maintaining home-country values at the heart of their operations while adapting to global standards and local nuances in foreign markets.

A senior executive we spoke to from a Chinese company believes that “each market has its own suitable culture”. He cites inclusiveness and adaptability as the core elements needed to successfully bridge cultures.24

However, our research shows many Asian companies are struggling to bridge cross-cultural gaps (see Figure 9). Key concerns revolve around language difficulties, differences in working styles and work ethic, and the extent to which staff share common corporate values.


23

Taiwanese mobile communications manufacturer HTC is a worldwide organization with more than 16,000 employees. Despite its Asian base, the company has strategically located its design team in the US to leverage talent that is abreast of trends, is close to its market and will develop unique designs to differentiate HTC from the competition.

“We believe our industrial design is second to none,” says Phil Roberson, Regional Director of HTC in the United Kingdom and Ireland. “While our design

process is essentially a collaborative one, product design typically begins in the US, before it transitions to Asian expertise in manufacturing.”

Using distributed talent – and not being too heavily based in one location – enables HTC to leverage the relative strengths of both the US and Taiwan. Overseas leadership teams are given high levels of freedom in terms of governance and autonomy in their region. For example, they own their sales and marketing budgets.

The company also maintains a relatively flat corporate structure. Roberson himself has direct contact with the CFO, and outside of Taiwan, the most junior person is typically only five layers away from the CEO. “By keeping things lean, you have a much better connection with what’s happening on the ground, and by having the autonomy, you have a much greater feel for what’s going on in the market and can report back,” Roberson says.

Sharing the power: HTC’s devolved corporate structure25

Building a global mindset among leadership teamsSuccessful internationalization strategies require strong leadership, from headquarters down to local operations. At the heart of strong leadership is a global mindset and a commitment to empowering local leadership with decision- making authority.

According to our research, Asian companies are not consistently developing leaders. We found that less than half of Asian globalizers use mentoring and coaching to develop their leaders. In addition, less than 20 percent of companies surveyed use international assignments to build a global mindset in leaders.

Furthermore, leaders of non–home country offices were also more likely than head-office executives to promote a global mindset among their teams. This may reflect their day-to-day need to manage cross-cultural issues (see Figure 10).

To bridge gaps in cultural knowledge and awareness, some Asian globalizers actively encourage first-hand exposure to foreign markets. For instance, Olam’s CEO and Group Managing Director Sunny Varghese sees it as a rite of passage for executives to spend time in difficult locations across the global

agribusiness group. He describes this as “managing the risks first-hand, not learning about them in a classroom”.26

Another senior executive we spoke to believes that his executives must lead by example in external markets. “You cannot lead unless you have been there, walked the market, understood the relationships and absorbed the challenges of the environment,” he says. “Only then can you start actually leading the team. You can never lead the team if you have not been there yourself.”27

Empowering local management Our research indicates that Asian globalizers are concerned about an overconcentration of decision making at headquarters. We also found many overseas offices lack respect for the authority of managers at headquarters – and that the latter are often unaware of how they are regarded in the field (see Figure 11).

Asian cultures typically have a tradition of maintaining hierarchy in management structures, which tends to enshrine centralized decision-making power. However, our research suggests that Asian globalizers should enable local decision making if they wish to remain competitive in overseas markets and respond swiftly to changes in local conditions.

LG, for example, has built a strong market share in India by focusing on developing local leadership. LG has hired local employees and empowered local managers by transferring authority and responsibility to them. Expatriate Korean managers have also served as mentors to help local management teams build their skills.28

In 2008, Tata Motors acquired Jaguar Land Rover from Ford. Since then, the company has successfully turned around Jaguar Land Rover to become its primary driver of growth. Analysts attribute this success in part to the company’s devolved leadership style. Rather than run Jaguar Land Rover from India, Tata Motors implemented a ‘hands-off policy’, granting autonomy to executives in England.29

The first step in devolving decision making is to instill trust in leaders in foreign markets. According to Vineet Chhabra at United Spirits, trust is critical when you are working with new partners in geographies where cultural norms and ways of doing business are different. He believes that while you can never start with trust, it will eventually be earned over time. “As a leader, you have to keep sensing who you can trust – where and when,” he says.30


24

Figure 11. Challenges faced in global governance structures

Decision-making processes and authority are overly concentrated in global headquarters

Overseas offices’ lack of respect for the leadership authority of headquarters

Lack of clear structure in top leadership roles and processes

Leadership across functions and geographies lacking alignment on the common goals of the global organisation

Governance structures are not clearly understood by staff outside of the home country

Lack of ability to hold overseas offices accountable for complying with policies and procedures

Weak cross-border collaboration


Q: What are the key challenges with your company’s governance structure? Choose all that apply. (Percentage of respondents.)

