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Will Korean Companies Survive This Century?

By Tom Coyner

Korea Times

November 2, 2007

 

It is a sobering exercise to review the list of top global corporations of the year 1900 and note how few still exist today. Global leadership is a poor guarantee for survival, much less for continued leadership in the long term. Yet, some corporations not only survive but also thrive over the decades.

 

The others fall behind and die. While many may blame markets, technology obsolescence, macroeconomic forces and even geography, almost always success and failure rests with management. This was brought home during last week’s University of Southern California’s Global Conference held in Tokyo.

 

While the event was open to USC’s alumnae, more than two-thirds of the attendants graduated from the Marshall School of Business.

 

As such, most of the presentations and breakout sessions dealt with management -- particularly global strategies. A particularly insightful session dealt with whether Mitsubishi’s trading company could achieve a truly global advantage, such as effectively working with its Indian subsidiaries and by outsourcing work to a Japanese firm that specializes in providing Indian outplacement.

 

The challenges faced by Japanese companies were, of course, very similar to those found in Korean companies. But before we dive into this illustration, it is important to appreciate the difference between going multinational versus going global. Having subsidiaries and branch offices around the world simply means the corporation is multinational. This phenomenon is common.

 

Being global means to almost seamlessly exploit a company’s resources no matter where they may exist around the world so in fact the company is truly borderless in its operations. This is rarer than most people may assume.

 

Consider the following: A truly globalized company effectively overcomes international obstacles to leverage its optimum advantage in using the best possible terms of financing, working with the most appropriate suppliers, manufacturing in the ideal locations, employing the most creative people for design/R&D -- regardless of where they may live, applying the right mix of global and local marketing, moving its products via optimal sales and distribution channels, while working with the best possible people -- regardless of location and nationality -- trained in a global corporate culture with a single set of business processes.

 

Whew! That’s a lot. But consider what actually are the cases with most multinational companies -- including Korean corporations. To move from the theoretical to the actual, consider last week’s case study with the Japanese trading company when it comes to its own quest to become globalized. The company recognizes there are many inherent advantages to integrate its Indian operations with the head office.

 

To bring the Indian operations up to Japanese standards, however, the company recognizes that it needs to send some of its staff on long-term assignments to India for cross training and development. Unfortunately, very few Japanese are willing to take on longterm assignments in developing countries. Beyond that, there is a very strong “not invented here” (NIH) mentality at the company, so that all core, critical processes tend to be centralized in Japan.

 

This NIH mentality is reinforced by the corporate standard for communication being Japanese, a language mastered insufficiently by most non-Japanese employees. The language barrier in turn makes it difficult for many Japanese managers to trust their non-Japanese counterparts to adequately perform their work at the same level as the Japanese.

 

While not the biggest issue, the time difference makes it difficult, even with advanced electronic communications, for the various country teams to work as one. All of which reinforces the Japanese head office business culture to be risk adverse. In the end, this multinational giant works with different business manuals, varying from country to country, with the head office tending to do as much as possible within Japan.

 

For any multinational corporation to compete globally there may conceivably be two strategies. One, a company may hope that most of its competition is also unable to become globalized and as such the company will not suffer too much in the face of its competitors. Or, two, the company may become a truly globalized company, such as Coca-cola, Shell and IBM, etc., moving up to the next level and achieving new efficiencies and advantages that its lesser competition may not be able to enjoy.

 

The obvious question is whether a Korean, Japanese, American or whatever corporation is willing to let go of its home country centricity and become global in action as well as in word. That means, among other things, establishing English as the corporate standard for communications and allowing “foreigners” to assume some of the top executive positions of the company with genuine responsibilities. This transformation to globalization can be incredibly painful -- and that leads us to another challenge for longterm survival: maintaining technological advantage.

 

Technologically competitive companies largely base their competitiveness on radical innovation. That is, their products and services are substantially superior in offering provider and/or user superior benefits based on substantially different technologies. We should note that getting this right is not easy and many companies trip up -- sometimes fatally -- before they get it together.

 

But let’s compare two famous American companies to get a grasp of this survival strategy. At the same time, please consider where some of Korea’s leading technology corporations may be today.

 

Though today Xerox is a multinational technology company delivering excellent products, it is nowhere it could have been had management been able to properly leverage what its Palo Alto Research Center (PARC) independent R&D center was creating back in the 1970s. PARC’s director, Bob Taylor, and his team of incredibly creative engineers were producing marvels that we take for granted today.

 

Envisioning what a paperless office of the future may be like, the PARC wizards created arguably the first personal computer, complete with a graphic user interface that inspired the Mac and Windows, the mouse, the Ethernet to serve as a local area network, laser printing, both game and practical business application software, etc. As history recounts, this California think tank was unable to persuade its New York management to adopt its inventions in time. Bob Taylor, the ultimate product champion, died. Without his creative genius that gave complete intellectual freedom to his developers, the brilliance of PARC dimmed and finally was absorbed into Xerox proper.

 

In contrast, consider Gillette, the manual shaver company. Rather than simply milking maximum profits from its early safety blades, it came up with marketing innovation as being its cornerstone. Beyond its well-known approach to more or less give away the shaver and to sell the blades, the company for 100 years has been plowing its profits into R&D. But more significantly, it has adopted a future orientation that allows for cannibalization of its best selling products by new, upcoming products. In other words, if one were to graph out Gillette’s products’ life cycles, one would see new products’ upward lines intersecting prior products’ lines at or near the peaks of the earlier products’ sales.

 

To summarize, Gillette is one of those perpetually competitive companies that has the following attributes:

 

1. Product marketing being essentially future oriented.

 

2. Risk takers being accepted and often encouraged.

 

3. Management recognizing that the real devil is in the details and not somewhere outside of the company.

 

4. Not allowing fear of cannibalization to exist; in fact, accepting cannibalization by new products as being part of every successful,

   as well as unsuccessful, product’s lifecycle.

 

5. Product champions being recognized and rewarded.

 

6. Communication being genuinely encouraged among all levels.

 

7. Innovation for the future being part of the corporate culture bedrock.

 

As one other corporation’s executive well put it: “Our problem is not creating innovations. Our problem is getting them out the door.”

 

Too often this underlining problem exists: too much greed in milking the cash cow while overly fearing change caused by radial innovation. This combination has brought too many good companies to their knees, even when once a time they had their industry’s leading products.

 

We would do well to consider that venture capital is the most transferable form of financing and it is being attracted to countries -- and companies -- with the most innovative cultures

 

So, I end this column with the following question: Will today’s leading Korean companies be around 100 years from now; and if so, how Korean and innovative may they be then?

 

Tom Coyner is president of Soft Landing Korea, a consulting group focusing on sales and human resources issues. He is co-author of Mastering Business in Korea: A Practical Guide.

 

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