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THINK BIG TO TAKE ON `ELEPHANTS'
JANUARY 14, 2001 -
THE STAR
By S. Hadi Abdullah
AT Botswana's Chobe National Park, something unusual and
flabbergasting is happening. Lions are beginning to prey on
elephants, which are six to eight tons in weight. They have
become accomplished hunters of this previously indomitable
creature.
Of course, it was the shrinking water holes that have given
rise to this phenomenon. But unlike their grandparents who
feared the elephants' trumpeting, their flaring of the ears
and the kicking up of the dust, this "new breed" of lions
challenged and broke the myth of the elephant's invincibility.
Is there a lesson to be learnt? Certainly. It is a question of
set minds and challenging the conventional. In the area of
global competition, many companies and individuals, especially
from the emerging world, are often trapped in the "elephant
syndrome."
The big companies, especially the multinationals, are too
strong and technically superior. Smaller companies, with
little experience or technical and financial clout, cannot
take them on. While it is true that many of the global trends
are set by giants, which stand to gain from such
introductions, it does not mean the demise of smaller and more
agile and efficient players.
Many companies in the developing world feel that they are
second-class and not up to the mark. This "paralysis of will,"
say authors Christopher A. Barlett and Sumantra Ghoshol, leads
to a situation where "managers either lack confidence in their
organisation's ability to climb the value curve, or lack the
courage to commit resources to mounting those challenges."
However, companies like Jollibee of the Philippines, Ranbaxy
of India, Acer Incorporation Of Taiwan, seem able to overcome
the fear of big international competition. Studies and
experience indicate that the mind-set of the "collective
leadership," especially that of the CEO, is pivotal to the
paradigm shift and the ultimate success of the company.
Ranbaxy, an Indian pharmaceutical company was making little
impact after 18 years in export business. It produced and sold
bulk substances with low profit margins. This did not even
cover its added costs of export trade.
Pravinder Singh, the CEO (1993), changed this picture. He
challenged his top management to "dream" and transform Ranbaxy
into an international-based pharmaceutical company. He had to
break their "elephantsyndrome" and had his fair share of
"it-can't-be-done" advocates.
These people said that a small Indian company could not take
on giants like SmithKline Beecham, Bayer AG, and Johnson and
Johnson. Pravinder wanted to create a pocket of excellence -
an island within India. The main battle was won when there was
a "mind-set" shift to best practices in management. The
company began to sell branded generics, which had a higher
margin, in countries with large markets like Russia and China.
Soon the company entered the stringent markets of Europe and
the United States. Half of the 1996 revenue of US$250mil came
from this trade.
Ranbaxy went a step further. Hinging on its 4% to 6% of
revenue invested in research and development (R&D), it built a
worldclass laboratory manned by 250 scientists.
R&D was not the exclusive preserve of the West. Although not
spending as much as the pharmaceutical giants, they used their
cost advantage in R&D (for example, salaries and rentals) to
their advantage.
Big players like IBM, Dell and others did not deter Acer, the
Taiwanese company which started as a simple component producer
to become the world's third largest computer producer.
Acer realised that as the PC market matured, it had to move
away from the "simple" assembly type of set-up. It worked
towards obtaining higher margins by moving up the value curve.
From its international exposure, it learnt about best business
practices. This allowed it to move from assembly lines to
motherboard, monitors, CPUs and software. In this component
area, there was much value-addedness.
In 1989, it worked with Texas Instrument to produce
semi-conductors. Meanwhile, Acer also looked into regional
business. It began to open new channels and invested in an
international brand, and move away from 'the low-margin
"distribution" trade. As CEO Stan Shih puts it: "Assembly
means you are making money from manual labour. In components
and marketing, you add value with your brains."
Moving into the "smiling curve" saved Acer from what befell
numerous Taiwanese companies during the economic downturn. The
company is now moving into software and Internet businesses,
which it believes will give it much high-end value-addedness.
It all started when its founder could think big and decided to
take on the big players.
McDonald's was making a grand entry into the Philippines.
Jollibee, the fast-food chain from the Philippines was not
overwhelmed. Its CEO, Tony Tan Caktiong, took it as a
challenge and ensured that his managers learnt from this
newcomer.
Jollibee's managers studied McDonald's quality control, costs,
service, systems, and location. This allowed them to expand
further after the entry of McDonald's. Realising that the US
giant did not cater for local tastes and was centralised in
nature, Jollibee offered more palatable choices. Among them
were nasi lemak and chicken mushroom rice.
They learnt enough to move overseas in 1986. They
deliberately chose smaller markets like Brunei, Guam, and
Vietnam to "keep away" from McDonald's. By 1998, they had 24
overseas stores, and three running in San Francisco. They plan
to open 17 more stores in California.
It was their ability to break away from the "elephant
syndrome" that allowed them to face the entry of a new and
powerful competitor, and even use them as a learning model.
Recently, Jollibee was cited among the most-admired companies
in Asia.
Sabeer Bhatia, who in two years built the fastest-growing
media company known, broke the "elephant syndrome"
differently. After graduating from Stanford, he worked with
Apple Computers. Bhatia and his friend Jack Smith always felt
that they could do better things.
After working on many ideas, they struck on the idea of free
e-mail accounts. 'They needed US$300,000 to create a working
model of Hotmail. They obtained a bank loan and an investment,
and Hotmail took off, touching 100,000 subscribers with a
value of US$18mil in no time.
When IBM was negotiating to buy the setup, Bhatia, after some
initial negotiation with lawyers, met with Microsoft founder
Bill Gates. Gates asked questions that were normal, just like
the other investors. "He was not superhuman, but just flesh
and blood, like me." Bhatia had this same thought that enabled
him to sell his two-year- old company for US$400mil.
In all these examples, we see the leadership breaking the
existing "mind-set," the "elephant syndrome." These people
learned from their competitors and through experience. They
found a niche for themselves. They "thought big." They
harnessed resources. Most importantly, they were prepared to
take on the "elephant."
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