45%

52%42%

39%

27%45%

37%

40%36%

33%

31%33%

31%

33%30%

22%

19%23%

12%

11%12%

Figure 10. Actions taken by Asian globalizers to develop a global mindset in their leadership teams

Mentoring and coaching programs focused on global leadership

Personality and leadership assessment for global leaders

Cultural sensitivity training

Regular global videoconferencing or other advanced communications

Connecting talent across the global company into teams or workgroups

360-degree feedback for global leadership team members

Offering international assignments and global rotation programs


47%

45%

41%

37%

38%

22%

19%

44%

47%

33%

26%

38%

19%

17%

49%

44%

44%

42%

38%

23%

20%

Q: Please indicate the actions your company is taking to develop a global mindset in your leadership team. Choose all that apply. (Percentage of respondents.)


25

Conclusion

Asia is moving towards taking a central place in the global economy. Businesses from the region are already seeking to spread their reach wider and capitalize on lucrative opportunities outside their home markets. Buoyed by ready access to capital, lower valuations of takeover targets and government support, many Asian companies are seemingly well placed for new or greater international success.


26

However, a significant number of Asian businesses are failing to execute and achieve their ambitious goals for international expansion. Global markets are becoming crowded and complex. A large portion of Asian enterprises are increasingly converging on a common sweet spot and attempting to base their competitiveness on selling higher-value, innovative products. In addition, the traditional low-cost advantages of Asian companies are shrinking, and may even disappear once they start producing outside their home markets. Asian globalizers need to formulate fresh, effective roadmaps that encompass the realities of today’s markets, customer preferences and technological developments.

Our research indicates that companies must begin by being absolutely clear on their reasons for seeking to grow beyond home. Why are they taking this significant and challenging step? Then they must put in place internationalization strategies that enable differentiation in crowded markets and offer sound platforms for growth.

Still, all these steps may not be enough. In our experience, the most important driver of success will be a company’s ability to master the human side of doing business away from home. This includes finding, retaining and building the talent needed to execute globalization strategies;

effectively managing cross-cultural communications; and establishing cultures and leadership mindsets that facilitate the emergence of truly global organizations. These are the keys for Asian businesses embarking on the promising path towards expanding their reach and growing globally.


27

1. Analysis of foreign investmentWe analyzed M&A and greenfield investment data from Thomson Reuters and fDi Markets to understand trends in Asian investment flows, with a focus on:

• the global distribution of Asian outbound investment

• regional views of investment by country and industry

• the views of major Asian investor nations.

The outbound investment data focused on investment activities originating from Brunei, mainland China, Hong Kong, India, Indonesia, Japan, Malaysia, the Philippines, Singapore, South Korea, Taiwan, Thailand and Vietnam. While all greenfield transactions were included, we only took into consideration M&A transactions valued at more than US$10 million.

2. Quantitative survey of senior executives in Asian companies Accenture commissioned the Economist Intelligence Unit (EIU) to comprehensively survey the views of executives responsible for taking Asian businesses global. Our goal was to understand the objectives of Asian companies expanding outside their home markets, and the challenges they face in doing so.

In July 2012, the EIU surveyed 249 senior executives of Asia-based companies from ASEAN; mainland China, Hong Kong and Taiwan; India; Japan; and South Korea. All companies had revenues in excess of US$250 million. Among the respondents, 168 were from home-country headquarter offices and 81 were based in their company’s local-market operations.

3. Qualitative, in-depth interviews with senior executivesAccenture’s subject-matter experts conducted in-depth interviews with 18 senior executives of Asian companies in all markets covered by the study. We selected the participating organizations to gain insights into the experiences of companies that have only recently started on their internationalization journeys, those that have been expanding globally for around 10 years, and those that have been operating global businesses for 20 years or more.

