>> MIM Speaks
HELD BACK BY CRONY CAPITALISM
JULY 25, 1999 -
THE STAR
THERE is a resurgence of confidence in the Malaysian economy
as we strive for recovery. After a drastic decline of a 6.8%
negative GDP growth for 1998, economists are now forecasting a
positive growth for 1999 of from 1% to 3%.
Their projections are based on the movement of economic
indicators over the first half of the year, such as automobile
sales, exports, the KLSE composite index and employment
figures.
The feeling that we have touched bottom and are now moving
upwards is a shared feeling over much of Asia Contrary to the
gloomy prognosis of 1997 and 1998, the two years of economic
decline have been painful but, surprisingly, of much shorter
duration than originally forecast.
As we move on into the future the issue for management has
less to do with the much-publicised need for the restructuring
of banking and financial institutions.
In Thailand, for example, weak banks have been closed ala IMF
prescription. In Malaysia, Danaharta and Danamodal have been
created to remove non-performing loans from the banking sector
to allow banks to move forward without the burden of NPLs.
Management in Asia has more to do with how we behave as
professionals Our past success has been attributable to the
Asian way of creating wealth.
Japan has often been cited for its industrial might after the
devastation of World War Two. Likewise, Singapore, Korea,
Taiwan and Malaysia have progressed remarkably only over the
last couple of decades. The transformation of much of Asia is
only a recent phenomenon.
Success factors
What then were the critical success factors for Asia? Hong
Kong Management Association chairman Dr David 1J, in a recent
lecture to members of the Malaysian Institute of Management,
sketched four Asian cultural characteristics which probably
contributed to our success in the past.
First is our culture of the hierarchical organisation which is
driven top-down, leaving little room for different views to
surface. In Japan, consensus using the ringgi process is often
cited as the distinguishing difference between Eastern and
Western decision-making processes.
Malaysia has been cited by Geert Hofstede as having the most
substantial "power distance," meaning that there are not only
many layers of hierarchy but that the power for action rests
with the top.
Our transformation from agrarian to industrial societies needs
clear direction which only on the top can provide.
But the world is fast changing and wealth is now less derived
from real estate as from intellectual property in which
creativity and technological prowess are the key ingredients.
Dr Li's first question to Asian management is: "Can we embrace
creativity?" Can we create a future driven not only by leaders
but by a spirit of enterprise at the individual level?
The economic crisis had "decapitated" many old-style
risk-seeking entrepreneurs. We need to replace these with new
entrepreneurs whose strength is not in trading or even in
manufacturing, but in the service sector.
As we move into a knowledge-based world, it will be the
innovators who can identify and exploit market opportunities
who will be the new creators of wealth.
Bureaucratic organisations pose too much of a filter and a
restraining force to the rapid progression from idea to
action. In recognition of this disadvantage, large
or8anisations have flattened their structures and created SBUs
to recapture the spirit of enterprise.
The second cultural characteristic of Asia is corporate
loyalty. At one extreme is life-long employment of Japanese
employees in the expectation that job security will
reciprocate in commitment and high performance. But the
downside is that it harbours non-performers and penalises the
organisation in terms of unproductive labour cost.
In a global competitive market, corporate overheads will have
to be pared and staff emoluments have to be kept at healthy
levels. How do we compete against American firms which can
hire and fire almost at will without having to face the
employment legislation of Asian economics which makes it so
easy to hire but so difficult to fire?
The third cultural characteristic is the strong Asian reliance
on networking, traditionally through the clan but more
recently through political relationships. Networking for the
overseas Chinese business has been particularly important over
the last century as reliance is placed on the handshake to
seal a business deal with someone that you know will deliver
as you share a common cultural philosophy.
But with the emergence of e-commerce and different business
practices, reliance on the established network may deprive us
of new markets and opportunities.
A downside of political networking is cronyism as those
outside the network who may be even better positioned in terms
of skills, technology may be deprived of access to
opportunities. In the long run, crony capitalism will weaken
our capacity to compete against world-class organisations.
Dr Li also raises the issue of the family-run business, which
is the typical business enterprise over much of Asia. The
question that is raised is whether their historical advantage
is now becoming a burden as non-family controlled enterprises
seek out the best talent to run the organisation and are not
crippled by nepotism and non-transparent standards of
corporate governance.
Paul Krugman debunks the myth of the Asian economic miracle,
claiming that it is not Asian cultural values but the economic
transition that rode on the backs of low wages that has
contributed to Asia's economic growth.
As the cost of doing business in Asia is becoming less
attractive, the challenge is to reassess whether the ways we
have been operating are indeed serving or impeding us in the
global market.
Economics, not sentiments
We should now realise that our cultural values, while they
have served us well in the past, can no longer provide the
conditions for success in the future.
Dr Li's challenge is to re-examine these values and, if
necessary, change our business practices to meet the
inevitable juggernaut of world competition based entirely on
economic fundamentals of cost, quality, response time and
innovativeness.
We have many of our best brains educated and trained in the
best universities in the West. They have been taught to think
rationally and to behave in accordance with world-class
standards of performance.
Upon their return they find difficulty and frustration in
entering a world of business in which bureaucracy, loyalty,
relationships and family connection matter more than sheer
performance. Very soon they relearn to value what is important
in the Asian organisation, depriving their employer of the
single vital contribution that their education can
deliver-economic value.
At the country level we seem to have been caught in the
tyranny of our past success. As we recover from the economic
crisis there is real fear that we will not change in the ways
we behave.
We have to rapidly learn from the short painful experience of
the last couple of years that it is the prudent organisation
that has weathered the crisis best. It is the typical
organisation that has many hierarchical layers with high
personnel costs, cozy in a familiar network of bankers,
suppliers and customers and having many family or political
members that has been worst affected by the crisis.
To continue to survive and prosper in the future, Malaysian
organisations will require a much higher level of performance
in terms of cost competitiveness, quality, response time and
customer service.
It is these yardsticks that can effectively meet the onslaught
of world competition, and our cultural characteristics that
restrain their delivery will have to change if we hope to
achieve the economic goals of Vision 2020.
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