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The year of the dragon begins. More fire on our butt.

27 January 2012

We know we will be stuck with a low growth environment of 1-2% for the major part of this decade.   As a result we can safely predict rounds and rounds of cost restructuring to protect earnings in the face of pricing pressure all around us.  To contain and reduce costs, business leaders will predictably play on a catalogue of measures:  accelerate the digitalization of business processes, increase investments in automation and robotics, discreetly incite the off shoring of white collar activities, further cut overhead and rationalize the sales force, again.   This will fill a fair amount of headlines in the business press for some years to come.

And this is not counting with the dragon puffing at our businesses.   China and other export driven economies have been literally stripping our businesses naked.  Today, price setting is increasingly dependent on the conditions in the Chinese market.   Production and technology are being sucked in China in exchange of market access of elusive mercantile value.  Emerging champions from Asia are taking wings overseas with their cost advantage and are putting margins under severe stress everywhere.   Management, R&D and engineering jobs are being filled in Mumbai or Shanghai with smart counterparts willing to work 50% more hours at a lower pay.   Few business models can claim to be unaffected by the rise of Asia.  That is the nature of the dragon, firing at us.

Our collective response, as we have written in the past, has been rather tepid, just about matching the pace of government programs.   Good, but not just good enough, given the tempo of changes in Asia.  Some executives have succeeded in cracking the Chinese market, or in establishing a footprint in Asia.  They deserve congratulations.   But, our experience suggests that a majority of executives have yet to set a single foot in Asia, nor have they figured out the impact on their work and career.  Many Canadian businessmen improvise on their first visit to Asia, hoping to extend their business offer the same way they have done in the past in Europe and America.   The reality is that Asia is littered with the bones of the unprepared, the unfortunate and the amateurs, from both small and big firms. 

Learning to do business in Asia, on Asian terms, is becoming part of a standard curriculum in business.  For the last five years, my colleague William Polushin and I have been teaching the topic at McGill University.  We keep abreast of major drivers in key Asian countries.  We ask students to study and present cases of emerging champions from Asia, and tell us about how they leverage their cost advantage into other competitive advantages to sustain their international strategy.  Year after year we get surprised by the growing capabilities of these champions.   Frankly it is astounding.  We talk about and invite expert speakers on how to have success in Asia, how to deal with a vastly different culture, to avoid typical negotiation mistakes, and how to conduct business on the ground.  We are now planning to take our teaching experience to the executive level later this year.

Industries, companies and individual careers are increasingly shaped by the continuous rise of Asia.  Most people below 45-50 will come to steer right into the eyes of the dragon.   It is just a matter of time.  While only a minority will actually conduct any business on the ground in Asia, most professional executives have growing personal stakes at play, like it or not.   It is time to hedge your bets.

André Du Sault

Posted in CFO & treasury, Governance, Strategy & globalisation.

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