4. Additional case studiesTo illustrate strategies, we have included case studies of companies based on third-party business and academic publications.

About this study

Figure 12. Profile of survey respondents, by revenue and country of origin

By revenue By country

ASEAN, 31, 12%

South Korea, 31, 13%

Hong Kong/Taiwan, 31, 13%

Japan, 50, 20%

India, 53, 21%

Mainland China, 53, 21%

US$5B to US$10B16%

US$500M to US$1B23%

US$250M to US$500M19%

US$1B to US$5B24%

US$10B or more18%

This study is part of Accenture’s long-term and ongoing research program into the globalization of Asian and Western multinationals. It draws on four major data sources.


Realizing value from international expansion and global operations requires pinpointing the specific starting point of the journey and mapping the path that will create the greatest opportunity. Operating a successful global business also requires highly evolved skills and capabilities.

To address these needs, Accenture works with organizations across the entire lifecycle of global expansion, from entering new markets to helping run successful operations. We take an analytical approach and provide support in:

• evaluating markets and developing market-entry strategies

• creating tailored local business models

• building and scaling efficient global and regional operations

• growing through alliances and mergers and acquisitions

• managing strategic and operational risk

• developing international leadership skills and global talent management capabilities.

To accelerate their internationalization strategies, reduce risk and help realize the value of their investments, our Asian clients can rely on Accenture’s analytical approach, global reach, and unmatched depth and breadth of services.

The Accenture Innovation Centers in Singapore and Beijing work closely with enterprises from Asia and around the world to address issues relating to globalization and assist in charting successful paths for the future. At these centers, executive teams can envision global strategies and operating models, and access research support for market, industry and operations analysis.

How Accenture can help

28Copyright 2013 Accenture. All Rights Reserved.

Authors of this studyArika Allen, Senior Manager, Strategy and Sustainability, Accenture Management Consulting

Grant Powell, Managing Director, Accenture Innovation Center, Asia Pacific

Paul Gosling, Senior Managing Director, Accenture Management Consulting —Asia Pacific Lead

Andrew Sleigh, former Director Accenture Innovation Center, Asia Pacific

Expert panelKristen Anderson, Senior Manager, Strategy and Sustainability, Accenture Management Consulting

Jeffrey Beg, Managing Director, Accenture Management Consulting — Japan Lead

Luis Ceniga, Managing Director, Accenture Management Consulting — Greater China Lead

Sanjay Dawar, Managing Director, Accenture Management Consulting —India Lead

Stephanie Gault, Managing Director, Talent and Organization — Asia Pacific Lead

Anurag Gupta, Managing Director, Strategy and Sustainability, Accenture Management Consulting

Masataka Ishikawa, Managing Director, Sales and Customer Services, Accenture Management Consulting

Kristian Kallaker, Senior Manager, Enterprise Transformation Strategy, Accenture Management Consulting

Alison Kennedy, Managing Director, Financial Services Management Consulting — Asia Pacific Lead

Armen Ovanessoff, Senior Research Fellow, Accenture Institute for High Performance

Younghoon Park, Managing Director, Accenture Management Consulting —Korea Lead

Michael Peterson, Managing Director, Enterprise Transformation Strategy, Accenture Management Consulting

Arata Shimizu, Managing Director, Strategy and Sustainability, Accenture Management Consulting

Jonathan Wright, Managing Director, Accenture Management Consulting — ASEAN Lead

Claire Yang, Managing Director, Talent and Organization, Accenture Management Consulting

About the authors

29 Copyright 2013 Accenture. All Rights Reserved.

30

1 Accenture analysis based on fDi Markets and Thomson Reuters data.

2 ibid.

3 For Interbrand’s 2012 Best Global Brands see http://www.interbrand.com/en/best-global-brands/2012/Best-Global-Brands-2012.aspx.

4 Interview with Accenture.

5 UNCTAD World Investment Report, 1992 and 2011.

6 ‘Chinese cars make valuable gains in emerging markets’, The New York Times, July 5, 2012 and Chery website, www.cheryinternational.com.

7 Company website, www.olamonline.com.

8 Hook, Leslie, ‘CNOOC – gutsy call’, FT.com In-depth, November 14, 2012.

9 Jenkins, Patrick, Rabinovitch, Simon, ‘CCB Chief on international search for assets,’ Financial Times, September 16, 2012.

10 Welch, David, ‘Geely Buys Volvo. Believe it or not, it could work,’ Bloomberg BusinessWeek, March 29, 2010.

11 ‘Tribal DDB goes crowdsourcing in Indonesia for Philips’, http://www.crowdsourcing.org; company website, www.yourhealthandwellbeing.asia/#about-philips-plus.

12 LG press release, ‘LG Electronics Indonesia Is Committed to Help Indonesian Children’, November 9, 2011, www.lglovesindonesia.com/press-release/lg-electronics-indonesia-is-committed-to-help-indonesian-children/.

eXO Digital Agency case study on LG, http://exodigitalagency.com/en/portofolio/detail/lg-indonesia.

13 ‘Japan’s king of casual smartens up’, Financial Times, July 15, 2012. Case study of Uniqlo, Contagious Magazine, Issue 16, September 1, 2008.


15 Bradsher, Keith, ‘Chinese cars make valuable gains in emerging markets’, The New York Times, July 5, 2012; Chery website, www.cheryinternational.com

16 Wakayama, Toshiro, Shintaku, Junjiro and Amano, Tomofumi, ‘What Panasonic Learned in China’, Harvard Business Review, December 2012.

17 Adapted from Kumar, Nirmalya, ‘How Emerging Giants Are Rewriting the Rules of M&A’, Harvard Business Review, May 2009: company websites, www.hindalco.com and www.novelis.com.

18 Asian Family Business Report 2011, Credit Suisse, October 2011.



21 Company website, www.fastretailing.com.

22 Interviews with Accenture.

23 Khanna, Tarun, et al., ‘The Paradox of Samsung’s Rise’, Harvard Business Review, April 2011.


25 Interview with Accenture and company website, www.htc.com.

26 Blas, Javier, ‘The bush rites of a tough trader’, Financial Times, August 19, 2012.


28 Soon-kyoo, C., ‘How LG surpassed Samsung in India’, Korea Times, June 4, 2012.

29 Bajaj, Vikas, ‘Tata Motors finds success in Jaguar Land Rover’, The New York Times, August 30, 2012.


References


http://www.interbrand.com/en/best-global-brands/2012/Best-Global-Brands-2012.aspx



http://www.cheryinternational.com

http://www.olamonline.com

http://www.crowdsourcing.org

http://www.crowdsourcing.org

http://www.yourhealthandwellbeing.asia/%23about-philips-plus

http://www.yourhealthandwellbeing.asia/%23about-philips-plus

http://www.lglovesindonesia.com/press-release/lg-electronics-indonesia-is-committed-to-help-indonesian-children/




http://exodigitalagency.com/en/portofolio/detail/lg-indonesia

http://exodigitalagency.com/en/portofolio/detail/lg-indonesia

http://exodigitalagency.com/en/portofolio/detail/lg-indonesia.%20

http://www.cheryinternational.com

http://www.hindalco.com/

http://www.novelis.com/en-us/Pages/Home.aspx

http://www.fastretailing.com

http://www.htc.com

AcknowledgementsThanks to Alexander Broeking, Grant Butler, Xuyu Chen, Cecilia Chua, Olivia McDowell, Yoon-chul Jeon, Hosho Karasawa, Mamta Kapur, Hideyuki Kitabatake, Ki-bum Lee, MJ Edwin Lee, Mira Lee, Alicia Lui, Weili Ma, Eun-Hye Park, Athena Peppes, Hans Von Lewinski, Alexander Symonds, Men Yen Ti, Claire Woodruff and Han-seok Yun.

About AccentureAccenture is a global management consulting, technology services and outsourcing company, with approximately 261,000 people serving clients in more than 120 countries. Combining unparalleled experience, comprehensive capabilities across all industries and business functions, and extensive research on the world’s most successful companies, Accenture collaborates with clients to help them become high-performance businesses and governments. The company generated net revenues of US$27.9 billion for the fiscal year ended Aug. 31, 2012. Its home page is www.accenture.com.

Copyright © 2013 Accenture All rights reserved.

Accenture, its logo and High Performance Delivered are trademarks of Accenture. 12-0401

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